PetroChina Company Limited
Annual Report 2020

Plain-text annual report

P e t r o N e f t R e s o u r c e s P l c A n n u a l R e p o r t 2 0 2 0 PetroNeft Resources plc Dublin Offi ce 20 Holles Street Dublin 2 Ireland PetroNeft Resources plc Annual Report Годовой Отчет 2020 Producing oil from a solid asset base Our Assets The main assets of the Company are a 50% operating interest in a 4,991 km² oil and gas licence (Licence 61) in the Tomsk Oblast in Russia and a 90% operating interest in a 2,447 km² oil and gas licence (Licence 67) also located in the Tomsk Oblast. Both licences are located in the prolifi c Western Siberian Oil and Gas Basin. RUSSIATomsk OblastMoscow01,000 KM0100 KMKEY:PetroNeft LicencesOther Held LicencesOil FieldOil and Gas FieldGas Condensate FieldOil PipelineGas PipelinePetroNeft Resources plc Annual Report and Financial Statements for the year ended 31 December 2020 PetroNeft Resources plc Table of Contents Group Information .................................................................................................................................. 2 Board of Directors ................................................................................................................................... 4 Chairman’s Statement ............................................................................................................................ 5 Chief Executive Officer’s Report ............................................................................................................. 8 Financial Review .................................................................................................................................... 15 Directors’ Report ................................................................................................................................... 24 Independent Auditor’s Report to the Members of PetroNeft Resources plc ...................................... 31 Consolidated Income Statement .......................................................................................................... 38 Consolidated Statement of Comprehensive Income ............................................................................ 38 Consolidated Statement of Financial Position ...................................................................................... 39 Consolidated Statement of Changes in Equity ..................................................................................... 40 Consolidated Cash Flow Statement ...................................................................................................... 41 Company Statement of Financial Position ............................................................................................ 42 Company Statement of Changes in Equity ........................................................................................... 43 Company Cash Flow Statement ............................................................................................................ 44 Notes to the Financial Statements........................................................................................................ 45 Corporate Governance Code ................................................................................................................ 93 Section 172(1) Statement ................................................................................................................... 103 Glossary ............................................................................................................................................... 106 Annual Report and Financial Statements Forward Looking Statements This report contains forward-looking statements. These statements relate to the Group's prospects, developments, and business strategies. Forward- looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations, or comparable expressions, including references to assumptions. The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statements. PetroNeft Resources plc Group Information Directors Alastair McBain (British citizen- appointed 29 January 2021) (Non- Executive Chairman) David Golder (U.S. citizen- resigned 19 February 2021) (Non-Executive Chairman) David Sturt (British citizen) (Chief Executive Officer) Pavel Tetyakov (Russian citizen- appointed 17 January 2020) (Vice President Business Development) Thomas Hickey (Irish citizen- resigned 18 December 2020) (Independent Non-Executive Director) Maxim Korobov (Russian citizen- resigned 17 January 2020) (Non-Executive Director) Anthony Sacca (Australian citizen) (Independent Non-Executive Director) Daria Shaftelskaya (Russian citizen- appointed 17 January 2020) (Non-Executive Director) Registered Office and Business Address 20 Holles Street Dublin 2 Ireland Secretary Auditor Nominated Adviser and Euronext Growth Market Adviser Michael Power appointed 3 May 2020 Karl Johnson resigned 3 May 2020 BDO Beaux Lane House Mercer Street Lower Dublin 2 Ireland Davy 49 Dawson Street Dublin 2 Ireland [2] PetroNeft Resources plc Group Information (continued) Broker Principal Bankers Solicitors AIB Bank 1 Lower Baggot Street Dublin 2 Ireland Davy 49 Dawson Street Dublin 2 Ireland KBC Bank Ireland Sandwith Street Dublin 2 Ireland Promsvyazbank Sibirsky branch Tomsk Russia Byrne Wallace 88 Harcourt Street Dublin 2 Ireland Registered Number 408101 Registrar Computershare 3100 Lake Drive, Citywest Business Campus, Dublin 24, D24 AK82, Ireland [3] PetroNeft Resources plc Board of Directors Alastair McBain – (Non-Executive Chairman) (Age 64) Mr. McBain was appointed a Non-Executive Director of the Company in January 2021 and became Non-Executive Chairman on 19 February 2021. He has had a highly successful 37 years career in the international oil and gas industry. Initially working for 17 years at Royal Dutch Shell in numerous senior international commercial positions. He joined the Vitol group in 1995 to head up the growth of the group’s portfolio of upstream assets and became CEO of Arawak Energy in 2002. He grew the Company from an initial $20M valuation with zero production to a $0.5Bn Company producing 12,000 boepd from assets in Kazakhstan, Russia, and Azerbaijan. He also oversaw the migration of the Company from a junior listing on the Toronto exchange to a full listing on the London Stock Exchange. Following Arawak’s acquisition by Vitol, he worked with Vitol in a variety of senior positions including board Chairman of GeoAlliance, one of Ukraine’s leading independent producers of natural gas and gas liquids. He left Vitol in early 2020 to form Sarum Energy, a Company which, having acquired a 50% interest in Licence 67, of which 80% of that holding was subsequently sold to PetroNeft in March of 2021. He holds an MA in Oriental Studies from the University of Oxford and in addition to his native English, is also a fluent Mandarin speaker. David Sturt – (Chief Executive Officer and Executive Director) (Age 58) Mr. Sturt was appointed a Non-Executive Director of the Company in April 2016 and became Chief Executive Officer on 25 March 2019. He was a member of the Remuneration Committee up until his appointment as CEO. David has over 35 years international experience in the oil and gas industry gained working on projects in Europe, CIS, Africa, and SE Asia in a variety of senior technical and managerial positions at Conoco-Philips, Hess, PetroKazakhstan, Exillon Energy, Ukrnafta and Azimuth Energy. In 2010 he was a founding partner in VistaTex Energy which built a portfolio of producing assets across the onshore US, the Company was later successfully sold to Dome Energy in 2014. He is currently also non-Executive director of Petrosibir AB, a Swedish Company with oil and gas interests in the Bashkiria and Komi regions of Russia. David holds a BSc honours degree in Earth Sciences from Kingston University, an MSc degree in Exploration Geophysics from Leeds University, and a postgraduate diploma in business administration from Heriot Watt University. Pavel Tetyakov – (Vice President Business Development and Executive Director) (Age 40) Mr. Tetyakov has 20 years of experience in senior and top management positions working for a variety of E&P companies including PetroKazakhstan, Exillon Energy, Ukrnafta, Sibgasoil and Petrosibir. His main areas of expertise are M&A and operations management. He negotiated the acquisition of several licences in PetroKazakhstan, was responsible for building the asset portfolio of Exillon Energy, managed divestment of Sibgasoil oil fields in several regions of Russia and led the transformation of Petrosibir that resulted in improved operational performance and new oil field discoveries. He joined the Company in May 2016 as Vice-President Business Development. In July 2018 Mr Tetyakov took over the management of the Russian subsidiaries of PetroNeft as General Director. In January 2020 he was appointed to the Board as an Executive Director. Pavel holds a Bachelor of Arts degree in Business Administration from Budapest University of Economic Sciences and Public Administration Anthony Sacca – (Independent Non-Executive Director) (Age 48) Mr. Sacca was appointed an Independent Non-Executive Director of the Company in April 2016. He is chairman of the Audit Committee. He is principal of Karri Tree executive coaching. Anthony was previously the Chief Financial Officer of Rolf Group of Companies, one of Russia’s largest independent automotive distributor/retailers. Prior to that he was a Partner with PwC in Moscow. Anthony is a Fellow of the Institute of Chartered Accountants in Australia and New Zealand. He holds a Bachelor of Business and Administration (Distinction) from Curtin University of Technology Perth, Australia. He is a member of the Russian Independent Directors Association and is a Fellow Chartered Director with the Institute of Directors in the United Kingdom. Daria Shaftelskaya – (Non-Executive Director) (Age 41) Ms. Shaftelskaya has 20 years of experience in the oil & gas exploration and production business within the West-Siberian basin (Tomsk region). Daria was appointed a Non-Executive Director in January 2020. More recently she has been working as chief financial officer in several Russian companies including: "Finco", "Hermes - Moscow" and "Sever" where she was primarily focused on oil & gas trading and operational facilities construction in the West Siberian region. She holds a degree in economics and engineering from Tomsk Technical University (1999) and a Master’s Degree in Economics also from Tomsk Technical University (2001). [4] PetroNeft Resources plc Chairman’s Statement Dear Shareholders, The world today is rightly increasingly focus on a future with cleaner air, water, and a fairer planet, and while your Company can make no apologies over having the extraction of fossil fuels as its core business, we are determined to do what we can within the constraints of our business model to work towards that future. We accept that within the medium-term fossil fuels are destined to be only a peripheral part of the energy future. However, today, and in the immediate future, a stable and secure supply of oil is still needed, perhaps more than ever. We are doing what we can to ensure that our operations are carried out safely, reliably, and efficiently as well as with minimal disruption to the natural environment. Our production of associated natural gas is largely used for on-site electricity generation and heating, dramatically reducing emissions by eliminating the need for diesel fuel and its transportation by truck. We have constructed a mini oil processing unit, reducing the need for imported diesel for field operations. In total, we have eliminated almost 25,000km/yr. of trucking requirements. We are currently working on a pipeline project to link our newly commissioned Cheremshanskoye field to local infrastructure, further reducing trucking and associated emissions. We play our part in the local community, supporting local schools and re-foresting areas no longer required for operations. And finally, we are proud to have passed 2020 with zero lost time accidents. Your board is acutely aware of its responsibilities in respect of minimising the ecological impact in its operations, and continually upgrading environmental and safety performance while cultivating a meritocratic, open, and fair management style. The energy sector is experiencing a considerable rebound from the unprecedented, combined challenges of the dramatic fall in the price of oil caused initially by the OPEC +++ divorce and the demand collapse caused by Coronavirus lockdowns. We deeply regret the suffering, deprivation, and tragedy that the pandemic has brought to all of us but feel it is reasonable to view the worst as being behind us now. In terms of our business, this has been reflected in significant increases in demand starting from 3rd quarter 2020, which have been translated through to increases in prices, which we see as a continuing trend in a more disease- free world. As a Company we remain focused on improvements in operational performance aimed at efficiently lifting production, increasing revenue, and adding to reserves. Despite the challenging environment through 2020, because of the increased technical focus initiated in 2019, the emphasis on rigorous cost control and judicious allocation of capital, we feel the executive team can look back on the Company’s recent performance with pride. Real benefits are beginning to emerge for all the Company’s stakeholders. The successful acquisition of an additional 40% of Licence 67 which closed Q1 2021, which has seen a commencement of production and a key addition to the Company’s cash flow on a 90% basis is a good example of this trend. As a board, we are determined to continue to prove up the value proposition that is PetroNeft Resources PLC. Corporate Development 2020 saw considerable Board changes for the Company with the appointment of Daria Shaftelskaya, who is a major shareholder, holding 9.64% of the equity in our Company, to join the Board as a Non-Executive Director. Pavel Tetyakov, who has been Vice President of Business Development since 2016, was also appointed as an Executive Director. After a considerable time with the Company as Non-Executive Director Thomas Hickey chose to not run for re-election, we wish him well with his future endeavours and thank him for his support and considerable contribution over many years. Change continued as we entered 2021. David Golder retired from the Board as our Non-Executive Chairman. I would like to thank David who has provided excellent service to the Company, driving through the initial development, and more recently guiding it through very challenging times. I wish him well in his retirement. I was elected to the Board on the 29 January as Non-Executive Director and on David Golder’s retirement was elected to the position of Non-Executive Chairman. As a new member Company, I look forward to working with the Board. Strategy evolution and transformation In 2019 our strategy evolved in twin tracks, so while we continued to entertain partnership interest from a range of industry participants, we also focussed on adding value to our ongoing business albeit with a strictly limited budget. We succeeded in [5] PetroNeft Resources plc Chairman’s Statement (continued) furthering our understanding of the subsurface while achieving operational efficiency improvements combined with rigorous cost control and capital allocation to re-position ourselves as a growing business. Despite the challenges of 2020, we are starting to see the benefits of this re-focused strategy with improved operational and financial results. On top of this, we have a considerable stable of valuable organic growth opportunities and will primarily be focused on delivering value through development of this portfolio, which we believe to be substantial. In addition, we will also look at growth through new acquisitions but only where we judge them to be overwhelmingly accretive to shareholder value. We believe that the opportunities in our sector are better currently than any other in recent history. Capital Structure Despite the challenging market conditions, the Company has been able to improve its financial position through successful capital structuring: • • • • • At the beginning of 2020, the Company successfully raised capital, with monies received in January 2020. Overall, we were pleased to be able to raise capital in the amount of US$2.1 million, by the issuance 107,755,037 Ordinary Shares at £0.015 which represented a 58% premium to the previous closing price. The placement had strong support from institutional and other investors with strong Board participation representing approximately 44% of the placement. The Company received US$1.57 million by way of cash proceeds and the balance of US$0.53 million related to salaries and Directors fees owing which was settled by the issuance of shares. Following the successful completion of the C4 extended well test at the Cheremshanskoye field on Licence 67 in spring of 2020, a Financing Agreement has been executed between the owner and operator of Licence 67, LLC Lineynoye (90% owned by PetroNeft Resources) and AOR (Alexandrovskoye Refinery) to finance the cost of constructing an all- season road to connect the C4 well with the local year-round road network up to a maximum expenditure of $1 million. The financing facility covered the entire cost of road construction with completion occurring in April 2021. This now enables year-round production, a considerable improvement over past performance where the well could only produce for three to four months each winter. This all-season new road will reduce operational expenses and complexity. It may also be able to service future producing wells in the license area in the event of successful drilling. In addition, the strong operational performance, combined with the improving oil price, has significantly improved the finances of the Company which has enabled us to fund construction of the road and re-entry of the Ledovoye L-2a well without the need to call down agreed financing arrangements which now remain in place should we need the capital in the future. The Petrogrand AB loan redemption date was extended from 15th December 2020 to 15th December 2021. The redemption date can also now be extended at our option, provided we make a repayment of 20% of the loan on or before 15th December 2021. In such circumstances the final redemption date would be the earliest of (a) 15th December 2022 or (b) the date of completion of the License 61 sale or (c) the date of completion of License 67 sale. Successfully raised U$2.9m in February 2021 through a convertible loan from a group of 13 lenders including new and existing investors, Directors, and senior management As part of the acquisition of an additional 40% interest in Licence 67, which concluded in March 2021, issued a US$1.7 million convertible loan to the seller Sarum Energy. The Company has been very pleased by the support and confidence shown by the participants in these fund raisings, especially as the embedded share placings were all at a premium to the prevailing share price when the agreements were signed. This confidence was further endorsed when we were then able to retire US$ 2.864 million of debt through conversion. Business Development At the end of 2020 we entered negotiations with Sarum Energy Limited, the ultimate beneficial holder of 50% holding in Licence 67, through its subsidiary Belgrave Naftogas B.V. to acquire an additional 40% interest in Licence 67. The acquisition was closed early 2021. I am particularly pleased with this acquisition which we see as being highly accretive to our value while at the same [6] PetroNeft Resources plc Chairman’s Statement (continued) time aligning Sarum’s interest with the Company as a significant part of the deal consideration was paid in shares and convertible debt (since converted). The Licence is at an important stage in its development transforming from an exploration to a producing asset. The progress made on this licence to date supports our view of the potential to grow production, reserves, and revenue in the near term. On a personal note, I have long believed in the intrinsic value of the PetroNeft assets and as a major shareholder in both Sarum and PetroNeft I am delighted to have this opportunity to build Company value. Outlook During the early stages of the Covid pandemic, we set about upgrading and revising our HSE protocols to meet the challenges faced by the pandemic so that when production restarted, our staff and suppliers/contractors could operate in a safer environment. Through this period, we minimized cash outgoings by working with our contractors and service providers to reschedule key payments, our staff took voluntary salary reductions in some cases with 50% reduction of the Tomsk office salary overhead. With our oil offtakers, we worked on a prepayment basis. We kept a minimum crew in the fields to ensure ongoing operations could be continued. I am very pleased to have been able to watch such support and belief in our future by all our stakeholders during the challenging times in 2020. Now that our operations are back to normal, we are seeing production volumes increasing year on year through 2021. On License 67 I am particularly looking forward to the development of this asset. Operational results in both assets through the start of 2021 have been very encouraging and provide further confidence in the potential of our assets to drive forward shareholder value. It is also pleasing to see that this improvement in our operational performance is reflected in an improving share price. Whilst this movement is very positive, I believe there is significant further scope, and we are committed to narrowing the gap between the share price and the long-term value of the Company’s assets and reserves. Operations and Reserves The Chief Executive Officer’s report contains the details of the operations and oil reserves of the Company and highlights the large potential of the Northern Hub area in Licence 61 which includes the Sibkrayevskoye and West Lineynoye fields and Emtorskaya prospect. In Licence 67 the Cheremshanskoye and Ledovoye oil fields are exciting development opportunities which are already producing and generating revenue and further growth opportunities through near field exploration and appraisal. Summary Despite the considerable challenges through 2020, through the support of all our stakeholders we have not only survived but are now able to look forward to the future with renewed optimism. This renewed optimism is already being realised through early successes during the early months of 2021 on both our licences. As well as the improvements within the Company, we are seeing within our industry an improvement in the market through the end of 2020 and into 2021. This combination enables me to look forward to the future with renewed confidence and belief in the ability to grow the value of the Company. Finally, I know that I speak for all the Directors, management, and staff of the Group in giving sincere thanks to our shareholders for your continued support throughout the past extraordinary year. Alastair McBain Non-Executive Chairman [7] PetroNeft Resources plc Chief Executive Officer’s Report Dear fellow shareholders, as reported by our Chairman Alastair McBain, 2020 was a very challenging year, we have however been able to achieve some noticeable successes which have continued and gained momentum in 2021. I am pleased to see that the oil price has regained some of the ground lost during 2020 and see continued strengthening of oil prices through the first months of 2021 as demand has started to rebound. Although we faced many challenges in 2020, we were able to achieve the following results: • Financials: Reduced OPEX/bbl by 10.3%, $12.39/bbl (2020) vs $13.82/bbl (2019) at Licence 61 Corporate administration costs remain low, $1.03M (2020) vs $0.8M (2019) after a 47% drop in 2019 from $1.51M in 2018. Loss after taxation reduced, US$4.54m (2020) vs US$6.04M (2019) despite a significant 32.7% fall in the realised price per barrel ~ $28.15/bbl (2020) vs $41.15/bbl (2019). Strengthened balance sheet through successful renegotiation of existing loans on the same terms and raised additional capital at premium to the share price. Reduced WorldAce administration costs (holding Company for Licence 61) $2.52M (2019: $2.62) • Production (100% basis): Down just 2.96% 571,710 (2020) vs 589,165 (2019) despite production curtailed in April due to economics and September/October due to essential pipeline maintenance (estimated loss 37,100 bbls), First commercial production on licence 67, produced and sold 1,200 barrels from Cheremshanskoye field under extended production test. • Operations: Completed connecting Sibkrayevskoye to Central Processing Unit. Successful testing of mini refinery on Licence 61, which shall reduce the OPEX by ca. $1/bbl. • HSE: The Company had zero lost time accidents throughout 2020. 2020 Review Management has worked hard to continually focus on cost reduction and optimisation across all levels of the Group. Our Corporate costs at the PetroNeft level were in line with expectations after a significant 47% reduction from 2018 to 2019, and WorldAce, which is the holding Company for Licence 61, reported a reduction in administrative expenses. The focus on sustaining cost reductions was achieved by closing and downsizing offices, reducing, and optimising personnel, and working closely with contractors and suppliers to improve contractual arrangements. The loss for the year was $4.54 M compared to a loss of $6.04 M (2019) despite a 32.7% drop in realised oil price. [8] PetroNeft Resources plc Chief Executive Officer’s Report (continued) Gross production in 2020 was 571,710 barrels of oil or an average of 1,562 bopd. No new production wells were drilled during the year, and this represents a decline of 2.96% from 2019 production of 589,165 barrels (1,614 bopd average). The production in 2020 was affected by two external events, firstly in April, due to the significant oil price reduction, we shut in most of our wells reducing production by an estimated 15,600 bbls. Also, in September/October, the third-party pipeline connecting from the edge of licence 61 to the Transneft entry point had to be shut down due to necessary maintenance. This resulted in an estimated 21,500 barrels being lost. In total it is estimated that 37,100 bbls was lost. In 2020, we continued to benefit from the successful reorganisation of the Company. The reorganisation has provided a valuable fresh set of eyes to review our fields and operations and enabled us to arrest the natural decline in some of our core fields, with further opportunities also identified. At the same time as strengthening the technical team, we also continue to increase the amount of data gathering and well monitoring across our well inventory which has been combined with a re-interpretation of our seismic and well data. We have gained valuable insights from these studies, which is being integrated into an updated plan for our assets which is described in more detail in the individual field and prospect sections. Licence Field 61 Lineynoye West Lineynoye Arbuzovskoye Sibkrayevskoye† Tungolskoye†† Kondrashevskoye Sub Total = 67 Cheremshanskoye Total = 2020 Gross production 202,239 64,424 222,203 78,231 2,905 508 570,510 1,200 571,710 2019 Gross production 194,429 65,357 282,238 36,583 10,558 0 589,165 Percentage change 4.0% -1.4% -21.3% 113.8% -72.5% -3.2% 589,165 -3.0% †Note: Sibkrayevskoye historically only produced during the winter periods, started producing year-round in 2020. ††Note: Tungolskoye field only produced for part of the year due to operational reasons. Licence 61 The Company holds a 50% operated interest in this licence with our partner Oil India Limited (“OIL”) holding the remaining 50%. The licence contains five producing fields: Lineynoye, West Lineynoye, Arbuzovskoye, Tungolskoye and Sibkrayevskoye (which historically produced only during the winter months but is now producing year-round). In addition to these fields the licence also contains several attractive low risk exploration prospects. We are particularly excited by the potential of the Emtorskaya prospect due to its significant low risk potential combined with being located only 16 kilometres from the Central Processing Facility and structurally up dip from the Lineynoye field. The prospect has already been previously tested by two Soviet Era wells which indicate potential missed oil zones. We now recognise significant development potential within this northern hub area which includes the Sibkrayevskoye and West Lineynoye developments and the Emtorskaya prospect. All three structures exhibit similar geology and characteristics as the successful Lineynoye field. In addition to Emtorskaya, there are a further two high graded prospects located in the southern half of the licence, Traverskaya and Tunganskaya, both have also previously been tested by Soviet Era wells. The well data has been re-interpreted and indicate potential missed oil zones. The strategy for the development of this licence is therefore to: • Continue to optimise existing production through enhancements of field water flood programs and application of other low risk production enhancements such as fracking. [9] PetroNeft Resources plc Chief Executive Officer’s Report (continued) • Develop the low-risk development, exploration, and appraisal opportunities in the Northern Hub. These comprising the Sibkrayevskoye and West Lineynoye developments and Emtorskaya appraisal (Gross 150 mmbbls 3P ~ Ryder Scott 2016). This area lies close to the Central Processing facility with Sibkrayevskoye and West Lineynoye already connected. On success these opportunities will add significant near-term growth in reserves and production. • Capture the value of the additional exploration prospects in the southern half of the licence, particularly Traverskaya and Tuganskaya. These represent low risk targets which we regard as appraisal led exploration due to previous Soviet era wells partially de-risking the presence of oil. Arbuzovskoye field Production in 2020 continued to decline with average gross daily production of 607 bopd (773 bopd 2019). Much of this decline was in the A-214 Hz well which also declined by 25% between 2018 and 2019. The focus has therefore been to try to arrest this rapid decline which is due to the lack of pressure support at this part of the field. A water injector well was proposed in 2016 but could not gain partner support so was cancelled. During Q1 2020 we started injecting additional water into the A-216 well on the southern part of the field close to the A-214 Hz well. During the second half of 2020 and into 2021 we started to see the benefits of the new injection with a reduction in the decline at the A-214Hz well Whilst production from the other producing wells remains stable, we are looking at ways to further enhance production through optimisation of the water flood program across the field and are targeting a program to try and increase the water injection into the upper J1-1 reservoir. Lineynoye field The wells at Lineynoye continue to perform well, with production increasing by 4% in 2020 (553 bopd 2020 vs 533 bopd 2019) despite the two production interventions caused by external circumstances (oil price decline and pipeline repair). The continued improvement in the field performance is the result of the work started in 2019 and carried on in 2020. This included; improving the sweep efficiency of the water flood, combined with our team in Tomsk, including our in-house workover crew, working efficiently to keep wells online and to intervene where necessary to optimise well performance. We continue to look at all methods to increase production further and were very pleased with the results of the re-frack of well L-115 which increased the production from an average of 20 bopd to over 80 bopd post frack. This operation was carried out during Q1 2021 and has been highly successful. We are currently reviewing all wells to see if this technology can be used more widely across the field. The geology of the Lineynoye field is very similar to the Sibkrayevskoye field to the east and the Emtorskaya prospect to the north. We believe that we can translate the success achieved at the Lineynoye Pad 1 development to the Sibkrayevskoye field and Emtorskaya prospect. We have termed this area the Northern Hub due to similarities in geology and proximity to the Lineynoye field where the Central Processing Facility is located. West Lineynoye We have been producing from two vertical wells and one horizontal well since 2015 with minimal decline in production and almost no water cut. Production in 2020 was 176 bopd vs 179 bopd in 2019, this represented only a 1.4% decline despite the two external effects on production in April and September/October periods. Based on the successful L-10 horizontal well, which has had zero decline during the past four years, combined with the experience gained drilling horizontal wells at Tungolskoye and Arbuzovskoye Pad 2, we believe we can attain higher production rates at West Lineynoye by drilling 500-to-1,000-meter horizontal wells. The development of the L-8 Lobe of the Lineynoye field known as West Lineynoye, is a prime candidate for future investment utilising horizontal wells. We have the existing infrastructure already in place tying the L-8 Lobe to the Central Processing Facilities and the economics of the development are robust. This development will target an additional 10 million barrels of potential 2P reserves. [10] PetroNeft Resources plc Chief Executive Officer’s Report (continued) Sibkrayevskoye The field has performed very well since building the connection to the Central Processing Facility during Q1 2020. The 26- kilometre connection was constructed within budget and on schedule. The average gross daily production was 214 bopd (2020) vs 100 bopd (2019). This new connection enables year-round production with resultant increased cash flow. It also has provided critically valuable reservoir performance data which was used to design a fracture program which was successfully carried out during Q1 2021. As reported during Q1, the well has been producing at rates up to 520 barrels of oil per day since the frack program, double the pre-frack rate. We have continued to review the geology of this field and recognise that it is very similar to that at Lineynoye where the Pad 1 wells have been outstanding producers. The main reservoir in this field comprises a channelised reservoir system which is laterally variable and explains the past well history. These channels systems can be visualised using 3D seismic data. We are therefore looking at the potential to acquire 3D seismic ahead of any further development drilling to ensure we target reservoir sweet spots which will significantly de-risk further capital allocation. Tungolskoye Production from the field reduced further in 2020 to 2,905 bbls from 10,558 bbls in 2019. As part of our continual financial review of our operations we took the difficult decision in 2019 to divert resource and capital away from the field as production levels could not justify costs of production due to the lower oil price and lower production levels. Whilst it is disappointing that we had to suspend production, especially after so much capital has been used to develop the field, we do believe there is potential to economically develop this field. Currently we are looking at options to restore economic production, such options currently include but not limited to sourcing a coiled tubing unit which can be used to clean the wells possibly in combination with other technologies such as radial drilling. We hope to be able to update shareholders as these plans are further developed. Exploration and Appraisal The license contains 25 prospects with 288 mmbbls of prospective resource (Ryder Scott). One of the largest and lowest risk is the Emtorskaya prospect. It is aerially extensive (146 km2) and structurally 65 m higher and up-dip from the Lineynoye field with similar geological characteristics. Two wells (E-300 and E-303) were drilled on the structure during Soviet times and have been re-interpreted with potential missed oil zones being identified within the Upper Jurassic in both wells. We believe that the Emtorskaya structure could be a significant up-dip extension of the Lineynoye field. The Pad 1 drilling campaign at the Lineynoye field has been a great success which we believe could be replicated at Emtorskaya. Ryder Scott audited potential P3 reserves of 64 million barrels (gross) at Emtorskaya. Economically proving up this prospect would add material value due to its scale and proximity to existing production facilities where there is abundant spare capacity. The geology of the reservoir horizons is believed to be like the main target at the Emtorskaya prospect, the encouraging results at Sibkrayevskoye field where we have stable production which has been further enhanced by recent fracking of the S-373 well provide further encouragement of the potential value of this prospect. In addition to Emtorskaya, we also believe in the potential of the Traverskaya and Tuganskaya prospects in the south, where re- processing of the old well data has identified potential missed pay at various intervals in the Jurassic and Cretaceous. Licence 67 The Company held a 50% operational interest in this licence with our partner Belgrave NaftoGaz (formerly Arawak Energy) which held the remaining 50%. The ownership of Belgrave NaftoGaz changed at the beginning of 2020 due to a buyout by a group of investors led by the former CEO of Arawak Energy and now Non-Executive Chairman of PetroNeft (Alastair McBain). At the end of 2020 we signed a Heads of Agreement with Belgrave Naftogas to acquire an additional 40% interest in the licence taking our position to 90%. The acquisition of this additional interest was closed during Q1 2021. The licence is surrounded by producing fields and all-weather roads which run through the licence and past both the to both fields enabling an easy transportation route makes Cheremshanskoye and Ledovoye fields. The proximity of roads [11] PetroNeft Resources plc Chief Executive Officer’s Report (continued) development of these fields highly attractive due to reduced CAPEX and OPEX costs combined with multiple export routes. Both these fields are covered by modern 3D seismic data which was re-interpreted in 2019 and geological models for the fields were updated. In 2018 the Company successfully drilled the C-4 well on the Cheremshanskoye field, this was the first well to be drilled after the acquisition of 3D seismic data over the field. Following completion of this well we successfully booked 19.26 mmbbls of C1+C2 reserves (equivalent to International standard 2P) approved by GKZ (Russian State Reserves Auditor) in January 2019 2020 was a very important year for this licence as we carried out an extended well test on the C-4 well at the Cheremshanskoye field which resulted in producing and selling 1,200 bbls of good quality oil at competitive market rates. In addition to the incremental revenue this extended test provided valuable reservoir performance data. The C-3 well, located on the southern part of the Cheremshanskoye field was also re-entered and the Lower Jurassic J14 reservoir was successfully tested but recovered gas and non-commercial quantities of high paraffin condensate/light oil. Operations were suspended before moving up the well to the Upper Jurassic reservoirs due to the economic crisis and the COVID-19 virus. Further work is ongoing to understand the implications of the result for the potential of the Lower Jurassic J-14 reservoir. Following our technical review combined with the significant economic advantages of developing assets near infrastructure, we see this licence as having the potential to add significant value for the Company through the following focused strategy: • Increase reserves, production, and cash flow initially through development of the Cheremshanskoye field and later success the Ledovoye field. • Capture the value of near field exploration opportunities around the Cheremshanskoye and Ledovoye field. Cheremshanskoye field The field covers an area of 46 km² with three previous wells (C-1, C-2 & C-3) drilled within the southern half of the field encountering oil within the Upper and Lower Jurassic intervals. They were however drilled without the benefit of 3D seismic data which was acquired during 2014. Interpretation of this seismic data has shown that these wells were all located down dip on the flanks of the field Immediately adjacent to this field along the Northeast margin lies the Lomovoye field which is operated by Tomskneft (subsidiary of Rosneft) and reportedly already has over two hundred producing wells. We see the geology as being very similar and so a good analogue for our field. In 2018 PetroNeft successfully drilled the C-4 well which was a significant step out well proving up the northern half of the Cheremshanskoye field. This well tested oil on a short period test from the Upper Jurassic J1-1 and J1-3 intervals at a combined open hole prorated test of 399 bopd. Following completion of the C-4 well, the Company, during the first quarter of 2019, had reserves of 2.5 mmtons of C1 + C2 (19.26 mmbbls) approved by the Russian State Reserves Committee (approximately equivalent to International 2P category). The well was however not tested for a sufficient length of time which meant gaps in our understanding of the reservoir performance and fluid type remained unresolved. During Q1 2020 we re-entered the well and performed a rigorous testing program of the Upper Jurassic reservoirs (J1-1 & J1-3) with the well flowing up to 476 bopd (instantaneous flow) on a 10mm choke. The oil produced was good quality 35degree API. In total 1,200 barrels of oil were produced and sold at competitive market rates at the well head, thereby removing potentially costly pipeline tariffs. Crucially the field reserve level qualifies for an approximate 15-20% reduction in the rate of Mineral Extraction Tax which is generally set at 60% of the gross revenue, so a 15-20% reduction equates to a considerable value over the life of the field. The level of this reduction varies from month to month according to changes in the oil price. [12] PetroNeft Resources plc Chief Executive Officer’s Report (continued) The customer that purchased the test oil later agreed to provide a $1M loan facility to enable construction of an all-season road across the field. This road was started at end of 2020 and completed ahead of schedule and on budget in Q1 2021. At the same time, the C-4 well was brought into production during Q1 2021 and is currently flowing oil naturally at approximately 324 bopd on an 10mm choke size. The strong operational performance, combined with the improving oil price, has significantly improved the finances of the Company which has enabled us to fund construction of the road and re-entry of the Ledovoye L-2a well without the need to call down agreed financing arrangements which now remain in place should we need the capital in the future. Ledovoye Field The field lies along the northern margin of Licence 67 and is believed to be an extension of the producing North Ledovoye field in the adjacent licence 55 to the north. Three previous wells have been drilled in the field with oil recovered from the Upper Jurassic through open hole tests and indications of oil in the overlying Cretaceous intervals. Such open hole tests are not recognised by the State Reserves Committee (GKZ) so development during 2019 we reviewed available well data and identified the potential to re-enter both the L-2a and L-2 wells to test the Upper Jurassic and overlying Cretaceous intervals, previously missed. These wells lie less than 200 meters from a good quality all season road, so well re-entry operations can occur year-round. This re-entry program was initially scheduled to be completed during the first half of 2020 but, like the Cheremshanskoye program, was postponed due to a combination of the economic crisis and the COVID outbreak. The re-entry program has just been restarted with the planned re-entry of the L-2a well to test the Upper Jurassic reservoirs. Licence 61 and 67 Reserves Independent reserve consultants Ryder Scott completed an assessment of petroleum reserves on Licence 61 and 67 as at 1 January 2016. As we initiate production from Licence 67, combined with improved knowledge of our assets in Licence 61, we are aiming to generate an updated third-party assessment of the Company’s reserves in 2021. The Ryder Scott reserves report estimated total Proved and Probable (“2P”) reserves for Licence 61 at that time at 102.92 mmbbls. PetroNeft’s net interest in these reserves is 50%. As shown in the table below, PetroNeft’s share of the combined Licence 61 and Licence 67 reserves is 104.4 mmbbls 3P, 63.5 mmbbls 2P and 15.9 mmbbls P1 as at 31 December 2020 following adjustment of the Ryder Scott numbers for production. Note that during Q1 2021 our interest in Licence 67 increased to 90%, the numbers shown in this report are correct as of 1st January 2021, and do not reflect this equity increase. While we have not yet asked Ryder Scott to prepare an updated report for Licence 67 following the C-4 result we have had reserves approved by the State Reserves Committee (GKZ) for C1 + C2 reserves of 2.5 mmtons (this is approximately equal to 2P reserves of 19.26 mmbbls). The reserves approved are in the Upper Jurassic (J1) and Lower Jurassic (J14) intervals. We have had good exploration success in the past and feel we can add further reserves with additional appraisal at Emtorskaya in the near term and Traverskaya and Tuganskaya in the medium term. In the longer term we expect to grow our reserves further with continued exploration and appraisal on our two Licence areas. Numerous prospects have been seismically defined but not yet drilled, particularly in the southern half of Licence 61 and surrounding the Cheremshanskoye and Ledovoye fields in Licence 67. [13] PetroNeft Resources plc Chief Executive Officer’s Report (continued) Ryder Scott Estimated Reserves in Oil Fields (net to PetroNeft) Oil Field Name Licence 61 Lineynoye + West Lineynoye Arbuzovskoye Tungolskoye Sibkrayevskoye Kondrashevskoye North Varyakhskoye Emtorskaya Licence 67 Ledovoye Total net to PetroNeft Proved Proved & Probable 1P mmbo 6.4 2P mmbo 12.2 Proved, Probable & Possible 3P mmbo 15.3 1.0 0.3 5.8 0.7 0.2 0 14.4 1.5 15.9 3.5 2.8 29.3 1.3 0.4 0 49.5 14.0 63.5 4.7 3.6 29.3 1.6 0.5 32.00 87.00 17.4 104.4 Licence 61 as at 31 December 2020 (Ryder Scott report as at 1 January 2016, adjusted for 2016-2020 production). • • Reserves reflect just PetroNeft’s 50% share of reserves for each licence. • All oil in discovered fields is in the Upper Jurassic section. • Reserves were determined in accordance with the Society of Petroleum Engineers (“SPE”) Petroleum Resources Management System (“PRMS”) rules. • Note equity change licence 67 effective Q1 2021. These numbers do not include 19.26 mmbbls (gross) C1+C2 reserves which were audited by GKZ (Russian State Reserves Committee) for the Cheremshanskoye field in Licence 67. Russian State C1+C2 is approximately equivalent to 2P under the PRMS classification system. Conclusion Despite the considerable challenges the Company experienced in 2020, I believe the work carried out in 2019, which has continued through 2020, has provided solid foundation for the future development of the Company and I am increasingly excited by the opportunities that we are working on to deliver improved shareholder value in the future. It is particularly encouraging to see the Company achieving operational successes through the early months of 2021 which provides further confirmation of our understanding of our assets. I would like to take this opportunity to thank our shareholders for their patience and support. I would also like to thank all our staff for their professionalism, commitment, and dedication through last year’s challenging times. Their hard work and commitment combined with the continued support from our shareholders has enabled the Company to survive and positioned it to look forward to the future with increasing confidence. David Sturt Chief Executive [14] PetroNeft Resources plc Financial Review (continued) Financial Review Review of PetroNeft loss for the year The loss after taxation for the year was US$4,541,861 (2019: US$6,042,454). The loss included the Company’s share of joint venture's net loss in WorldAce Investments of US$5,737,042 (2019: US$7,510,318) which arose mainly due to the loss in margins as Revenues declined from US$24,852,620 to US$16,719,562 in 2020. This decline was due to the significant fall in the global price of oil, with the realised price falling by 32.7% from an average realised price per barrel of $41.8/bbl (2019) to $28.15/bbl (2020). In addition, the share of joint venture’s net loss in Russian BD Holdings B.V. increased to US$705,249 (2019: US$664,455) Revenue Cost of sales Gross profit Administrative expenses Operating loss 2020 US$ 1,695,524 (1,440,560) 254,964 (1,035,040) (780,076) 2019 US$ 1,443,568 (1,333,339) 110,229 (807,507) (697,278) Share of joint venture's net loss - WorldAce Investments Limited (5,737,042) (7,510,318) Share of joint venture's net loss - Russian BD Holdings B.V. Finance income Finance costs Profit on equity settlement of financial liabilities Profit on modification of financial liabilities (705,249) 3,583,166 (432,362) 206,044 218,898 (664,455) 4,275,181 (369,950) - - Loss for the year for continuing operations before taxation (3,646,621) (4,966,820) Income tax expense (895,240) (1,075,634) Loss for the year attributable to equity holders of the Parent (4,541,861) (6,042,454) Revenue Revenue in 2020 and 2019 includes income as operator of both licences, and the revenue of PetroNeft’s wholly owned subsidiary, Granite Construction, in respect of construction services provided in relation to both joint ventures. Income of PetroNeft Group as Operator of Licence 61 and Licence 67 PetroNeft performs the role of operator for both the licence 61 and 67 joint ventures. This means that PetroNeft employees and management are responsible for the day to day running of both Licences. Major strategic and financial decisions relating to the Licences require unanimous approval by both shareholders in the respective joint venture agreements. [15] PetroNeft Resources plc Financial Review (continued) As operator, PetroNeft is entitled to charge certain administrative, management and technical costs to the joint ventures. The costs associated with this revenue are included in cost of sales. In 2020 PetroNeft Group charged a total of US$895,590 (2019: US$678,161) to the joint ventures in respect of management services. PetroNeft also owns a construction Company, Granite Construction, which carries out ad hoc construction projects such as well pads and on-site accommodation on both licences as well as maintaining the winter road network each year. In 2020 Granite Construction charged the WorldAce Group US$799,934 (2019: US$765,407) in respect of these services. Administrative expenditure showed an increase year on year of 28%, following a notable reduction year over year of 47% in 2019. In 2017 the Company implemented a cost cutting program across the Group and the Directors and management agreed to reduce and defer significant portions of their remuneration; as at 31 December 2020 a total of US$1,049,092 (2019: US$1,278,068) had been deferred by the Directors and senior management - see Note 26 for details (of this, a total of $576,000 was settled through director participation in the Convertible debt raise of March 2021, part of which in the amount of US$301,278 was subsequently converted into equity in April 2021). Most of the Finance income relates to interest receivable on loans to the joint ventures. During 2020 PetroNeft recognised interest income of US$3,142,150 (2019: US$3,802,594) on its loans to WorldAce Group and US$440,822 (2019: US$469,974) on its loans to Russian BD Holdings B.V. The Company considers no impairment should be provided in 2020 (2019: Nil). For more details see Note 16. Finance Costs Finance costs relate to interest payable on loans from Petrogrand AB and on a separate convertible loan of US$1.3million concluded on the 24 June 2019. The convertible loan is unsecured, with a maturity date of 31st December 2021. Interest charges on the loan are LIBOR plus 8%. The loan from Petrogrand AB has a revised maturity date of 15th December 2021. The redemption date can also now be extended at PetroNeft’s option provided the Company makes a repayment of 20% of the loan on or before 15th December 2021. In such circumstances the final redemption date would be the earliest of (a) 15th December 2022 or (b) the date of completion of the License 61 sale or (c) the date of completion of License 67 sale. Petrogrand AB is also entitled to a share in the proceeds of any sale of assets. The obligation and liability shall survive the repayment or mandatory repayment of the Petrogrand AB loan and shall continue to be secured by the floating charge over the assets of PetroNeft. The fees will be paid upon the completion of the sale of License 61 and or License 67, on or before 31st December 2023. For more details see Note 30 Profit on equity settlement of Financial Liabilities Relates to the implied profit occurring of US$0.206 million in accordance with IFRS 2 Share based payments, where the agreed exercise price of the shares transferred was higher than the market price at time of exercise. In total during 2020, 37,456,431 shares were issued in satisfaction of USS0.73 million in fees owing to Directors and Senior Management. Profit on modification of Financial Liabilities The Company performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the restructuring of the terms of the Petrogrand loan facility was a deemed substantial modification. As the net present value of the cashflows under the original terms and the modified terms was greater than 10%, the modification was accounted for as substantial. As a result, on completion of the restructuring the carrying value of the Petrogrand loan facility with a note value of US$2.89 million was derecognised by an amount of US$0.219 million and the fair value of the loan notes of US$2.676 million was recognised at the date of the Statement of Financial Position. The gain arising on substantial modification of the loan notes has been recognised in the Income Statement as a profit on modification of financial liabilities. Review of Statement of Financial Position as at 31st December 2020. Financial Assets- loans to joint ventures. The Statement of Financial Position reports a reduction in Financial Assets, loans to joint ventures of US$10,250,945. During the year PetroNeft advanced loans totalling US$ 152,900 to WorldAce Investments Limited and US$124,195 to Russian BD Holdings B.V. Group, to support the continued development of the capex program and the operations. Interest Income from WorldAce Investment Limited of US$3,142,150 and US$440,882 from Russian Holdings B.V. Group was accrued but not paid. The total [16] PetroNeft Resources plc Financial Review (continued) advances and fee income were offset by the share of losses of PetroNeft’s joint venture operations WorldAce Investment Limited of US$ 12,472,779 and Russian BD Holdings B.V. Group of US$ 1,548,866. For more details see Notes 13,14, 16 and 26. Trade and Other Receivables. There was a significant increase in Trade and Other Receivables. As at 31st December 2020, US$ 2,528,931 (2019: US$1,136,940). The primary reason for the growth in receivables was the increase in the receivable amounts owning from PetroNeft’s joint venture businesses, which increased to US$2,329,529 (2019: US$1,005,991). Of the Joint venture trade receivable outstanding, WorldAce Investments Limited owed US$1,879,475 (2019: US$818,010) and Russian BD Holdings B.V. Group owed US$450,054 (2019: US$187,981). For more details see notes 18 and 26. Called Up Share Capital and Share Premium Account. During 2020 a total of 118,226,241 Ordinary Shares was issued. As part of a funding program, authorised by the Company in January 2020, a total of 107,755,037 Ordinary Shares were issued for a total of issued value of US$2,104,936, which represented a premium over nominal value of 76%. Cash receipts of US$1,573,668 was used to fund ongoing capex requirements and operational cost. The balance of the funds raised, include the issuance of shares, totalling 26,985,227 in satisfaction of Salaries and Fees owing of US$531,268 to Directors and Senior Management. The debts owing and share issuance in satisfaction of same, are analysed as follows. Pavel Tetyakov received 11,428,650 Ordinary Shares in satisfaction of US$225,000 fees owing. • David Sturt received 8,399,956 Ordinary Shares in satisfaction of US$165,373 fees owing. • • Maxim Korobov received 4,179,280 Ordinary Shares in satisfaction of US$82,279 fees owing. • Thomas Hickey received 2,977,341 Ordinary Shares in satisfaction of US$58,616 fees owing. In May 2020, a further 10,471,204 Ordinary Shares were issued in satisfaction of Directors fees owing of US$200,000 to Dennis Francis, who had resigned as a Director in December 2018. The Shares issued were issued at a 77% premium to the nominal value of the Share Capital. For more details see Note 20. Interest Bearing Loans and Borrowings: Movement in Interest Bearing Loans and Borrowings can be accounted for as follows. An agreement was concluded to extend the Petrogrand AB Loan redemption date from 16th December 2019 to 15th December 2020 on the proviso that interest accrued and not yet paid up to the time of the revised agreement on the extension, would be rolled up into a revised principal sum due of US$2,872,148. Thereafter monthly interest accruing as and from 16th December 2019 would be paid within 7 calendar days of month end for the prior month. The Company has made the interest payments as they fell due. In December 2020, a further extension of the Loan facility was granted for a period of 12 months ending 15 December 2021, the loan can be further extended to 15 December 2022 at the option of the Company if certain conditions are met. As the net present value of the cashflows under the original terms and the modified terms was greater than 10%, the modification was accounted for as substantial. As a result, on completion of the restructuring the carrying value of the Petrogrand loan facility was derecognised by an amount of US$218,898 and the fair value of the loan notes of US$2,675,774 was recognised at the date of the Statement of Financial Position In June 2019, PetroNeft secured loans from a group of 5 lenders, 3 of which are related parties. See note 26 for more details. The total of the loans provided was US$1.3 million. A condition of the loans was that the lenders at any time may convert up to 65% of their loan advance into ordinary equity shares of PetroNeft. The date of maturity of the loans was 31st December 2020, which was subsequently revised to 31st December 2021. Interest on the loans is LIBOR plus 8%. In April 2021, four of the lenders elected to convert US$812,500 of the principal amount into Ordinary Shares of the Company. For more details see Note 21. [17] PetroNeft Resources plc Financial Review (continued) Key Financial Metrics – WorldAce Group Because of the equity method of accounting for joint ventures that applies to PetroNeft’s interest in WorldAce, listed below are the metrics which are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the performance of Licence 61: WorldAce Group WorldAce Group 2020 US$ 2019 US$ Revenue Cost of sales Gross profit Administrative expenses Impairment of exploration and evaluation assets Operating profit/(loss) Write-off of oil and gas properties Write-off of exploration and evaluation assets Finance income Finance costs Loss for the year for continuing operations before taxation Income tax expense Loss for the year 16,719,562 (17,465,593) (746,032) (2,515,578) - (3,261,610) - - 35,745 (7,985,620) (11,211,485) (262,599) (11,474,084) 24,852,620 (25,100,495) (247,875) (2,624,057) (1,382,769) (4,254,701) - (1,299,887) 57,906 (9,523,954) (15,020,636) - (15,020,636) Loss for the year Other comprehensive income to be reclassified to profit or loss in subsequent years: Currency translation adjustments Total comprehensive loss for the year (11,474,084) (15,020,636) (13,471,473) (24,945,557) 9,026,423 (5,994,213) PetroNeft’s Share 50% (12,472,779) (2,997,107) [18] PetroNeft Resources plc Financial Review (continued) Net Loss – WorldAce Group PetroNeft’s share of the net loss of WorldAce Group for the full year declined from US$7,510,318 to US$5,737,042 in 2020. Production volumes year over year were broadly similar, the gross margin loss was due to a significant deterioration in the average price per barrel of oil sold, primarily due to the Covid pandemic. The gross margin loss was mitigated by improved control over Administrative expenses, combined with no charges in 2020 for impairment or write off of Exploration and Evaluation Assets and reduced Financing costs, due to a lower average LIBOR rate in 2020 versus 2019. Those factors resulted in PetroNeft’s share of the net loss of WorldAce Group declining year over year. Of the US$7,985,620 in interest payable by WorldAce, US$3,142,149 is payable to PetroNeft. (2019 US$9,523,954/US$3,802,595) Revenue, Cost of Sales and Gross Margin – WorldAce Group Gross Revenue from oil sales was US$16,719,562 for the year (2019: US$24,852,620). Cost of sales includes depreciation of US$1,256,822 (2019: US$1,936,923), which was lower mainly due to due temporary suspension of most of our wells in April/ May following a collapse in the oil price due to the Covid pandemic and secondly in September / October period necessary third-party pipeline maintenance. The gross margin declined during the year to US$746,032 (2019: US$247,875) due to significant erosion in the average price per barrel, a decline of 32.7% year on year, primarily due to Covid pandemic. Operating costs per barrel (cost of sales excluding depreciation and Mineral Extraction Tax) at US$12.39 (2019: US$13.82 per barrel) was lower as most overhead lines showed declines year on year. We would expect the gross margin to improve in future periods as our facilities and field operations are fully staffed and can handle additional production from the Sibkrayevskoye oil field. We produced 570,510 barrels of oil (2019: 589,165 barrels) in the year and sold 593,840 barrels of oil (2019: 594,057 barrels) achieving an average oil price of US$28.15 per barrel (2019: US$41.84 per barrel). All oil was sold on the domestic market in Russia. Finance Costs – WorldAce Group Gross Finance costs of US$7,985,620 (2019: US$9,523,954 ) mainly relates to interest on loans from PetroNeft and Oil India. Taxation – WorldAce Group The tax charge accrued in the year amounted to US$262,599 (2019:US$ Nil). Current and Future Funding of PetroNeft Group While there were consolidated net current liabilities at the year-end of US$3,416,497 (2019: US$4,633,370), the Company has consistently demonstrated its ability to secure Shareholder funding and proactively works with its lenders in obtaining loan maturity extensions and securing new funding. In particular, the last Convertible debt funding in February 2021, which secured US$2,903,802 demonstrated the continued support of institutional investors, the largest shareholders, the Directors and Senior Management. The Company continues to drive its cost cutting program across the Group and the Directors and management have agreed to reduce and defer significant portions of their remuneration. Note 26 outlines the amounts owed to the Board and management in this regard. The loan facility from Swedish Company Petrogrand AB was due to mature on 15 December 2020, however by mutual consent, a revised maturity date of 15 December 2021 was set, which may be extended if certain milestones are met by a further 12 months. The borrower can exercise the option to extend if the borrower pays 20% of the loan balance outstanding on or before the redemption date of 15th December 2021. The revised terms include an extension to the entitlement of the lender to a bonus on the sale of either or both Licence 61 and Licence 67 if they are sold by 31 December 2022 of $2,500,000 per licence. When this loan was extended this bonus entitlement period was also extended by one year to 31 December 2023. In June 2019, the Company agreed a convertible loan for US$1,300,000 with a group of five investors which was to mature on 31 December 2020 and subsequently extended under mutual agreement, without any revision to loan terms to 31 December 2021. This loan is partially convertible into Ordinary shares of PetroNeft (up to 65% of the principal) at a price per Ordinary Share of [19] PetroNeft Resources plc Financial Review (continued) US$0.01547. In April 2021, four of the five lenders exercised their options to convert, accordingly a sum of US$812,500 of the loan facility was converted into Ordinary Shares of the Company. As previously announced the Company has engaged a financial advisor with the aim to test the market for both of its licences. This process is ongoing and the level of interest and the calibre of companies in the process to date is encouraging. Over the past 2 years the asset acquisition market in Russia has seen increased activity, especially for the larger domestic companies, albeit that activity has diminished due to the onset of the Covid 19 pandemic. In the event of a possible sale, it is expected that both loan facilities would be repaid from the proceeds of sale of one of the Licences. Going Concern Cash on hand As at 31st December 2020, PetroNeft Group had on hand cash and cash equivalents of US$101,028 (2019: US$345,532). A comprehensive review of all cash inflows and outflows is contained in the Consolidated Statement of Cash Flows on page 42 of the Annual Accounts. Improving Liquidity in the near term, In the short term, PetroNeft can bolster its cash holding by increasing production and benefitting from the upsurge in the average price per barrel of oil, as the end of the Covid pandemic comes into sight. Deliveries are paid for in advance and ownership transfers when the oil enters the pipeline. PetroNeft continues to enjoy the support of its principal shareholders and lenders, as evidenced by the recent $2,903,802 Convertible debt fund raise in February 2021. In addition, existing loan facility maturity dates are extended by mutual agreement. As reported in April 2021, of total debt in issue of US$5,903,000 with a convertible debt option, a sum of US$2,849,356 was converted by the lenders into Ordinary Shares of the Company. Controlling expenditure. Since the announcement of the Cost saving program in 2017, PetroNeft has announced continuous improvement in its management of administrative expenses, at the corporate level there was an increase, but this followed from a 47% decrease between 2018 to 2019. PetroNeft manages expenditures on an entity level basis and within each entity, by nature of expense and by need. There is active engagement with all stakeholders and continuous cost improvements are sought. During the Covid pandemic payments of key payables was extended, staff took voluntarily pay cuts, in some cases up to 50%. Capex is allocated to projects which generate the quickest payback. Where possible the build out of key projects such as the mini refinery is done in house and accordingly minimize third party fees and overhead. Proactive Liquidity Management and cost control. Include the following: • Ongoing improvements in local technical talent across geology, engineering, and accounting functions which enabled • • • PetroNeft to arrest the natural decline in some of the core fields, with further opportunities also identified. A Financing Agreement has been executed between the owner and operator of Licence 67, LLC Lineynoye (90% owned by PetroNeft Resources) and AOR (Alexandrovskoye Refinery) to finance the cost of constructing an all-season road to connect the C4 well with the local year-round road network up to a maximum capex spend of $1 million. Completion occurred in the first part of 2021. Given the strong rebound in oil prices, the Company was able to fund this from own resources. The facility remains open and potentially could be used to develop further value accretive projects. In 2020 PetroNeft significantly increased the amount of data gathering and well monitoring across the well inventory which has been combined with a re-interpretation of the seismic and well data. PetroNeft has gained valuable insights from these studies, which is being integrated into an updated plan for the assets which is described in more detail in the individual field and prospect sections in the Chief Executive’s Officer Report. PetroNeft invested in infrastructure to support the expected development of its reserve inventory. The infrastructure has capacity for 14,700 barrels per day. Production in 2020 was 1,563 barrels per day. • A mini refinery construction completed in Q4 2020, enabling significant savings and efficiencies on diesel overhead. • An active sale process commenced in 2018, with considerable interest shown in key assets. The process and engagement level slowed in 2020 due to the Covid pandemic. PetroNeft still gets expression of interest and when appropriate provides [20] PetroNeft Resources plc Financial Review (continued) • • • interested parties with access to the Data room. It is expected that interest in the Company’s assets will improve as our production grows combined with the continued strengthening of the oil price. PetroNeft prepares Monthly projected Cashflow statements and monitors actual performance monthly back against forecast. Monthly Cashflow forecasts are prepared to 30 June 2022. PetroNeft secures prepayment for its oil deliveries. PetroNeft through its subsidiaries and joint venture companies has successful worked with the local tax authorities in designating its operations as small to medium sized enterprises, thereby minimizing expenditure on both corporate and employment taxes. Going Concern Conclusion. The ability to re-finance the Petrogrand loans and other loans represents a material uncertainty that may cast significant doubt upon the Group’s and the Company’s ability to continue as a going concern as described in Note 2 to the Consolidated Financial Statements. The Company has solid business relationships with all its loan providers and is confident, based on a history of prior extensions, that a positive outcome for the Company is possible. Focussed Asset Management and Capital Allocation PetroNeft updated its operational plan, and supported with a detailed capex plan, such that the large potential can be realised in the following: • Sibkrayevskoye and West Lineynoye fields in Licence 61 • Cheremshanskoye and Ledovoye oil fields in Licence 67 • Prospects such as Emtorskaya, which lies north of the Lineynoye field in Licence 61. PetroNeft manages its workover program to reverse declining production and identify sweet spots in its drilling program. Principal risks and uncertainties The principal risks and uncertainties affecting the Group and the actions taken by the Group to mitigate these risks and uncertainties are shown on the next page Risk Issue Country Risks Geopolitical Political - federal risks Mitigation Sanctions to date are directed at a very high-level Government officials and very high net worth individuals. It is not expected that international sanctions will affect Group operations. Fields/acquisitions below 500 million boe are not considered strategic by the government The federal government has a policy of encouraging small operators. Political - local risks Tomsk Oblast administration is very supportive of development. Ownership of assets Changes in tax structure Local management are well respected in region. Licences were acquired at government auctions. Work programme for Licence 61 is complete. Work programme for Licence 67 is not onerous. 25-year licence term can be automatically extended based on approved production plan. Fiscal system is stable - recent and proposed changes largely benefit upstream oil and gas companies. Proactive lobbying effort made in area of tax legislation. Technical Risks Exploration risk Proven oil and gas basin with multiple plays. Focused on lower risk production and development assets. Good quality 2D & 3D seismic. Knowledgeable technical and operational team with proven track record in region. [21] PetroNeft Resources plc Financial Review (continued) Technical Risks Cont’d Risk Issue Drilling risk Financial Risks Production/Completion risk Reserve risk Availability of finance Oil price Industry cost inflation Uninsured events Covid 19 Business interruption Other Risks HSE incidents Export quota Third party pipeline access Transneft pipeline access Mitigation Relatively shallow wells with proven technology. Good rig availability. Experienced operations team. Avoid drilling wells low on structure that risk poor results. Routine completion practices including fracture stimulation. Reserves high graded; extensive reservoir simulation and reservoir management undertaken. Performance of similar adjacent fields in region. SPE and Russian reserves updated and in substantive alignment Strong reserve base and key infrastructure in place to support production up to 14,700 barrels per day, supports Investment Case Robust project sanction economics - conservative base case assumptions. Russian tax system means economics are less sensitive to changes in oil price. Rigorous contracting procedures with competitive tendering. Also, the relationship of the US Dollar: Russian Rouble exchange rate to the oil price provides a natural balance between costs and income. Comprehensive insurance programme in place. At the start of the pandemic, production was supported by a skeleton crew and crew changes were lengthened. PetroNeft actively worked to manage its cashflow. This included working with its suppliers and key third-party payables in rescheduling payments, staff in Tomsk voluntarily took salary cuts up to 50%. Inventories on hand supported revenues during this time, and prices achieved in a very weak market were at the higher end of the average rates per barrel. All shipments were prepaid in advance. The Company enforced strict protocols around HSE, no incidents of Covid 19, to date have been reported at any of its facilities. HSE standards set and monitored regularly across the Group. Equal access to export quotas available for all oil producers using Transneft. Conservative assumption in economics - domestic net back price now largely in alignment with export net back. 25-year transportation agreement in place for Licence 61, several options available for ultimate development of Licence 67. Available capacity and access confirmed. East Siberia-Pacific Ocean (“ESPO”) pipeline allows export of oil to Pacific market. [22] PetroNeft Resources plc Financial Review (continued) Significant Shareholders The Company’s share register was migrated because of Brexit to Euroclear Nominees Limited (Belgium) from CREST U.K. as and from March 15 2021. So far as the Directors are aware, the names of the persons other than the Directors who, directly or indirectly, are interested in 3% or more of the Issued Share Capital as at 4 June 2021 as per the share register is as follows: Name of shareholder Euroclear Nominees Limited Natlata Partners Limited* Ordinary Shares 601,157,683 Percentage 57.51% 170,726,670 16.33% * Shares held by Natlata Partners Limited are beneficially owned by Maxim Korobov and the Directors are aware a further holding of 108,956,061 are held by Euroclear Nominees Limited for Maxim Korobov, bringing his total shareholding to 27%. [23] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 The Directors present herewith their Annual Report and the audited financial statements of PetroNeft (“PetroNeft”, “the Company”, or together with its subsidiaries and joint ventures, “the Group”) for the year ended 31 December 2020 Principal Activity The principal activities of the Group are that of oil and gas exploration, development, and production through its holdings in two joint venture undertakings. The Group was established to acquire and develop oil and gas exploration, development and production interests in Russia and other countries of the former Soviet Union. A detailed business review is included in the Chairman’s Statement, Chief Executive Officer’s Report, and the Financial Review. Results and Dividends The loss for the year before tax amounted to US$3,646,621 (2019: US$4,966,820). After a tax charge of US$895,240 (2019: US$1,075,634) the loss for the year amounted to US4,541,861 (2019: US$6,042,454). The Directors do not recommend payment of a final dividend and no interim dividend was paid. Review of the Development and Performance of the Business In compliance with the requirements of the Companies Act 2014, a fair review of the performance and development of the Group’s business during the year, its position at the year-end and its prospects is contained in the Chairman’s Statement on pages 5 to 7, the Chief Executive Officer’s Report on pages 8 to 14, the Financial Review on pages 15 to 23. The key financial metrics used by management are set out in the Financial Review on page 15. Corporate Governance The Company is not subject to the UK Corporate Governance Code applicable to companies with full listings on the Dublin and London Stock Exchanges. The Company has adopted and intends, in so far as is practicable and desirable, given the size and nature of the business and the constitution of the Board, to comply with the 2018 QCA Corporate Governance Code (the “QCA Code”) as published by the Quoted Companies Alliance (the “QCA”). PetroNeft is a member of the Quoted Companies Alliance. The QCA Code was devised, in consultation with several significant institutional small Company investors, as an alternative corporate governance code applicable to Small and Mid-Size Quoted Companies. An alternative code was proposed because the QCA considered the UK Corporate Governance Code to be inappropriate to many Small and Mid-Size Quoted Companies. The QCA Code states that “Good corporate governance inspires trust between a public Company and its shareholders; it creates value by reducing the risks that a Company faces as it seeks to create growth in long term shareholder value. Without trust, there will be no appetite from shareholders to invest further or remain shareholders. In reducing the risks, so the cost of capital is reduced.” The guidelines set out a code of best practice for Small and Mid-Size Quoted Companies. Those guidelines require, among other things, that: a) certain matters be specifically reserved for the Board's decision. b) c) d) the Board should be supplied in a timely manner with information (including regular management financial information) in a form and of a quality appropriate to enable it to discharge its duties. the Board should, at least annually, conduct a review of the effectiveness of the Company's system of internal controls and should report to shareholders that they have done so. the roles of Chairman and Chief Executive should not be exercised by the same individual or there should be a clear explanation of how other Board procedures provide protection against the risks of concentration of power within the Company. e) the Company should have at least two independent Non-Executive Directors on the Board and the Board should not be dominated by one person or group of people. Following the resignation of Tom Hickey, the board only has one independent Non-Executive Director, Anthony Sacca but is in the process of looking to appoint a new Non-Executive Director when the appropriate candidate can be identified. f) all Directors should be submitted for re-election at regular intervals subject to continued satisfactory performance. g) the Board should establish audit, remuneration and nomination committees; and [24] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) Corporate Governance (continued) h) there should be a dialogue with shareholders based on a mutual understanding of objectives. PetroNeft where practicable adheres to these requirements. Major corporate decisions of the Group are subject to Board approval. The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. These matters include approval of the Group's general commercial strategy, financial statements, Board membership, significant acquisitions and disposals, major capital expenditures, overall corporate governance and risk management and treasury policies. The Company holds regular Board meetings throughout the year. In accordance with the QCA Code and, in respect of the Audit Committee, in accordance with Section 167 of the Companies Act 2014, the Board has established Audit, Remuneration and Nomination Committees, as described below, and utilises other committees as necessary to ensure effective governance. In addition to the above mentioned for a more comprehensive review of how PetroNeft conforms with the 10 Quality Code Assurance principles please refer to pages 93-102 of this Annual accounts pack. Alternatively, the principles and how PetroNeft implements them, can be link: http://PetroNeft.com/investor-relations/rule26/. logging on to the PetroNeft website by clicking on the found by following Financial Risk Management The Board sets the treasury policies and objectives of the Group, which include controls over the procedures used to manage financial risk. The Group's activities expose the Group to a variety of financial risks including foreign currency, commodity price, credit, liquidity, and interest rate risks. These financial risks are managed by the Group under policies approved by the Board. Details of the Group's financial risk management policies are set out in detail in Note 23 to the financial statements Audit Committee The members of the Audit Committee are non-executive directors, Anthony Sacca (Chairman), and Alastair McBain. The Audit Committee is responsible for ensuring that the financial activities of the Group are properly monitored, controlled, and reported on complying with relevant legal requirements. The committee receives and reviews reports from management and the Group’s auditors relating to the Group’s report and accounts, the interim results and review of the accounting policies. Meetings are held at least two times a year with the auditors, once at the audit planning stage to consider the scope of the audit and thereafter at the reporting stage, to receive post-audit findings. The ultimate responsibility for reviewing and approving the Annual Report remains with the Board of Directors. The committee is also responsible for reviewing the relationship with the external auditors, making recommendations to the Board on their appointment and remuneration, monitoring their independence, as well as assessing scope and results of their work, including any non-audit work. The committee authorises any non-audit work to be carried out by the external auditors. The external auditors did not undertake any non-audit work during the current year and the committee is satisfied that the objectivity and independence of the external auditor has not been impaired in anyway by any other factors. The committee, with management, reviews the effectiveness of internal controls. Remuneration Committee The members of the Remuneration Committee are Alastair McBain (Chairman), and Anthony Sacca. The Remuneration Committee's responsibilities include, among other things, determining the policy and elements of remuneration for Executive Directors, provided however, that no Director shall be directly involved in any decisions as to their own remuneration. Nomination Committee The members of the Nomination Committee comprise Alastair McBain (Chairman), and Anthony Sacca. The percentage of Non-Executive Directors on the Board is above the recommended 50%. The Group has adopted a model code for Directors' dealings that is appropriate for an AIM Company. The Group complies with Rule 21 of the AIM Rules relating to Directors' dealings and will take all reasonable steps to ensure compliance by the Directors and the Group's applicable employees and their relative associates. [25] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) Governance of Joint Ventures Under the joint venture agreements in respect of Licence 61 and Licence 67 both partners are entitled to appoint board representatives to the joint venture companies, WorldAce Investments Limited and Russian BD Holdings B.V. PetroNeft has appointed Karl Johnson to the Board of WorldAce Investments Limited and David Sturt to Russian BD Holding B.V., positions for which they receive no additional remuneration, along with local independent directors in Cyprus and Netherlands, respectively. These companies are managed and controlled in Cyprus and the Netherlands through regular Board meetings. Shareholder Communication Shareholder communication is given high priority by the Group and there are regular meetings between senior executives, institutional shareholders, analysts, and brokers. These meetings, which are governed by procedures designed to ensure that price sensitive information is not divulged, are designed to facilitate a two-way dialogue based upon the mutual understanding of objectives. The Annual General Meeting (“AGM”) affords individual shareholders the opportunity to question the Chairman and the Board, and their participation is welcomed. Shareholders are also welcome to telephone or email the Company at any time. The Chairmen of the Audit Committee, Remuneration Committee and Nomination Committee are available at the AGM to answer questions. In addition, major shareholders can meet with the Chairman of the Board or any Executive and Non-Executive Directors on request. The Board is kept appraised of the views of shareholders, and the market in general, through feedback from the meetings programme. Analysts’ reports on the Company are also circulated to the Board on a regular basis. The Group's website, www.PetroNeft.com, is also a key communication tool with all shareholders. News releases are made available on the website immediately after release to the Stock Exchange. Investor presentations, reserve reports and other materials are also available on the website. Internal Control The Directors have overall responsibility for the Group's system of internal control and have delegated responsibility for the implementation of this system to executive management. This system is reviewed annually and includes financial controls that enable the Board to meet its responsibilities for the integrity and accuracy of the Group's accounting records. The Group's system of internal financial control provides reasonable, though not absolute, assurance that assets are safeguarded, transactions authorised and recorded properly, and that material errors or irregularities are either prevented or detected within a timely period. Directors The Directors who served during the year are listed on page 2 In accordance with Article 89 of the Articles of Association of the Company, Anthony Sacca is due to retire by rotation at the next AGM and is eligible to offer himself for re-election. Alastair McBain, who retires in accordance with Article 92 of the Articles of Association will also be eligible to offer himself for election. [26] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) Directors, Company Secretary, and their Interests The Directors and Company Secretaries who held office during 2020 and in the period up to 8 April 2021 had no interest, other than those shown below, in the Ordinary Shares of the Company. All interests shown below are beneficial interests. Directors David Golder (resigned 22 February 2021) David Sturt Daria Shaftelskaya*(appointed 17 January 2020) Alastair McBain** (appointed 29 January 2021) Maxim Korobov***(resigned 17 January 2020) Thomas Hickey (resigned 18 December 2020) Pavel Tetyakov (appointed 17 January 2020) Anthony Sacca Company Secretary Michael Power (appointed 3 May 2020) Karl Johnson (resigned 3 May 2020) Ordinary Shares Ordinary Shares Ordinary Shares As at As at 8 April 2021 3,165,458 26,094,132 100,754,589 154,974,339 275,503,451 5,203,624 15,637,515 - As at 31 December 2020 3,165,458 15,876,866 90,670,555 12,698,500 240,648,214 5,203,624 12,444,530 - 1 January 2020 3,165,458 4,048,005 90,670,555 12,698,500 208,429,458 2,226,283 - - - 932,349 - 932,349 - 932,349 *Shares held by Daria Shaftelskaya in her own capacity and on her behalf by Euroclear Nominees Limited. **Shares held by Alastair McBain via Euroclear Nominees Limited, ADM Consulting FZE, and Belgrave Naftogas BV. *** Shares held by Maxim Korobov via Natlata Partners, Euroclear Nominees Limited and in his own capacity personally. In addition to the above, none of the Directors who held office at 31 December 2020 had share options: Principal Risks and Uncertainties The Group has a risk management structure in place which is designed to identify, manage, and mitigate business risks. Risk assessment and evaluation is an essential part of the Group’s internal control system. Details of the principal risks and uncertainties affecting the Group, as required to be disclosed in accordance with the Companies Act 2014, are listed on pages 21-22 Going Concern The appropriateness of continuing to prepare the financial statements on a going concern basis is discussed in detail in the Finance Review on pages 19-20 in the paragraphs related to the “Current and future funding of PetroNeft” and 20-21 “Going Concern” and in Note 2 to the financial statements on pages 45-46. The circumstances outlined in the Finance Review and Note 2 represent material uncertainties that may cast significant doubt upon the Group and the Company’s ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainties described in the Finance Review and Note 2, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for at least 12 months after the signing date of the annual report. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts. Accordingly, the financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company were unable to continue as a going concern. Remuneration Committee Report The Group’s policy on senior executive remuneration is designed to attract and retain people of the highest calibre who can bring their experience and independent views to the policy, strategic decisions, and governance of the Group. [27] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) In setting remuneration levels, the Remuneration Committee takes into consideration the remuneration practices of other companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the best interests of the shareholders. Bonuses for Executive Directors are based on performance targets which include elements relating to operational outcomes and individual performance. The Company does not have a share option scheme in place during the 2020 financial year. The last share options expired in 2019 financial year and more details are disclosed in the notes section to this Annual Report at note 27. Directors’ Remuneration (US$) 2020 2019 Director Executive directors Basic Pension Total Basic Pension Total David Sturt 428,817* 30,000 458,817 307,090 22,836 329,926 Pavel Tetyakov 200,000 15,000 215,000 - - - 628,817 45,000 673,817 307,090 22,836 32,9926 Non-executive directors David Golder Thomas Hickey Anthony Sacca Daria Shaftelskaya David Sturt Maxim Korobov Total Directors remuneration 15,224 11,132 11,533 11,020 - 913 49,822 - - - - - - - 15,224 17,821 11,132 11,235 11,533 11,235 11,020 - - 2,809 913 11,235 49,822 54,335 - - - - - - - 17,821 11,235 11,235 - 2,809 11,235 54,335+ 678,639 45,000 723,639 361,425 22,836 384,261 *Includes Medical Insurance premiums of USD28,817 As detailed in Note 26, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2020 of US$470,023 (2019: US$932,344). Political Donations The Company did not make any political donations during the year. [28] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) Important Events after the Balance Sheet Date In February 2021, the Company entered a convertible loan facility of US$2.9 million with a group of thirteen lenders that matures in March 2023. The loan facility will be used for general corporate and ongoing operational purposes and carries an interest rate of 8% above the base rate of the Bank of England. Lenders can elect at any time to convert up to 75% of the outstanding loan to shares at a conversion price of stg£0.02 in year 1 and stg£0.025 in year 2. In March 2021, the Company completed the migration of the Company’s corporate securities from CREST to Euroclear Bank (“Migration”) under the Migration of Participating Securities Act 2019. In March 2021 PetroNeft’s interest in Licence 67 has risen from 50% to 90%. Consideration for the acquisition was US$2.9 million which has been satisfied through the issuance of 80,000,000 PetroNeft ordinary shares (“New Ordinary Shares”) to Belgrave Naftogas B.V. for a value of US$1.2 million and cash consideration of US$1.7 million, which will be financed through a 3-year loan from Belgrave Naftogas to PetroNeft. In April 2021, some lenders under the various Convertible Loan Agreements, elected to exercise their options to convert part of their Loan Facilities into Ordinary Shares of the Company. In total 125,878,647 Ordinary Shares were issued to various lenders and $2.85 million of Convertible Debt was redeemed. On a global level the effects of the Corona pandemic will live with us for a very long time. On a Company level the business was supported throughout by its employees, oil marketing partners, suppliers, and contractors. Accounting Records The measures taken by the Directors to ensure compliance with the requirements of Sections 281 to 285, Companies Act 2014, regarding accounting records are the implementation of necessary policies and procedures for recording transactions, the employment of competent accounting personnel with appropriate expertise and the provision of adequate resources to the financial function. The accounting records of the Company are maintained at 20 Holles Street, Dublin 2, Ireland. Directors’ Compliance Statement It is the policy of the Company to comply with its relevant obligations (as defined in the Companies Act 2014). The Directors have drawn up a compliance policy statement (as defined in section 225(3)(a) of the Companies Act 2014) and arrangements and structures are in place that are, in the Directors’ opinion, designed to secure material compliance with the Company’s relevant obligations. The Directors confirm that these arrangements and structures were reviewed during the financial year. As required by Section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for the Company’s compliance with the relevant obligations. In discharging their responsibilities under Section 225, the Directors relied on the advice both of persons employed by the Company and of persons retained by the Company under contract, who they believe have the requisite knowledge and experience to advise the Company on compliance with its relevant obligations. Directors’ Responsibilities Statement in Respect of the Financial Statements The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. Irish Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with IFRSs as adopted by the European Union. Under Company law the Directors must not approve financial statements unless they are satisfied, they give a true and fair view of the assets, liabilities, and financial position, of the Group and Parent Company as at the end of the financial year, and the profit or loss for the Group for the financial year, and otherwise comply with the Companies Act 2014. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently. [29] PetroNeft Resources plc Directors’ Report for the year ended 31 December 2020 (continued) • make judgements and estimates that are reasonable and prudent. • • state whether the financial statements have been prepared in accordance with applicable accounting standards, identify those standards, and note the effect and reasons for any material departure from those standards; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. Directors’ Responsibilities Statement in Respect of the Financial Statements – (continued) The Directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the Company, enable at any time the assets, liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy, enable them to ensure that the financial statements and Directors’ Report comply with the Companies Act 2014 and enable the financial statements to be audited. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Disclosure of information to auditors So far as each of the Directors in office at the date of approval of the financial statements is aware: There is no relevant audit information of which the Company’s auditors are unaware; and The Directors have taken all the steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. • • This confirmation is given and should be interpreted in accordance with the provisions of Section 330 of the Companies Act 2014. Auditors BDO Ireland continue in office in accordance with the provisions of Section 383(2) of the Companies Act 2014. Approved by the Board on 21 June 2021 ______________________ Alastair McBain Director ______________________ David Sturt Director [30] INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC Report on the audit of the financial statements Opinion We have audited the financial statements of Petroneft Resources Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the financial year ended 31 December 2020, which comprise the Consolidated Income Statement, the Consolidated and the Parent Company Balance Sheet, the Consolidated and the Parent Company Statement of Changes in Equity and the Consolidated and the Parent Company Cash Flow Statements and notes to the financial statements, including the summary of significant accounting policies set out in note 3. The relevant financial reporting framework that has been applied in the preparation of the Group and the Parent Company financial statements is the Companies Act 2014 and International Financial Reporting Standards (IFRS) as adopted by the European Union (IFRSs as adopted by the EU) (the ‘relevant financial reporting framework’). In our opinion: the financial statements give a true and fair view of the assets, liabilities and financial position of the Group as at 31 December 2020 and of its loss for the financial year then ended; the financial statements give a true and fair view of the assets, liabilities and financial position of the Parent Company as at 31 December 2020; the financial statements of the Group and the Parent Company have been properly prepared in accordance with IFRSs as adopted by the EU; and the financial statements of the Group and the Parent Company have been properly prepared in accordance with the requirement of the Companies Act 2014. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (‘ISAs (Ireland)’) and applicable law. Our responsibilities under those standards are described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and the Parent Company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (‘IAASA’), 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. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Material uncertainty relating to going concern and the recoverability of financial assets We draw your attention to note 2 to the Group’s Consolidated Financial Statements concerning the Group and Parent Company’s ability to continue as a going concern. The Group incurred a loss of $4.5 million for the financial year ended 31 December 2020, had total assets of $30 million and net current liabilities of $5.9 million. Included in total assets are financial assets comprising of loans and receivable of $27.3 million from Join Ventures. The recoverability of these loans are dependent on the continued operations and future profitability of the Joint Ventures. For the operations to continue, the Group is highly dependent on continued funding by way of share placements, securing debt financing, successful extension or re-financing of the Petrogrand AB and convertible loans. As stated in note 2, these events and conditions, along with the other matters as set forth in note 2 to the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In response to this, we: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) obtained an understanding of the Group’s and Parent Company’s assumptions in the development and approval of the projections used in the cash flow forecasts to support the going concern assumption and assessed the reasonability of these assumptions; challenged the key assumptions used in the cash flow forecasts by agreement to historical run rates, expenditure commitments and other supporting documentation; assessed the reasonableness of securing funding through share placement and debt financing or re-financing. reviewed the terms of loan facilities in place; tested the clerical accuracy of the cash flow forecast model; and assessed the adequacy of the disclosures in the 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 financial year 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. In addition to the matter described in the Material Uncertainty relating to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. 32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Recoverability of financial assets and loans advanced to joint venture undertakings Key Audit Matter The Group and Parent Company has a significant loans receivable from joint ventures amounting to $27.3 million (2018: $37.6 million) as at the balance sheet date. The carrying value of the investment in joint ventures is represented by loans due from joint ventures, WorldAce Investments Limited and Russian-BD Holdings BV. The joint ventures control Licences 61 and 67 for future exploration and development of the Sibkrayevskoye and Cheremshanskoye Oil fields respectively. The recoverability of these loans due from Joint Ventures are dependent on the successful development of the economic reserves and revenue growth or the realisation of the value through sale. There is a risk that these loans due from joint ventures are not recoverable and an impairment should be raised in the financial statements. As such, we have identified this as a key audit matter. Related Disclosures Refer to notes 3.4(a), 3.4(b), 3.5(d), and 16 of the accompanying financial statements. Audit Response In response to this: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) We have obtained Management’s Impairment assessment in relation to financial assets and loans receivable from JVs which were directly linked to the Oil & Gas impairment models produced for the JVs; We have gained an understanding of how management complete the impairment model, including the key assumptions and key controls in the impairment assessment process. We have assessed the design and implementation of key controls identified in the impairment process; We have assessed whether management has appropriately applied the requirements of the applicable financial reporting framework relevant to the accounting estimate and the methods for completing the impairment assessment are appropriate and have been applied consistently; We have assessed the expertise, competence, skills and independence of those involved, including Ryder Scott, in making the key assumptions and estimates including management experts where utilised; We have performed a retrospective review of other key assumptions in the model such as production and revenue growth by comparing budget versus actual for the prior year; We have agreed cashflow data and capital expenditure amounts to budget and cashflow projections approved by the Board of Directors; We have assessed the level of headroom available, in relation to key assumptions in the impairment model ensuring we exercise professional skepticism; We have challenged management regarding the Group and the Parent Company’s ability to raise sufficient finance to ensure that the value is recovered; and We have performed stress tests to challenge any estimates within the budget to ensure there is sufficient headroom if certain events occur. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. 33 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Our application of materiality We define materiality as the magnitude of misstatement, including omissions, in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of a reasonably knowledgeable person taken on the basis of the financial statements. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: For the purpose of our audit we used overall materiality of $374,587 and $262,211 which represents approximately 2% of the Group and the Parent Company’s net assets respectively. We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole. We chose net assets as the benchmark because, in our view, it is a key financial statement metric used in assessing the performance of the Group and the Parent Company and is not as volatile as other measures. We selected 2% based on our professional judgment, noting that it is also within the range of commonly accepted asset-related benchmarks. An overview of the scope of our audit A description of the scope of an audit of financial statements is provided on the IAASA website at https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_ auditors_responsiblities_for_audit.pdf. Our audit approach was developed by obtaining an understanding of the Group and the Parent Company’s activities, the key functions undertaken on behalf of the Board and the overall control environment. Based on this understanding we assessed those aspects of the Group and the Parent Company’s financial statements which were most likely to give rise to a material misstatement. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. 34 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Other information The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements for the year ended 31 December 2020, other than the financial statements and our auditor’s report thereon. 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 respect of these matters. Opinions on other matters prescribed by the Companies Act 2014 Based solely on the work undertaken in the course of the audit, we report that: in our opinion, the information given in the directors’ report is consistent with the financial statements; and in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014. We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion, the accounting records of the Group and the Parent Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records. Matters on which we are required to report by exception Based on 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 directors' report. The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions required by sections 305 to 312 of the Act are not made. We have nothing to report in this regard. 35 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Respective responsibilities Responsibilities of directors for the financial statements 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 they 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 going concerns, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has 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 (Ireland) 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. IAASA's A further description of our responsibilities for the audit of the financial statements is located on the https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f- a98202dc9c3a/Description_of_ auditors_responsiblities_for_audit.pdf. This description forms part of our auditor's report. website at: The purpose of our audit work and to whom we owe our responsibilities Our report is made solely to the Company’s members, as a body, in accordance with section 391 of the Companies Act 2014. 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. 36 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC (CONTINUED) Other matters which we are required to address We were appointed by the Board of Directors on 11 November 2019 to audit the financial statements for the financial year ended 31 December 2019.The period of total uninterrupted engagement is therefore two year, covering the financial year ended 2020. The non-audit services prohibited by IAASA’s Ethical Standard were not provided to the Company and we remained independent of the Company in conducting our audit. We have not provided any non-audit services to the Company during the financial year ended 31 December 2020. Our audit opinion is consistent with the additional report to the Board of Directors we are required to provide in accordance with ISA (Ireland) 260. ____________________ Teresa Morahan for and on behalf of BDO Statutory Audit Firm Dublin AI223876 Date: 21 June 2021. 37 PetroNeft Resources plc Consolidated Income Statement For the year ended 31 December 2020 Revenue Cost of sales Gross profit Administrative expenses Operating loss Share of joint venture's net loss - WorldAce Investments Limited Share of joint venture's net loss - Russian BD Holdings B.V. Finance Income Finance costs Profit on equity settlement of liabilities financial Profit on modification of financial liabilities Loss for the year for continuing operations before taxation Income tax expense Loss for the year attributable to equity holders of the Parent Loss per share attributable to ordinary equity holders of the Parent Basic and Diluted - US dollar cent Note 5 7 13 14 8 9 26 21 10 2020 US$ 1,695,524 (1,440,560) 254,964 (1,035,040) (780,076) 2019 US$ 1,443,568 (1,333,339) 110,229 (807,507) (697,278) (5,737,042) (7,510,318) (705,249) 3,583,166 (432,362) 206,044 218,898 (664,455) 4,275,181 (369,950) - - (3,646,621) (4,966,820) (895,240) (1,075,634) (4,541,861) (6,042,454) 11 (0.55) (0.84) Consolidated Statement of Comprehensive Income For the year ended 31 December 2020 Loss for the year attributable to equity holders of the Parent Other comprehensive income maybe reclassified to profit or loss in subsequent years: Currency translation adjustments - subsidiaries Share of joint ventures' other comprehensive income - foreign exchange translation differences Total comprehensive loss for the year attributable to equity holders of the Parent 2020 US$ 2019 US$ (4,541,861) (6,042,454) 68,348 (77,816) (7,579,354) 4,996,109 (12,052,867) (1,124,161) [38] PetroNeft Resources plc Consolidated Statement of Financial Position As at 31 December 2020 Note 2020 US$ 2019 US$ Assets Non-current Assets Property, plant, and equipment Equity-accounted investment in joint ventures - WorldAce Investments Limited Equity-accounted investment in joint ventures - Russian BD Holdings B.V. Financial assets - loans to joint ventures Current Assets Inventories Trade and other receivables Cash and cash equivalents Total Assets Equity and Liabilities Capital and Reserves Called up share capital Share premium account Share-based payments reserve Retained loss Currency translation reserve Other reserves Non-current Liabilities Interest-bearing loans and borrowings Deferred tax liability Current Liabilities Interest-bearing loans and borrowings Trade and other payables Total Liabilities Total Equity and Liabilities 12 13 14 16 17 18 19 20 21 10 21 22 Approved by the Board on 21 June 2021. ______________________ Alastair McBain Director ______________________ David Sturt Director [39] 4,682 28,843 - - 27,340,710 27,345,392 19,387 2,528,931 101,028 2,649,346 - - 37,591,655 37,620,498 18,965 1,136,940 345,532 1,501,437 29,994,738 39,121,935 10,896,668 141,794,897 6,796,540 (101,587,568) (39,551,087) 379,923 18,729,373 - 5,199,522 5,199,522 4,151,391 1,914,452 6,065,843 11,265,365 29,994,738 9,585,965 141,006,709 6,796,540 (97,045,707) (32,040,081) 379,923 28,683,349 - 4,303,779 4,303,779 4,242,849 1,891,958 6,134,807 10,438,586 39,121,935 $ S U $ S U $ S U $ S U $ S U $ S U l a t o T s s o l i d e n a t e R y c n e r r u C d e s a b - e r a h S i m u m e r p e r a h S e r a h s p u d e l l a C e v r e s e r s e v r e s e r n o i t a l s n a r t r e h t o d n a t n e m y a p t n u o c c a l a t i p a c y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 r e b m e c e D 1 3 d e d n e r a e y e h t r o F c l p s e c r u o s e R t f e N o r t e P 3 2 9 , 3 4 4 9 5 , 0 5 2 - - ) 6 1 8 7 7 ( , , ) 4 5 4 2 4 0 6 ( , , 9 0 1 6 9 9 4 , - - , ) 4 5 4 2 4 0 6 ( , - - - ) 6 1 8 7 7 ( , , 9 0 1 6 9 9 4 , 3 9 9 , 2 1 5 , 9 2 ) 3 5 2 , 3 0 0 , 1 9 ( ) 4 7 3 , 8 5 9 , 6 3 ( , ) 1 6 1 4 2 1 1 ( , , ) 4 5 4 2 4 0 6 ( , , 3 9 2 8 1 9 4 , - - - - - 3 2 9 , 3 4 0 4 5 , 2 3 1 , 7 - - - - - - - - - - 1 1 8 , 3 9 8 9 8 , 2 1 9 , 0 4 1 3 8 7 , 6 5 1 2 8 1 , 9 2 4 , 9 s e c n e r e f f i d n o i t a l s n a r t e g n a h c x e n g e r o f i - e m o c n i i s e i r a d i s b u s - s t n e m j t s u d a n o i t a l s n a r t y c n e r r u C e v i s n e h e r p m o c r e h t o ' s e r u t n e v t n o i j f o e r a h S r a e y e h t r o f s s o l e v i s n e h e r p m o c l a t o T e v r e s e r n o i t p o t b e d e b i t r e v n o C l r a e y e h t r o f s s o L l a t i p a C e r a h S f o e u s s I 9 1 0 2 y r a u n a J 1 t A 9 4 3 , 3 8 6 , 8 2 ) 7 0 7 , 5 4 0 , 7 9 ( ) 1 8 0 , 0 4 0 , 2 3 ( 3 6 4 , 6 7 1 , 7 9 0 7 , 6 0 0 , 1 4 1 5 6 9 , 5 8 5 , 9 9 1 0 2 r e b m e c e D 1 3 t A 9 4 3 , 3 8 6 , 8 2 ) 7 0 7 , 5 4 0 , 7 9 ( ) 1 8 0 , 0 4 0 , 2 3 ( 3 6 4 , 6 7 1 , 7 9 0 7 , 6 0 0 , 1 4 1 5 6 9 , 5 8 5 , 9 8 4 3 8 6 , , ) 4 5 3 9 7 5 7 ( , - - , 1 9 8 8 9 0 2 , - , ) 1 6 8 1 4 5 4 ( , , ) 1 6 8 1 4 5 4 ( , - - 8 4 3 8 6 , , ) 4 5 3 9 7 5 7 ( , , ) 7 6 8 2 5 0 2 1 ( , , ) 1 6 8 1 4 5 4 ( , , ) 6 0 0 1 1 5 7 ( , - - - - - - - - - 8 8 1 8 8 7 , - - - - , 3 0 7 0 1 3 1 , s e c n e r e f f i d n o i t a l s n a r t e g n a h c x e n g e r o f i - e m o c n i i s e i r a d i s b u s - s t n e m j t s u d a n o i t a l s n a r t y c n e r r u C e v i s n e h e r p m o c r e h t o ' s e r u t n e v t n o i j f o e r a h S r a e y e h t r o f s s o l e v i s n e h e r p m o c l a t o T 1 * l a t i p a C e r a h S f o e u s s I 0 2 0 2 y r a u n a J 1 t A r a e y e h t r o f s s o L 3 7 3 , 9 2 7 , 8 1 ) 8 6 5 , 7 8 5 , 1 0 1 ( ) 7 8 0 , 1 5 5 , 9 3 ( 3 6 4 , 6 7 1 , 7 7 9 8 , 4 9 7 , 1 4 1 8 6 6 , 6 9 8 , 0 1 0 2 0 2 r e b m e c e D 1 3 t A s i n n e D o t d e u s s i s a w s e r a h s i y r a n d r o 4 0 2 1 7 4 0 1 f o , , l a t o t A . M 1 . 2 $ D S U f o e s i a r d n u f a f o t r a p s a d e u s s i e r e w s e r a h s i y r a n d r o 7 3 0 5 5 7 7 0 1 f o , , l a t o t a , 0 2 0 2 g n i r u D - 1 * . e m e h c s n o i t p o e r a h s s ' y n a p m o C e h t o t n o i t a e r n l i s e g r a h c t n e m y a p d e s a b - e r a h s n o g n i s i r a t i d e r c e h t s i s e v r e s e r r e h t o d n a t n e m y a p d e s a b e r a h S . s n o i t a r e p o s a e s r e v o e h t f o n o i t a l s n a r t e h t n o g n i s i r a s e s s o l r o s n a g s i i s e v r e s e r n o i t a l s n a r t y c n e r r u C . s t s o c e c n a u s s i e r a h s f o t e n , e u a v l l i a n m o n r i e h t n a h t e r o m d e u s s i s e r a h s r o f d e v i e c e r t n u o m a e h t s i i m u m e r p e r a h S e u a v l r a p o t i m u m e r p a t a d e u s s i e r e w s e r a h S i . g n w o s e e f , s ' r o t c e r i D 0 0 0 0 0 2 $ f o n o i t c a f s i t a s n i s i c n a r F e m o c n I e v i s n e h e r p m o C f o t n e m e t a t S d e t a d i l o s n o C e h t n i d e s i n g o c e r s e s s o l l e v i t a u m u c e h t s i s s o l i d e n a t e R ] 0 4 [ PetroNeft Resources plc Consolidated Cash Flow Statement For the year ended 31 December 2020 Note 2020 US$ 2019 US$ Operating activities Loss before taxation Adjustment to reconcile loss before tax to net cash flows Non-cash Depreciation Share of loss in joint ventures Foreign Exchange Gains Share based payment Profit on equity settlement of financial liabilities Profit on modification of financial liabilities Finance Income Finance costs 8 9 Income tax expense Working capital adjustments Decrease/(Increase) in trade and other receivables Decrease/(Increase) in inventories Increase in trade and other payables Net cash flows used in operating activities Investing activities Loan facilities advanced to joint venture undertakings Purchase of Property, Plant and Equipment Interest received Net cash used in investing activities Financing activities Proceeds from the issue of Share Capital Proceeds from issue of Convertible debt option Repayment of interest on loan facilities Proceeds from loan facilities Net cash received from financing activities Net increase/(decrease) in cash and cash equivalents Translation adjustment Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 19 (3,646,621) (4,966,820) 23,884 8,174,773 (28,528) - - - (4,275,181) 369,950 (7,493) (875,067) (11,115) 73,598 (1,521,999) (392,000) (9,720) 2,613 (987,607) 250,594 43,923 - 1,756,074 2,050,591 795,166 2,609 9,389 345,532 21,671 6,442,296 146,580 731,268 (206,044) (218,898) (3,583,166) 432,362 503 (1,415,494) (3,741) 42,671 (1,256,613) (277,095) 4,980 194 (271,921) 1,573,667 - (277,746) - 1,295,921 (232,613) (11,891) 345,532 101,028 [41] PetroNeft Resources plc Company Statement of Financial Position As at 31 December 2020 Non-current Assets Property, plant, and equipment Financial assets - investments in joint ventures and subsidiaries Financial assets - loans to joint ventures Current Assets Trade and other receivables Cash and cash equivalents Total Assets Equity and Liabilities Capital and Reserves Called up share capital Share premium account Share-based payment reserve Retained loss Other reserves Equity attributable to equity holders of the parent Non-current Liabilities Deferred tax liability Current Liabilities Interest-bearing loans and borrowings Trade and other payables Total Liabilities Total Equity and Liabilities Note 2020 US$ 2019 US$ 12 15 16 18 19 20 10 21 22 - - 13,848 27,340,710 27,354,558 2,403,084 94,970 2,498,054 13,848 37,591,655 37,605,503 1,220,339 257,916 1,478,255 29,852,612 39,083,758 10,896,668 141,794,897 6,796,540 9,585,965 141,006,709 6,796,540 (141,157,590) (128,926,419) 379,923 18,710,438 379,923 28,842,718 5,199,522 5,199,522 4,151,391 1,791,261 5,942,652 4,303,779 4,303,779 4,242,849 1,694,412 5,937,261 11,142,174 29,852,612 10,241,040 39,083,758 The Company reported a loss for the financial year ended 31 December 2020 of US$12.2 million (2019: Loss of US$1.1 million). Approved by the Board on 21 June 2021. ______________________ Alastair McBain Director ______________________ David Sturt Director [42] $ S U l a t o T 3 2 9 , 3 4 4 9 5 , 0 5 2 7 2 8 , 5 8 6 , 9 2 - - $ S U s s o l i d e n a t e R ) 3 9 7 , 8 8 7 , 7 2 1 ( , ) 6 2 6 7 3 1 1 ( , , ) 6 2 6 7 3 1 1 ( , , ) 6 2 6 7 3 1 1 ( , , ) 6 2 6 7 3 1 1 ( , 8 1 7 , 2 4 8 , 8 2 8 1 7 , 2 4 8 , 8 2 ) 9 1 4 , 6 2 9 , 8 2 1 ( ) 9 1 4 , 6 2 9 , 8 2 1 ( , 1 9 8 8 9 0 2 , - , ) 1 7 1 1 3 2 2 1 ( , , ) 1 7 1 1 3 2 2 1 ( , - - , ) 1 7 1 1 3 2 2 1 ( , , ) 1 7 1 1 3 2 2 1 ( , $ S U d e s a b - e r a h S d n a t n e m y a p s e v r e s e r r e h t o - - - - - - - 3 2 9 , 3 4 0 4 5 , 2 3 1 , 7 3 6 4 , 6 7 1 , 7 3 6 4 , 6 7 1 , 7 1 1 8 , 3 9 8 9 8 , 2 1 9 , 0 4 1 3 8 7 , 6 5 1 2 8 1 , 9 2 4 , 9 $ S U $ S U i m u m e r p e r a h S l a t i p a c e r a h S - - - - - 9 0 7 , 6 0 0 , 1 4 1 8 8 1 8 8 7 , 9 0 7 , 6 0 0 , 1 4 1 - - - - - - 5 6 9 , 5 8 5 , 9 5 6 9 , 5 8 5 , 9 , 3 0 7 0 1 3 1 , 8 3 4 , 0 1 7 , 8 1 ) 0 9 5 , 7 5 1 , 1 4 1 ( 3 6 4 , 6 7 1 , 7 7 9 8 , 4 9 7 , 1 4 1 8 6 6 , 6 9 8 , 0 1 n i s e g n a h C f o t n e m e t a t S y n a p m o C y t i u q E 0 2 0 2 r e b m e c e D 1 3 d e d n e r a e y e h t r o F c l p s e c r u o s e R t f e N o r t e P r a e y e h t r o f s s o l e v i s n e h e r p m o c l a t o T e v r e s e r n o i t p o t b e d e b i t r e v n o C l r a e y e h t r o f s s o L l a t i p a C e r a h S f o e u s s I 9 1 0 2 y r a u n a J 1 t A r a e y e h t r o f s s o l e v i s n e h e r p m o c l a t o T e v r e s e r n o i t p o t b e d e b i t r e v n o C l r a e y e h t r o f s s o L 0 2 0 2 r e b m e c e D 1 3 t A 1 * l a t i p a C e r a h S f o e u s s I 0 2 0 2 y r a u n a J 1 t A 9 1 0 2 r e b m e c e D 1 3 t A s a w s e r a h s i y r a n d r o 4 0 2 1 7 4 0 1 f o , , l a t o t A . M 1 . 2 $ D S U f o e s i a r d n u f a f o t r a p s a d e u s s i i e r e w s e r a h s y r a n d r o 7 3 0 5 5 7 7 0 1 f o , , l a t o t a , 0 2 0 2 g n i r u D - 1 * . e m e h c s n o i t p o e r a h s s ' y n a p m o C e h t o t n o i t a e r n l i s e g r a h c t n e m y a p d e s a b - e r a h s n o g n i s i r a t i d e r c e h t s i s e v r e s e r r e h t o d n a t n e m y a p d e s a b e r a h S . s n o i t a r e p o s a e s r e v o e h t f o n o i t a l s n a r t e h t n o g n i s i r a s e s s o l r o s n a g s i i s e v r e s e r n o i t a l s n a r t y c n e r r u C e u a v l r a p o t i m u m e r p a t a d e u s s i e r e w s e r a h S i . g n w o s e e f , s ' r o t c e r i D 0 0 0 0 0 2 $ f o n o i t c a f s i t a s n i s i c n a r F s i n n e D o t d e u s s i . s t s o c e c n a u s s i e r a h s f o t e n , e u a v l l i a n m o n r i e h t n a h t e r o m d e u s s i s e r a h s r o f d e v i e c e r t n u o m a e h t s i i m u m e r p e r a h S e v i s n e h e r p m o C f o t n e m e t a t S d e t a d i l o s n o C e h t n i d e s i n g o c e r s e s s o l l e v i t a u m u c e h t s i s s o l i d e n a t e R e m o c n I ] 3 4 [ PetroNeft Resources plc Company Cash Flow Statement For the year ended 31 December 2020 Note 2020 US$ 2019 US$ Operating Activities Loss before taxation Adjustments to reconcile loss before tax to net cash flows Non-cash Depreciation of property, plant, and equipment Allowance for doubtful debts on financial assets - loans and receivables Foreign Exchange Gains Share based payment Profit on equity settlement of financial liabilities Profit on modification of financial liabilities Finance income Finance costs Income tax expense Working capital adjustments Decrease/(Increase) in trade and other receivables Increase in trade and other payables Net cash flows used in operating activities Investing activities Loan facilities advances Return of loan facilities Interest received Net cash (used in)/received from investing activities Financing activities Proceeds from the issue of Share Capital Proceeds from issue of Convertible debt option Repayment of interest on loan facilities Proceeds from loan facilities Net cash received from financing activities Net decrease in cash and cash equivalents Translation adjustment Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 19 (11,335,428) (69,084) - 486 14,036,806 128,204 731,268 (206,044) (218,898) 3,178,664 (4,694) - - - (3,582,975) (4,274,171) 432,362 196 (1,353,657) 105,645 (1,262,521) (277,095) 79,993 3 369,950 (205) (865,296) 61,863 (1,602,487) (980,500) - 1,603 (197,099) (978,897) 1,573,667 - (277,746) - 1,295,921 (163,699) 753 257,916 94,970 250,594 43,923 - 1,756,074 2,050,591 (530,793) (2,044) 790,753 257,916 [44] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 1. General information on the Company and the Group PetroNeft Resources plc (“PetroNeft”, “the Company”, or together with its subsidiaries and joint ventures, “the Group”) is a public limited Company incorporated in the Republic of Ireland with a Company registration number 408101. The Company is listed on the Alternative Investments Market (“AIM”) of the London Stock Exchange and the Enterprise Securities Market (“ESM”) of Euronext. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland. The principal activities of the Group, which are unchanged from last year, are oil and gas exploration, development, and production. 2. Going Concern As described in the Financial Review on page 19, in December2020 PetroNeft agreed an extension of the loan facility, which was due to mature on 15 December 2020 with Swedish Company Petrogrand AB, a related party. The revised loan maturity date is 15 December 2021, and may, at PetroNeft’s option, be extended for a further year if certain milestones are met. The loan is secured by way of a floating charge on the assets of PetroNeft. The extension of the loan facility has provided time and space for a more long-term financing solution to be put in place. In February 2021, the Company agreed another loan facility with a group of 13 investors for US$2.9 million. This loan matures on 11 March 2023, or such later date as may be agreed, and a portion (up to 75% of the principal) may be repaid via conversion to Ordinary shares of the Company at the option of the lenders at a conversion price of STG0.02 per share. Seven of the thirteen investors are related parties. The money raised will primarily be used to fund the 2021 capital investment program and meet ongoing operational cost. It demonstrated significant commitment from the largest Shareholders, Directors and Senior Management In early 2020, the emergence of the Covid-19 pandemic required the Company to make several adjustments to operating procedures, investment decisions and staff HSE protocols to protect its employees, joint venture partners and contractors. Production continued with a reduced level of essential field staff, home working was instituted where practicable, staff voluntarily took pay cuts and the Group actively worked with its suppliers and service providers in rescheduling payments to retain maximum financial flexibility. When the restrictions were partially lifted, the Group resumed full scale production in May. With a rebound in oil prices, the ongoing cost saving program and the Mineral Extraction Tax percentage per barrel produced trending lower in 2020 than 2019, the Group's cashflow improved, enabling it to address payables that had been rescheduled, reverse the temporary salary reduction, and engage constructively with joint venture partners, current and potential future lenders, and investors to support its ongoing investment plans. The Group continuously monitors the ongoing progress and status of the pandemic to ensure it reacts quickly where required. As part of this process the frequency of Board meetings has increased and Board members are closely involved in material cost and investment decisions as well as regular review of the Group's forecast cashflows, short term liquidity and expenditure plans The Group has analysed its cash flow requirements through to 30 June 2022 in detail. The cash flows are highly dependent on the successful extension or re-financing of the Petrogrand AB loan and other loans, on future production rates and oil prices achieved in its joint-venture undertaking, WorldAce Investments Limited and future cash flows from LLC LIneynoye (Licence 67) once Cheremshanskoye is producing at material levels. In addition, the Group, together with its Joint Venture partner OIL India B.V is actively investigating the opportunity to secure debt in the local Russian market for Stimul-T. Should the Petrogrand AB loan or other loans not be extended or re-financed the Group will need additional funding to continue as a going concern. The Group has put in place cost saving measures and the Board and management have agreed to reduce and defer significant portions of their remuneration. Note 26 outlines the amounts owed to the Board and management in this regard. [45] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 2. Going concern (continued) Given the remarkable rebound in oil prices, and Management demonstrating their capacity to maintain and increase production through efficient capital allocation programs, plus the real probability that Licence 67 will become a significant oil generating asset in 2021, the Board and Management are confident in the underlying investment case supporting both Licences. The Board and Management while rolling out their strategic plan for the operations will continue to realise the latent potential of both the Licences. Proving up reserves, boosting production, maintaining efficient programs on opex and capital spend, drives through enhanced valuation, improved cashflows and future sustainability. None the less, the above circumstances represent material uncertainties that may cast significant doubt upon the Group and the Company’s ability to continue as a going concern. After making enquiries, and considering the uncertainties described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. The judgement is supported by • • • • • • the strong reserve inventory and improvements in operational performance the existing infrastructure in place that can support production volumes up to 14,700 bopd a very strong investment case the continued support of our Joint Venture and oil marketing partners the continuous support of our principal shareholders, as evidenced by their support for both debt and equity issues the continuous support of our lenders, both convertible and conventional debt For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company were unable to continue as a going concern 3. Accounting policies 3.1 Basis of Preparation The financial statements have been prepared on a historical cost basis. The financial statements are presented in US Dollars (’US$’). The accounting policies set out below have been applied consistently by all the Group’s subsidiaries and joint ventures to all periods presented in these consolidated financial statements. Statement of Compliance The consolidated and standalone financial statements of PetroNeft Resources plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (” IFRS”) as adopted by the European Union (“EU”). 3.2 Basis of Consolidation The consolidated financial statements comprise the financial statements of PetroNeft Resources plc and its subsidiaries as at 31 December each year. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved when the Company has power over the investee, is exposed or has rights to variable returns from its involvement with the investee and can use its power to affect its returns. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company. All intra-Group balances, income and expenses and unrealised gains and losses resulting from intra-Group transactions are eliminated in full. [46] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.2 Basis of Consolidation (continued) A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary. • Derecognises the carrying amount of any non-controlling interest. • Derecognises the cumulative translation differences recognised in equity. • Recognises the fair value of the consideration received. • Recognises the fair value of any investment retained. • Recognises any surplus or deficit in profit or loss. • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. The Group has an interest in two joint venture undertakings, WorldAce Investments Limited and Russian BD Holdings B.V. A joint venture (‘JV’) is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when the decisions about the relevant activities require unanimous consent of the parties sharing control. The Group’s investments in its joint ventures are accounted for using the equity method. Under the equity method, an investment in the joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Consolidated income statement reflects Group’s share of the results of operations of joint venture. Any change in other comprehensive income of the investee is presented as part of the Group’s other comprehensive income. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. When the Group’s share of losses of a joint venture exceeds the Group’s interest in that joint venture (which includes any long-term interest that, in substance, form part of the Group’s net investment in joint venture), the Group discontinues recognising its share of further losses. The financial statements of the joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. The Group, acting as the operator of the JVs, receives reimbursement of direct costs recharged to its joint ventures, such recharges represent reimbursements of costs that the operator incurred as an agent for the joint ventures. When the Group charges a management fee to cover other general costs incurred in carrying out the activities on behalf of the joint venture, it is not acting as an agent. 3.3 Business Combination Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; [47] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting Policies (continued) 3.3 Business Combination (continued) • • liabilities or equity instruments related to share-based payment arrangements of the acquiree, or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. 3.4 Significant Accounting Judgements, Estimates and Assumptions The preparation of the Group’s consolidated financial statements in compliance with IFRS as adopted by the European Union (“EU”) requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting year and the amounts of revenues and expenses recognised during the reporting period. Estimates and judgements are continuously evaluated and are based on management’s experience and other factors, including expectations of the future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that require an adjustment to the carrying amount of the asset or liability affected in future periods. (a) Judgements In the process of applying the Group's accounting policies, management has made the following judgements, apart from those involving estimations, which have a significant effect on amounts recognised in the consolidated financial statements. Going concern – Note 2 The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The basis for this judgement is the continued active support of its principal shareholders and the inherent value of the underlying reserves which should generate considerable free cashflow once a targeted development program is rolled out. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in Note 2 above. Loans and receivables from joint ventures – Notes 13, 14 and 16 During the year share of losses and currency translation adjustments in the joint ventures exceeded the carrying value of equity-accounted investment in joint ventures. It was judged that the loans receivable from the joint ventures are long term interests that, in substance, form part of the entity’s net investment in the joint venture, and post application of IFRS 9 to long term interest, under IAS 28, any excess loss should be credited against the carrying value of the receivable from the joint venture Company in accordance with IAS 28. Business model assessment Classification and measurement of financial assets depends on the results of the Solely Payments of Principal and Interest (SPPI) and the business model test. The Group determines the business model at a level that reflects how groups of financial assets are managed together to achieve a business objective. This business model assessment moves from estimates to judgements reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. The Group monitors financial assets measured at amortised cost or fair value through other comprehensive income that are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business model for which the asset was held. Monitoring is part of the Group's continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those assets. No such changes were required during the periods presented. [48] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.4 Significant Accounting Judgements, Estimates and Assumptions (continued) (b) Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: Income tax Significant judgment is required in determining the provision for income taxes. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Impairment of financial assets – Note 15 Investments in joint ventures and subsidiaries in the Parent Company balance sheet are stated at cost and are reviewed for impairment if there are indications that the carrying value may not be recoverable in the parent Company balance sheet. 3.5 Summary of Significant Accounting Policies (a) Foreign currencies The consolidated financial statements are presented in US Dollars, which is the Group’s presentational currency. The US Dollar is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Company’s Russian subsidiaries’ functional currency is the Russian Rouble. Transactions in foreign currencies are initially recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement except for all monetary items that provide an effective hedge for a net investment in a foreign operation. These are recognised in other comprehensive income until the disposal of the net investment. Non-monetary items are translated using the exchange rates ruling as at the date of the initial transaction. The assets and liabilities of foreign operations are translated into US Dollars at the rate of exchange ruling at the balance sheet date and their Income Statements are translated at monthly average exchange rates. The exchange differences arising on the translation are taken directly to equity. The relevant average and closing exchange rates for 2020 and 2019 were: US$1 = Russian Rouble Euro British Pound 2020 2019 Closing 74.54 0.8149 0.7326 Average 72.325 0.8774 0.7771 Closing 61.905 0.8901 0.7573 Average 64.837 0.8935 0.7839 [49] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued) (b) Property, plant, and equipment Property, plant, and equipment are stated at cost, less accumulated depreciation. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation, and for qualifying assets, relevant borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Depreciation Property, plant, and equipment are generally depreciated on a straight-line basis over their estimated useful lives at the following annual rates: • Plant and machinery – 10% to 35%. (c) Impairment of property, plant, and equipment At each balance sheet date, the Group reviews the carrying amounts of its property, plant, and equipment to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated to determine the extent of any impairment loss. The recoverable amount is determined as the higher of the fair-value-less-costs–of-disposal for the asset and the asset’s value-in-use. If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired, and an impairment loss is charged to the Consolidated Income Statement to reduce the carrying amount in the Consolidated Balance Sheet to its recoverable amount. Fair value is determined as the amount that would be obtained from the sale of the asset in an orderly transaction between market participants at the measurement date. Direct costs of selling the asset are deducted. Fair value for oil and gas assets is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal, using assumptions that a market participant could consider. These cash flows are discounted by an appropriate discount rate to arrive at a net present value (“NPV”) of the asset. Value-in-use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal. Value-in-use is determined by applying assumptions specific to the Group’s continued use and cannot consider future development. These assumptions are different to those used in calculating fair value and consequently the value-in-use calculation is likely to give a different result to a fair value calculation. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (d) Financial assets Financial assets – Classification From 1 January 2018, the Group classifies its financial assets in the following measurement categories: • those to be measured at amortised cost, and • those to be measured subsequently at fair value (either through OCI or through profit or loss). The classification and subsequent measurement of debt financial assets depends on: (i) the Group's business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. [50] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued) For investments in equity instruments that are not held for trading, classification will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). This election is made on an investment-by-investment basis. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). Financial assets - Recognition and derecognition Purchases of financial assets are recognized when the entity becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Financial assets - Measurement At initial recognition, a financial asset is measured at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. Financial assets - impairment - credit loss allowance for ECL From 1 January 2018, the Group assesses on a forward-looking basis the expected credit losses “ECL” for debt instruments (including loans) measured at Amortised Cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Group measures ECL and recognises credit loss allowance at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions, and forecasts of future conditions. The carrying amount of the financial assets is reduced using an allowance account, and the amount of the loss is disclosed separately in the statement of profit or loss within the Impairment of Financial Assets Loans and Receivables Debt instruments measured at Amortised Cost are presented in the statement of financial position net of the allowance for ECL. Expected losses are recognized and measured according to one of two approaches: general approach or simplified approach. For trade receivables the Group applies the simplified approach permitted by IFRS 9, which uses lifetime expected losses to be recognised from initial recognition of the financial assets. For all other financial asset that are subject to impairment under IFRS 9, the Group applies general approach three stage model for impairment. The Group applies a three-stage model for impairment, based on changes in credit quality since initial recognition. A financial instrument that is not credit impaired on initial recognition is classified in Stage 1. [51] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued) Financial assets - write off Financial assets are written off, in whole or in part, when the Group exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write off represents a derecognition event. The Group may write off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits. Cash and cash equivalents are carried at amortised cost. Financial assets at amortised cost These are held with the objective to collect their contractual cash flows and their cash flows represent solely payments of principal and interest. Accordingly, these are measured at amortised cost using the effective interest method, less provision for impairment. Financial assets at amortised cost are classified as current assets if they are due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current assets. Trade receivables, loans, and other receivables are classified as ‘loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Loans to and receivables from joint ventures represent funding by the Company for which repayment is neither planned nor likely to occur in the foreseeable future. These are treated as part of the Company’s net investment in the joint ventures. (e) Financial liabilities Financial liabilities - measurement categories Financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments. Financial Liabilities-Fair value through profit or loss This category comprises out-of-the-money derivatives where the time value does not offset the negative intrinsic value. They are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income. The Group does not hold or issue derivative instruments for speculative purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Non-current liabilities Non-current liabilities represent amounts that are due more than twelve months from the reporting date. Interest-bearing loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Income Statement when the liabilities are derecognised as well as through the EIR amortisation process. [52] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued) Amortised cost is calculated by considering any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the Income Statement. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the Income Statement. Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. (f) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, if market participants act in their economic best interest. A fair value measurement of a non-financial asset considers a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data. (g) Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition. Net realisable value represents the estimated selling price in the normal course of business less estimated costs of completion and estimated costs necessary to make the sale. [53] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies(continued) (h) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) because of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Consolidated Income Statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognised but are disclosed where an inflow of economic benefits is probable. (i) Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. (j) Share capital Ordinary shares are classified as equity. Costs of share issues are deducted from equity. (k) Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except:  in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised except: [54] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued)  in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognised outside of profit and loss is recognised outside profit and loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. (l) Revenue recognition Revenue is recognised when control has been transferred to the customer. Revenue is recognized at the transaction price which the Group expects to be entitled to, after deducting sales taxes, excise duties and similar levies. For contracts that contain separate performance obligations the transaction price is allocated to those separate performance obligations by reference to their relative standalone selling prices. The Group recognises revenue from the following major sources:  Management services; and  Construction services. Both streams of revenue are predominantly generated from joint venture undertakings. Revenue from management services is recognised in accordance with agreements with our joint venture partners. The provision of management services is recognised monthly at a variable price with an application of “right to invoice” practical expedient. Revenue from construction services is recognised monthly in accordance with agreed work completion schedules. (m) Share-based payment Employees (including senior executives) and Directors of the Group may receive fees and remuneration in the form of share- based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”). In situations where equity instruments are issued and some or all the goods or services received by the entity as consideration cannot be specifically identified, the unidentified goods or services received (or to be received) are measured as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods or services received at the grant date. This is then capitalised or expensed as appropriate. [55] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies Equity-settled transactions The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using an appropriate pricing model, further details of which are given in Note 27. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether the market or non- vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled transaction are modified, the minimum expense recognised is the expense as if the terms had not been modified if the original terms of the awards are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. Where appropriate, the dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. (n) Leases The Company accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period in exchange for consideration. Leases are those contracts that satisfy the following criteria: (a) There is an identified asset; (b) The Company obtains substantially all the economic benefits from use of the asset; and (c) The Company has the right to direct use of the asset. The Company considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease. In determining whether the Company obtains substantially all the economic benefits from use of the asset, the Company considers only the economic benefits that arise use of the asset, not those incidentals to legal ownership or other potential benefits. In determining whether the Company has the right to direct use of the asset, the Company considers whether it directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Company considers whether it was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Company applies other applicable IFRSs rather than IFRS 16. (o) Finance Income and finance cost For all financial instruments measured at amortised cost, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected [56] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3. Accounting policies (continued) 3.5 Summary of Significant Accounting Policies (continued) life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in Finance Income in the income statement. (p) Employee Costs Liabilities for wages and salaries, including non-monetary benefits are measured at the amount expected to be paid when the liability is settled. The liability for annual leave is recognised in current provisions in respect of employees' services up to the reporting date and is measured at the amount expected to be paid when the liability is settled. Regardless of the expected timing of settlements, provisions made in respect of employee benefits are classified as a current liability, unless there is an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date, in which case it would be classified as a non-current liability. Pension benefits are funded over the employees’ period of service by way of contributions to a defined contribution scheme. Contributions are charged to the Consolidated Income Statement in the year to which they relate. (q) Convertible debt The proceeds received on issue of the Group's convertible debt are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The remainder of the proceeds is allocated to the conversion option and is recognised in the "Convertible debt option reserve" within shareholders' equity, net of income tax effects. (r) Joint Arrangements Joint arrangements the group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries. The group classifies its interests in joint arrangements as either: - Joint ventures: where the group has rights to only the net assets of the joint arrangement - Joint operations: where the group has both the rights to assets and obligations for the liabilities of the joint arrangement. In assessing the classification of interests in joint arrangements, the Group considers: - The structure of the joint arrangement - The legal form of joint arrangements structured through a separate vehicle - The contractual terms of the joint arrangement agreement - Any other facts and circumstances (including any other contractual arrangements). The Group accounts for its interests in joint ventures in the same manner as investments in Associates (i.e., using the equity method). Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets. The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues, and expenses in accordance with its contractually conferred rights and obligations. In accordance with IFRS 11 Joint Arrangements, the Group is required to apply all the principles of IFRS 3 Business Combinations when it acquires an interest in a joint operation that constitutes a business as defined by IFRS 3. Judgement For all joint arrangements structured in separate vehicles the Group must assess the substance of the joint arrangement in determining whether it is classified as a joint venture or joint operation. This assessment requires the Group to consider whether it has rights to the joint arrangement’s net assets (in which case it is classified as a joint venture), or rights to and obligations for specific assets, liabilities, expenses, and revenues (in which case it is classified as a joint operation). Factors the group must consider include: − Structure − Legal form − Contractual agreement − Other facts and circumstances. Upon consideration of these factors, the Group has determined that all its joint arrangements structured through separate vehicles give it rights to the net assets and are therefore classified as joint ventures. [57] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 3.6 Changes in Accounting Policy and Disclosures Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations 3.6 Adoption of new or revised standards and interpretations The following new standards, interpretations and standard amendments became effective for the Group as of 1 January 2020: IFRS 3 Business Combinations – Definition of a business • Amendments to IAS 1 Presentation of Financial Statements and IAS 8 – Definition of material • Amendments to References to the Conceptual Framework in IFRS Standards • Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures - Interest Rate Benchmark Reform. The following standard amendment was issued in May 2020 effective for annual reporting periods beginning on or after 1 June 2020 with earlier application permitted: • Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions. The amendment was adopted effective 1 January 2020 and did not result in a material impact on the Group’s results. The new standards, interpretations and standard amendments did not result in a material impact on the Group’s results. 3.7 New accounting pronouncements At the date of approval of these financial statements, standards and interpretations were issued by the International Accounting Standards Board which were not yet effective. Some of them were adopted by the European Union and others not yet. The Board of Directors expects that the adoption of these accounting standards in future periods will not have a material effect on the financial statements of the Company New standards IFRS 17 ''Insurance Contracts'' In May 2017, the IASB issued IFRS 17 which will be effective for reporting periods beginning on or after 1 January 2023, with presentation of comparative figures required. The Group is currently evaluating the impact of this standard on future periods. There are no other IFRS or IFRIC interpretations that are effective after the Group’s 2020 financial year. [58] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 4. Segment information The Group has several reporting segments which are shown below. They include segment information on allocation of assets and segment information on revenues by both location and customer. The risk and returns of the Group’s operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group’s organisational structure and the Group’s internal financial reporting systems. Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements. Geographical segments Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all the Group’s sales and capital expenditures are in Russia. Segment Information Assets are allocated based on where the assets are located: Non-current assets Russia Ireland Revenues are allocated on where the underlying business and assets are located. Revenue- Location Russia Revenue- Customer 2020 US$ 2019 US$ 27,345,392 37,620,498 - - 27,345,392 37,620,498 2020 US$ 2019 US$ 1,695,524 1,443,568 1,695,524 1,443,568 2020 US$ 2019 US$ WorldAce Investments Limited-40% (2019- 38%) 686,498 547,617 Russian BD Holdings B.V- 12% (2019-9%) 209,092 130,544 LLC Stimul T- 48% (2019-53%) 799,934 765,407 1,695,524 1,443,568 [59] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 5. Revenue (continued) Revenue Management Services Construction Services 2020 US$ 2019 US$ 895,590 678,161 799,934 765,407 1,695,524 1,443,568 Most of the revenue from management services relate to services provided to the joint venture undertakings which PetroNeft Group have interests in. The revenue is mainly derived from two major customers Stimul-T LLC and Lineynoye LLC which comprise 77% (2019: 81%) and 23 % (2019: 19%) respectively. Payment terms are stated at 10 business days after acceptance of the invoice. 6. Employees Number of employees Group The average numbers of employees (including Directors) during the year was: Directors Senior Management Professional staff Construction crew employees Number of employees Company The average numbers of employees (including Directors) during the year was: Directors Senior Management Professional Staff Employment costs (including Directors) Group Wages and salaries Social insurance costs Contributions to defined contribution pension plan [60] 2020 Number 2019 Number 6 2 4 20 32 5 2 5 24 36 2020 Number 2019 Number 6 2 - 8 2020 US$ 1,411,844 145,691 79,161 1,636,696 5 2 1 8 2019 US$ 1,276,237 126,790 47,965 1,450,992 PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 6. Employees (continued) Employment costs (including Directors) Company Wages and salaries Social insurance costs Contributions to defined Pension Plan Directors' emoluments Group and Company Remuneration and other emoluments - Executive Directors Remuneration and other emoluments - non-Executive Directors Pension contributions 2020 US$ 1,087,842 67,040 79,161 1,234,043 2020 US$ 2019 US$ 907,114 29,380 47,965 984,459 2019 US$ 628,817 307,090 49,822 45,000 723,639 54,335 22,836 384,261 Director Executive directors David Sturt* Pavel Tetyakov Non-executive directors Thomas Hickey Anthony Sacca Daria Shaftelskaya David Sturt 2020 2019 Basic Pension Total Basic Pension Total 428,817 30,000 458,817 307,090 22,836 329,926 200,000 15,000 215,000 - - - 628,817 45,000 673,817 307.090 22,836 329,926 11,132 - 11,132 11,235 - 11,235 11,533 - 11,533 11,235 - 11,235 11,020 - 11,020 - - - - - - 2,809 - 2,809 Maxim Korobov 913 - 913 11,235 - 11,235 Total Directors remuneration * Includes Medical Insurance of US$28,817. 49,822 - 49,822 54,335 54,335 678,639 45,000 723,639 361,425 22,836 384,261 [61] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 During the year amounts due to Directors and Senior Management was reduced by a share-based payment of $531,268. As detailed in Note 26, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2020 of US$470,023 (2019: US$932,344) . During 2020, a total of 10,471,204 ordinary shares was issued to former Director and Chief Executive Officer, Dennis Francis in satisfaction of $200,000 Director's fees owing. Your attention is drawn to the details of the share options held by the Directors as set out in the Report of the Directors on page 27. Pension contributions to directors during the year relate to 2 directors (2019: 1 director). An amount of US$336,908 (2019: US$165,376) relating to Executive Directors’ salaries was re-charged to WorldAce Investments Limited. An amount of US$101,073 (2019: US$53,018) relating to Executive Directors’ salaries was re-charged to Russian BD Holdings B.V. 7. Operating loss Operating loss is stated after charging/(crediting): Note 2020 US$ 2019 US$ Included in cost of sales Short term lease rentals - equipment Included in administrative expenses Foreign exchange (gains)/losses Short term lease rentals - land and buildings Depreciation of property, plant, and equipment Included in cost of sales Included in administrative expenses Auditors' remuneration - Group -audit of group financial statements -tax advisory services -other non-audit services Auditors' remuneration - Company -audit of entity financial statements -audit of group financial statements -tax advisory services -other non-audit services 12 [62] 15,835 17,614 35,642 5,192 21,667 4 21,671 69,791 - 109,453 179,244 17,250 52,541 - - 18,524 28,592 23,394 490 23,884 50,372 - 102,407 152,779 17,250 33,122 - - 69,791 50,372 PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 8. Finance income Bank interest receivable Interest receivable on loans to Joint Ventures Loss Allowance 2020 US$ 194 3,582,972 3,583,166 - 2019 US$ 2,613 4,272,568 4,275,181 - 3,583,166 4,275,181 The above financial income and expense include the following in respect of assets not at fair value through profit or loss: Total interest income on financial assets 3,583,166 4,272,181 9. Finance costs Interest on loans 2020 US$ 432,362 432,362 2019 US$ 369,950 369,950 The above financial income and expense include the following in respect of liabilities not at fair value through profit or loss: Total interest expense on financial liabilities 432,362 369,950 [63] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 10. Income Tax Group Current income tax Current income tax charge Total current income tax Deferred tax Relating to the origination and reversal of temporary differences Total deferred tax Income tax expense reported in the Consolidated Income Statement Loss before income tax Accounting loss multiplied by Irish standard rate of tax of 12.5% Non-deductible expenses Effect of higher tax rates on investment income Tax deductible timing differences Share of joint ventures' net loss Other Profits taxable at higher rates Taxable losses not utilised Utilisation of previously unrecognised tax losses Total tax expense reported in the Consolidated Income Statement Deferred tax Group and Company Deferred income tax liability At 1 January Expense for the year recognised in the income statement Translation adjustment At 31 December Deferred tax at 31 December relates to the following: Deferred income tax liability Accrued interest income on intra-Group loans [64] 2020 US$ (2,635) (2,635) 2019 US$ 7,516 7,516 897,875 897,875 1,068,118 1,068,118 895,240 1,075,634 2020 US$ (3,646,621) 2019 US$ (4,966,820) (455,828) 110,200 447,872 (5,208) 805,287 (10,528) 3,445 - (620,852) 142,117 534,271 (11,868) 1,021,847 3,971 6,148 - - - 895,240 1,075,634 2020 US$ 4,303,779 897,875 (2,132) 5,199,522 2019 US$ 3,219,203 1,068,118 16,458 4,303,779 2020 US$ 2019 US$ 5,199,522 5,199,522 4,303,779 4,303,779 PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 10. Income Tax (continued) Factors that may affect future tax charges The tax charge in future years will be affected by changes to the rates of Irish Corporation Tax. There is no current expectation that the tax rate of 12.5% in Ireland will change in the foreseeable future. 11. Loss per Ordinary Share Basic loss per Ordinary Share amounts is calculated by dividing net loss for the year attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year. Numerator Loss attributable to equity shareholders of the Parent for basic loss Denominator Weighted average number of Ordinary Shares for basic (Note 20) Loss per share: Basic and Diluted - US dollar cent 2020 US$ 2019 US$ (4,541,861) (4,541,861) (6,042,454) (6,042,454) 831,674,668 716,793,942 (0.55) (0.84) At the Financial year end the Company had convertible debt instruments in issue that could potentially dilute basic earnings per Ordinary Share in the future as per Notes 20 and 27. Of the 54,621,849 converts in issue at financial year end, a total of 52,521,008 were converted into Ordinary Shares of the Company in April 2021. Given the Company is substantially loss making, the addbacks and increased equity holding would be anti-dilutive. . [65] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 12. Property, Plant and Equipment Cost At 1 January 2019 Additions Disposals Translation adjustment At 1 January 2020 Additions Disposals Translation adjustment At 31 December 2020 Depreciation At 1 January 2019 Charge for the year Disposals Translation adjustment At 1 January 2020 Charge for the year Disposals Translation adjustment At 31 December 2020 Net book values At 31 December 2020 At 31 December 2019 Company Cost At 1 January 2019 At 1 January 2020 At 31 December 2020 Depreciation At 1 January 2019 Charge for the year At 1 January 2020 Charge for the year At 31 December 2020 Net book values At 31 December 2020 At 31 December 2019 [66] Plant and machinery US$ 839,805 9,720 (213,181) 83,857 720,201 - (3,846) (108,871) 607,484 801,509 23,884 (222,541) 88,506 691,358 21,671 (3,846) (106,381) 602,802 4,682 28,843 Plant and machinery US$ 32,066 32,066 32,066 (31,580) (486) (32,066) - (32,066) - - PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 12. Property, Plant and Equipment (continued)  Petrogrand AB has a floating charge over the assets of the Company  At 31st December 2020 and 2019, there was no Property, Plant and Equipment Capital Commitments 13. Equity-accounted Investment in Joint Venture – WorldAce Investments Limited PetroNeft has a 50% interest in WorldAce Investments Limited (“WorldAce”), a joint venture which holds 100% of LLC Stimul- T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia. At 1 January 2019 Elimination of unrealised profit on intra-Group transactions Retained loss Translation adjustment Credited against loans receivable from WorldAce Investments Limited (Note 16) At 1 January 2020 Elimination of unrealised profit on intra-Group transactions Retained loss Translation adjustment Credited against loans receivable from WorldAce Investments Limited (Note 16) At 31 December 2020 Share of net assets US$ - - (7,510,318) 4,513,212 2,997,106 - - (5,737,042) (6,735,737) 12,472,779 - The balance sheet position of WorldAce shows net liabilities of US$88,913,849 (2019: US$63,968,289) following a loss in the year of US$11,474,084 (2019: US$15,020,636) together with a negative currency translation adjustment of US$13,471,473 (2019: positive US$9,026,423). PetroNeft’s 50% share is included above and results in a negative carrying value of US$39,774,519 (2019: US$27,301,740). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$39,774,519 (2019: US$27,301,740) is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 16). [67] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 13. Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued) Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is disclosed below. Summarised Financial statements of equity-accounted joint venture Revenue Cost of sales Gross profit Administrative expenses Impairment of exploration and evaluation assets Operating profit/(loss) Write-off of oil and gas properties Write-off of exploration and evaluation assets Finance Income Finance costs 2020 US$ 2019 US$ 16,719,562 (17,465,594) (746,032) (2,515,578) - (3,261,610) - - 35,745 (7,985,620) 24,852,620 (25,100,495) (247,875) (2,624,057) (1,382,769) (4,254,701) - (1,299,887) 57,906 (9,523,954) Loss for the year for continuing operations before taxation Income tax expense Loss for the year (11,211,485) (262,599) (11,474,084) (15,020,636) - (15,020,636) Loss for the year Other comprehensive income to be reclassified to profit or loss in subsequent years: Currency translation adjustments Total comprehensive loss for the year (11,474,084) (15,020,636) (13,471,473) (24,945,557) 9,026,423 (5,994,213) Included in the above numbers are charges for Depreciation and Amortisation 1,256,822 1,936,923 Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 26 Related party disclosures. The currency translation adjustment results from the movement of the Russian Rouble during the year. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble weakened against the US Dollar during the year from RUB61.905:US$1 as at 31 December 2019 to RUB74.54: US$1 as at 31 December 2020. [68] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 13. Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued) Non-current Assets Oil and gas properties Property, plant, and equipment Exploration and evaluation assets Assets under construction Intangible Assets Current Assets Inventories Trade and other receivables Cash and cash equivalents Total Assets Non-current Liabilities Provisions Obligations under finance lease Interest-bearing loans and borrowings Current Liabilities Interest-bearing loans and borrowings Obligations under finance lease Trade and other payables Total Liabilities Net Liabilities 2020 US$ 63,884,598 241,080 - 1,517,064 1,829,477 67,472,219 2,149,712 904,824 212,433 3,266,969 70,739,188 1,360,704 61,222 147,877,926 149,299,852 2,475,992 43,242 7,833,951 10,353,185 159,653,037 2019 US$ 78,147,884 374,632 - 1,468,233 2,178,884 82,169,633 2,390,999 996,439 30,895 3,418,333 85,587,966 1,833,969 172,969 140,244,130 142,251,068 2,346,265 41,318 4,917,604 7,305,187 149,556,255 88,913,849 63,968,289 Non -Current Financial Liabilities 147,939,148 140,417,099 Current Financial Liabilities 2,519,234 2,387,583 Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft. The details of loans due to PetroNeft are disclosed in Note 26 Related party disclosures. Capital commitments Details of capital commitments at the balance sheet date are as follows: Contracted for but not provided in the financial statements [69] 2020 US$ Nil 2019 US$ Nil PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 14. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. At year end, PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a joint venture which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities in Russia. At 1 January 2019 Elimination of unrealised profit on intra-Group transactions Share of net loss of joint venture for the year Translation adjustment Credited against loans receivable from Russian BD Holdings B.V. (Note 16) At 1 January 2020 Elimination of unrealised profit on intra-Group transactions Retained loss Translation adjustment Credited against loans receivable from Russian BD Holdings B.V. (Note 16) At 31 December 2020 Share of net assets US$ - - (664,455) 482,897 181,558 - - (705,249) (843,617) 1,548,866 - The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$7,350,155 (2019: US$4,235,793) following a loss in the year of US$1,410,498 (2019: US$1,328,910) together with a negative currency translation of US$1,687,233 (2019: positive US$965,794). PetroNeft’s 50% share is included above and results in a negative carrying value of US$3,681,920 (2019: US$2,117,897). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$3,681,920 (2019: US$2,117,897) is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 16). [70] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 14. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued) Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is disclosed below Summarised Financial statements of equity-accounted joint venture Revenue Cost of sales Gross profit Administrative expenses Operating loss Finance Income Finance costs Loss for the year for continuing operations before taxation Taxation Loss for the year Loss for the year Other comprehensive income to be reclassified to profit or loss in subsequent years: Currency translation adjustments Total comprehensive loss for the year Included in the above numbers are charges for Depreciation and Amortisation 2020 US$ 37,400 (157,567) (120,167) (393,639) (513,806) 325 (897,017) (1,410,498) 2019 US$ - - - (332,635) (332,635) 1,280 (997,548) (1,328,903) - (7) (1,410,498) (1,328,910) (1,410,498) (1,328,910) (1,687,233) (3,097,731) 965,794 (363,116) - 6,676 Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 26 Related party disclosures [71] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 14. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued) Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net Liabilities 2020 US$ 10,098,999 199,720 10,298,719 16,404,101 1,244,773 17,648,874 2019 US$ 11,252,892 118,311 11,371,203 14,758,627 848,369 15,606,996 7,350,155 4,235,793 Non -Current Financial Liabilities 16,404,101 14,758,627 Current Financial Liabilities Capital commitments 119,384 131,337 2020 US$ 2019 US$ Details of capital commitments at the balance sheet date are as follows: Contracted for but not provided in the financial statements 1,000,000 Nil [72] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 15. Financial assets – investments in joint ventures and subsidiaries Company Cost At 1 January 2019 At 31 December 2019 At 31 December 2020 Net book values At 31 December 2020 At 31 December 2019 Investment in joint ventures US$ Investment in Subsidiaries US$ - - - - - 13,848 13,848 13,848 13,848 13,848 Total US$ 13,848 13,848 13,848 13,848 13,848 Details of the Company's holding in direct and indirect subsidiaries at 31st December 2020 are as follows: Name of subsidiary LLC Granite Construction LLC Dolomite Registered office 13 Sovpartshkolny Lane, Office 210, Tomsk 634009, Russia 13 Sovpartshkolny Lane, Office 210, Tomsk 634009, Russia Proportion of ownership interest Proportion of voting power held 100% 100% Principal activity Construction 100% 100% Oil and gas exploration Details of the Group's interest in joint ventures at 31st December 2020 are as follows: Name of entity WorldAce Investments Limited LLC Stimul-T Russian BD Holdings B.V. LLC Lineynoye Registered office 3 Themistocles Street, Nicosia, Cyprus 13 Sovpartshkolny Lane, Office 210, Tomsk 634009, Russia Prins Bernhardplein 200, 1097 JB, Amsterdam, the Netherlands 13 Sovpartshkolny Lane, Office 210, Tomsk 634009, Russia Proportion of ownership interest Proportion of voting power held 50% 50% Principal activity Holding Company 50% 50% Oil and gas exploration 50% 50% Holding Company 50% 50% Oil and gas exploration [73] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 15. Financial assets – investments in joint ventures and subsidiaries (continued) Oil India International B.V. owns the other 50% of WorldAce Investments Limited and Belgrave Naftogas B.V. owned the other 50% of Russian BD Holdings B.V. at the Financial Statement year end. In March 2021, Sarum Energy Limited sold 80% of its equity holding in Russian BD Holdings B.V. to PetroNeft Resources PLC. Financial receivables 16. assets - loans and Group Loans to WorldAce Investments Limited (Note 26) Loss Allowance (Note 26) Less: share of WorldAce Investments Limited loss (Note 13) Loans to Russian BD Holdings B.V. (Note 26) Less: share of Russian BD Holdings B.V. loss (Note 14) Company Loans to WorldAce Investments Limited (Note 26) Loans to Russian BD Holdings B.V. (Note 26) Loss Allowance (Note 26) Less: Accumulated Share of Joint Venture Losses 2020 US$ 2019 US$ 66,105,781 (3,109,501) 62,963,635 (3,109,501) (39,774,519) (27,301,740) 23,221,761 32,552,394 7,800,869 7,157,158 (3,681,920) (2,117,897) 4,118,949 5,039,261 27,340,710 37,591,655 2020 US$ 2019 US$ 66,105,781 62,963,635 7,800,869 7,157,158 (3,109,501) (3,109,501) (43,456,439) (29,419,637) 27,340,710 37,591,655 The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until 2022 at the earliest. The loan is set to mature on 31 December 2025. As at 31 December 2020 the loan was fully drawn down. The realisation of financial assets of $23.1m in respect of WorldAce is dependent on the continued successful development of economic reserves which is subject to several uncertainties including the ability to raise finance, future rates of oil production and future international oil prices to continue to successfully generate revenue from the assets or the monetisation of the asset through a sale or farmout. [74] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 16. Financial assets - loans and receivables (continued) The loan from the Company to Russian BD Holdings B.V. is repayable on demand. Interest currently accrues on the loan at USD LIBOR plus 5.0% per annum. The group drilled the Cheremshanskoye No. 4 well in 2018 which tested oil at 450 bopd and demonstrated the potential of License 67. This activity was augmented by further well simulation in Spring 2021, and the well is expected to be in daily production during 2021. The realisation of financial assets of US$4.1 m in respect of Russian BD Holdings B.V. is ultimately dependent on the successful development of reserves as outlined above in relation to Cheremshanskoye, which is subject to several uncertainties including the ability to finance the well development and bringing the assets to economic maturity and profitability or the monetisation of the asset through a sale or farmout. As previously advised to shareholders, the Company has been examining development options for Licence 67. The Company previously announce that they would be re-entering the C4 and C3 wells on the Cheremshanskoye field during 2020 with the combined aim of bringing the field into production and at the same time providing crucial reservoir performance data. This would enable the Company to optimise forward development of the field which benefits from a favourable infrastructure location, allowing low-cost operations. There is a road running along the eastern edge of the field, plus powerlines running close to the western margin of the field, which should allow the Company to reduce OPEX over the longer term. In March 2021, the Company increased its equity holding in Licence 67 from 50% to 90%. Also in March 2017, the Company announced commercial production on Licence 67. The C-4 well was successfully re-entered in Q1 2020 to perform an extended well test. During this test, the well flowed at various choke sizes from the same Upper Jurassic J1-1 & J1-3 clastic reservoirs and flowed naturally at up to a maximum 476 bopd on a 10mm choke size. The Cheremshanskoye field reserves are 19.26 mmbbls C1+C2 which were approved by GKZ (Russian State Reserves Committee) January 2019. In addition, the Company is also working on plans to re-enter two wells on the Ledovoye field, also in Licence 67, during the period 2021. Should this be successful the Company will be looking to both book additional reserves and promptly start production from the Ledovoye field. Like the Cheremshanskoye field, Ledovoye is ideally located close to existing infrastructure, being only 60m away from a major all-weather road. Due to the difference in carrying value caused by the application of the equity method of accounting to the Group financial statements the Company thought it was deemed prudent in 2018, to provide for an allowance for doubtful debts against the carrying value of these loans on the Company Balance Sheet to align the balances on the Group and Company balance sheets. It is not expected that any repayment will be received within 12 months of the balance sheet date. The weakened trading performance during 2020, including the ongoing Covid pandemic have been considered as impairment factors, but there has been sufficient headroom in the detailed calculations of future trading performance, so no impairment provision was recorded during 2020. 17. Inventories Materials 2020 US$ 19,387 19,387 2019 US$ 18,965 18,965 [75] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 18. Trade and other receivables Group Receivable from joint ventures (Note 26) Trade Receivable Prepayments Advances to contractors Other receivables Company Amounts owed by subsidiary undertakings (Note 26) Amounts owed by other related companies (Note 26) VAT Receivable Prepayments 2020 US$ 2,329,529 45,718 84,188 1,468 68,028 2,528,931 2020 US$ 54,374 2,228,875 36,075 83,760 2019 US$ 1,005,991 44,670 83,145 1,353 1,781 1,136,940 2019 US$ 222,604 893,731 27,412 76,592 2,403,084 1,220,339 Other receivables are non-interest-bearing and are normally settled on 60-day terms. Amounts owed by subsidiary undertakings are interest-bearing. Interest is charged at 10%. 19. Cash and Cash Equivalents Group Cash at bank Company Cash at bank 2020 US$ 101,028 101,028 2020 US$ 94,970 94,970 2019 US$ 345,532 345,532 2019 US$ 257,916 257,916 [76] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 19. Cash and Cash Equivalents (continued) Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. 20. Share Capital - Group and Company Authorised Share Capital 1,000,000,000 (2019: 1,000,000,000) Ordinary Shares of €0.01 each Authorised Share Capital increase of 250,000,000 Shares of €0.01 each Allotted, called up and fully paid equity At 1 January 2019 Issued during the year At 1 January 2020 Issued during the year At 31 December 2020 21. Loans and Borrowings Group and Company Interest-bearing Current liabilities Petrogrand AB Natlata Partner Limited ADM Consulting Daria Shaftelskaya Michael Murphy David Sturt Total current liabilities Total loans and borrowings Contractual undiscounted liability 2020 € 2019 € 10,000,000 10,000,000 2,500,000 - 12,500,000 10,000,000 Number of Ordinary Shares 707,245,906 13,884,594 721,130,500 118,226,241 839,356,741 Called up share capital US$ 9,429,182 156,783 9,585,965 1,310,703 10,896,668 Effective interest rate % Contractual maturity date 10.59% 10.14% 10.16% 10.13% 10.14% 10.14% 15-Dec-21 31-Dec-21 31-Dec-21 31-Dec-21 31-Dec-21 31-Dec-21 2020 US$ 2019 US$ 2,675,774 2,897,958 632,417 459,297 269,259 57,322 57,322 577,347 417,051 246,341 52,076 52,076 4,151,391 4,242,849 4,151,391 4,242,849 4,151,391 4,242,849 [77] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 21 Loans and Borrowings (continued) Changes in financial liabilities arising from financing activities At 1 January Cash flows Accrued interest (Note 9) Profit on modification of financial liabilities Translation adjustment Convertible debt option reserve At 31 December 2020 US$ 4,242,849 (277,746) 432,362 (218,898) (27,176) 2019 US$ 2,116,825 1,799,997 369,950 - - - (43,923) 4,151,391 4,242,849 Loan facilities. PetroNeft had entered a convertible loan facility of US$1.3 million with a group of five lenders in 2019. The convertible loan, when renegotiated in January 2021, was to remain unsecured, to mature on 31st December 2021 or on the sale of either Licence 61 or Licence 67. The loan facility carries an interest rate of USD LIBOR plus 8%. Lenders can elect at any time to convert up to 65% of the outstanding loan to shares at a conversion price of US$0.01547 (1.547 cent). In April 2021 four of the five lenders elected to convert their rights into Ordinary Shares of the Company. The principal on the Convertible loan post conversion was reduced by an amount of US$812,500. Please refer to Note 29 for details. In 2018 the Company obtained a US$2m secured loan facility from Petrogrand AB. The security attaches to any of the assets of PetroNeft Resources plc. An asset being defined as any present or future assets, revenues, and rights of every description. The security is for any obligation for the repayment of monies owed to Petrogrand AB, be it present, or future, actual or contingent. This loan facility was fully drawn down in 2018 and carries an interest rate of US$ LIBOR plus 9%. In March 2019, the parties agreed a further increase in the facility by US$500,000 and it was agreed that the maturity date would be extended for one year until 15th December 2020. It was further agreed between the parties that the loan plus any outstanding interest would be further extended for another 12-month period ending 15th December 2021, which can be further extended if PetroNeft on or before 15th December 2021, makes a payment of 20% of the loan balance outstanding at that time. The Company performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the restructuring of the terms of the loan facility was a deemed substantial modification. As the net present value of the cashflows under the original terms and the modified terms was greater than 10%, the modification was accounted for as substantial. As a result on completion of the restructuring the carrying value of the Petrogrand loan facility with a note value of US$2,894,672 was derecognised by an amount of US$218,898 and the fair value of the loan notes of US$2,675,774 was recognised at the date of the Statement of Financial Position. The gain arising on substantial modification of the loan notes has been recognised in the Income Statement as a profit on modification of financial liabilities. Petrogrand AB is a related party by virtue of Maxim Korobov, until 17th January 2020 a director of PetroNeft, being a significant shareholder of Petrogrand AB. For details of transactions between PetroNeft and Petrogrand AB see Note 26 Related party disclosures. [78] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 22. Trade and other payables Group Trade payables Trade and other payables to joint ventures (Note 26) Corporation tax Other taxes and social insurance costs 2020 US$ 552,841 57,703 55,232 59,395 2019 US$ 403,835 113,532 55,232 28,457 Accruals and other payables 1,189,281 1,290,902 Company Trade payables Corporation tax Other taxes and social welfare costs 1,914,452 1,891,958 2020 US$ 550,030 55,232 30,971 2019 US$ 403,400 55,232 - 6,932 Accruals and other payables 1,155,028 1,242,712 1,791,261 1,694,412 The Directors consider that the carrying amount of trade and other payables approximates their fair value. Trade and other payables are non-interest-bearing and are normally settled on 60-day terms. Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. 23. Financial risk management objectives and policies The Group’s and Company’s principal financial instruments comprise loans to joint venture undertakings, cash and cash equivalents and interest-bearing loans and borrowings. The main purpose of these financial instruments is to provide finance for the Group and Company’s operations. The Group has various other financial assets and liabilities such as receivables and trade payables, which arise directly from its operations. The main risks arising from the Group and Company’s financial instruments are commodity price risk, foreign currency risk, credit risk, liquidity risk, interest rate risk and capital risk. The Board reviews and agrees policies for managing each of these risks which are summarised below. Commodity price risk The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the oil produced by its joint venture interests. To date the Group and its joint ventures have sold all their oil on the domestic market in Russia. There are no banks providing hedging or derivative type contracts for oil sold on the domestic market, so it is not possible to mitigate [79] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) risks in this way. The high taxes on oil produced in Russia are based on prevailing international oil prices and therefore operate as a natural hedge to a fall in oil prices. At 31 December 2020 and 2019, the Group and the Company had no outstanding commodity contracts. Foreign currency risk The Group and the Company undertake certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts where appropriate. At 31 December 2020 and 2019, the Group and the Company had no outstanding forward exchange contracts. The Group’s and the Company’s principal currency exposures arise in the currencies of Russian Rouble, Euro, UK Sterling and US Dollar. The Group has an exposure to US Dollars because the functional currency of its Russian subsidiaries is Russian Roubles. A change in the US Dollar: Russian Rouble exchange rate will therefore result in a foreign exchange gain or loss on the US Dollar denominated balances in these subsidiaries. The Group and the Company have an exposure to Russian Rouble, Euro and UK Sterling because the Company has trade and other receivables and payables denominated in these currencies. In addition, the Group has an exposure to Russian Rouble as currency translation of the foreign subsidiaries and joint ventures affects the Group’s net equity. Foreign currency sensitivity analysis In accordance with IFRS 7, the impact of foreign currencies is determined based on the balances of financial assets and liabilities at 31 December 2020. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and largely results from payables and receivables and adjusts their translation at the year-end for a 5% change in foreign currency rates. If the US Dollar had gained/lost 5% against all currencies significant to the Group and Company at 31 December, the impact on loss and equity for the Group and the Company is shown below. Group 2020 2020 2019 2019 Company 2020 2020 2019 2019 Change in USD/RUB Effect on loss before tax US$ 5% 181,785 -5% 153,261 Effect on pre- tax equity US$ -181,785 -153,261 5% -5% -21,554 23,837 -21,554 23,837 Change in USD/RUB Effect on profit before tax US$ 5% 181,785 -5% 153,261 Effect on pre- tax equity US$ -181,785 -153,261 5% -5% -21,554 23,837 -21,554 23,837 Change in USD/EUR 5% -5% 5% -5% Change in USD/EUR 5% -5% 5% -5% [80] Effect on loss before tax US$ -7,161 -68,974 Effect on profit before tax US$ -7,161 -68,974 Effect on pre-tax equity Change in USD/GBP Effect on loss before tax Effect on pre-tax equity US$ -7,161 -68,974 21,211 -23,430 21,211 -23,430 5% -5% 5% -5% US$ 3,201 -3,734 4,432 -2,570 US$ 3,201 -3,734 4,432 -2,570 Effect on pre-tax equity Change in USD/GBP Effect on profit before tax Effect on pre-tax equity US$ -7,161 -68,974 21,211 -23,430 21,211 -23,430 5% -5% 5% -5% US$ 3,201 -3,734 4,432 -2,570 US$ 3,201 -3,734 4,432 -2,570 PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) Credit risk Credit risk arises from contractual cash flows of debt instruments carried at amortised cost, cash and cash equivalents, deposits with banks, as well as credit exposures to customers, including outstanding receivables from joint ventures. (i) Risk management Credit risk is managed on a group basis according to established policies, procedures, and controls. Credit quality is assessed in line with credit rating criteria and credit limits are established where appropriate. The credit risk on cash and cash equivalents is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Management assesses the credit quality of the customer, considering its financial position, experience, and other factors. As the Group does not have any trade receivables outstanding from third parties, this risk is minimal. Recoverability of amounts due from joint venture companies are dependent on the success of the joint ventures. The Group and the Company do not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics except for the loans and trade and other receivables from its two joint ventures. The Group and the Company define counterparties as having similar characteristics if they are connected entities. (ii) Impairment of financial assets The Group and the Company have the following types of financial assets that are subject to the expected credit loss model: • Trade Receivables – Qualify for the simplified model provided they are trade receivables and do not contain a significant financing component. Intra-Group Loans – General Impairment Model applies • • Cash and cash equivalents Trade Receivables Within the PetroNeft Group, a provision matrix has been developed to measure the expected credit loss on trade receivables. Trade receivables are grouped by aging of receivable and by type (receivable from related parties and receivables from third parties). This grouping is based on management judgement of the risk characteristics and is based on internal sub-groupings. The Group has determined the historical period of 36 months prior to date at which the expected credit loss is measured to determine historical loss data. For receivables from related parties, it has been determined that over the historical period there has been a zero percent loss rate. Notwithstanding the fact that some of these trade receivables may go substantially past due, these amounts are managed on a Group basis by the ultimate controlling party and as such, no loss has been recorded or is expected on these amounts. Based on the historical loss rate of close to 0% and forward-looking information at the reporting date, the Group has applied prudent expected loss rates across the various sub-groupings and the final expected credit loss has been determined as immaterial. Intra-Group Loans PetroNeft has granted loans to its joint ventures over the years. The largest portion of these intra-Group loans is to WorldAce Investments Limited, bears interest at USD LIBOR plus 6.0% and have a maturity date of 31 December 2025. The remaining loan is repayable on demand and carries interest at USD LIBOR plus 5.0%. [81] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) No further ECL have being estimated for 2019 or accrued for 2020. When measuring ECL the Group uses reasonable and supportable forward-looking information incorporated in the financial model to estimate the ECL. The model encompasses multiple scenarios which outcomes are multiplied by estimated probability factors. The ECL is the sum of probability weighted scenarios. The forward-looking information, including macroeconomic factors (such as consumer price index, oil prices, interest rates and exchange rates), is based on assumptions for the future movement of different economic drivers relevant to the Group's business and how these drivers will affect each other. The probability factors are based on management’s estimate of the likelihood of different scenarios. Loans to Granite Construction are classified as credit impaired and a loss allowance of US$381,086 was made in 2018. No further loss allowance was created in 2019 or 2020. A summary of the assumptions underpinning the Company's expected credit loss model is as follows: Category Company definition of category Performing Counterparties have a low risk of default and a strong capacity to meet contractual cash flows Underperforming Non-performing Write-off Counterparties for which there is a significant increase in credit risk as significant increase in credit risk is presumed if interest and/or principal repayments are 30 days past due (see above in more detail) Interest and/or principal repayments are 90 days past due Interest and/or principal repayments are 180 days past due and there is no reasonable expectation of recovery. Basis for recognition of expected credit loss provision Stage 1: 12 month expected losses. Where the expected lifetime of an asset is less than 12 months, expected losses are measured at its expected lifetime. Stage 2: Lifetime expected losses Basis for calculation of interest revenue Gross carrying amount Gross carrying amount Stage 3: Lifetime expected losses Asset is written off Amortised cost carrying amount (net of credit allowance) None [82] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) The Group’s and Company’s exposure to credit risk and the credit quality of its financial assets is presented below: Internal credit rating External credit rating ECL Gross carrying amount US$ Accumulated joint venture losses Loss allowance Net carrying amount US$ US$ US$ N/A N/A N/A N/A General Impairment Model applies 73,906,654 (43,456,443) (3,109,501) 27,340,710 54,374 - - 54,374 2020 Group: Loans to joint ventures Company: Loan to subsidiary Cash and cash equivalents The total amount of US$ 107,671 are cash held in banks. Credit losses are expected to have an immaterial effect on cash and cash equivalents. Liquidity risk management Liquidity risk is the risk that the Group and the Company will encounter difficulties in meeting obligations associated with their financial liabilities. Ultimate responsibility for liquidity risk management rests with the Board of Directors, who manage liquidity risk and short, medium, and long-term funding and liquidity management requirements by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Cash forecasts are regularly produced to identify the liquidity requirements of the Group and the Company. To date, the Group and the Company have relied on shareholder funding, loan facilities and normal trade credit to finance its operations. As at 31st December 2020, the Group, and the Company have outstanding loan facilities as described in Note 21 above. The expected maturity of the Group and Company’s third-party financial assets (excluding prepayments) as at 31st December 2020 and 2019 was less than one month. The expected maturity of the Group and Company’s related party financial assets as of 31st December 2020 and 2019 is more than one year. The Group and the Company further mitigate liquidity risk by maintaining an insurance programme to minimise exposure to insurable losses. The Group and the Company had no derivative financial instruments as of 31st December 2020 and 2019. The tables below show the projected contractual undiscounted total cash outflows arising from the Group’s and Company’s trade and other payables and gross debt based on the earliest date on which the Group is expected to pay. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived by using rate applicable on 1st January 2020. These projections are based on the foreign exchange rates applying on 31st December 2020 (2019: 31st December 2019): [83] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) Group Within 1 year Year ended 31 December 2020 US$ Interest-bearing loans and borrowings Between 1 and 2 years US$ Between 2 to 5 years US$ - current Trade and other payables 4,151,391 1,799,825 5,951,216 - - 0 - - 0 After 5 years US$ - - 0 Total US$ 4,151,391 1,799,825 5,951,216 Year ended 31 December 2019 Interest-bearing loans and borrowings - current Trade and other payables 4,242,849 1,808,269 6,051,118 - 0 - 0 - 0 Company Within 1 year Year ended 31 December 2020 US$ Interest-bearing loans and borrowings Between 1 and 2 years US$ Between 2 to 5 years US$ After 5 years US$ - current Trade and other payables Year ended 31 December 2019 Interest-bearing loans and borrowings - current Trade and other payables 4,151,391 1,705,058 5,856,449 4,242,849 1,646,112 5,888,961 - - 0 - 0 - - 0 - 0 - - 0 - 0 4,242,849 1,808,269 6,051,118 Total US$ 4,151,391 1,705,058 5,856,449 4,242,849 1,646,112 5,888,961 Interest rate risk The Group and Company’s exposure to the risk of changes in market interest rates relates primarily to the Group and Company’s loans to joint ventures which are tied to the LIBOR interest rate, and their holdings of cash and short-term deposits which are on variable rates ranging from 0.1% to 0.5%. Financial instrument Interest-bearing loans to joint ventures Fixed % 5.0% to 6.0% Variable % US$ LIBOR The effect of a rise of 1% in the LIBOR interest rate (e.g., from 2.4% to 3.4%) receivable on loans to joint ventures would be to increase Group loss before tax by US$71,268 and Company profit before tax by US$506,546 It is the Group and Company’s policy, as part of its disciplined management of the budgetary process, to place surplus funds on short-term deposit to maximise interest earned. [84] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 23. Financial risk management objectives and policies (continued) Capital risk management The Group and the Company manage capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group and the Company manage their capital structure and adjust it considering changes in economic conditions. To maintain or adjust its capital structure, the Group and the Company may issue new shares or raise debt. No changes were made in the objectives, policies or processes during the years ended 31 December 2020 and 2019. The capital structure of the Group and the Company consists of equity attributable to equity holders of the Parent, comprising issued capital, reserves and retained losses as disclosed in the Consolidated Statement of Changes in Equity as well as external debt. Fair values The carrying amount of the Company’s financial assets and the Group and Company’s financial liabilities is a reasonable approximation of the fair value and there is no specific items of financial assets or liabilities stated at fair value. The carrying amount of the Group’s financial assets is lower than the estimated fair value because of the adjustment required in accordance with IAS 28 arising primarily from the currency translation adjustments in the joint venture companies that exceeded the carrying value of the equity accounted investment in joint venture. See notes 13 and 14. The carrying value of the loans to WorldAce in the Group and Company is US$23.22 million, which approximates the fair value. The carrying value of the loans to Russian BD in the Group and Company is US$4.12 million, which approximates the fair value. See note 16. The fair value of the Group’s financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. Hedging At the year ended 31 December 2020 and 2019, the Group had no outstanding contracts designated as hedges. Offsetting of financial assets and liabilities No financial assets and liabilities were offset in the balance sheet as of 31 December 2020 and 2019. 24. Loss of Parent Undertaking The Company is availing of the exemption set out in section 304 of the Companies Act 2014 from presenting its individual Income Statement to the Annual General Meeting and from filing it with the Registrar of Companies. The amount of the loss dealt with in the Parent undertaking for the year was US$12,231,171 (2019: loss of US$1,137,626). 25. Future minimum rentals payable under short term leases at the balance sheet date are as follows: Land and buildings Within one year 2020 US$ 2,722 2,722 2019 US$ 2,722 2,722 There were no capital commitments as of 31 December 2020 or 31 December 2019. [85] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 26. Related party disclosures Transactions with subsidiaries Transactions between the Group and its subsidiaries, Granite and Dolomite have been eliminated on consolidation. The Company had the following transactions with its subsidiaries during the years ended 31 December 2020 and 2019 Company Loans At 1 January 2019 (Note 18) Interest accrued in the year Loans repaid during the year Loss Allowance Translation adjustment At 1 January 2020 (Note 18) Interest accrued in the year Loans repaid during the year Loss Allowance Translation adjustment At 31 December 2020 (Note 18) At 31 December 2019 (Note 18) Granite Construction US$ 156,866 - - - 65,738 222,604 - (79,993) - (88,237) 54,374 222,604 [86] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 26. Related party disclosures (continued) PetroNeft Resources had the following transactions with its Joint Venture Partners in 2020 and 2019. Related parties - PTR Group with JVs Group Receivable by PetroNeft Group at 1 January 2019 Advanced during the year Transactions during the year Interest accrued in the year Payments for services made during the year Share of joint venture's translation adjustment Impairment Provision Translation adjustment At 1 January 2020 Advanced during the year Transactions during the year Interest accrued in the year Payments for services made during the year Share of joint venture's translation adjustment Translation adjustment Russian BD Holdings BV Group US$ 3,818,994 980,500 154,521 469,974 29,564 (181,558) - (44,753) 5,227,243 124,195 209,092 440,822 65,630 (1,548,866) 50,884 WorldAce Investments Limited Group US$ 31,773,261 - 1,642,624 3,802,594 (947,209) (2,997,106) - (17,293) 33,256,871 152,900 1,524,310 3,142,150 (604,237) (12,472,780) 44,322 At 31 December 2020 4,569,000 25,043,536 Balance at 31 December 2019 comprised of: Loans receivable (Note 16) Trade and other receivables (Note 18) Trade Payables (Note 22) Balance at 31 December 2020 comprised of: Loans receivable (Note 16) Trade and other receivables (Note 18) Trade and other payables (Note 22) 5,039,262 187,981 - 5,227,243 4,118,946 450,054 - 4,569,000 32,552,394 818,010 (113,532) 33,256,871 23,221,764 1,879,475 (57,703) 25,043,536 [87] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 26. Related party disclosures (continued) Company At 1 January 2019 Advanced during the year Transactions during the year Interest accrued in the year Payments for services made during the year Translation adjustment At 1 January 2020 Advanced during the year Transactions during the year Interest accrued in the year Payments for services made during the year Translation adjustment Russian BD Holdings BV Group WorldAce Investments Limited Group US$ US$ 5,715,176 980,500 130,544 469,974 29,564 (48,208) 7,277,550 124,195 209,092 440,822 65,630 78,694 56,134,643 - 547,617 3,802,594 142,618 - 60,627,473 152,900 686,498 3,142,150 224,956 (3,936) At 31 December 2020 8,195,983 64,830,041 Balance at 31 December 2019 comprised of: Loans receivable (Note 16) Trade and other receivables (Note 18) Loss Allowance (Note 16) Balance at 31 December 2020 comprised of: Loans receivable (Note 16) Trade and other receivables (Note 18) Loss Allowance (Note 16) 7,157,158 120,392 - 7,277,550 7,800,869 395,114 - 8,195,983 62,963,635 773,339 (3,109,501) 60,627,473 66,105,781 1,833,761 (3,109,501) 64,830,041 Remuneration of key management Key management comprise the Directors, the Vice Presidents of Business Development and Operations of the Company and the consulting fees paid to Michael Power FCA for Finance and Company Secretarial support. Remuneration of key management Compensation of key management Contributions to defined contribution pension plan Consulting fees Michael Power 2020 US$ 1,154,882 79,161 121,884 1,355,927 2019 US$ 898,501 45,564 - 944,065 [88] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 26. Related party disclosures (continued) The following amounts were owed to existing key management, former management as at 31st December 2020 and 2019 Remuneration, fees, and expenses due to Directors who were in office during the year Remuneration due to other key management Consulting fees Michael Power (Tsarina Developments Limited) Consulting fees (HGR Consulting – former CFO Paul Dowling) 2020 2019 US$ US$ 470,023 558,509 11,314 9,246 1,049,092 932,344 233,108 - 112,616 1,278,068 During 2020, 37,456,431 shares were issued in satisfaction of USS0.73 million in fees owing to Directors and Senior Management. In accordance with IFRS 2 Share based payments, where the agreed exercise price of the shares transferred was higher than the market price at time of exercise an implied profit of US$0.206 million was reported in the Income Statement. Details of transactions between the Group and other related parties are disclosed below. Transactions with Petrogrand AB Petrogrand AB is a related party by virtue of Maxim Korobov, a director of PetroNeft who resigned as PetroNeft’s Company Director on 17th January 2020. In 2018 the Company agreed a loan facility for up to US$2m with Petrogrand AB. The loan facility is secured by way of a floating charge on the assets of the Company, carries an interest of US$ LIBOR plus 9% and had an original maturity date of 31 December 2018. This loan facility was fully drawn down in 2018. In March 2019, the parties had agreed an increase in the facility by US$500,000 and a revised maturity date of 15 December 2020. It was further agreed the revised maturity date could be extended for one year until 15th December 2021 and a further year if certain milestones are reached. The following is the history of this transaction in: 2018- Loan facility amount 2019- Loan drawdowns during the year Interest accrued but not yet paid Profit on modification of financial liabilities Amount due to Petrogrand AB at 31 December 2020 Petrogrand AB 2020 US$ 2,000,000 500,000 394,672 (218,898) 2,675,774 [89] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 26. Related party disclosures (continued) New Loan agreed in June 2019 As detailed in Note 21 above PetroNeft entered a convertible loan facility of US$1.3 million with a group of five investors in June 2019. All lenders listed below elected in April 2021 to exercise their conversion rights. As of 31 December 2020, the balance owing to the related parties on the June 2019 funding was as follows: Lender Natlata Partners LLP. Amount provided (US$) accrued Interest and not yet paid (US$) Amount due 31 December 2020 (US$) 560,000 72,417 632,417 i f i Relationship at time of transaction Ultimate Beneficial owner is former Maxim Korobov, PetroNeft director Daria Shaftelskaya 240,000 29,259 269,259 Substantial shareholder of PetroNeft and director from 17th January 2020. David Sturt 50,000 7,322 57,322 PetroNeft director and shareholder 27. Share-based payment Share options The expense recognised for employee services during the year is US$NIL (2019: US$NIL). The Group share-based payment plan is described below. The plan expired during 2019. Under the Group share option plan, employees of the Group could receive conditional awards of share options depending on their performance, seniority, and length of service. The options typically vested in tranches and were subject to the achievement of vesting conditions related to drilling, production, and shareholder return. The maximum term for options was seven years. There are no cash settlement alternatives. Movement in the year The fair value of the options is estimated at the grant date using an option pricing model considering the terms and conditions upon which the instruments were granted. The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year. Outstanding as at 1 January Granted during the year Forfeited during the year Expired during the year Outstanding at 31 December Exercisable at 31 December 2020 Number - - - - - - 2020 WAEP - - - - - - 2019 Number 4,270,000 - - (4,270,000) - - 2019 WAEP £0.065 - - £0.065 - - The weighted average share price of forfeited options in 2020 was Nil (2019: £0. Nil). The Company has no employee share option plan and accordingly had no share options in issue during 2020. Therefore, the options expiring was Nil (2019: 4,270,00). The weighted average share price of expired options in 2020 was Nil. (2019: £0.65) As no options were issued in 2020 or 2019, no valuation was carried out in 2020 or 2019. [90] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 27. Share-based payment (continued) Warrants In Issue. 2020 US$ 54,621,849 54,621,849 2019 US$ 54,621,849 54,621,849 During 2019 the Company secured debt financing in the sum of US$1.3 million from a group of 5 lenders, 3 of which are related parties as described in Note 26. The loan interest is LIBOR plus 8%. In addition, the Lenders may at their election convert up to 65% of their loan amount into Ordinary Shares at any time up to the Final Maturity date, which is 31st December 2021. The conversion price is US$0.01547 per Ordinary Share and the Conversion date occurs within a period of 5 business days of service of the Conversion Notice. If the loan is not repaid by the Final Maturity date, the loan interest increases to LIBOR plus 11%. In April 2021 four of the five lenders elected to exercise their conversion rights. Accordingly, the principal amount of the Convertible loan was reduced by US$812,500 through the issuance of 52,521,008 Ordinary Shares. At the end of April 2021, total warrants outstanding was 2,100,841 28. Accounting policies up to 31 December 2019 There was no change in accounting policies applicable to the comparative period ended 31 December 2019, as the Company and Group adheres to the latest accounting pronouncements and adhere to IFRS standards. 29. Important Events after the Balance Sheet Date In February 2021, the Company entered a convertible loan facility of US$2.9 million with a group of thirteen lenders that matures in March 2023. The loan facility will be used for general corporate and ongoing operational purposes and carries an interest rate of 8% above the base rate of the Bank of England. Lenders can elect at any time to convert up to 75% of the outstanding loan to shares at a conversion price of stg£0.02 in year 1 and stg£0.025 in year 2. In March 2021, the Company completed the migration of the Company’s corporate securities from CREST to Euroclear Bank (“Migration”) under the Migration of Participating Securities Act 2019. In March 2021 PetroNeft’s interest in Licence 67 has increased from 50% to 90%, following a partial disposal by Sarum Energy Ltd of its equity holding. The Consideration for the acquisition was US$2.9 million which has been satisfied through the issuance of 80,000,000 PetroNeft ordinary shares (“New Ordinary Shares”) to Belgrave Naftogas for a value of US$1.2 million and cash consideration of US$1.7 million, which was financed through a 3 year loan from Belgrave Naftogas to PetroNeft. In April 2021, some lenders under the various Convertible Loan Agreements, elected to exercise their options to convert part of their Loan Facilities into Ordinary Shares of the Company. In total 125,878,647 Ordinary Shares were issued to various lenders and $2.9 million of Convertible Debt was redeemed. The Covid pandemic is a global crisis, and the Company was not immune from its economic impact. These Annual Accounts and Financial Statements report how all the Company’s stakeholders supported the operations during these very difficult economic times. [91] PetroNeft Resources plc Notes to the Financial Statements For the year ended 31 December 2020 30 Contingent Liability 2020 US$ 5,000,000 5,000,000 2019 US$ 5,000,000 5,000,000 In consideration for the loan advances and extending out the repayment period, Petrogrand AB is entitled to receive additional fees in the sum of US$2,500,000 per licence if the sale of either or both occurs before the 31 December 2023. The obligation and liability shall survive the repayment or mandatory repayment of the Petrogrand AB loan and shall continue to be secured by the floating charge. 31. Approval of financial statements The financial statements were approved, and authorised for issue, by the Board of Directors on 21 June 2021. [92] I M A n i t u o t e s l I s a ( 6 2 e u R M A f o t c e p s e r n i s i s t n e m d n e m a y e k e h t f o e n O . 8 1 0 2 h c r a M n i d e h s i l b u p e r e w s e u R M A w e n I l , e g n a h c x E k c o t S n o d n o L e h t y b n o i t a t l u s n o c t n e c e r e h t g n w o i l l o F e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P . e d o c t a h t d e i l p p a e v a h y e h t w o h d n a y l p p a y e h t e d o c e c n a n r e v o g e t a r o p r o c d e s i n g o c e r h c i h w e t i s b e w r i e h t n o e t a t s o t i s e n a p m o c I M A s e r i u q e r w o n h c i h w , ) 0 5 e c i t o N e z i s s ’ y n a p m o C e h t o t e t a i r p o r p p a e c n a n r e v o g e t a r o p r o c i f o s d r a d n a t s h g h g n i y l p p a d n a g n p o e v e d o t i l l , e b a c i t c a r p e r e h w , d e t t i m m o c s i c l P s e c r u o s e R t f e N o r t e P f o s r o t c e r i D f o d r a o B e h T . e c n a i l l i A s e n a p m o C d e t o u Q e h t y b d e s i v e d s a 8 1 0 2 l i r p A n i d e s i v e r , e d o C A C Q e h t y l p p a o t s k e e s s r o t c e r i D f o d r a o B e h T . t n e m p o e v e d f o e g a t s d n a l f o s t n e m e e y e k l i s e k a t e d o C A C Q e h T . s e n a p m o c d e t o u q e z i s - d m o t i l l a m s f o s t s e r e t n i e h t i s n o p m a h c t a h t n o i t a s i n a g r o p h s r e b m e m i t n e d n e p e d n i e h t s i e c n a i l l i A s e n a p m o C d e t o u Q e h T i i . s e n a p m o c g n w o r g f o s d e e n t n e r e f f i d e h t l r o f e b a k r o w s i h c i h w r e n n a m a n i m e h t s e i l p p a d n a e c n a n r e v o g d o o g s e t a t s e d o C e h T . s e r u s o l c s i d f o t e s a d n a ) ’ n o i t a c i l p p a ‘ r e d n u , l i l a t n e s e p i c n i r p e s e h t t a h w l f o n o i t a n a p x e n a y b d e n a p m o c c a ( i l s e p i c n i r p d a o r b n e t d n u o r a d e t c u r t s n o c s i e d o C A C Q e h T . s e r u s o l c s i d d e b i r c s e r p e h t h g u o r h t l s e p i c n i r p e h t g n i t e e m e r a y e h t w o h t u o b a n o i t a n a p x e n a e d i v o r p o t l i s e n a p m o c i s k s a d n a s e n a p m o c g n w o r g r o f i s t n e m e g n a r r a e t a i r p o r p p a s i t a h w l . e p i c n i r p ’ l i n a p x e r o y l p m o c ‘ e h t n o d e s a b , 8 1 0 2 l i r p A n i d e h s i l b u p s a w ) ” e d o C d e s i v e R “ e h t ( e d o C A C Q e h t f o n o i s r e v d e s i v e r A d n a e d o c m o r f s e r u t r a p e d d n a s t n e m e r i u q e r e s e h t h t i w s e i l p m o c t f e N o r t e P w o h t u o s t e s n e h t t I . e d o c A C Q e h t y b d e d n e m m o c e r n o i t a c i l p p a e h t l , s e p i c n i r p e h t l t u o s t e s w o e b e b a t e h T l . e d o c A C Q e h t n i d e d i v o r p s e r u s o l c s i d d e d n e m m o c e r e h t n o p u d e s a b e r a e s e h T . s e r u s o l c s i d e t a i r p o r p p a o t s k n i l s e d i v o r p . 0 2 0 2 y a M 7 e h t n o d e w e i v e r t s a l e r e w s e r u s o l c s i d e s e h T ] 3 9 [ S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q m o c . t f e N o r t e P w w w . e n o N t u o t e s y l r a e l c s a h s r o t c e r i D f o d r a o B e h T l a s s e r p x e o t e b a e b t s u m d r a o b e h T H T W O R G R E V I L E D l r a u g e r a n o t e e m s r o t c e r i D f o d r a o B e h T d n a s t c u d o r p f o n o i t p i r c s e d e p m l i s f o n o i t c e r i d c i g e t a r t s e h t s s u c s i d o t s i s a b t u o t e s d n a s e r u t c u r t s e t a r o p r o c g n i v e h c a n i i s s e r g o r p d n a , y n a p m o C e h t r e v i l e d o t s d n e t n i y n a p m o C e h t w o h l . s r e d o h e k a t s h t i w s n o i t a c i n u m m o c e h t d n o y e b o g d u o h s l t I . y g e t a r t s o t i m u d e m e h t r o f t f e N o r t e P r o f n o i s i v n i t u o s t e s l y l r a u g e r t i t a h t m r e t g n o l s ’ y n a p m o C e h t f o w e i v d e r a h s d n a l e d o m s s e n i s u b , e s o p r u p y g e t a r t s a h s i l b a t s E . 1 - g n o l e t o m o r p h c i h w l e d o m s s e n i s u b d n a l r o f e u a v m r e t l s r e d o h e r a h s ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P n o e r u s o l c s i d d e l i a t e d s e d i v o r p t f e N o r t e P e t a r t s n o m e d d u o h s l t I . m r e t - g n o l d n a l e d o m s s e n i s u b s ’ y n a p m o C e h t m r e t - g n o l f o y r e v i l e d e h t t a h t . t r o p e R l a u n n A e h t n i y g e t a r t s t e s r a e l c a y b d e n n p r e d n u s i i h t w o r g . s i m a s t i i t s n a g a o t i m u d e m e h t n i l e u a v r e d o h e r a h s l m o c . t f e N o r t e P w w w . a e v a h y l t n e r r u c t o n s e o d y n a p m o C e h T r o t s e v n i d e t a c i d e d e h T . e o r l s n o i t a e r l s i h t t a h t s l e e f d r a o B n e v i g e t a i r p o r p p a s i f o e g a t s d n a e z i s e h t t n o J i , D A M O N , y n a p m o C s n o i t a e R c i l l b u P l o t k e e s d u o h s d n a s n o i t a t c e p x e y r a t e r c e S y n a p m o C d n a r o t i d u A , s r e k o r B i d n h e b s n o i t a v i t o m e h t d n a t s r e d n u h t i w s r o t c e r i D f o d r a o B a s a h t f e N o r t e P i s d e e n e h t g n d n a t s r e d n u n i e c n e i r e p x e d n a k s i r y r a s s e c e n n u m o r f y n a p m o C d n a s d e e n e h t i f o g n d n a t s r e d n u l d o o g a p o e v e d t s u m s r o t c e r i D . e r u t u f m r e t - g n o l s t i g n i r u c e s d n a t s r e d n u o t k e e S . 2 l r e d o h e r a h s t e e m d n a a f o m r o f e h t n i s r e s i v d a l a n o i s s e f o r p l ’ s r e d o h e r a h s e g a n a m t s u m d r a o b h t i w d r a o b s i h t s t n e m e p p u s l t I e h T . e s a b r e d o h e r a h s l s ’ y n a p m o C . e s a b r e d o h e r a h s l s t i f o s n o i t a t c e p x e d n a e h t f o s t n e m e e l l l a f o s n o i t a t c e p x e s n o i t a t c e p x e d n a s d e e n n i l s r e d o h e r a h s h t i w s e g a g n e t f e N o r t e P l . s r e d o h e r a h s h t i w : y a w g n w o i l l o f e h t d e n g i s e d n e e b s a h e t i s b e w y n a p m o C e h T - o t d e w e i v e r l y l r a u g e r s i e t i s b e w e h T . m e h t d n a e t a d o t p u s i n o i t a m r o f n i e h t e r u s n e h t i w e t a c i n u m m o c d n a s r e d o h e r a h s l o t n o i t a m r o f n i e d i v o r p o t b u h a s a ] 4 9 [ . y n a p m o C s n o i t a c i n u m m o c s t i f o s a e r a s u o i r a v n i e h t f o t n e m p o e v e d l s n o i t a d n e m m o c e r d n a e c i v d a e d i v o r p o h w . s n o i s i c e d g n i t o v r e d o h e r a h s l e h t g n i t c e t o r p t a d e m a s e u a v f o l i S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P l l a f o s e p o c i i s n a t n o c e t i s b e w e h T . t n a v e e r l s e t a d p u r a u g e r l s e d i v o r p y n a p m o C e h T - s w e N y r o t a u g e R e h t a l i v t e k r a m e h t o t c i l b u p d n a s n o i t a c i n u m m o c y n a p m o C . s t n e m u c o d . e c i v r e S s e d i v o r p t r o p e R l a u n n A s ’ y n a p m o C e h T - l a c i r o t s i h t u o b a n o i t a m r o f n i d e r i u q e r g n i t e e M l a r e n e G l a u n n A n A . y n a p m o C e h t j f o s e v i t c e b o d n a , y g e t a r t s , e c n a m r o f r e p f o d r a o B e h t h t i w e g a g n e y a m d n a d e t i v n i e r a s r e d o h e r a h s l l l a h c i h w o t d e h s i l l g n o a e t i s b e w y n a p m o C e h t n o d e d i v o r p e r a y n a p m o C e h t r o f s l i a t e d t c a t n o C - . s t n e m u c o d c i l b u p h t i w . s r o t c e r i D p e e k l l i w d r a o b e h T t n a v e e r h t i l w e v a h y a m y e h t s n r e c n o c d n a s r e d o h e k a t s l s ’ y n a p m o C . y n a p m o C e h t y n a e s i a r o t d e g a r u o c n e e r a s e e y o p m E - l e h t y f i t n e d i o t s d e e n d r a o b e h T r e d n u s i h t h t i w d e d i v o r p o s l a e r a d n a t n e m e g a n a m , s t s e r e t n i , s d e e n r i e h t d n a t s r e d n u t u p d n a n o i t a r e d i s n o c t n a w t o n y e h t d u o h s l t c a t n o c t n e d n e p e d n i . s n o i t a t c e p x e d n a s e r u d e c o r p e c a p n l i . s r e g a n a m r i e h t h t i w y l t c e r i d e g a g n e o t e h t o t e t a e r l t a h t s r e t t a m e r e h W l s r e d o h e k a t s l a n r e t x E t l e f s i t i n e h w . e t a i r p o r p p a r e d n u d e r e d i s n o c n e e b e v a h s r e d o h e r a h s l t i h c i h w n h t i i w s e i t i n u m m o c m o r f k c a b d e e f r o f s m s i n a h c e m e h T - e h t , y t e i c o s n o t c a p m i s ’ y n a p m o C . e v o b a ) 2 ( i t n o p e v a h t n e m n o r i v n e e h t r o s e t a r e p o m s i n a h c e m k c a b d e e f , s r o t c a r t n o c - b u s , s r e i l p p u s , e c r o f k r o w l a n r e t n i h t o b s p u o r g r e d o h e k a t s l e d i s t u o r e d o h e k a t s l o t t c e p s e r h t i w d n a , y t i n u m m o c l a c o l l , s r e d o h e r a h s , s r e i l p p u s ( l a n r e t x e d n a ) e c r o f k r o w ( . s e i t i r o h t u a y r o t a u g e r l . ) s r e h t o d n a , s r o t a u g e r l , s r e m o t s u c r o f s n o i t a c i l p m i r i e h t d n a s e i t i l i b i s n o p s e r s s e c c u s m r e t - g n o l s e o d y n a p m o C e h T l a m r o f a e v a h t o n i n o d n a s p h s n o i t a e r d n a s e c r u o s e r l y e K d o o g n o p u s e i l e r s s e c c u s m r e t - g n o L r e d w i r e d i s n o C . 3 s t i e r a s e i l e r s s e n i s u b e h t h c i h w t n e r e f f i d f o e g n a r a h t i w s n o i t a e r l l a i c o s d n a r e d o h e k a t s l r i e h t a i v y n a p m o C r o , t c a t n o c y e k e h t t c a t n o c n a c a i v d e d i v o r p s i s r o t a u g e r l m o r f k c a b d e e F - d n a g n i t r o p e r f o k r o w e m a r f l r a u g e r e h t r e v i l e d o t y t i l i b a s ’ y n a p m o C e h t t c e f f a o t l a i t n e t o p e h t e h t d n a t u o d e i r r a c e r a t a h t s n o i t c e p s n i i m u d e m e h t ] 5 9 [ l r e v o e u a v r e d o h e r a h s l S K N I L S E R U T R A P E D S N O S A E R D N A s ’ y n a p m o C , e t i s b e w e h t t a r o D A M O N e h t a i v y l t c e r i d . M G A . s g n d n i f i l a i r e t a m s s e n i s u b d n a y g e t a r t s s ’ y n a p m o C e h t o t n i d e t a r g e t n i e b t s u m . l e d o m d e e n s m e t s y S . s m s i n a h c e m l o r t n o c l l a f o t r a p l a i t n e s s e n a s i k c a b d e e F l l a n o k c a b d e e f l r a u g e r d e v i e c e r d r a o B s r e t t a m e s o h t n e h t , m r e t - g n o l o t S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P t r o p e R l a u n n A e n o N t n e r e h n i s i k s i r t a h t s e s i n g o c e r t f e N o r t e P e h t t a h t e r u s n e o t s d e e n d r a o b e h T k s i r e v i t c e f f e d e b m E . 4 l r e d o h e k a t s l l a m o r f k c a b d e e f n o t c a . s p u o r g t i t a h t s e r u s n e , s l o r t n o c e c n a n r e v o g y l p p u s s ’ y n a p m o C e h t g n d u l c n i i n a c s k s i r s t I . s e i t i v i t c a s s e n i s u b s t i l l a n i t n e m e g a n a m k s i r s ’ y n a p m o C , l a n o i t a r e p o , l a i c n a n i f a e v a h s e s s e r d d a d n a s e i f i t n e d i k r o w e m a r f . t c a p m i l a n o i t a t u p e r r o , l a t n e m n o r i v n e d n a e t u c e x e o t s k s i r t n a v e e r l l l a d n a s e i t i n u t r o p p o h t o b g n i r e d i s n o c , t n e m e g a n a m d e h s i l b a t s e y b d e t r o p p u s , n o i t a c i f i t n e d i , s s e n i s u b d e d n e t x e r i e h t r e d i s n o c n o i t a s i n a g r o k s i r f o m e t s y s s ’ y n a p m o C e h T o t d e e n s e n a p m o c i ; y g e t a r t s r e v i l e d e h t t u o h g u o r h t , s t a e r h t e h t r o f y t i r g e t n i h t i w d n a y l l a c i h t e g n i t c a . r e m o t s u c l . s r e d o h e k a t s r u o l l a f o t i f e n e b s e d u l c n i y g e t a r t s g n i t t e S - n o n d n a l a i c n a n i f , s e s u a c t o o r h s i l b a t s e l o t d e t a u a v e e r a s k s i r , d e i f i t n e d i e c n O e r u s o p x e f o t n e t x e e h t g n n m r e t e d i i e h t t a h t s k s i r d e i f i t n e d i e h t o t t c a p m i k s i r f o n o i t a r e d i s n o C . e c n e r r u c c o a e t a e r c o t d e r e d i s n o c s i d o o h i l e k i l d n a i e n m r e t e d o t d n a r e t s i g e r k s i r d e s i t i r o i r p s a d e r e d i s n o c e b d u o h s l s k s i r e h t f o h c i h w d n a s s e n e v i t c e f f e e h T . k s i r l a p i c n i r p a e r a s l o r t n o c g n i t a g i t i m f o y c a u q e d a e r a s l o r t n o c l a n o i t i d d a f I . d e s s e s s a d n a , d e i f i t n e d i e b l l i w e s e h t , d e r i u q e r k s i r d n a e c n a r e o t k s i r ( e k a t l . ) e t i t e p p a f o d o o h i l e k i l d n a , s t c a p m i l a i c n a n i f o t g n i l l i w d n a r a e b n a c y n a p m o C t s l i h w , s k s i r h c u s o t s d n o p s e r y l e v i t c e f f e - d n e o t s r e i l p p u s y e k m o r f , i n a h c d n a r e d i s n o c , t i c i l o s o t e c a p n l i e b o t s ’ y n a p m o C e h T . d e n g i s s a s e i t i l i b i s n o p s e r g n i r o t i n o m l r o f e b i s n o p s e r s i t n e m e g a n a m ] 6 9 [ S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P e h t o t d e t r o p e r e r a s k s i r y e k ; s u o u n i t n o c r a e y a e c n o t s a e l t a d n a e e t t i m m o C t i d u A y e k e t a g i t i m o t s n o i t c a f o s s e r g o r p e h t s i s s e c o r p t n e m e g a n a m k s i r e h T . s k s i r . d r a o B l l u f e h t o t K R O W E M A R F T N E M E G A N A M C I M A N Y D A N I A T N I A M o t s d n e t n i d r a o B e h T f o e e r h t , s r o t c e r i d e v i f s a h d r a o B e h T a e v a h s r e b m e m d r a o b e h T 2 t s a e l t a e v a h s i d r a o B e h T . e v i t u c e x e - n o n e r a m o h w l a g e l d n a y t i l i b i s n o p s e r e v i t c e l l o c d r a o b e h t n a t n a M i i . 5 i , g n n o i t c n u f - l l e w a s a f o e r u t r a p e d e h t h t i W . s r o t c e r i D e v i t u c e x e - n o n t n e d n e p e d n I i g n h s i l b a t s e d n a n o i t c e r i d c i g e t a r t s i e t a r o p r o c g n n i f e d r o f e b i s n o p s e r l e h t f o t n e m e g a n a m e h t l r o f e b i s n o p s e r s t s e r e t n i e h t e t o m o r p o t n o i t a g i l b o y b d e l m a e t d e c n a a b l s t i g n i t t e s , y n a p m o C e h t f o s s e n i s u b y l e v i t c e l l o c e r a d n a y n a p m o C e h t f o r i a h c e h t s i h t , 0 2 0 2 r e b m e c e D d e c u d e r s a w r e b m u n i e t a n m o n o t s d n e t n i d e i f i l a u q y l b a t i u s a y n a p m o C e h T . 1 o t s t i r o t i n o m d n a y n a p m o C e h t f o n o i t i s o p e c n a n r e v o g e t a r o p r o c , o t h c a o r p p a l a i c n a n i f e h t e e s r e v o o t y t i l i b i s n o p s e r d n a , f o y t i l a u q e h t r o f y t i l i b i s n o p s e r e h t f o f l a h e b n o , s r i a f f a d n a s s e n i s u b e h T . d r a o b e h t f o r i a h c e h t h t i w s e i l e h t f o y t u d y r a m l i r p e h T . e b a t n u o c c a y t i l a u q h g h h t i i w d e d i v o r p e b e r a y e h t m o h w o t l , s r e d o h e r a h s l d u o h s ) s e e t t i m m o c y n a d n a ( d r a o b s a r o t c e r i d e v i t u c e x e s e s s e r d d a o s l a d r a o B e h T . y n a p m o C e h t f o e h t f o t n e m s s e s s a r e p o r p e t a t i l i c a f - n o n t n e d n e p e d n I s t s e r e t n i t s e b e h t n i t c a o t s y a w a s i l d r a o B o t r e n n a m y l e m i t a n i n o i t a m r o f n i g n o r t s a s a n o o s k s i r d n a s l o r t n o c l a n r e t n i o t g n i t a e r l s e u s s i r o n o i s i c e d a g n i r i u q e r s r e t t a m . s e g r e m e e t a d d n a c i . t n e m e g a n a m l n a e v a h d u o h s d r a o b e h T . t h g i s n i n i y e k c i H s a m o h T ’ s r o t c e r i d e h t s i t I . s e i c i l o p e t a i r p o r p p a e t a m i t l U . s t n e m e g n a r r a e c n a n r e v o g s i t n e d n e p e d n i d e r e d i s n o C . a y a k s l e t f a h S t s a e l l t a e v a h d u o h s d n a s r o t c e r i d . a c c a S y n o h t n A e v i t u c e x e - n o n t n e d n e p e d n i o w t i e d w a s g n i r b r o t c e r i d e v i t u c e x e - n o n e h T d r a o b a s i e c n e d n e p e d n I . s r o t c e r i d e h t o t e c n e i r e p x e d n a s l l i k s f o e g n a r t n e d n e p e d n i s a l l e w s a , y n a p m o C l e b d u o h s d r a o b e h T . t n e m e g d u j , . g . e ( s e e t t i m m o c y b d e t r o p p u s d n a , k s i r , y g e t a r t s n o t n e m g d u j ) n o i t a n m o n i , n o i t a r e n u m e r , t i d u a t s a e l t a d e s s e s s a s i r o t c e r i d e v i t u c e x e - n o n s e i t u d r i e h t e g r a h c s i d o t e g d e w o n k l h c a e f o e c n e d n e p e d n i e h T . e c n a m r o f r e p d n a s l l i k s y r a s s e c e n e h t e v a h t a h t . y l l a u n n a . y l e v i t c e f f e s e i t i l i b i s n o p s e r d n a ] 7 9 [ r i a t s a A l , s r o t c e r i d e v i t u c e x e - n o n e h T a i r a D d n a a c c a S y n o h t n A , i n a B c M n e e w t e b e c n a l a b e t a i r p o r p p a e v i t u c e x e - n o n d n a e v i t u c e x e . s e i t i v i t c a s t i n i t s i s s a o t s e e t t i m m o c b u s d r a o b e h t f o e c n e r e f e r f o s m r e t e h T l d n a y l r a u g e r d e w e i v e r e r a s e e t t i m m o c e t i s b e w s ’ y n a p m o C e h t n o e b a l l i a v a e r a l i a r e v e s d e t n o p p a s a h d r a o b e h T m o c . t f e N o r t e P w w w . f o s t s i s n o c e e t t i m m o C n o i t a r e n u m e R e h T ) n a m r i a h C e e t t i m m o C ( n a B c M i r i a t s a A l l r o f e b i s n o p s e r s i t I . a c c a S y n o h t n A d n a i r o n e s e h t f o e c n a m r o f r e p e h t g n w e i v e r i S K N I L S E R U T R A P E D S N O S A E R D N A x i s t s a e l t a t e e m s r o t c e r i D f o d r a o B e h T e m i t e h t t i m m o c t s u m s r o t c e r i D . d r a o b l l u f a s a r a e y a s e m i t . s e o r l r i e h t l i f l u f o t y r a s s e c e n S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P s l e v e l i i r i e h t g n n m r e t e d r o f d n a s e v i t u c e x e f o n o i t i s o p m o c e h t r e d i s n o c o t d e r i u q e r s a s t e e m e e t t i m m o C n o i t a n m o N e h T i . n o i t a r e n u m e r f o d n a , d r a o B e h t i l r o f g n n n a p n o i s s e c c u s d n a e h t o t i s t n e m t n o p p a f o s s e c o r p e h t d a e l o t s i n a m r i a h C e e t t i m m o C e h T . d r a o B e h t f o r e b m e m r e h t o e h T . i n a B c M r i a t s a A l - n o n o w t f o s t s i s n o c e e t t i m m o C t i d u A e h T , a c c a S y n o h t n A : s r o t c e r i D e v i t u c e x e a c c a S y n o h t n A s i e e t t i m m o C r i l a t s a A d n a ) n a m r i a h C e e t t i m m o C ( d n a s r o t c e r i D e v i t u c e x E e h T . i n a B c M e h T . n o i t a t i v n i y b s g n i t e e m e e t t i m m o c e e r h t t s a e l t a s t e e m e e t t i m m o C t i d u A d n a l a u n n a e h t r e d i s n o c o t r a e y a s e m i t e h t s d n e t t a , t n e m e g a n a M i r o n e S t i d u a e h t d n a s t n e m e t a t s l a i c n a n i f m i r e t n i l e b i s n o p s e r s i e e t t i m m o C t i d u A e h T . n a p l l a i c n a n i f e t a i r p o r p p a t a h t g n i r u s n e r o f ] 8 9 [ / s r o t c e r i d / t u o b a / m o c . t f e N o r t e P w w w . i i s e h p a r g o B s r o t c e r i D o t p u s t e s l l i k s r i e h t p e e k s r o t c e r i D e h T e h t h g u o r h t d e r i u q e r s a h g u o r h t e t a d d n a m r o f r e p y e h t s e o r l f o e g n a r y r t s u d n i d n a l a c i n h c e t f o n o i t a r e d i s n o c . s e t a d p u e c i v d a l a n r e t x e t h g u o s t o n s a h d r a o B e h T m o r f t r a p a , r e t t a m t n a c i f i n g i s y n a n o f o e s r u o c l a m r o n e h t n i t h g u o s e c i v d a ] 9 9 [ d n a e c n e i r e p x e r i e h t d n a s r e b m e M d r a o B k n i l e h t g n w o i l l o f y b d n u o f e b n a c s l l i k s e d i v o r p s r o t c e r i D f o d r a o B e h t r e h t e g o T . e t i s o p p o , s l l i k s i i r o t c e s g n n m d n a g n i y r r a u q t n a v e e r l o s l a n a c t u b t n a t r o p m i e b n a c s d n o b a r o n o s r e p e n o y b d e t a n m o d e b i l a n o s r e p g n o r t S . e p o e p f o p u o r g l l t o n d u o h s d r a o b e h T . n o i t i s o p m o c s t i f o t r a p s a , e c n a l a b r e d n e g y r t n u o c , s l l i k s l a c i n h c e t i , s e n a p m o c c i l b u p e c n e i r e p x e d n a s l l i k s f o x i m e h t e g r a l i g n n n u r h t i w d e t a i c o s s a s l l i k s e h t , e v l o v e s e n a p m o c i s A . d r a o b a e d i v i d l a i c n a n i f d n a l a c i n h c e t d n a e c n e i r e p x e , e g n a h c l l i w d r a o b e h t n o d e r i u q e r n i y n a p m o C e h t t s i s s a o t s n o i t a c i f i l a u q o t d e e n l l i w n o i t i s o p m o c d r a o b d n a i g n w e i v e r , n o p u d e t r o p e r d n a d e n a t n a m i i e h t g n i t e e m r o f d n a s e i c i l o p g n i t n u o c c a d n a s t n e m e t a t s l a i c n a n i f e h t o t g n i t a e r l s t r o p e r i r i e h t g n w e i v e r d n a s r o t i d u a . s m e t s y s l o r t n o c l a n r e t n i e n o N n e e b s a h t f e N o r t e P f o d r a o B e h T e t a i r p o r p p a n a e v a h t s u m d r a o b e h T o t s e i t i l a u q l a n o s r e p d n a , s l l i k s , e c n e i r e p x e f o e c n a l a b e t a i r p o r p p a n a s a l l e w s a r o f y n a p m o C e h t f o y g e t a r t s e h t r e v i l e d . s e i t i l i b a p a c d n a s e i t i l a u q l a n o s r e p e h t l r e v o s r e d o h e r a h s e h t f o t i f e n e b e h t d n a d n a t s r e d n u d u o h s d r a o b e h T l e h t f o s l i a t e d l l u F . m r e t g n o l o t i m u d e m i g n d u l c n i , y t i s r e v i d n w o s t i e g n e l l a h c o t r o t c e r i d h c a e w o l l l a o t d e b m e s s a d n a l a i c n a n i f , r o t c e s f o e c n a l a b f o x i m y r a s s e c e n e h t e t u b i r t n o c , e c n e i r e p x e d n a s l l i k s s t e k r a m c i l b u p n e e w t e b t a h t e r u s n E . 6 e v a h s r o t c e r i d e h t m e h t , s l l i k s , e c n e i r e p x e e t a d - o t - p u y r a s s e c e n e h t s e i t i l i b a p a c d n a . s i m a d e t a t s s t i g n i v e h c a i . e g n a h c s i h t t c e l f e r o t e v l o v e S K N I L S E R U T R A P E D S N O S A E R D N A y l r e p o r p e r a s e r u d e c o r p g n i t r o p e r S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P o t t e y s a h t f e N o r t e P l a m r o f a t u o y r r a c d r a o b f o t n e m s s e s s a p e e k l l i w d r a o b e h T . s s e n e v i t c e f f e r e d n u s i h t t u p d n a n o i t a r e d i s n o c s e r u d e c o r p e c a p n l i t l e f s i t i n e h w . e t a i r p o r p p a d n a , s r e y w a l , s r o t i d u a r u o m o r f s s e n i s u b l a n r e t x e o N . e c i v d a e c n a i l p m o c x a t d r a o B e h t y b d e g a g n e n e e b e v a h s r e s i v d a d e l l i f l u f s i y r a t e r c e S y n a p m o C f o e o r e h T l d n a s t r o p p u s d n a A C F r e w o P l e a h c i M y b . e v o b a d e t o n s a t p e c x e , s r o t c e r i D f o . n o i t c n u f s t i n i d r a o B e h t s e s i v d a l a m r o f a t u o y r r a c o t t e y s a h t f e N o r t e P w e i v e r l l y l r a u g e r d u o h s d r a o b e h T d r a o b e t a u a v E . 7 l . s s e n e v i t c e f f e d r a o b f o t n e m s s e s s a e c n a m r o f r e p s t i f o s s e n e v i t c e f f e e h t n o d e s a b e c n a m r o f r e p y l l a n r e t n i t u o d e i r r a c e b y a m w e i v e r m o r f d e t a t i l i c a f y l l a n r e t x e , y l l a e d i , r o e c n a m r o f r e p d r a o b e h T . s r o t c e r i d g n i r o t n e m l r o t n e m p o e v e d y f i t n e d i e h t r o s r o t c e r i d l a u d i v i d n i f o s d e e n l d u o h s w e i v e r e h T . e m i t o t e m i t s i t I . m a e t t n e m e g a n a m i r o n e s r e d w i d r a o b e h t i f o p h s r e b m e m r o f y h t l a e h . d e h s e r f e r y l l a c i d o i r e p e b o t l a u d i v i d n i e h t d n a s e e t t i m m o c s t i f o t a h t s a l l e w s a , t i n u a s a l t n a v e e r d n a r a e l c g n i k e e s , s e v i t c e j b o t n e m e v o r p m i s u o u n i t n o c r o f k s a t l a t i v a s i i l g n n n a p n o i s s e c c u S t n e m e t a t S e c n a n r e v o G e t a r o p r o C e n o N t n e m e t a t s e c n a n r e v o g e t a r o p r o c o t r e f e R d r a o b e h t f o r e b m e m o N . s d r a o b l . e b a s n e p s i d n i e m o c e b d u o h s l l d n a y d o b m e d u o h s d r a o b e h T n i t r o p e R ’ s r o t c e r i D e h t n h t i i w d e n a t n o c i s i t a h t e r u t l u c e t a r o p r o c a e t o m o r p f o n o i t p i r c s e d l l u f a r o f t r o p e R l a u n n A e h t d n a s e u a v l l a c i h t e d n u o s n o d e s a b d e s a b e r u t l u c a s e t o m o r p d r a o B e h t w o h d n a t e s s a n a s a t i e s u d n a s r u o i v a h e b . s e u a v l l a c i h t e d n u o s n o . e g a t n a v d a e v i t i t e p m o c f o e c r u o s a ] 0 0 1 [ l d u o h s d r a o b e h t y b t e s y c i l o p e h T d n a s n o i t c a e h t n i l e b i s i v e b d n a e v i t u c e x e f e h c e h t i f o s n o i s i c e d . m a e t t n e m e g a n a m e h t f o t s e r e h t e t a r o p r o c a e t o m o r P . 8 n o d e s a b s i t a h t e r u t l u c d n a s e u a v l l a c i h t e s r u o i v a h e b S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P i e h t e d u g d u o h s l l s e u a v e t a r o p r o C l e b d u o h s e r u t l u c e h T . y n a p m o C e h t f o y g e t a r t s d n a s e v i t c e b o j , t n e m t i u r c e r g n d u l c n i i , s s e n i s u b e h t f o t c e p s a y r e v e n i l e b i s i v t n e m e t a t S e c n a n r e v o G e t a r o p r o C - r o t s e v n i / m o c . t f e N o r t e P w w w . l / 6 2 e u r / s n o i t a e r l e n o N t n e m e t a t s e c n a n r e v o g e t a r o p r o c o t r e f e R i i n a t n a m d u o h s l y n a p m o C e h T e c n a n r e v o g n a t n a M i i . 9 e t a r o p r o C e h t f o n o i t p i r c s e d l l u f a r o f s e s s e c o r p d n a s e r u t c u r t s e c n a n r e v o g d n a s e r u t c u r t s . s e r u t c u r t s e c n a n r e v o g d n a e r u t l u c e t a r o p r o c s t i h t i w e n i l n i r o f t i f e r a t a h t s e s s e c o r p l e c n a r e o t d n a , e t i t e p p a , y t i c a p a c • l d n a ; y t i x e p m o c d n a e z i s • : s t i o t e t a i r p o r p p a g n i k a m - n o i s i c e d d o o g t r o p p u s d n a e s o p r u p d r a o b e h t y b s t i h t i w l e l l a r a p n i e m i t r e v o e v l o v e l d u o h s s e r u t c u r t s e c n a n r e v o g e h T s s e n i s u b d n a , y g e t a r t s , s e v i t c e b o j f o t n e m p o e v e d e h t l t c e l f e r o t l e d o m . y n a p m o C e h t . k s i r r o f d n a e c n a m r o f r e p e h T . t n e m e g a g n e e h t e s r o d n e d u o h s l m e t s y s d r a w e r l l a s s o r c a s r u o i v a h e b l a c i h t e d e r i s e d s t n e m e t a t s r e h t o y n a d n a e t i s b e w , t r o p e r l a u n n a e h t n i s e r u s o l c s i d y n a p m o C e h t y b d e u s s i e h T . y n a p m o C e h t f o s l e v e l l e b d u o h s e r u t l u c e t a r o p r o c e h t t u o h g u o r h t e b a s i n g o c e r l d n a , g n n a r t i i , s n o i t a n m o n i - r o t s e v n i / m o c . t f e N o r t e P w w w . l l a f o s e c i t o n , l l a i r e t a m d e t a e r - e c n a n r e v o g s t i l l a d n a d r a o b e h t n e e w t e b l / 6 2 e u r / s n o i t a e r l ] 1 0 1 [ l , s r e d o h e r a h s g n d u l c n i i l , s r e d o h e k a t s s i y n a p m o C e h t s i d n a d e n r e v o g t r o p e R l a u n n A e n o N r e h t o d n a s t r o p e r l a u n n a l a c i r o t s i H T S U R T D L I U B l t s i x e d u o h s e u g o a d y h t l l i a e h A w o h e t a c i n u m m o C . 0 1 S K N I L S E R U T R A P E D S N O S A E R D N A S E I L P M O C T F E N O R T E P W O H N O I T A C I L P P A I E L P I C N R P A C Q e h t n o d n u o f e b n a c s g n i t e e m l a r e n e g o t s e i t r a p d e t s e r e t n i l l l a e b a n e o t i y b g n m r o f r e p ) d e u n i t n o c ( e d o C e c n a n r e v o G e t a r o p r o C c l p s e c r u o s e R t f e N o r t e P . e t i s b e w t u o b a s n o i s i c e d d e m r o f n i o t e m o c d n a n o i t a c i n u m m o c e t a i r p o r p p a t s i x e d u o h s l s e r u t c u r t s g n i t r o p e r l , r a u c i t r a p n I . y n a p m o C e h t l l a d n a d r a o b e h t n e e w t e b l r e d o h e r a h s s t i f o s t r a p t n e u t i t s n o c ; d r a o b e h t o t s w e i v l ’ s r e d o h e r a h s f o n o i t a c i n u m m o c e h t • : t s i s s a l l i w s i h T . e s a b d n a i f o g n d n a t s r e d n u l ’ s r e d o h e r a h s e h t • t I . y n a p m o C e h t y b d e c a f i s t n a r t s n o c d n a s e c n a t s m u c r i c e u q n u e h t i e s e h t e r e h w r a e l c e b d u o h s l e r a s e c i t c a r p n o i t a c i n u m m o c . ) e t i s b e w r o t r o p e r l a u n n a ( d e b i r c s e d ] 2 0 1 [ i l e u g o a d a g n n a t n a m i i i l d n a s r e d o h e r a h s h t i w t n a v e e r l r e h t o l s r e d o h e k a t s PetroNeft Resources plc Section 172(1) Statement The revised UK Corporate Governance Code (‘2018 Code’) was published in July 2018 and applies to accounting periods beginning on or after January 1, 2019. The Companies (Miscellaneous Reporting) Regulations 2018 (‘2018 MRR’) require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in section 172(1) (A) to (F) of the Companies Act 2006 (‘S172’) when performing their duty to promote the success of the Company under S172. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the Company. The Board welcomes the direction of the UK Financial Reporting Council (the ‘FRC’). This S172 statement, which is reported for the first time, explains how PetroNeft Resource PLC Directors: • • have engaged with its key stakeholders; and have had regard to employee interests, the need to foster the Company’s business relationships with suppliers, customers and other, and the effect of that regards, including on the principal decisions taken by the Company during the financial year. The S172 statement focuses on matters of strategic importance to PetroNeft Resources PLC, and the level of information disclosed is believed to be consistent with the size and the complexity of the business. General confirmation of Directors’ duties PetroNeft Resources PLC’s Board has a clear framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been determined to identify matters requiring Board consideration and approval. More information on PetroNeft Resources PLC’s Controls and Procedures can be found by clicking on the following link. http://PetroNeft.com/investor-relations/rule26/ When making decisions, each Director ensures that he/she acts in the way he/she considers, in good faith, would most likely promote the Company’s success for the benefit of its stakeholders as a whole, and in doing so have regard (among other matters) to: S172(1) (A) “The likely consequences of any decision in the long term” The Directors understand the business and the evolving environment in which the Company operates, including the challenges of navigating through the energy sector. Based on PetroNeft Resources PLC’s purpose to economically develop its hydrocarbon resources, the strategy set by the Board is intended to optimise the development of its resource basewhile keeping safety and social responsibility fundamental in our business approach. The board reviews the forward plans to achieve its stratgeic aims and continues to re evaluate on the operational plans , while ensuring the health and wellbeing of its employees and shareholders, suppliers and offtakers during the height of the Covid pandemic. In this context as part of the PetroNeft Resources PLC Story, the rising standard of living of a growing global population is likely to continue to drive demand for energy, including oil and gas, for years to come. At the same time, technological changes and the need to tackle climate change mean there is a sector under way to a lower-carbon, multi-source energy system with increasing customer choice. These three strategic ambitions: thrive in the energy sector, world-class investment case and strong licence to operate have been set in that context with the objective to increase long-term value for shareholders recognising that the long-term success of our business is dependent on our stakeholders and the external impact of our business activities on society. The Directors recognise how our operations are viewed by different parts of society and that some decisions they take today may not align with all stakeholder groups. Given the complexity of the energy sector, the Directors have taken the decisions they believe best support PetroNeft Resources PLC’s strategic plan. [103] PetroNeft Resources plc S172(1) (B) “The interests of the Company’s employees” The Directors recognise that PetroNeft Resources PLC employees are fundamental and core to our business and delivery of our strategic plan. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible. The Directors recognise that our pensioners, though no longer employees, also remain important stakeholders. S172(1) (C) “The need to foster the Company’s business relationships with suppliers, customers and others” Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, national oil companies and joint-venture partners. PetroNeft Resources PLC seeks the promotion and application of certain general principles in such relationships. The ability to promote these principles effectively is an important factor in the decision to enter into or remain in such relationships.. The businesses continuously assess the priorities related to customers and those with whom we do business, and the Board engages with the businesses on these topics, for example, within the context of business strategy updates and investment proposals. Moreover, the Directors receive information updates on a variety of topics that indicate and inform how these stakeholders have been engaged. These range from information provided from our management and and joint-venture partners, related to items such as project updates and supplier contract management topics to information provided by the business units (on customers and joint- venture partners related to, for example, business strategies, projects and investment or divestment proposals). S172(1) (D) “The impact of the Company’s operations on the community and the environment” This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the energy sector and to sustain a strong societal licence to operate. As such, the Board receives information on these topics to both provide relevant information for specific Board decisions (e.g. those related to specific strategic initiatives such as the investment or divestment proposals, business strategy reviews and country wide considerations) and to provide ongoing overviews at the PetroNeft Resources PLC group level (e.g., regular Safety & Environment Performance Up, reports from the Audit Committee). S172(1) (E) “The desirability of the Company maintaining a reputation for high standards of business conduct” The Board periodically reviews and approves clear frameworks, to ensure that its high standards are maintained both within PetroNeft Resources PLC businesses and the business relationships we maintain. This, complemented by the ways the Board is informed and monitors compliance with relevant governance standards help assure its decisions are taken and that PetroNeft Resources PLC act in ways that promote high standards of business conduct. S172(1) (F) “The need to act fairly as between members of the Company” After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy through taking into consideration the impact on various stakeholder groups. In doing so, our Directors believe they act fairly as between the Company’s members but are not required to balance the Company’s interest with those of other stakeholders as this can sometimes mean that certain stakeholder interests may not be fully aligned. Stakeholder Engagement. The following are considered by the Directors to be the key stakeholders who are important to our success, the table also lists the methods of engagemt and key issues considered. [104] PetroNeft Resources plc Key Stakeholders Shareholders Employees and Consultants Local Communites Engagement Platform RNS Annoucements Website Third Party Advisors AGM/EGM meetings Face to Face Meetings (except during CoVid) Emails & Telephone calls Face to Face meetings Video conferencing Emails Direct link to board for issues of concern Face to Face Meetings Email Telephone Government and Regulatory Agencies Face to Face meetings Written Communications Telephone and email Joint Venture Partners Face to Face Meetings Email/Telephone/Written Communications Financing Partners Contractors and Suppliers Face to Face meetings Telephone calls, emails, video conferencing Fce to Face meetings Emails/Telephone/Written Communications Issues Considered Strategy Operational and Financial performance Risk Management Strategy HR policies HSE policies and performance Company News Anti-Bribery and Corruption Environmental Management Operational plans where required Corporate Social Responsibility aims and objectives Operational plans Environmental management Legal/Regulatory Matters Taxes/Revenue collection Social Iniatives Operational plans Strategy Budgets Joint Venture stakeholder engagements Fianncial updates including cash call status Funding Operational plans/requirements Technical, Regulatory, Fianncial and Legal Support [105] PetroNeft Resources plc Glossary 1P 2P 3P C1 C2 C1+C2 AGM AIM Arawak bbl. Belgrave Naftogas bopd boe bopd Company CPF CSR Custody Transfer Point Dolomite DST ESM ESP Exploration resources Granite Construction Group HSE IAS IFRIC IFRS km km2/ sq. km Licence 61 Licence 61 Farmout Proved reserves according to SPE standards. Proved and probable reserves according to SPE standards. Proved, probable and possible reserves according to SPE standards. Russian reserves approximately equivalent to SPE standard 1P reserves. Russian reserves approximately equivalent to SPE probable reserves. Russian reserves approximately equivalent to SPE standard 2P reserves. Annual General Meeting. Alternative Investment Market of the London Stock Exchange. Arawak Energy Russia B.V. Barrel. Belgrave Naftogas B.V., formerly called Arawak Barrels of fluid per day. Barrel of oil equivalent. Barrels of oil per day. PetroNeft Resources plc. Central Processing Facility. Corporate and Social Responsibility. Facility/location at which custody of oil transfers to another operator. LLC Dolomite, a 100% subsidiary of PetroNeft registered in the Russian Federation Drill stem test. Enterprise Securities Market of the Irish Stock Exchange. Electric Submersible Pump An undrilled prospect in an area of known hydrocarbons with unequivocal four-way dip closure at the reservoir horizon. LLC Granite Construction, a 100% subsidiary of PetroNeft registered in the Russian Federation The Company and its joint ventures and subsidiary undertakings. Health, Safety and Environment. International Accounting Standard. IFRS Interpretations Committee. International Financial Reporting Standard. Kilometres. Square kilometres. The Exploration and Production Licence in the Tomsk Oblast, Russia owned by the joint venture Company WorldAce Investments Limited. It contains seven known oil fields, Lineynoye, Tungolskoye, West Lineynoye, Arbuzovskoye, Kondrashevskoye, Sibkrayevskoye and North Varyakhskoye and 27 Prospects and Leads that are currently being explored. An agreement whereby Oil India Limited subscribed for shares in WorldAce, the holding Company for Stimul-T, the entity which holds Licence 61 and all related assets and liabilities, and following, PetroNeft and Oil India Limited both hold 50% of the voting shares, and through the shareholders agreement, both parties have joint control of WorldAce with PetroNeft as operator [106] PetroNeft Resources plc GLOSSARY (continued) Licence 67 Lineynoye m mmbbls mmbo Natlata Oil pay P1 P2 P3 PetroNeft POD Russian BD Holdings B.V. SPE Spud Stimul-T TSR VAT WAEP WorldAce WorldAce Group The Exploration and Production Licence in the Tomsk Oblast, Russia owned by the joint venture Company Russian BD Holdings B.V. It contains two oil fields, Ledovoye and Cheremshanskoye and several potential prospects. Limited Liability Company Lineynoye, a wholly owned subsidiary of Russian BD Holdings B.V., registered in the Russian Federation. Metres. Million barrels. Million barrels of oil. Natlata Partners Limited, a significant shareholder of PetroNeft. A formation containing producible hydrocarbons. Proved reserves according to SPE standards. Probable reserves according to SPE standards. Possible reserves according to SPE standards. PetroNeft Resources plc. Plan of Development Russian BD Holdings B.V., a Company owned 50% by PetroNeft and registered in the Netherlands. Society of Petroleum Engineers. To commence drilling a well. Limited Liability Company Stimul-T, a wholly owned subsidiary of WorldAce, based in the Russian Federation. Total Shareholder Return. Value Added Tax. Weighted Average Exercise Price. WorldAce Investments Limited, a Company owned 50% by PetroNeft, registered in Cyprus. WorldAce Investments Limited and its 100% subsidiary LLC Stimul-T [107] Producing oil from a solid asset base Our Assets The main assets of the Company are a 50% operating interest in a 4,991 km² oil and gas licence (Licence 61) in the Tomsk Oblast in Russia and a 90% operating interest in a 2,447 km² oil and gas licence (Licence 67) also located in the Tomsk Oblast. Both licences are located in the prolifi c Western Siberian Oil and Gas Basin. RUSSIATomsk OblastMoscow01,000 KM0100 KMKEY:PetroNeft LicencesOther Held LicencesOil FieldOil and Gas FieldGas Condensate FieldOil PipelineGas PipelineP e t r o N e f t R e s o u r c e s P l c A n n u a l R e p o r t 2 0 2 0 PetroNeft Resources plc Dublin Offi ce 20 Holles Street Dublin 2 Ireland PetroNeft Resources plc Annual Report Годовой Отчет 2020 

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