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Annual Report 2022

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T h e P a r k m e a d G r o u p p c A n n u a l l R e p o r t 2 0 2 2 The Parkmead Group plc 4 Queen’s Terrace Aberdeen AB10 1XL United Kingdom www.parkmeadgroup.com ENERGY REFOCUSED Annual Report 2022 In keeping with Parkmead’s ESG vision and commitment to minimise the environmental impact of our activities this year’s Annual Report mailing was packaged using fully recyclable materials.Communiqué Associates Limited, Edinburgh am@communique-associates.co.ukThe Parkmead Group plc Annual Report 2022 I 1 DELIVERING ENERGYThe Parkmead Group is a UK and Netherlands focused independent energy group listed on AIM of the London Stock Exchange. The Group produces natural gas from a portfolio of four fields across the Netherlands, and holds significant additional oil and gas interests across the UK and Dutch sectors. The Group also benefits from a portfolio of renewable energy assets including an operational wind farm and a range of complementary renewable energy opportunities.ContentsHighlights 2Chairman’s Statement 4Renewables 8UK Oil and Gas 10Netherlands Gas 12Assets 14Board of Directors 15Strategic Report 16Directors’ Report 18Corporate Governance 20Independent Auditor’s Report 24Financial Statements 30Notes to the Financial Statements 36Officers and Professional Advisors 75Highlights Parkmead has delivered record revenue and operational profit in 2022 alongside the acquisition of a wind power company to complement our high-quality, low-carbon portfolio. “ Parkmead continues to make exciting progress on key projects throughout our developing portfolio” Tom Cross Executive Chairman Record revenue of £12.1m £5.2m operating profit 82% increase in gross profit margin Skerryvore stake increased from 30% to 50%1 Operational wind farm acquired for £3.3m Two-well Netherlands drilling campaign Q4 2022 245% increase in PPA price 2 2 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 3 1 - Effective from 01/10/2022 2 - Average increase across 12 month period to 31/07/2023 i n g r a m t fi o r p s s o r G 89% 49% 31% 2020 2021 2022 Chairman’s Statement “ We have added value through a number of important steps across our portfolio this year. These included increasing our stake in the Skerryvore project, acquiring Kempstone Hill Wind Farm and completing the Netherlands gas royalty transaction.” Tom Cross Executive Chairman 22 November 2022 2022 has been an important year of delivery for Parkmead. Building on the solid foundations established in recent years, the Group increased its revenue by 236% in the period to £12.1 million and generated strong profits at both operating and pre-tax levels. Parkmead achieved an operating profit of £5.2 million and a record profit before tax of £4.0 million. We also delivered a number of important, value-adding steps across our projects this year, including increasing our stake in Skerryvore, acquiring the Kempstone Hill wind farm and completing the Netherlands gas royalty transaction. Financial Performance The Group’s revenue for the year to 30 June 2022 was £12.1m (2021: £3.6m), generating a substantial increase in gross profit to £10.8m (2021: £1.8m). The gross margin improved from 49% to 89%, showing the high-quality nature of Parkmead’s onshore production in the Netherlands and strong operating leverage. The increased revenue in the year reflected the good operating performance and substantially higher gas prices during 2021, which increased further in 2022 following Russia’s invasion of Ukraine. This strength in gas prices has continued since the financial year end, with prices reaching approximately €350/MWh in August 2022. Since then, prices have softened and are now trading at more normalised levels as seen during the financial year. The spike in pricing has resulted in revenue from the Netherlands in the four-month period to 31 October 2022 in excess of €9.0 million. Parkmead remains 100% unhedged and therefore benefits from these higher prices. 2022 Revenue £12.1m Operating profit for the year was £5.2m (2021: £12.8m loss) and an adjusted EBITDA was delivered of £9.0m (2021: £1.0m loss). A record profit before tax was recorded of £4.0m (2021: £13.4m loss). Taxation paid of £4.8m (2021: £0.4m) relates primarily to Parkmead’s Netherlands assets and reflects high revenue and very low operating costs across the onshore portfolio. Accordingly, the Group’s net loss for the period fell significantly to £0.8m (2021: £13.8m). Parkmead maintains a strong balance sheet with total assets of £86.3m (2021: £78.7m) at 30 June 2022. Cash and cash equivalents at year-end were £23.3m (2021: £23.4m) and interest bearing loans receivable were £2.9m (2021: £2.9m). The Group’s net asset value was £57.0m (2021: £57.7m). Debt within the Group remains minimal and was £0.9m at 30 June 2022 (2021: £0.5m). This prudent approach to external debt is an important part of our financial discipline. An impairment of goodwill was recorded in the year of £2.2m (2021: £nil) relating to historic contracts held by the Group’s benchmarking and economics subsidiary company, Aupec Limited. Aupec is undergoing a growth strategy change that will focus the company’s offering to a more interactive, cloud- based system for clients. This will also allow Aupec to offer a benchmarking analytics service to clients outside of the energy sector. As a result of the excellent cash flow received from the Netherlands this year, we decided to move forward with legacy decommissioning activities that are required to be carried out in the UKCS. Completing this work will position Parkmead well ahead of its next phase of growth, with no major abandonment liabilities going forward. Decommissioning provisions for the period were £19.2m (2021: £0.4m). The Group is also capitalising on lower costs, agreed before the significant inflation in the offshore market. Group administrative expenses were £2.2m (2021: £3m). Underlying staff costs, before share based payments, were reduced to £1.7m (2021: £2.0m). 4 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 5 Netherlands Gas Projects In July 2021, Parkmead completed the acquisition of a gas royalty associated with the Group’s existing interests in the Drenthe IV, Drenthe V and Andel Va licences in the Netherlands from Vermilion Energy. These licences contain the Grolloo, Geesbrug and Brakel onshore gas fields, respectively. The acquisition doubled the Group’s effective financial interest from 7.5% to 15% (in line with Parkmead’s working interest in the licences). This royalty was previously held by NAM (a Shell and ExxonMobil joint venture) and came with the licences when they were acquired by Parkmead. The consideration for the royalty was €565k. The acquisition is already proving to be of significant benefit to Parkmead as it was completed ahead of the recent increase in energy prices. It is expected that the royalty deal will also significantly extend the producing life of these fields, through greater partner alignment. Our Netherlands production was some of the most efficient and profitable in Europe during 2022, on a per-barrel basis. Average gross production for the financial year across the Group’s Netherlands assets was 21.7 MMscfd, approximately 3,740 barrels of oil equivalent per day (“boepd”). We recently announced the spudding of the ‘LDS’ two-well drilling campaign in the Netherlands. The LDS wells are being drilled from the existing Diever well site and will target a combined mid-case gas-in-place of 37.2 billion cubic feet (“Bcf”) in the prolific Rotliegendes reservoirs within this licence. The production tie-in period for these onshore targets is very short and, provided success at LDS, would result in significant additional revenue and cash flow for Parkmead. The operating cost of the combined fields is very low at just $8.6 per barrel of oil equivalent. These high-quality assets, combined with the operating leverage from a fixed cost base, underpin the healthy gross profit margin during the year and allows us to invest in further opportunities. Parkmead’s onshore gas production continues to form a key part of the Group and plays an important role in our transition to a lower-carbon environment. On our Drenthe VI licence, the Diever gas field remains one of the most prolific producing onshore fields in the Netherlands. Given the production from Parkmead’s Netherlands assets, especially in the context of current gas prices, a key near term focus for the Company will be to maximise the opportunities within these licences. The LDS two-well drilling campaign is part of this strategy. UK Oil and Gas Projects Skerryvore Following consultation with its joint venture partners in Licence P.2400 (which encompasses the Skerryvore prospects) and having received approvals from the regulatory authorities, post period end Parkmead reached agreement to increase its stake in the Skerryvore project from 30% to 50%. Parkmead will continue as Operator on the licence, which is testament to the efforts and capability of the Parkmead team. Skerryvore will be Parkmead’s first operated exploration well. Parkmead’s joint venture partners in the licence going forward will be Serica Energy (UK) Limited (20%) and CalEnergy (Gas) Limited (30%). In addition, Parkmead has received approval from the North Sea Transition Authority (NSTA) to enter the next phase of this licence with agreement to drill the high-impact Skerryvore prospects. The Company’s geotechnical work programme has confirmed the considerable multi-interval potential of Skerryvore. The planned well will target the main stacked exploration prospects, at Mey and Chalk level, which studies indicate could contain 157 million barrels of oil equivalent (“MMboe”) in the P50, most likely case. The licence also contains additional prospectivity at the Ekofisk and Jurassic levels. A successful discovery could be tied into existing and planned infrastructure in the vicinity. The area around Skerryvore is currently seeing important activity on several fronts, with Harbour Energy progressing the adjacent Talbot discovery, NEO Energy proceeding with the redevelopment of Affleck and TotalEnergies appraising the Isabella discovery. Development activity is also taking place in the Norwegian sector in close proximity to Skerryvore at Tommeliten A, a licence operated by ConocoPhillips. Greater Perth Area (“GPA”) Parkmead has engaged a leading energy corporate finance advisory firm, Gneiss Energy Limited, to manage the process to find a suitable industry partner (or partners) in relation to the Company’s 100% interest in the Greater Perth Area (“GPA”) development project. The core Perth field holds approximately 55 MMboe on a most likely, P50 basis. The wider GPA project has the potential to deliver between 75 and 130 MMboe on a P50 basis and could provide material value-adding volumes to surrounding infrastructure through field life extension. GPA is one of the North Sea’s largest undeveloped oil projects and has been fully appraised, so no further appraisal drilling is needed. The constituent wells have been flow tested at rates of up to 6,000 barrels of oil per day and have produced good quality, light crude oil of between 37° and 32° API. Parkmead has continued dialogue on commercial terms with the nearby Scott field partnership for the potential tie-back of the GPA project to Scott. Scott lies just 6 miles southeast of GPA and a tie-back could yield a number of mutually beneficial advantages for both the Scott partnership and the Perth owners. Transportation studies for the base case GPA development concept have previously been completed. These have confirmed there are no technical showstoppers that would prevent the transportation and processing of fluids from the Perth production wells, all the way through the offshore infrastructure Average Realised Gas Price 100 80 60 40 20 h W M / Є 2020 2021 Financial Year 2022 and onshore facilities. Parkmead continues to align potential project development concepts with the UK government’s net zero commitment and has therefore initiated a net zero study for GPA. Encouraging industry interest has also been received with regards to the GPA farm out and constructive dialogue continues across all three GPA licences with NSTA. Parkmead believes that projects like GPA play an important role in underpinning the supply of energy that the UK needs during its transition to net zero. As a fuel that is primarily used for transportation, manufacturing and petrochemicals, oil will continue to feature as a vital commodity in the UK over the coming years. Therefore, it is very important that the UK continues to develop projects such as GPA in order to reduce the UK’s reliance on less-regulated, more carbon- intensive imports. Parkmead believes that production of hydrocarbons from GPA can be done in a sustainable fashion, in alignment with the UK Government’s most recent targets on carbon emissions. Russia’s invasion of Ukraine has increased the UK Government’s focus on energy security and confirmed the importance of having sizeable and robust UK domestic energy production. The rise in international oil and gas prices has also strengthened investment appetite through enhanced economics. Parkmead has also seen a positive investment sentiment emanating from the introduction of the new UK Energy Profits Levy, whereby the associated investment allowance of up to 91% has created a powerful incentive for major producers to invest in new UK North Sea developments. Onshore Renewables The acquisition of the Kempstone Hill Wind Farm, completed 31 January 2022, has now been fully integrated into the Group. The acquisition was immediately revenue and cash flow enhancing. In the last 12 months the wind farm generated 2,850 MWh with a 99.7% availability, enough to power up to 1,000 homes. Kempstone Hill benefits from an attractive inflation-linked, Feed-in Tariff through until 2036. Wholesale export prices have seen strong gains throughout 2022. Following Kempstone Hill’s integration into Parkmead, a new Power Purchase Agreement was negotiated by Parkmead’s team, commencing 1 August 2022, which we expect to result in a substantial increase in 2023’s cashflow. Parkmead also has been assessing a number of opportunities to further enhance the Kempstone Hill Wind Farm, such as the potential inclusion of solar power generation, and expanding sales of electricity to local industrial users. The major shift in the electricity generation market has changed the dynamics of renewable projects and Parkmead has decided to position Pitreadie based on a hybrid of renewable technologies following the completion of successful feasibility studies during the year. To that effect, Parkmead is progressing the work required to allow the Company to consider a combined wind and solar project, with added potential for a battery storage unit. This complements our existing onshore projects throughout the UK and Netherlands as the Group looks to continue expanding its onshore energy portfolio. Outlook Our focus at Parkmead is to continue building a robust and balanced European energy business, driving forward both organic and inorganic growth opportunities. We have delivered significant growth across our portfolio this year, alongside achieving record gas revenue and profit before tax. The Directors believe that there are excellent prospects to increase production from Parkmead’s Netherlands assets and we will imminently spud a new two-well drilling campaign to begin accessing these opportunities. The current gas price environment provides a strong platform to capitalise on the low cost of production from these concessions. We maintain a very healthy appetite for transactions which could provide incremental revenue, cash flow and long-term value for shareholders. Our proactive approach to investment in cleaner energies positions Parkmead to continue building a balanced portfolio of assets across the Group. Parkmead’s strict financial discipline has allowed us to remain unhedged for 100% of our gas production, thus gaining maximum exposure to the higher Dutch gas prices. The Company has started the 2023 financial year on a sound footing, with work ongoing across a number of projects which should pave the way for a successful year ahead. 6 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 7 Acquisition of Kempstone Hill Wind Farm in 2022 Provides power for up to 1,000 homes 2,850 MWh of electricity generated throughout 2022 RENEWABLES Feeding our first 100% renewable energy into the National Grid Acquisition of Kempstone Hill Wind Energy Limited Throughout the latter half of 2021, the team worked incredibly hard to complete the acquisition of Kempstone Hill Wind Energy Limited and integrate it into the wider business. This off-market acquisition is Parkmead’s first electricity generating asset, feeding 100% renewable energy direct into the grid. The project comprises three V39 Vestas 500kW turbines providing a combined installed capacity of 1.5MW. The asset commenced production in 2016 and profits from an inflation linked Feed-in Tariff (FiT) accreditation through to 2036. The wind farm also benefits from a full planning consent, lasting until 2043. Kempstone Hill was acquired for a total cash consideration of £3.29m. Since the acquisition, wholesale electricity prices have increased considerably resulting in an increased Power Purchase Agreement export price for the coming year, and therefore higher than expected revenue generation. Availability at the site remains high averaging 99.7% across the three turbines in 2022. Wholesale energy prices are expected to remain high until the end of 2024. The acquisition has also resulted in further income stream diversification for the Group, in addition to its onshore gas portfolio. The acquisition evidences our commitment to invest in the wider energy transition. Kempstone Hill complements the Group’s organic hybrid renewable energy project at Pitreadie, and our team is continuing to actively review additional acquisitions and opportunities in this sector. “ Our team of experts have swiftly integrated this asset into our Group, delivering immediate cashflow and future upside opportunities” Andrew Smith Group Asset Manager UK Electricity Spot Price h W M / £ 600 500 400 300 200 100 0 2021 May Sep 2022 May Sep August 2021 October 2021 January 2022 March 2022 July 2022 August 2022 Identification of market opportunity Price, effective date and exclusivity position agreed Acquisition completes Full integration into wider group New PPA signed for 2022/2023 Parkmead starts to received full enhanced benefit of the new export pricing 8 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 9 hUK OIL AND GAS UK OIL & GAS Increasing our stake in Skerryvore “ The acquisition of this natural gas Tim Coxe royalty puts Parkmead in a stronger Managing Director, North Sea position. It adds substantial core value and we estimate it will extend the life of the assets by several years.” Guy Stroulger Director, Business Development & Commercial Skerryvore The Skerryvore area (P.2400) is situated in the prolific Central Graben, and spans Blocks 30/12c, 13c, 17h & 18c.This area is seeing a particularly high volume of activity at present, with a Final Investment Decision expected on the adjacent Talbot field, the redevelopment of the nearby Affleck field, and appraisal drilling on the Isabella discovery. In July, Parkmead was delighted to report that following the completion of a robust technical work programme across the Skerryvore licence, the joint venture group had taken the decision to enter the next phase of the licence. This involves an exploration well on the attractive Skerryvore prospects. The NSTA has since approved Parkmead as the Exploration Operator, with the licence formally entering the next phase on 1st October 2022. The Company’s technical work programme has confirmed the considerable potential at Skerryvore. Parkmead has therefore increased its stake in Skerryvore from 30% to 50%. The planned well will target the main stacked exploration prospects, at Palaeocene Mey Sandstone and Cretaceous Chalk levels, which together could contain 157 million barrels of oil equivalent (“MMBoe”). Additional prospects have also been identified in the Jurassic and Ekofisk plays. Our joint venture partners in the licence going forward are Serica Energy (20%) and CalEnergy Resources (30%). The project in brief operated stake in the project 50% 157MMboe 1st estimated P50 reserves Parkmead operated well on the UKCS “ Parkmead’s technical work has yielded extremely positive results and we are excited to progress into the next phase of the licence which includes an exploration well on the stacked prospects” Paul Ramsey Subsurface Team Lead 10 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 11 Skerryvore NETHERLANDS GAS UK OIL & GAS Accelerating high quality gas supplies in Europe EXPLORATION AND APPRAISAL The joint venture is driving forward our E&A activities which include the LDS wells, expected to spud in Q4 2022 PRODUCTION Currently producing from 4 fields with gross output of 3,740boepd. Infill well opportunities are being explored on Geesbrug and Brakel Gas production across Parkmead’s four fields has remained strong, with average gross production of 21.7MMscfd, approximately 3,740boepd. These high-quality assets, combined with efficient operational cost control, underpin a healthy gross profit margin and allows us to invest in further opportunities throughout the Netherlands and UK. Parkmead’s onshore gas production continues to form a key part of the Group and plays an important role in our transition to a lower- carbon environment. On our Drenthe VI licence, the Diever gas field remains in the top three most prolific producing onshore fields in the Netherlands. The JV partners are making material progress on the LDS project, which is targeting multiple gas prospects. These will be drilled from the same site as the existing Diever field. Further follow-on prospects have also been identified on this prolific concession. The LDS project has continued to progress this year, with the completion of permitting and associated well planning work (including the procurement of long lead items). The contracted land rig has now arrived at location and will target a combined Pmean GIIP of 37.2 billion cubic feet (“Bcf”). Construction work to facilitate the potential tie-in of the new wells is largely complete. In a success case, there will be a short period required for well clean-up activities and final tie-ins into the same system as Diever production. “ Drilling will commence shortly on our LDS prospects in the Netherlands. A positive result would add material gas volumes to Parkmead’s net production, and build on the JV’s alignment created across our concessions as a result of the recent royalty acquisition” Henry Steward Commercial Manager The Parkmead portfolio includes producing gas fields with a very low operating cost. This profitable gas production from the Netherlands provides important cash flow to the Group. Success at the LDS wells will provide further low cost, fast- track, additional volumes and material cash flow to Parkmead. At Parkmead’s producing Geesbrug and Brakel gas fields the JV has commenced modelling working on low-cost infill well opportunities which aim to maximise production from these assets. DEVELOPMENT Permitting underway for Papekop (PMG 15%). A proven field with 24.2MMBbls of oil-in- place and 39.4bcf of gas-in-place ALTERNATIVE ENERGY The JV is actively assessing hydrogen and geothermal opportunities that may be facilitated through existing or near-term drilling on our licences 12 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 13 Natural Gas and Oil Assets Board of Directors AT 31 OCTOBER 2022 LICENCE BLOCK DESIGNATION FIELD/ DISCOVERY PROSPECT/ OPPORTUNITY OPERATOR PARKMEAD EQUITY % CO-VENTURERS UK CENTRAL NORTH SEA 15/21e North Area NE Perth 15/21a South Area Dolphin 15/21c 14/18b 14/25a Perth Athena Perth Parkmead Parkmead Parkmead Ithaca 100 100 100 30 Parkmead 100 Ithaca 40%, Jersey 15%, NEO 15% P218 P588  P1293 P2154 P2516 P2400 14/20g, 15/16g Fynn Beauly, Fynn Andrew Parkmead 30/12c, 13c, 17h & 18c Skerryvore Parkmead 50 50 Orcadian Energy 50% Serica 30%, CalEnergy 30% Ryan Stroulger Finance Director Thomas Cross Executive Chairman Tom is a Chartered Director and petroleum engineer with extensive energy sector experience, spanning projects in more than 20 countries. Tom was the founder and Chief Executive of Dana Petroleum plc through until its sale to the Korea National Oil Corporation in 2010. Prior to Dana, he held senior positions with Conoco, Thomson North Sea, Louisiana Land and Exploration and was Director of Engineering at the UK Petroleum Science and Technology Institute. Tom is a former Chairman of BRINDEX, the Association of British Independent Oil Companies, a former adviser to the BBC on energy affairs and a Fellow of the Institute of Directors. LICENCE FIELD/ DISCOVERY PROSPECT/ OPPORTUNITY OPERATOR PARKMEAD EQUITY % CO-VENTURERS NETHERLANDS ONSHORE Andel Va Brakel, Ottoland, Wijk en Aalburg Andel Vb Kerkwijk Drenthe IV Grolloo Drenthe V Geesbrug Drenthe VI Diever Papekop Papekop Andel Va Brakel, Ottoland LDS-A-CE LDS-A-SW LDS-B Vermilion Vermilion Vermilion Vermilion Vermilion Vermilion Vermilion 15 7.5 15 15 7.5 15 15 Vermilion 45%, EBN 40% Vermilion 22.5%, EBN 40%, NAM 30% Vermilion 45%, EBN 40% Vermilion 45%, EBN 40% Vermilion 52.5%, EBN 40% Vermilion 45%, EBN 40% Vermilion 45%, EBN 40% Renewable Energy Assets LICENCE LOCATION OPERATOR PARKMEAD EQUITY % ENERGY TYPE UK ONSHORE RENEWABLES Kempstone Hill Wind Farm Aberdeenshire Parkmead Pitreadie Site 1 Pitreadie Site 2 Aberdeenshire Parkmead Aberdeenshire Parkmead 100 100 100 Wind Wind Solar PV Ryan Stroulger has been a key member of The Parkmead Group management team since its foundation as an energy business in 2010. He served as Commercial Director of the Group before becoming Finance Director. Ryan has been responsible for identifying and driving forward numerous asset and corporate opportunities, such as the acquisitions of DEO Petroleum plc and Lochard Energy Group PLC. He is also responsible for all aspects of Parkmead’s external financing, from strategic planning through to successful execution. He is a member of the UK’s Institute of Directors and was awarded the Corporate Finance Qualification by the Institute of Chartered Accountants in England and Wales (ICAEW). Ryan also holds a Master’s degree in Petroleum Geoscience from the University of London. Colin MacLaren Non-Executive Director Colin has over 37 years of experience in commercial law. His most recent role was as a Partner at Brodies LLP, a top 50 UK law firm and one of the largest in Scotland. Colin brings a wealth of experience to the Parkmead Board of Directors. His extensive legal and commercial knowledge is valuable to Parkmead as we continue to expand our portfolio beyond the oil and gas sector to include various onshore renewable energy projects. Colin holds a LLB law degree from the University of Aberdeen. Colin is chair of the Remuneration Committee and member of the Audit Committee. Robert Finlay Non-Executive Director Robert has over 30 years of experience as a corporate adviser to a range of companies quoted on the London Stock Exchange AIM and Main Market, including a number of energy companies. He is currently a Director in the corporate advisory team at Shore Capital. His earlier career included roles as Head of Corporate at Stockdale Securities and Head of Corporate Finance at Canaccord Genuity. Robert is Chair of the Audit Committee and a member of the Remuneration Committee at Parkmead. 14 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 15                 Strategic Report Business review and future activities The Parkmead Group is a UK and Netherlands focused independent energy group listed on AIM of the London Stock Exchange (AIM: PMG). The Group produces from four gas fields in the Netherlands and holds interests in a total of 21 exploration and production blocks. Parkmead has significant oil and gas development and exploration opportunities across the UK and Netherlands, including the Diever gas field in the Netherlands, the Greater Perth Area and Skerryvore projects located in the Central North Sea. The Group also holds interests in a portfolio of exploration prospects alongside leading international partners. The Group also benefits from a portfolio of renewable energy assets including an operational wind farm and a complementary range of energy opportunities. Parkmead is headquartered in Aberdeen, Scotland. The Company is required by the Companies Act 2006 to set out in this report a review of the business of the Group during the year ended 30 June 2022, the position of the Group at the end of the year and any risks facing the Group. The information that fulfils these requirements, including discussion of the business and future developments, is set out in the Chairman’s Statement and the Strategic Report. Principal risks and mitigation The Group actively monitors and manages the risks relating to its operations. There is no guarantee that the Group’s exploration activities will be successful and statistically relatively few exploration properties are ultimately developed into producing hydrocarbon fields. Accordingly, the Group is seeking to balance this risk by building a portfolio of prospects that carry a range of differing technical and commercial risks. Other uncertainties include variable reservoir performance and cost overruns on exploration, development and production projects. Accordingly, the Group manages its non-operated production through joint ventures with appropriate planning, budgetary monitoring and asset management. The development of the Group’s properties will depend upon the Group’s ability to obtain financing through the joint venture of projects, debt financing, farm downs or other means. There is no assurance that the Group will be successful in obtaining the required financing or attracting farm-in partners in the medium term. If the Group is unable to obtain additional financing as needed or attract suitable farm-in partners, some interests may be relinquished and/or the scope of the operations reduced. To mitigate this risk, the Group has established a strong net asset base and continues discussions with debt providers. The market price of hydrocarbon products is volatile and if the price of hydrocarbon products drops significantly, or the fiscal regime experiences materially adverse changes, the economic 16 I The Parkmead Group plc Annual Report 2022 prospects of the projects in which the Group has an interest may be significantly reduced or rendered uneconomic. At all times the Board actively manages its committed expenditure, including short-term working capital and cash flow requirements to sustain the Group through periods of reduced hydrocarbon prices. The Group has exposure to US Dollar to Sterling and Euro to Sterling exchange risk, due to significant portions of its revenues being denominated in Euros, which are subject to currency exchange fluctuations. The Group mitigates this risk by minimising currency exchange and holding reserves of Dollars and Euros to use in the Group’s continued investment programme. The Group also is exposed to various production risks from its onshore assets throughout the Netherlands. This may generate revenue loss whilst costs continue to be incurred. In order to mitigate these production risks and revenue loss, the Company seeks to diversify its revenue streams through investment in other near-term production assets as well as additional forms of energy generation to complement the Group’s portfolio. The Group and Company have considered the supply chain and operational activities in light of the Russian attack on Ukraine and the Directors do not believe that there will be a material impact on the business. Key Performance Indicators The Group’s key focus is on executing value-adding acquisitions combined with organic growth to increase the value of the Group. The Group tracks year-on-year performance measures and is targeting value-adding growth in production, reserves and blocks under licence, whilst always maintaining a strong net asset base. These are deemed to be the most relevant key performance indicators to report at the year end. Further discussion of the year-on-year performance measures is set out in the Chairman’s Statement. Section 172 Statement This section of the Strategic Report describes how the directors have had regard to the matters set out in section 172 (1), and form the Directors’ statements required under section 414CZA of the Companies Act 2006. The Directors have acted in a way they consider to be good faith, to be most likely to promote the success of the Group and Company for the benefit of its members as a whole and in doing so have regarded, amongst other matters, to: a. the likely consequences of any decision in the long term; The Group has a strong Board with significant energy, finance and commercial expertise. The Board meet regularly to consider and discuss the long term goals of the Group and the impact decisions will have on these long term goals and relevant stakeholders. It also reviews strategy, financial and operational performance to ensure considered and informed decisions in the best interest of the Group and its shareholders. Information is provided to the Board through reports sent in advance of each Board meeting and through in-person presentations. During the year, the Group continued to engage with supply chain and regulators, as operator of key North Sea assets. The Group and its joint venture partners continue to take a pragmatic approach to key decisions relating to work scopes and investment on UKCS projects. The Group continues to work with its partners in the Netherlands to ensure we maximise the potential of all our onshore gas assets. Any expenditure related to these fields is carefully evaluated. These assets provide the Group with important cash flow in order to invest in other projects, further adding value to our well-balanced portfolio. Long-term objectives involve diversification of the Group’s energy interests and the continued investment in renewable energies demonstrates this. The Board continues to evaluate Parkmead’s portfolio in light of the transitioning energy mix and UK government’s net zero objectives. The Group will continue to build and operate a well-balanced energy portfolio which includes gas, oil, renewable energies and energy economics benchmarking. b. the interests of the Company's employees; The Group is made up of a parent company, The Parkmead Group plc, and has four subsidiaries; Kempstone Hill Wind Energy Limited, Aupec Ltd, Parkmead E&P Ltd and Pitreadie Farm Limited. Senior management of all subsidiaries meet with The Parkmead Group plc Board of Directors on a regular basis to ensure targets are met and the Group’s objectives are aligned. The Group employs 14 members of staff where all senior management and Board have an ‘open door’ policy to promote employee engagement and interaction. Meetings are held with the workforce and senior management where key business issues are discussed, employees are updated on the Group’s development. Ad hoc meetings and discussions are also held for training and other purposes such as cyber-security awareness. Parkmead encourages the professional development of all staff and, in particular, young professionals in the workforce. Staff are supported should they wish to join industry bodies and societies which align with the Group’s objectives. c. the need to foster the Company's business relationships with suppliers, customers and others; Members of the senior management team and the Board meet with key stakeholders to enhance relationships and understand their views. Senior management meet with joint venture partners on a regular basis to ensure projects are kept to budget and are on target to meet specific work programme deadlines. d. the impact of the Company's operations on the community and the environment; The Parkmead Group plc is committed to care of the community and environment in which it operates. The Group is aligned with the UK government’s Net Zero and Energy Transition goals. Not only is all applicable legislation complied with, the Group strives beyond this and has transitioned into one of the first independent, publicly listed E&Ps with operational and development-stage renewable energy assets. e. the desirability of the Company maintaining a reputation for high standards of business conduct; The Group’s intention is to behave responsibly and ensure that senior management operate the business in a responsible manner, operating with high standards of business conduct and good governance expected. The UK and Netherlands energy sectors are highly regulated business environments widely considered to be two of the most transparent and well regulated E&P industries globally. Within these highly regulated environments, the Board oversees a company that is subject to a considerable level of scrutiny and oversight by its shareholders and other relevant stakeholders. The Company adopts the Quoted Companies Alliance Corporate Governance Code 2018 (the ‘QCA Code’) and the Board recognises the importance of maintaining a good level of corporate governance, which together with the requirements to comply with the AIM Rules ensures that the interests of the Company’s stakeholders are safeguarded. f. the need to act fairly as between members of the Company; The Company openly engages with our stakeholders, as we recognise the importance of a continuing effective dialogue, whether it be with institutional or private investors, as well as employees. It is important to us that shareholders understand our strategy and objectives, so these must be explained clearly, with feedback heard and careful consideration of any issues or questions. The primary communication tool with shareholders is through the Regulatory News Service, (“RNS”) on regulatory matters and matters of material substance. The Company’s website provides extensive detail of the business, its strategy, Board and Board Committees, major shareholder information and QCA Code disclosure updates under AIM Rule 26. Changes are published in a timely manner on the website to enable the shareholders to be kept well-informed of Company’s affairs. The Company’s Annual Report and Notice of Annual General Meeting (AGM) are also available to all shareholders on the website. Approved by the Board of Directors and signed on behalf of the Board Thomas Cross Executive Chairman 22 November 2022 The Parkmead Group plc Annual Report 2022 I 17 Directors’ Report The Directors present their annual report and financial statements of the Company and of the Group for the year ended 30 June 2022. Financial risk management policies Further details of the Group’s financial risk management policies are set out in Note 25 to the financial statements. General information The Parkmead Group plc is a public limited company incorporated and domiciled in the UK and is listed on the AIM, part of the London Stock Exchange (PMG). The Company’s registered number is 03914068. Results and dividends The Group loss for the financial year after taxation amounted to £0.8 million (2021: £13.8m loss), which included a non- cash impairment and exploration write-offs of £3.0m. Adjusted EBITDA was a profit of £9.1m (2021: £1.0m loss). The Directors do not recommend the payment of a final dividend (2021: £nil). Future developments The future developments and events since the end of year are set out in the Chairman’s Statement and Strategic Report. Post year end date events can be found in Note 33 to the financial statements. Directors and their interests The Directors of the Company during the period were as follows: T P Cross R A Stroulger C J MacLaren R J Finlay Biographical details of all the current Directors, who make up the “Board” of the Company, as at the date of signing these financial statements, can be found on page 15. Details of all Directors’ emoluments can be found in Note 8 to the financial statements. Directors’ indemnity The Company provides, subject to the provisions of UK legislation, an indemnity for Directors and Officers against all costs, charges, losses, expenses and liabilities incurred by them in the execution and discharge of their duties or in relation thereto including any liability incurred by them in defending any civil or criminal proceedings, which relate to anything done or omitted or alleged to have been done or omitted by them as an Officer or employee of the Company and in which judgment is given in their favour (or the proceedings otherwise disposed of without any finding or admission of any material breach of duty on their part) or in which they are acquitted, or in connection with any application under any statute for relief from liability in respect of any such act or omission in which relief is granted to them by the Court. Appropriate Directors’ and Officers’ Liability insurance cover is in place in respect of all the Company’s Directors. Share capital At 30 June 2022 the total issued ordinary share capital was 109,266,931 shares of 1.5 pence each. All of the Company’s ordinary shares are fully paid up and quoted on AIM. The rights and obligations attaching to the Company’s ordinary shares as well as the powers of the Company’s Directors are set out in the Company’s Articles of Association, copies of which can be obtained from the Company website (www.parkmeadgroup.com), Companies House, or by writing to the Company Secretary. There are no restrictions on the voting rights attaching to or the transfer of the Company’s issued ordinary shares. No person holds securities in the Company carrying special rights with regard to control of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions in the transfer of securities or voting rights. The Company’s articles of association may be amended by special resolution of the Company’s shareholders. Significant shareholdings The Company has been advised of the following significant shareholdings as at 30 October 2022: No. of ordinary shares held % of Ordinary Shares T P Cross & Affiliates 28,200,929 25.81% Stonehage Fleming Investment Management 11,177,652 10.23% Accountability and audit The Board believes that the Annual Report and financial statements play an important part in presenting shareholders with an assessment of the Group’s position and prospects, and in particular the Chairman’s Statement, which contains a detailed consideration of the Group’s financial position and prospects. Internal control The Board has decided that at this stage in the Group’s development the creation of an internal audit function is not warranted. In reaching this decision the Board has had regard to the internal controls that have been implemented across the Group. These include: • the establishment of a Board with an appropriate balance of Executive and Non-Executive Directors, which has overall responsibility for decision making across the Group • the preparation and approval of an annual budget in advance of each financial year and monitoring performance against this at an appropriate level of detail on a timely basis Auditors Jeffreys Henry Audit Limited have indicated their willingness to continue in office. A resolution concerning their re-appointment will be proposed at the forthcoming Annual General Meeting. Annual general meeting Your attention is drawn to the Notice of the Annual General Meeting to be held on 21 December 2022. Under ordinary business shareholders will be asked to consider: • approving the Annual Report and financial statements for the year ended 30 June 2022 • to re-appoint Directors who, in accordance with the articles of association of the Company, have retired by rotation • approving the re-appointment of Jeffreys Henry Audit Limited as auditors to the Company • to grant Directors the authority to make market purchases and allot shares on a non-pre-emptive basis Approved by the Board of Directors and signed on behalf of the Board Ryan Stroulger Finance Director 22 November 2022 • establishing clear lines of reporting, responsibility and delegation throughout the Group and documenting this in a clearly defined organisational chart • ensuring that clearly defined control procedures covering expenditure and authority levels are in place. In particular, the Group requires that all significant expenditure is authorised prior to ordering by at least one Executive Director and that all financial payments are made under dual signature • undertaking a risk assessment of the Group’s activities and monitoring the risks identified There is an ongoing process for identifying, evaluating and managing risks faced by the Company. These processes were in place during the year. Going concern The Directors, after making appropriate enquiries have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Disclosure of information to the auditors In the case of each person who was a Director at the time this report was approved: • so far as that Director was aware there was no relevant audit information of which the Company’s auditors were unaware; and • that Director has taken all steps a Director ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. 18 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 19 Corporate Governance The Company is committed to high standards of corporate governance and the Board has ensured that the Company has adopted policies and procedures that the Directors consider appropriate with regard to the Company’s size. In order to fulfil the requirements under AIM Rule 26 the Company has adopted the recommendations of the Quoted Companies Alliance Corporate Governance Code 2018 (the ‘QCA Code’), to the extent that the Board believes is proportional to the size, risks, complexity and operations of the business. This statement explains the Directors’ approach to addressing the key principles of the QCA Code during the year ended 30 June 2022. Establish a strategy and business model which promotes long-term value for shareholders The Parkmead Group is a UK and Netherlands focused independent energy group listed on the AIM Market of the London Stock Exchange (AIM: PMG). The Group currently produces gas from a portfolio of four fields across the Netherlands and holds oil and gas interests spanning a number of exploration and production blocks. The Group also benefits from a portfolio of renewable energy assets including an operational wind farm and various other alternative energy opportunities. The Company’s strategy is to build an independent energy group of considerable scale, with assets in proven and emerging areas, through innovative commercial transactions in order to maximise shareholder value. Parkmead has made substantial progress to date in line with this strategy, completing eleven acquisitions at both asset and corporate level. The Group’s risks and risk mitigation strategy are explained in detail within the Strategic Report section in the Annual Report each financial year, available on the Parkmead website. Seek to understand and meet shareholder needs and expectations The Company communicates with current and potential shareholders through the Annual Report and financial statements, the Interim Statement and any regulatory news updates. Directors are available at the Annual General Meeting where shareholders can ask questions or present their views. Where voting decisions are not in line with the Company’s expectations the Board will engage with those shareholders to understand and address any issues. In accordance with the AIM rules, specifically Rule 26, the Company has disclosed fully all relevant information so as to ensure that it is fully compliant. The Company maintains a website (www.parkmeadgroup.com) where the Annual Report and financial statements can be accessed. The following information is also located on the website: • copies of regulatory announcements • announcements made to relevant industry media • Directors’ biographies • information relating to the Group’s services • details of the Group’s investments • significant shareholders All queries raised by shareholders are dealt with by an appropriate senior member of the team, depending on the nature of the enquiry. Take into account wider stakeholder and social responsibilities and their implications for long-term success The Company recognises that good relations with a range of different stakeholder groups is important for long-term success. These stakeholder groups include internal stakeholders, such as employees, and external stakeholders, such as government regulators and shareholders. The Company dedicates time to understanding and acting on the needs and requirements of each of these groups via meetings dedicated to obtaining feedback. The Company has a formal Health, Safety and Environmental Policy which requires all operations within the Group to pursue economic development whilst protecting the environment. The Directors aim not to damage the environment of the areas in which the Group operates, to meet all relevant regulatory and legislative requirements and to apply responsible standards of its own where relevant laws and regulations do not exist. It is the policy of the Group to consider the health and welfare of employees by maintaining a safe place and system of work as required by legislation in each of the countries where the Group operates. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Group’s risks and risk mitigation strategy are explained in detail within the Strategic Report section in the Annual Report each financial year, available on the Parkmead website. The Board considers risks relating to the business at every Board meeting (at least four meetings a year). The Company formally reviews and documents the principal risks relating to the business at least annually. The Board are responsible for reviewing and evaluating risk and the Executive Directors meet regularly to review ongoing trading performance, discuss budgets and forecasts and risks relating to the business. The Board’s risk management policy and internal controls are considered appropriate for a Company of its size and business activities. Maintain the Board as a well-functioning, balanced team led by the chair The Board, which is set up to control the Company and Group, meets formally at least four times a year and in the year under review met on eight occasions with all members present. As at the year end the Board was composed of two Executive and two Non-Executive Directors. The Board considers its composition appropriate given the size of the company, its revenues and profitability. The Non-Executive Directors are considered by the Board to be independent in character and judgement, notwithstanding the fact that they may have shares in the Company, taking into account their detailed experience and long standing knowledge of the energy sector and personal contribution through the exercise of their skills and experience. Each Board member receives the latest financial and management information, which consists of: • management accounts setting out actual costs and revenues against budgeted costs and revenues • cash collections and forecasts • a statement of profit or loss compared with budget • a statement of financial position including net assets per share The Board reserves to itself a range of key decisions to ensure it retains proper direction and control of the Group, whilst delegating authority to individual Directors who are responsible for the day-to-day management of the business. All appointments to the Board are discussed at a full board meeting and each member is given the opportunity to meet the individual concerned prior to an appointment being made. All Directors are subject to re-appointment every three years in accordance with the Company’s Articles of Association. Any Director appointed by the Board during the year must stand for re-appointment at the next Annual General Meeting. The Board has two committees; the Audit Committee and the Remuneration Committee. Further details on these committees are provided in the following principle “Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board”. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities Biographical details of all the current Directors can be found on page 15. These demonstrate a range of experience and sufficient calibre to bring independent judgement on the issues of strategy, performance, resources and standards of conduct, which are vital to the continuing success of the Group. All Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. In addition, the Company Secretary will ensure that the Directors receive appropriate training as necessary. The appointment and removal of the Company Secretary is a matter for the Board as a whole. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement In an effort to strive for continual improvement in the effectiveness of the Board, its committees, and the individual Board members, the Company operates an informal evaluation process throughout the year. Promote a corporate culture that is based on ethical values and behaviours The Board believes that a corporate culture based on sound values and behaviours is helpful to maximise shareholder value. The Company maintains and reviews guidance on what is expected of every employee of the company. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board The Board currently comprises two Executive and two Non- Executive Directors. The Board considers its composition appropriate given the size of the Company, its revenues and profitability. The key Board roles are the Executive Chairman and the Non- Executive Directors. Executive Chairman Responsible for the delivery of the business model within the strategy set by the Board. Works with the other Executive Directors and two Non-Executive Directors in a transparent way. Keeps the Board up-to-date with operational performance, risks and other issues to ensure that the Company remains aligned with the Group’s strategy. Non-Executive Directors The primary responsibility of the Non-Executive Directors is to ensure that the strategies proposed by the Executive Directors are fully considered. The Non-Executive Directors are also responsible for making sure that the board agenda concentrates on the key issues, both operational and financial, with regular reviews of the company’s strategy and its overall implementation. The Board has two committees; the Audit Committee and the Remuneration Committee. 20 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 21 Corporate Governance Statement of Directors’ Responsibilities (CONTINUED) Audit Committee The Audit Committee meets at least twice a year and consists of R J D Finlay, the Committee Chairman, C J MacLaren and T P Cross. R A Stroulger attends by invitation. In the year ended 30 June 2022 the Audit Committee met on two occasions, with all members present. During the year the Audit Committee completed their duties set out below including planning of the audit, reviewing the draft financial statements, reviewing results of the audit, independence of auditors and changes in accounting standards in the year. The duties of the Audit Committee include: • review of the scope and the results of the audit • assessment of the cost effectiveness of the audit • monitoring the independence and objectivity of the Auditors The Remuneration Committee is responsible for reviewing the level and make-up of the remuneration of Executive Directors. In doing so the Committee’s aims are: • to ensure that remuneration packages are sufficient to attract and retain Executive Directors of the requisite calibre • to ensure that the targets of the Group and its Executive Directors are aligned • to ensure that the remuneration policies adopted by the Group give consideration to the guidance of the QCA • to consider, and if thought fit, grant options to Executive Directors and staff under the Group’s Option Schemes • where applicable, to assess targets that should be used in the fixing of performance related pay for Executive Directors. Such bonuses are paid at the discretion of the Remuneration Committee • review and assessment of current updates of changes in accounting standards and their likely impact on the Group’s financial statements The remuneration of the Non-Executive Directors is determined by the Board within the limits set out in the Articles of Association. Communicate how the Company is governed and is performing by maintaining dialogue with shareholders and other relevant stakeholders The Company communicates with current and potential shareholders through the Annual Report and financial statements, the Interim Statement as well as any regulatory news and trading updates. Directors are available at the Annual General Meeting where shareholders can ask questions and present their views. The outcome of resolutions put to the Annual General Meeting are published and available on the Company’s website. Ryan Stroulger Company Secretary 22 November 2022 • review and assessment of the internal controls of the Company • assessment of the competencies of the financial human resources available to the Company The Chairman of the Audit Committee has recent and relevant financial experience. The Audit Committee advises the Board on the appointment, re-appointment or removal of the external Auditors and on their remuneration. The Audit Committee discusses the nature and scope of the audit with the external Auditors and provides a forum for reporting by the Group’s external Auditors on any matters it considers appropriate. The Audit Committee consider the Auditors independent. It is the task of the Audit Committee to ensure that auditor objectivity and independence is safeguarded when non-audit services are provided by the Auditors. To ensure auditor objectivity and independence there is a process in place to approve any non-audit work at each Audit Committee meeting. Remuneration Committee The Remuneration Committee meets at least once a year and consists of C J MacLaren, the Committee Chairman, R J D Finlay and T P Cross. In the year ended 30 June 2022 the Remuneration Committee met once, with all members present. During the year the Remuneration Committee completed their review of pay and rewards for the Executive Directors including making recommendations in respect of awards of option under the Unapproved Employee Share Option Scheme. The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Parent company financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) UK-adopted, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently • make judgements and accounting estimates that are reasonable and prudent • state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for ensuring that they meet their responsibilities under the AIM Rules. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 22 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 23 Independent Auditor’s Report TO THE MEMBERS OF THE PARKMEAD GROUP PLC Opinion We have audited the financial statements of The Parkmead Group Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 30 June 2022 which comprise the Group statement of profit or loss, Group and company statement of profit or loss and other comprehensive income, Group and company statement of financial position, Group statement of changes in equity, company statement of changes in equity, Group and company statement of cashflows and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2022 and of the Group’s and parent company’s loss for the year then ended; • the Group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the United Kingdom; • the parent company’s financial statements have been properly prepared in accordance with IFRSs as adopted by the United Kingdom; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs UK) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included: • a review of management’s budgets and cashflow forecasts for the 12 months from proposed sign off date; • a review of the inputs and assumptions utilised in the budgets and cashflow forecasts taking into account our knowledge of the Group and its levels of operating cashflows; • stress testing of the forecasted cashflows; • a review of the cash balances held by the Group at year end date and at sign-off date. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. • Carrying values of exploration and evaluation (E&E assets). • Carrying values of development and production assets (D&P assets). • Carrying values of decommissioning provisions. • Carrying value of goodwill. • Carrying values of investments in subsidiaries and intercompany receivables (company only risk). These are explained in more detail below. Key audit matter How our audit addressed the key audit matter Carrying values of exploration and evaluation (“E&E assets”) • The Group held a significant balance of E&E assets as at the year end, with a total carrying value of £33,346k (2021: £29,497k). Our audit procedures: • We discussed with management and undertook a full review of the underlying assets to establish if there was any indication of impairment in accordance with IFRS 6 and the Group’s accounting policy. • Included within E&E assets were additions relating to • We reviewed management’s impairment workings such as capitalised exploration and appraisal costs, capitalised technical and administrative costs as well as write-offs of E&E assets that were no longer considered technically feasible for the Group’s purposes. • The Group undertakes impairment assessments annually for all E&E assets based on a number of assumptions and forecasts. These require significant judgement and so are considered a key audit matter. forecasts which included their approach and methodology as well as inputs and significant assumptions, namely: – Future revenue, operating costs and capital expenditure cashflows; – Future commodity prices; – Discount rates; – Estimated reserves. • We considered whether management had exercised any bias in assumptions used or the outputs produced in the forecasts prepared. • We reviewed the exploration licences to third party regulators and joint operating agreements where applicable. • We considered the appropriateness of the Group’s disclosures in relation to E&E assets in the financial statements. Carrying values of development and production assets (“D&P assets”) • The Group held a significant balance of D&P assets as at the year end, with a total carrying value of £15,843k (2021: £14,646k). Our audit procedures: • We discussed with management and undertook a full review of the underlying assets to establish if there was any indication of impairment in accordance with IAS 36 and the Group’s accounting policy. • Included within D&P assets were additions relating to • We reviewed management’s impairment workings such as capitalised development costs, capitalised costs relating to the change in estimate of decommissioning provision abandonment expenditure, and depreciation charges based on the unit-of-production method. • The Group undertakes impairment assessments annually for all D&P assets and where indicators of impairment are identified, an impairment review is performed based on a number of assumptions and forecasts. These require significant judgement and so are considered a key audit matter. forecasts which included their approach and methodology as well as inputs and significant assumptions, namely: – Future revenue, operating costs and capital expenditure cashflows; – Future commodity prices; – Discount rates; – Production volumes. • We considered whether management had exercised any bias in assumptions used or the outputs produced in the forecasts prepared. • We considered the appropriateness of the Group’s disclosures in relation to D&P assets in the financial statements. 24 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 25 Independent Auditor’s Report (CONTINUED) Key audit matter How our audit addressed the key audit matter Carrying value of decommissioning provisions Our audit procedures: • The Group held a significant provision for decommissioning costs as at the year-end of £20,294k (2021: £14,754k). • Included within the decommissioning provision are increases relating to changes in abandonment expenditure estimates, unwinding of the discount relating to the present value of the provision and utilisation of the provision for costs incurred during the period. • The calculation of the provisions is based on significant estimates and assumptions utilised by management in determining the potential future expenditure to be incurred. • We undertook a review of the decommissioning provision calculations performed by management and reviewed these for mathematical accuracy. • We considered whether management had exercised any bias in assumptions used or the outputs produced in the forecasts prepared. • We reviewed the estimated costs against external third-party evidence for reasonability and to ensure that no management bias was included in the estimates made. • We considered the appropriateness of the Group’s disclosures in relation to the decommissioning provisions in the financial statements. Carrying value of goodwill Our audit procedures: • The Group had a balance of goodwill at the year-end of £1,084k (2021: £2,174k). • The prior year goodwill is historic and arose on the acquisition of Aupec Limited. In accordance with IAS 36 the Group is required to assess the goodwill balance for impairment annually regardless of whether any indicators of impairment exist. Full impairment of £2,174k recognised during the period. • The remaining goodwill arose on the acquisition of Kempstone Hill Wind Energy Limited during the year. • We undertook a review of the impairment model prepared by management, considering the mathematical accuracy along with the inputs and assumptions utilised for the forecast figures. • We vouched the net assets at acquisition and consideration of Kempstone Hill Wind Energy Limited to supporting documentation. • We reviewed the IFRS adjustments made from the initial FRS102 Kemsptone Hill Wind Energy Ltd accounts and ensured these were being prepared correctly in line with IFRS standards. • We considered whether management had exercised any bias in the inputs and assumptions used in the forecast figures. Carrying value of investments in subsidiaries and intercompany receivables (parent company only risk) Our audit procedures: • We considered the value of the investments and • The parent company had a carrying value of investments in subsidiaries at the year-end of £30,730k (2021: £27,443k), as well as an intercompany receivable of £56,011k (2021: £55,937k). recoverability of the intercompany receivable with reference to the underlying assets held by the subsidiaries, along with the revenue forecasted to be generated in the subsidiary entities. • We reviewed the impairment models provided by management and assessed these for mathematical accuracy, as well as to confirm whether the inputs and assumptions utilised were reasonable and supportable. Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Group financial statements Company financial statements Overall materiality £863,000 (2021: £784,700) £788,000 (2021: £706,200) How we determined it 1% of gross assets (2021: 1% of gross assets) 1% of gross assets, limited to a percentage of Group materiality (2021: 1% of gross assets) Rationale for benchmark applied We believe that the gross assets are the primary measure used by the shareholders in assessing the performance of the Group and is a generally accepted auditing benchmark. We believe that the gross assets are the primary measure used by the shareholders in assessing the performance of the Company and is a generally accepted auditing benchmark. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £292,000 and £681,000. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £43,775 as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgments, 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. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group financial statements are a consolidation of four reporting entities. We have audited all components within the Group, and no unaudited components remain. It is our responsibility for the direction, supervision and performance of the Group audit and we remain solely responsible for the audit opinion. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, 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 this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. 26 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 27 Independent Auditor’s Report (CONTINUED) Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 23, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The extent to which the audit was considered capable of detecting irregularities including fraud Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non- compliance with laws and regulations, was as follows: • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations. • we identified the laws and regulations applicable to the Group through discussions with directors and other management. • we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including taxation legislation, data protection, anti-bribery, employment, environmental, health and safety legislation and anti-money laundering regulations. • we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence. • identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit; and • we assessed the susceptibility of the Group’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: – making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; – considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • performed analytical procedures to identify any unusual or unexpected relationships; • tested journal entries to identify unusual transactions; • assessed whether judgements and assumptions made in determining the accounting estimates set out in note 2 of the Group financial statements were indicative of potential bias; • investigated the rationale behind significant or unusual transactions. In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • agreeing financial statement disclosures to underlying supporting documentation; • reading the minutes of meetings of those charged with governance; • enquiring of management as to actual and potential litigation and claims; • reviewing correspondence with HMRC and the Group’s legal advisors. There are inherent limitations in our audit procedures described above. The more removed those laws and regulations are from financial transactions, the less likely it is that we would become aware of noncompliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Use of this report This report is made solely to the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters that 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, or the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Sanjay Parmar SENIOR STATUTORY AUDITOR For and on behalf of Jeffreys Henry Audit Limited, statutory auditor Finsgate 5-7 Cranwood Street London EC1V 9EE United Kingdom 22 November 2022 28 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 29 Group statement of profit or loss FOR THE YEAR ENDED 30 JUNE 2022 Group and company statement of profit or loss and other comprehensive income FOR THE YEAR ENDED 30 JUNE 2022 Continuing operations Revenue Cost of sales Gross profit Exploration and evaluation expenses Impairment of goodwill Loss on sale of assets Administrative expenses Operating profit/(loss) Finance income Finance costs Profit/(loss) before taxation Taxation Loss for the period attributable to the equity holders of the Parent Loss per share (pence) Basic Diluted Notes 2022 £’000 3 12,129 (1,370) 10,759 2021 £’000 3,608 (1,835) 1,773 4 14 4 9 10 11 12 (1,116) (11,116) (2,174) (31) – (388) (2,231) (3,040) 5,207 (12,771) 73 (1,317) 148 (819) 3,963 (13,442) (4,777) (364) (814) (13,806) (0.75) (0.75) (12.64) (12.64) (Loss)/profit for the year Other comprehensive income Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Notes Group Company 2022 £’000 (814) – – 2021 £’000 2022 £’000 2021 £’000 (13,806) (3,141) (1,152) – – – – – – Total comprehensive (loss)/income for the year attributable to the equity holders of the Parent (814) (13,806) (3,141) (1,152) 30 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 31 Group and company statement of financial position Group statement of changes in equity AS AT 30 JUNE 2022 FOR THE YEAR ENDED 30 JUNE 2022 Share capital £’000 19,678 – – 10 – Share premium £’000 87,805 – – 212 – Merger reserve £’000 3,376 – – – – Retained deficit £’000 Total £’000 (39,513) 71,346 (13,806) (13,806) (13,806) (13,806) – (41) 222 (41) 19,688 88,017 3,376 (53,360) 57,721 – – – – – – – – – – – – (814) (814) – 87 (814) (814) – 87 19,688 88,017 3,376 (54,087) 56,994 Notes Group Company Non-current assets Property, plant and equipment: development & production Property, plant and equipment: other Goodwill Exploration and evaluation assets Investment in subsidiaries and joint ventures Interest bearing loans Deferred tax assets Total non-current assets Current assets Trade and other receivables Inventory Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Decommissioning provisions Current tax liabilities Total current liabilities Non-current liabilities Trade and other payables Loans Deferred tax liabilities Decommissioning provisions Total non-current liabilities Total liabilities Net assets Equity attributable to equity holders Called up share capital Share premium Merger reserve Retained deficit Total Equity 13 13 14 14 15 18 11 19 20 21 21 21 21 22 11 23 26 2022 £’000 15,843 6,636 1,084 34,346 – 2,900 187 60,996 2,018 42 23,263 25,323 86,319 (3,545) (19,228) (1,432) (24,205) (1,181) (948) (1,925) (1,066) (5,120) (29,325) 56,994 19,688 88,017 3,376 (54,087) 56,994 2021 £’000 14,646 4,654 2,174 29,497 – 2,900 – 2022 £’000 – 27 – – 29,379 2,900 – 2021 £’000 – 235 – – 27,443 2,900 – At 30 June 2020 Loss for the year Total comprehensive loss for the year Share capital issued Share-based payments At 30 June 2021 Loss for the year 53,871 32,306 30,578 Total comprehensive loss for the year Share capital issued Share-based payments At 30 June 2022 1,352 66 23,378 24,796 78,667 (3,101) (389) (241) (3,731) (1,011) (500) (1,339) (14,365) (17,215) (20,946) 57,721 19,688 88,017 3,376 (53,360) 57,721 56,160 56,062 – 330 56,490 88,796 – 4,656 60,718 91,296 (3,136) (2,567) – – – – (3,136) (2,567) – – – – – (3,136) 85,660 19,688 88,017 3,376 (25,421) 85,660 (15) – – – (15) (2,582) 88,714 19,688 88,017 3,376 (22,367) 88,714 The loss after tax of the Parent Company for the year was £3,141,000 (2021: £1,152,000). The financial statements on pages 30 to 74 were approved by the Board of Directors on 22 November 2022 and signed on its behalf by: Thomas Cross Ryan Stroulger Director Director 32 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 33 Company statement of changes in equity Group and company statement of cashflows FOR THE YEAR ENDED 30 JUNE 2022 FOR THE YEAR ENDED 30 JUNE 2022 At 30 June 2020 Loss for the year Total comprehensive income for the year Share capital issued Share-based payments At 30 June 2021 Loss for the year Total comprehensive income for the year Share capital issued Share-based payments At 30 June 2022 Share capital £’000 Share premium £’000 Revaluation reserve £’000 Retained deficit £’000 Total £’000 19,678 87,805 3,376 (21,174) 89,685 - - 10 - - - 212 - - - - - (1,152) (1,152) - (41) (1,152) (1,152) 222 (41) 19,688 88,017 3,376 (22,367) 88,714 - - - - - - - - - - - - (3,141) (3,141) - 87 (3,141) (3,141) - 87 19,688 88,017 3,376 (25,421) 85,660 Notes Group Company Cashflows from operating activities Continuing activities Taxation paid Net cash generated by/(used in) operating activities 28 Cash flow from investing activities Investment in subsidiaries Interest received Acquisition of exploration and evaluation assets Disposal of property, plant and equipment Acquisition of property, plant and equipment: development and production Acquisition of property, plant and equipment: other Decommissioning expenditure Net cash on acquisition of Kempstone Hill 2022 £’000 2021 £’000 8,038 (3,508) 4,530 – 73 (548) 874 (123) (3,114) (1,667) 360 (1,191) (124) (1,315) – 148 (369) 4,000 (165) (114) (31) – 2022 £’000 (930) – (930) (3,288) 73 – – – (11) – – Net cash (used in)/generated by investing activities (4,145) 3,469 (3,226) Cash flow from financing activities Interest paid Lease payments Repayment from loans and borrowings Net cash (used in)/generated by financing activities (45) (375) (542) (962) (110) (421) (3,100) (3,631) (8) (174) – (182) 2021 £’000 (2,117) – (2,117) – 73 – – – (48) – – 25 (21) (192) – (213) Net (decrease)/increase in cash and cash equivalents (577) (1,477) (4,338) (2,305) Cash and cash equivalents at beginning of year 23,378 25,708 4,656 6,963 Effect of foreign exchange rate differences 462 (853) Cash and cash equivalents at end of year 20 23,263 23,378 12 330 (2) 4,656 34 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 35 Notes to the financial statements 1. Corporate information The consolidated financial statements of The Parkmead Group PLC (“Company”) and its subsidiaries (together the “Group”) for the year ended 30 June 2022 were authorised for issue by the Board of Directors on 22 November 2022 and the Statement of Financial Position was signed on the Board’s behalf by T P Cross and R A Stroulger. The Company is a public limited company incorporated in England & Wales. The Company’s shares are publicly traded on AIM of the London Stock Exchange. The registered office is located at 20 Farringdon Street, 8th Floor, London, England, EC4A 4AB. 2. Accounting policies Basis of preparation of the financial statements The consolidated and Company financial information presented in these financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the UK, IFRS Interpretations Committee (IFRIC) interpretations and the parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has taken advantage of the exemption permitted under Section 408 of the Companies Act 2006 and does not present its own statement of profit or loss. The consolidated and Company financial statements have been prepared on a going concern basis, under the historical cost convention, except for certain fair value adjustments required by those accounting policies. Going concern The Directors have made an assessment of the Group and Company ability to continue as a going concern. As at 30 June 2022 the Group had £57.0 million of net assets of which £23.3 million is held in cash, of which £5.9 million is held as restricted cash. As at 30 June 2022 the Company had £85.7 million of net assets of which £0.3 million is held in cash. The Group’s production in the Netherlands has been uninterrupted by COVID–19 and the Group and Company employees have utilised technology to work utilising hybrid working arrangements. The Group has prepared a cash flow model to 31 December 2023 and is forecast to have sufficient cash balances at that date, therefore prepared the accounts on a going concern basis. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2022. 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 when such control ceases. All intra–group balances, transactions, unrealised gains and losses resulting from intra–group transactions and dividends are eliminated in full. Subsidiaries Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non–controlling interest in the acquiree. For each business combination, the acquirer measures the non–controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non–controlling interest over the net identifiable assets acquired and liabilities assumed. If consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised as a gain on a bargain purchase directly in the statement of profit or loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Consideration, including deferred consideration, is measured at fair value on the date of acquisition or disposal. Deferred consideration is re–measured, where appropriate, at each year end date to reflect the anticipated amount due. 2. Accounting policies (continued) Joint arrangements Under IFRS 11, joint arrangements are those that convey joint control which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group’s interest in joint operations (e.g. exploration and production arrangements) are accounted for by recognising its assets (including its share of assets held jointly), its liabilities (including its share of liabilities incurred jointly), its share of revenue from the sale of output by the joint operation and its expenses (including its share of any expenses incurred jointly). A complete list of the Group’s Joint Arrangements accounted for as joint operations is provided in Note 32. Revenue recognition The Group’s principal activity is the production of oil and gas and the provision of services to the oil and gas production and processing industry. Revenue from contracts with customers is recognised when contract performance obligations are met. Oil and Gas exploration and production The Group recognise revenue arising from the sale of oil, natural gas, natural gas liquids, liquefied natural gas, petroleum and chemicals products at a point in time when title has passed to the buyer. Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled to in exchange for those goods or services. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes. Generally, revenues from the production of oil and natural gas properties in which the Group has an interest with joint venture partners are recognised on the basis of the Group’s working interest in those properties. Energy Economics The Group and the Company recognise revenue as services are provided over time and when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity. Revenue is recognised over time as there is no alternative use and the Group and Company have the right to payment. Revenues from long–term fixed–price contracts are recognised under the “percentage–of–completion” method, an input method of recognition. The stage of completion of a contract is determined by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs of the contract. Revenue recognised in excess of invoices raised is included within contract asset. Where amounts have been invoiced in excess of revenue recognised, the excess is included within contract liability. Oil and gas expenditure – exploration and evaluation assets Capitalisation Pre–acquisition costs on oil and gas assets are recognised in the statement of profit or loss when incurred. Costs incurred after rights to explore have been obtained, such as geological and geophysical surveys, drilling and commercial appraisal costs and other directly attributable costs of exploration and appraisal including technical and administrative costs are capitalised as intangible exploration and evaluation (“E&E”) assets. The assessment of what constitutes an individual E&E asset is based on technical criteria but essentially either a single licence area or contiguous licence areas with consistent geological features are designated as individual E&E assets. E&E costs are not amortised prior to the conclusion of appraisal activities. Once active exploration is completed the asset is assessed for impairment. If commercial reserves are discovered then the carrying value of the E&E asset is reclassified as a development and production (“D&P”) asset, following development sanction, but only after the carrying value is assessed for impairment and where appropriate its carrying value adjusted. If commercial reserves are not discovered or it is not possible to determine technical feasibility or if the legal right to explore expires or if the Company decides not to continue exploration and evaluation activity, then the E&E asset is written off to the statement of profit or loss. 36 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 37 Notes to the financial statements (CONTINUED) 2. Accounting policies (continued) Impairment The Group’s oil and gas assets are analysed into cash generating units (“CGU”) for impairment review purposes, with E&E asset impairment testing being performed at a CGU level. The current CGU consists of E&E assets within a broadly similar geographical location. E&E assets are reviewed for impairment in accordance with IFRS 6, “Exploration for and Evaluation of Mineral Resources”, and when circumstances arise which indicate that the carrying value of an E&E asset exceeds the recoverable amount. When reviewing E&E assets for impairment, the combined carrying value of the grouped CGU is compared with the grouped CGU’s recoverable amount. The recoverable amount of a grouped CGU is determined as the higher of its fair value less costs to sell and value in use. Impairment losses resulting from an impairment review are written off to the statement of profit or loss. Oil and gas expenditure – development and production assets Capitalisation Costs of bringing a field into production, including the cost of facilities, wells and sub–sea equipment together with E&E assets reclassified in accordance with the above policy, are capitalised as a D&P asset. Normally each individual field development will form an individual D&P asset but there may be cases, such as phased developments, or multiple fields around a single production facility when fields are grouped together to form a single D&P asset. Depreciation All costs relating to a development asset are accumulated and not depreciated until the commencement of production. Depreciation is calculated on a unit of production basis based on the proven and probable reserves of the asset. Any re–assessment of reserves affects the depreciation rate prospectively. Significant items of plant and equipment will normally be fully depreciated over the life of the field. However these items are assessed to consider if their useful lives differ from the expected life of the D&P asset and should this occur a different depreciation rate would be charged. The key areas of estimation regarding depreciation and the associated unit of production calculation for oil and gas assets are: • recoverable reserves; and • future capital expenditure Impairment A review is carried out for any indication that the carrying value of the Group’s D&P assets may be impaired. The impairment review of D&P assets is carried out at a Group level on an asset by asset basis, irrespective of any split in the legal ownership of assets between subsidiaries, and involves comparing the carrying value with the recoverable value of an asset. The recoverable amount of an asset is determined as the higher of its fair value less costs to sell and value in use. The value in use is determined from estimated future net cash flows. Any additional depreciation resulting from the impairment testing is charged to the statement of profit or loss. The future cash flows are adjusted for risks specific to the cash–generating unit and are discounted using a post–tax discount rate. The discount rate is derived from the Group’s post–tax weighted average cost of capital and is adjusted where applicable to take into account any specific risks relating to the country where the cash–generating unit is located, although other rates may be used if appropriate to the specific circumstances. In 2022 the rate used was 8% (2021: 8%). The discount rates applied in assessments of impairment are reassessed each year. See Note 13 for the carrying value of development and production assets. 2. Accounting policies (continued) Key assumptions used in the value–in–use calculations The calculation of value–in–use for oil and gas exploration and evaluation assets, assets under development or in production is most sensitive to the following assumptions: • Production volumes; • Commodity prices; • Variable operating costs; • Capital expenditure; and • Discount rates. Production volumes/recoverable reserves Annual estimates of oil and gas reserves are generated internally by the Group’s geoscience team. The self–certified estimated future production profiles are used in the life of the fields which in turn are used as a basis in the value–in–use calculation. Commodity prices The long term assumption for Brent oil and natural gas is based on management estimates having considered published external data, future prices are inflated in accordance with the Company’s corporate assumptions. Field specific discounts and prices are used where applicable. Fixed and variable operating costs Typical examples of variable operating costs are pipeline tariffs, treatment charges and freight costs. Commercial agreements are in place for most of these costs and the assumptions used in the value–in–use calculation are sourced from these where available. Examples of fixed operating costs are platform costs and operator overheads. Fixed operating costs are based on operator budgets. Capital expenditure Field development is capital intensive and future capital expenditure has a significant bearing on the value of an oil and gas development asset. In addition, capital expenditure may be required for producing fields to increase production and/or extend the life of the field. Cost assumptions are based on operator budgets or specific contracts where available. Discount rates Discount rates reflect the current market assessment of the risks specific to the oil and gas sector and are based on the weighted average cost of capital for the Group. Where appropriate, the rates are adjusted to reflect the market assessment of any risk specific to the field for which future estimated cash flows have not been adjusted. The Group has applied a post–tax discount rate of 8% for the current year (2021: 8%). Sensitivity to changes in assumptions For certain fields, a reasonably possible change in any of the above assumptions would cause the estimated recoverable value to be lower than the carrying value, resulting in a further impairment loss. The assumptions which would have the greatest impact on the recoverable amounts of the fields are production volumes and commodity prices. The following down side sensitivities have been prepared on the value in use calculations with the following changes to the base assumptions: • 1% increase in the discount rate • 5% reduction in production volumes • 5% reduction in commodity prices 38 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 39 Notes to the financial statements (CONTINUED) 2. Accounting policies (continued) Individually applied no impairment would be charged against Developed and Production asset or Exploration and Evaluations assets. The value in use calculations would have a reduction in headroom available. If all three sensitivities were applied to the value in use calculations, an impairment of Exploration and Evaluation assets would be require of £nil as at 30 June 2022. The Board recognise the market price of hydrocarbon products is volatile and a significant reduction in global oil prices can have a consequential adverse impact on the revenue and cash flow of the Group. At all times the Board actively manages its committed expenditure, including short–term working capital and cash flow requirements to sustain the Group through periods of reduced hydrocarbon prices. Oil & gas expenditure – acquisitions and disposals Commercial transactions involving the acquisition of a D&P asset in exchange for an E&E or D&P asset are accounted for at fair value with the difference between the fair value and cost being recognised in the statement of profit or loss as a gain or loss. When a commercial transaction involves a D&P asset and takes the form of a farm–in or farm–out agreement, the premium expected to be paid/received is treated as part of the consideration. Fair value calculations are not carried out for commercial transactions involving the exchange of E&E assets. The capitalised costs of the disposed asset are transferred to the acquired asset. Farm–in and farm–out transactions of E&E assets are accounted for at cost. Costs are capitalised according to the Group’s cost interest (net of premium received or paid) as costs are incurred. Proceeds from the disposal of an E&E asset, or part of an E&E asset, are deducted from the capitalised costs and the difference recognised in the statement of profit or loss as a gain or loss. Proceeds from the disposal of a D&P asset, or part of a D&P asset, are recognised in the statement of profit or loss, after deducting the related net book value of the asset. Decommissioning The Group recognises the discounted cost of decommissioning when the obligation to rectify environmental damage arises. The amount recognised is the present value of the estimated future expenditure determined by local conditions and requirements. A corresponding asset of an amount equal to the provision is created unless the associated activity resulted in a profit or loss write–off. This asset is subsequently depreciated as part of the capital cost on a unit of production basis. Any change to the present value of the estimated decommissioning cost is reflected as an adjustment to the asset. The unwinding of the discount on the decommissioning provision is included as an interest expense. Where the Group has an asset with nil carrying value, and subsequently on the basis of new information makes an increase to the discounted cost of decommissioning, then such increase is taken to the statement of profit or loss. The key areas of estimation regarding decommissioning are: • expected economic life of field, determined by factors such as – field reserves and future production profiles – commodity prices • inflation rate 2%; • discount rate 8%; and • decommissioning cost estimates (and the basis for these estimates) See Note 23 in respect of decommissioning obligations. 2. Accounting policies (continued) Interest income For all financial instruments measured at amortised cost and interest bearing financial assets at fair value through other comprehensive income, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected 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 statement of profit or loss. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision–maker as required by IFRS 8 “Operating Segments”. The chief operating decision–maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. Segment reporting The accounting policies of the reportable segments are consistent with the accounting policies of the Group as a whole. Segment profit represents the profit earned before tax by each segment. This is the measure of profit that is reported to the Board of Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment performance and considering the allocation of resources, the Board of Directors review information about segment assets and liabilities. For this purpose, all assets and liabilities are allocated to reportable segments with the exception of cash and cash equivalents, financial assets at fair value through other comprehensive income and current and deferred tax assets and liabilities. Disclosures of segment reporting have been disclosed in Note 6. Foreign currency Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds sterling, which are the Company’s functional and presentation currency and the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing in the month of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year–end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss. Where consideration is received in advance of revenue being recognised the date of the transaction reflects the date the consideration is received. Changes in the fair value of monetary securities denominated in foreign currency classified as financial assets at fair value through other comprehensive income are analysed between translation differences resulting from changes in the fair value of the security, and other changes in the carrying amount of the security. Translation differences related to changes in fair value are recognised in profit or loss and other changes in carrying amount are recognised in equity. Translation differences on non–monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non–monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non–monetary financial assets such as equities classified as financial assets at fair value through other comprehensive income are included in the revaluation reserve in equity. 40 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 41 Notes to the financial statements (CONTINUED) 2. Accounting policies (continued) Taxation The tax expense represents the sum of the tax currently payable and any deferred tax. The tax currently payable is based on the taxable profit or loss for the year. Taxable profit or loss differs from net profit or loss as reported in the statement of profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the year end date. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the year end date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Pensions The Company offers to contribute 10% of employees’ gross salary into personal pension plans. The cost of providing pension contributions for employees is charged to the statement of profit or loss as accrued. Share based payments The Group issues both equity–settled and cash–settled share based payments as an incentive to certain key management and staff. Equity–settled transactions The cost of share–based employee compensation arrangements, whereby employees receive remuneration in the form of shares or share options, is recognised as an employee benefit expense in the statement of profit or loss. Incentives are provided to employees under an unapproved share option scheme and through other discretionary share based awards. The Group measures the fair value of any share based awards issued by the Group to employees at the date of grant. The fair value at the date of grant is expensed over the vesting period, except where market based conditions make it more appropriate to recognise the costs over the expected life of the options. All share based awards are settled in equity and accordingly the share based payment is credited directly to equity. Where the share based payment has taken the form of a loan from the Employee Benefit Trust, a charge based on the fair value of the anticipated benefit is determined on a consistent basis with the other share based awards. The charge is recognised in the statement of profit or loss. The fair value of the share options granted has been calculated using the Black–Scholes–Merton model. The key inputs into the model include share volatility, expected dividend yield, and risk free rate Note 27. Cash–settled transactions The cost of cash–settled transactions is measured at the current fair value determined at each reporting date. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The corresponding liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised as an employee benefit expense in the statement of profit or loss. 2. Accounting policies (continued) Property, plant and equipment (excluding development and production assets) Property, plant and equipment are stated at historic purchase cost less depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset into its working condition. Depreciation is provided on all tangible fixed assets on a straight line basis to write each asset down to its estimated residual value over its expected useful life, as follows: Short leasehold improvements Shorter of the remaining lease term or 5 years Fixtures, fittings and computer equipment 3 – 5 years Land Right of Use assets Wind turbines No depreciation is charged Shorter of the lease term or life of asset Life of asset The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each year end date. Investments in subsidiaries Investments in subsidiaries are stated at cost less any provision for impairment. Transaction costs relating to acquisition of a subsidiary are recognised directly in the statement of profit or loss. Impairment of investments in subsidiaries and receivables due from group companies The Company assesses its investments in subsidiaries for indicators of impairment at each reporting date. Similarly, receivables due from group companies, which are interest free, are assessed under the expected credit losses model. In each case, the most appropriate assessment is for the Company to consider the output from the impairment tests and value–in–use calculations carried out in respect of the Group’s E&E assets and D&P assets. The key assumptions used in these value–in–use calculations are production volumes, commodity prices, operating costs, capital expenditure and discount rates. The derived values at the reporting date are considered to be an indicator of the underlying value of the relevant company. These values are compared to the carrying values of the investments in subsidiaries and receivables due from group companies at the reporting date and consideration is given to whether any provision for impairment is required. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the statement of profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. Development costs and contract and customer relations are amortised over the period of expected future sales from the related projects and contracts on a straight line basis. Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is derecognised. 42 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 43 Notes to the financial statements (CONTINUED) 2. Accounting policies (continued) Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • The technical feasibility of completing the intangible asset so that it will be available for use or sale • Its intention to complete and its ability to use or sell the asset • How the asset will generate future economic benefits • The availability of resources to complete the asset • The ability to measure reliably the expenditure during development Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually. Impairment of non–financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash–generating units (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognised in the statement of profit or loss in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash–generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. The following criteria are also applied in assessing impairment of specific assets: Goodwill Goodwill is tested for impairment annually (as at 30 June) and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash–generating unit (or group of cash– generating units) to which the goodwill relates. Where the recoverable amount of the cash–generating unit is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. 2. Accounting policies (continued) Financial assets The Parkmead Group Plc applies IFRS 9 Financial Instruments to the recognition, classification and measurement, and derecognition of financial assets and financial liabilities and the impairment of financial assets. Measurement of financial assets Recognition Financial assets and liabilities are recognised when The Parkmead Group Plc becomes a party to the terms of the contract. Classification and measurement The financial assets are classified on the basis of two criteria: i) The business model within financial assets are managed, and ii) Their contractual cash flow characteristics (whether cash flows represent ‘solely payments of principal and interest’ (SPPI). Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent SPPI. Financial assets at amortised cost Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short–term highly liquid investments with original maturities of three months or less. Any cash balance held where the use is restricted for a specific purpose or future event will be separately noted as “restricted cash” and details provided to explain the restriction. Trade receivables Trade receivables are initially stated at transaction price determined in accordance with IFRS 15 and subsequently adjusted for any provisions for impairment. Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using lifetime expected credit losses. During this process the probability of the non–payment of the trade receivables is assessed. This probability is then multiplied by the amount of expected loss to occur from default to determine the lifetime expected credit losses. Movements in the provision for expected trade losses are recorded in the statement of profit or loss in administrative expenses. Inventory Inventory is held at the lower of cost and net realizable value. Movements in inventory are charged directly to costs of sales in the profit and loss account. Contract liabilities A contract liability is the obligation to complete a performance obligation for a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group completes a performance obligation to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group completes a performance obligation under the contract. 44 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 45 Notes to the financial statements (CONTINUED) 2. Accounting policies (continued) Trade payables Trade payables are initially recognised at fair value and subsequently at amortised cost. Leases IFRS 16 Leases set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees. A lessee recognises a right–of–use asset, representing its right to use the underlying asset, and a lease liability, representing its obligation to make lease payments. Lessees recognise separately the interest expense on the lease liability and the depreciation expense on the right–of–use asset. There were recognition exemptions for short–term leases and leases of low–value items. As a lessee, the Group and Company recognises a right–of–use asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease, or, if that rate cannot be readily determined, the Company uses its incremental borrowing rate which is between 6–8%. The lease liability is subsequently recorded at amortised cost, using the effective interest rate method. The liability is remeasured when there is a change in future lease payments arising from a change in an index or rate or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right–of–use asset or is recorded in profit or loss if the carrying amount of the rightof–use asset has been reduced to zero. The right–of–use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. Right– of–use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The Company does not currently act as a lessor. Finance costs and debt Interest–bearing loans and borrowings Interest bearing bank loans, overdrafts and other loans are initially recorded at fair value, which is ordinarily equal to the proceeds received net of direct issue costs. These liabilities are subsequently measured at amortised cost, using the effective interest rate method. Finance costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortised and charged to the statement of profit or loss as finance costs over the term of the debt. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 2. Accounting policies (continued) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the year end date. Employer’s national insurance in the UK is payable on the exercise of certain share options or when benefits in kind are provided to employees. For share options, provision of national insurance is calculated on the expected gain on the share options at the year end date. For other benefits in kind, provision is made when it is probable that a liability will arise. Significant accounting judgments, estimates and assumptions The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The resulting accounting estimates may not equate with the actual results which will only be known in time. Significant accounting judgments and accounting estimates used by the Group are discussed in more detail in the following accounting policies: Accounting estimates • Oil and Gas: Intangible Exploration Assets – Impairment (Note 14) • Oil and Gas: Development and Production Assets – Depreciation and Impairment (Note 13) • Oil and Gas: Decommissioning Provisions (Note 23) • Employee Benefits: Share Based Payments (Note 27) • Investment in subsidiaries: Company’s investments in subsidiaries and receivables due from group companies – Impairment (Note 15) Accounting judgements • Oil and Gas expenditure – capitalisation (Note 14) New IFRS accounting standards and interpretations adopted in the year The following standards, amendments and interpretations are new and effective for the year ended 30 June 2022 and have been adopted. None of the pronouncements had a material impact on the Group’s consolidated results, assets or liabilities. • Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. New IFRS accounting standards and interpretations not yet effective The IASB and IFRIC have issued the following standards and amendments which are effective for reporting periods beginning after the date of these financial statements. • IFRS 17 insurance contracts All amendments as noted above are not believed to have a material impact on the financial statements of the Group. 46 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 47 Notes to the financial statements (CONTINUED) 3. Revenue An analysis of the Group’s revenue is as follows: Revenue recognised at a point in time Gas sales Condensate sales Renewables Pitreadie Revenue recognised over time Rendering of energy economics services Total revenue 4. Operating (loss)/profit The operating (Loss)/profit is stated after charging/(crediting): Pre–award exploration expenditure Exploration expenditure written off Depreciation of property, plant and equipment Share based payment charge/(credit) (Note 27) Cost of inventory recognised as an expense Foreign exchange loss/(gain) 2022 £’000 2021 £’000 11,701 2,994 46 191 191 43 – 326 12,129 3,363 – – 245 245 12,129 3,608 2022 £’000 256 860 513 87 24 (462) 2021 £’000 261 10,855 402 56 64 853 5. Auditor’s remuneration The Group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services provided to the Group: Audit fees payable to the auditor for the audit of the Company’s annual financial statements Audit of the Company’s subsidiaries Total audit fees Audit related services Total non–audit fees Total audit and non–audit fees Audit related services comprise of the review of interim results and were paid to Jeffreys Henry Audit Limited. 2022 £’000 2021 £’000 31 43 74 4 4 78 25 35 60 5 5 65 6. Operating segment information For management purposes, the Group is organised into business units based on their services and has three reportable operating segments as follows: • The oil and gas exploration and production segment invests in oil and gas exploration and production assets. • The energy economics segment provides energy sector economics, valuation and benchmarking, advising on energy policies and fiscal matters, undertaking economic evaluations, supply benchmarking services and training. • The Renewables segment involves mixed farming activities as well as renewable energy production and opportunities. UK and Netherlands oil and gas is reviewed by the board as one segment but additional information is provided in the strategic report and Chairman’s statement. No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, income taxes are managed on a Group basis and are not allocated to operating segments. Year ended 30 June 2022 Revenue External customer Total revenue Results Operating (Loss)/profit Finance income Finance costs Segment profit Operating assets Operating liabilities Other disclosures Capital expenditure Depreciation, amortisation and impairments Oil and Gas Exploration and Production £’000 Energy Economics £’000 Renewables £’000 Consolidated £’000 11,747 11,747 7,313 73 (1,215) 6,171 74,342 (26,900) 671 1,018 – – 382 382 12,129 12,129 (1,998) – (25) (2,023) 3,410 (164) – 117 (108) – (77) (185) 8,567 5,207 73 (1,317) 3,963 86,319 (2,414) (29,478) 4,565 451 5,236 1,586 48 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 49   Notes to the financial statements (CONTINUED) 6. Operating segment information (continued) 1) Inter–segment balances are eliminated on consolidation and reflected in the adjustments and eliminations column. 2) Capital expenditure consists of additions of property, plant and equipment and intangible assets including assets from the acquisition of subsidiaries. Year ended 30 June 2021 Revenue External customer Total revenue Results Operating (Loss)/profit Finance income Finance costs Segment profit Operating assets Operating liabilities * Previously Pitreadie Other disclosures Capital expenditure Oil and Gas Exploration and Production £’000 Energy Economics £’000 Renewables* £’000 Consolidated £’000 3,037 3,037 245 245 326 326 3,608 3,608 (11,565) (552) 147 (695) 1 (47) (12,113) (598) 70,974 3,354 (19,401) (255) (654) –– (77) (731) 4,399 (1,290) 534 – 114 (12,771) 148 (819) (13,442) 78,667 (20,946) 648 11,466 Depreciation, amortisation and impairments 120 1) Inter–segment balances are eliminated on consolidation and reflected in the adjustments and eliminations column. 2) Capital expenditure consists of additions of property, plant and equipment and intangible assets including assets from the 11,233 113 acquisition of subsidiaries. Geographic information Revenues from external customers Europe North America Rest of the World 2022 £’000 12,129 – – 2021 £’000 3,474 91 43 Total revenue per Group statement of profit or loss 12,129 3,608 The revenue information is based on the location of the customer. Included in revenues from Europe were sales in the Netherlands of £11,747,000 (2021: £3,037,000) and sales in the United Kingdom of £382,000 (2021: £437,000). Non–current assets Europe North America Rest of the World Total 2022 £’000 60,996 – – 2021 £’000 53,871 – – 60,996 53,871 Non–current assets for this purpose consist of oil and gas properties, property, plant and equipment, exploration and evaluation assets, goodwill and other intangible assets. Included in non–current assets from Europe were assets held in the Netherlands of £4,961,000 (2021: £5,009,000) and assets held in the United Kingdom of £56,035,000 (2021: £48,862,000). 7. Staff costs Employee benefits expense: Group Wages and salaries Social security costs Other pension costs Staff costs (before share based payments) (Credit)/charge for share based payments (Note 27) Total staff costs The average monthly number of employees (including executive directors) during the year was as follows: Management and consultants Technical Admin, Project & IT support 8. Directors’ emoluments Directors remuneration in aggregate comprised: Aggregate emoluments Company pension contributions to money purchase schemes 2022 £’000 1,351 178 127 1,656 562 2,218 2022 No. 8 2 4 14 2022 £’000 651 10 661 2021 £’000 1,621 224 142 1,987 56 2,043 2021 No. 10 3 5 18 2021 £’000 744 10 754 During the year one (2021: one) Director accrued benefits under a money purchase pension scheme. The Company contributions paid to the scheme were £10,000 (2021: £10,000). No director exercised share appreciation rights in the period (2021: £nil). No director exercised share options in the period (2021: nil). The remuneration package for each of the individual Directors was comprised as follows: T P Cross R A Stroulger P J Dayer C MacLaren R Findlay Total Salaries and Fees £’000 Benefits in Kind £’000 Pension £’000 506 100 – 20 20 646 4 1 – – – 5 – 10 – – – 10 Total 2022 £’000 510 111 – 20 20 661 Total 2021 £’000 510 111 110 20 3 754 50 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 51     Notes to the financial statements (CONTINUED) 8. Directors’ emoluments (continued) T P Cross and R Stroulger participated in the share appreciation rights (SARs) arrangements for senior management, details of which are provided in Note 27. Details of outstanding SARs held by each director as at 30 June 2022 and 30 June 2021: 11. Taxation a) Income tax The major components of income tax expense for the years ended 30 June 2022 and 2021 are: T P Cross T P Cross T P Cross T P Cross T P Cross T P Cross T P Cross R Stroulger R Stroulger Number of SARs outstanding Exercise price Date from which exercisable Expiry date 901,534 1,065,800 1,245,000 1,444,700 1,444,700 1,988,210 1,988,210 350,000 350,000 £0.41 £0.41 £0.41 £0.35 £0.35 £0.27 £0.27 £0.27 £0.27 21 December 2016 21 December 2025 21 December 2016 21 December 2025 21 December 2016 21 December 2025 7 December 2018 7 December 2027 7 December 2019 7 December 2027 21 December 2023 21 December 2030 21 December 2023 21 December 2030 21 December 2023 21 December 2030 21 December 2023 21 December 2030 No outstanding share options held by directors as at 30 June 2022. R Findlay and C MacLaren participated in deferred share payments (DSPs) arrangements for Non Executive Directors, details of which are provided in Note 27. The Company reserves the right, at its sole discretion to settle the payment in cash and the DSPs have been accounted for as cash–settled transactions. 9. Finance income Bank interest receivable Loan interest received 10. Finance costs Unwinding of discount on decommissioning provision Interest on late paid tax Interest on currency Other finance charges Interest paid on leases Interest payable on loans and borrowings 2022 £’000 – 73 73 2022 £’000 1,135 – 66 – 51 65 2021 £’000 75 73 148 2021 £’000 611 5 39 37 76 51 1,317 819 Current tax: Corporation tax Adjustments in respect of current income tax of previous periods Overseas current taxation Total current income tax Deferred tax: Origination and reversal of timing differences Total deferred income tax charge Income tax (credit)/expense reported in the statement of profit or loss 2022 £’000 – (150) 4,933 4,783 (6) (6) 4,777 2021 £’000 – (300) 726 426 (62) (62) 364 Tax has been calculated using an estimated annual effective rate of 40% (2021: 40%) on profit before tax. The difference between the total tax expense shown above and the amount calculated by applying the Group’s applicable rate of UK corporation tax to the profit before tax is as follows: b) Reconciliation of total income tax charge Profit/(loss)on ordinary activities before tax 2022 £’000 3,963 2021 £’000 (13,442) Profit/(loss) on ordinary activities multiplied by the Group’s applicable rate of corporation tax in the UK of 40% (2021: 40%) 1,585 (5,377) Effects of: Expenses not deductible for tax purposes Profits taxed outside ring–fence Deferred tax not recognised Prior year adjustment Overseas tax suffered Total tax expense/(credit) for the year 368 839 (2,798) (150) 4,933 4,777 881 139 4,296 (301) 726 364 52 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 53   Notes to the financial statements (CONTINUED) 11. Taxation (continued) c) Deferred income taxation The movement in the deferred tax balances as shown in the Statement of Financial Position is as follows: Deferred tax asset At 1 July Acquisition Income statement credit/(charge) At 30 June Deferred tax liability At 1 July Acquisition Tax income recognised in the statement of profit or loss  At 30 June Deferred tax included in the Statement of Financial Position is as follows: Deferred tax asset Accelerated capital allowances Deferred tax liability Accelerated capital allowances Fair value gains Deferred tax liability, net d) Tax losses Group Company 2022 £’000 2021 £’000 2022 £’000 2021 £’000 187 – 187 3 (3) – 1,339 1,404 586 – – (65) 1,925 1,339 – – – – – – – – – – – – Group Company 2021 £’000 2022 £’000 2021 £’000 – – – (1,339) (1,339) (1,339) – – – – – – – – – – – – 2022 £’000 187 187 – (1,925) (1,925) (1,738) Deferred income tax assets are recognised for the carry–forward of unused tax losses to the extent that it is probable that taxable profits will be available against which the unused tax losses can be utilised. A deferred tax asset has not been recognised in respect of timing differences relating to excess management expenses, unclaimed capital allowances, capital losses and unrealised capital losses where there is insufficient evidence that the asset will be recovered. The amount of ring fenced trading losses available are £162.1 million (2021: £147 million), non–ring fenced trading losses available are £0.9 million (2021: £1.6 million), excess management expenses available are £26.4 Million (2021: £26.4 million), capital losses available are £71.4 million (2021: £71.4 million) and unrealised capital losses on financial assets at fair value through other comprehensive income of £3 million (2021: £3 million). 12. (Loss)/profit per share (Loss)/profit per share attributable to equity holders of the Company arise from continuing and discontinued operations as follows: (Loss)/profit per 1.5p ordinary share from continuing operations (pence) Basic Diluted The calculations were based on the following information: Loss attributable to ordinary shareholders Continuing operations Total Weighted average number of shares in issue Basic weighted average number of shares Dilutive potential ordinary shares Share options 2022 2021 (0.75)p (0.75)p (12.64)p (12.64)p 2022 £’000 (814) (814) 2021 £’000 (13,806) (13,806) 109,266,931 109,188,561 – – (Loss)/profit per share is calculated by dividing the (Loss)/profit for the year by the weighted average number of ordinary shares outstanding during the year. Diluted (loss)/profit per share (Loss)/profit per share requires presentation of diluted (Loss)/profit per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. When the group makes a loss the outstanding share options are therefore anti–dilutive and so are not included in dilutive potential ordinary shares. 54 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 55   Notes to the financial statements (CONTINUED) 13. Property, plant and equipment Group Cost At 1 July 2021 Additions Transfers Disposals Change in estimate of abandonment asset At 30 June 2022 Depreciation At 1 July 2021 Disposals Depreciation charged in the year At 30 June 2022 Net book amount At 30 June 2022 At 30 June 2021 Development and production £’000 Property, plant and equipment: other £’000 Fixtures, fittings and computer equipment £’000 Total £’000 47,269 5,498 768 53,535 123 109 – 1,125 48,626 3,476 – (1,080) – 7,894 5 – – – 3,604 109 (1,080) 1,125 773 57,293 32,623 901 711 34,235 – 160 (147) 513 32,783 1,287 15,843 14,646 6,627 4,597 – 53 764 9 57 (147) 726 34,814 22,479 19,300 Property, plant and equipment: other Property, plant and equipment other include Land and Buildings of £2,394,000 (2021: £3,710,000). Right of Use Asset Group Property, plant and equipment other are right of use assets with a cost of £1,826,000 (2021: £1,458,000) with accumulated depreciation of £1,108,000 (2021: £759,000) with a net book value of £718,000 (2021: £699,000). The incremental borrowing rate applied to the leases ranges between 6–8%. Abandonment Asset The abandonment asset adjustment above reflects the increase in cost estimate in the Athena field. Asset Impairment – Athena Where an indicator for impairment has arisen the valuation of the asset is assessed based on the fair value less costs of disposal determined by discounting the post–tax cash flows expected to be generated from oil and gas production net of selling costs taking into account assumptions that market participants would typically use in estimating fair values. Production at the Athena field was shut–in in January 2016. The Group has assumed a redevelopment of the remaining reserves in the field over a longer term period in order to achieve the existing carrying value of £11,929,000 (2021: £10,804,000) in respect of the Athena asset. Such redevelopment would require a recovery in oil price and the procurement of significant further financing. The following key assumptions were applied over the expected remaining life of the field: Athena 56 I The Parkmead Group plc Annual Report 2022 Discount Rate Short term price assumption (Oil) (3 Years) Long–term price assumption (Oil) 8% $88–76/bbl $75/bbl 13. Property, plant and equipment (continued) Based on these assumptions the current recoverable amount exceeds the existing carrying value and no impairment is required. The key sensitivities in assessing the recoverable amount are the long–term oil price and the relationship with future production assumed. If these assumptions are not met there would be a further impairment of the asset required. A reduction of 20% in long–term oil price would not result in impairment of the asset. Company Cost At 1 July 2021 Additions Disposals At 30 June 2022 Depreciation At 1 July 2021 Disposals Depreciation charged in the year At 30 June 2022 Net book amount At 30 June 2022 At 30 June 2021 Property, plant and equipment: other £’000 Fixtures, fittings and computer equipment £’000 Total £’000 569 701 1,270 15 – 584 12 (147) 566 27 (147) 1,150 351 685 1,035 – 206 557 27 218 (147) 28 566 – 17 (147) 234 1,122 27 235 Right of Use Asset Company Property, plant and equipment other are right of use assets with a cost of £539,000 (2021: £524,000) with accumulated depreciation of £524,000 (2021: £349,000) with a net book value of £15,000 (2021: £175,000). The incremental borrowing rate applied to the leases is 6%. The comparable table for 2021 is detailed below: Group Cost At 1 July 2020 Additions Disposals Change in estimate of abandonment asset At 30 June 2021 Depreciation At 1 July 2020 Disposals Depreciation charged in the year At 30 June 2021 Net book amount At 30 June 2021 At 30 June 2020 Development and production £’000 Property, plant and equipment: other £’000 Fixtures, fittings and computer equipment £’000 44,473 9,829 722 166 – 2,630 47,269 67 (4,398) – 5,498 47 (1) – 768 Total £’000 55,024 280 (4,399) 2,630 53,535 32,494 509 631 33,634 – 129 32,623 (10) 402 901 14,646 11,979 4,597 9,320 – 80 711 57 91 (10) 611 34,235 19,300 21,390 The Parkmead Group plc Annual Report 2022 I 57                         Notes to the financial statements (CONTINUED) 13. Property, plant and equipment (continued) Abandonment Asset The abandonment asset adjustment above reflects the decrease in cost estimate for the Athena field. Production at the Athena field was shut-in in January 2016. The Group has assumed a redevelopment of the remaining reserves in the field over a longer term period. Such redevelopment would require a recovery in oil price and the procurement of significant further financing. The following key assumptions were applied over the expected remaining life of the field for the year ended 30 June 2021: Athena Short term price assumption (Oil) (3 Years) Long term price assumption (Oil) Discount Rate 8% $72–$61/bbl $68/bbl Based on these assumptions the current recoverable amount exceeds the existing carrying value and no impairment is required. The key sensitivities in assessing the recoverable amount are the long-term oil price and the relationship with future production assumed. If these assumptions are not met there would be a further impairment of the asset required. A reduction of 20% in long-term price would not result in impairment of the asset. Company Cost At 1 July 2020 Additions At 30 June 2021 Depreciation At 1 July 2020 Depreciation charged in the year At 30 June 2021 Net book amount At 30 June 2021 At 30 June 2020 Short leasehold property £’000 Fixtures, fittings and computer equipment £’000 528 41 569 694 7 701 Total £’000 1,222 48 1,270 176 174 610 75 786 249 350 685 1,035 218 352 17 84 235 436 14. Intangible assets Group Cost At 1 July 2021 Additions Transfers Change in estimate of abandonment asset Exploration write-off At 30 June 2022 Amortisation and impairment At 1 July 2021 Impairment At 30 June 2022 Net book amount At 30 June 2022 At 30 June 2021 The comparable table for 2021 is detailed below: Group Cost At 1 July 2020 Additions Change in estimate of abandonment asset Exploration write–off At 30 June 2021 Amortisation and impairment At 1 July 2020 At 30 June 2021 Net book amount At 30 June 2021 At 30 June 2020 Exploration and Evaluation assets £’000 Goodwill £’000 Total £’000 29,497 548 (109) 5,270 (860) 2,174 1,084 – – – 31,671 1,632 (109) 5,270 (860) 34,346 3,258 37,604 – – – 34,346 29,497 – (2,174) (2,174) 1,084 2,174 – (2,174) (2,174) 35,430 31,671 Exploration and Evaluation assets £’000 Goodwill £’000 Total £’000 36,089 2,174 38,263 369 3,894 (10,855) – – – 369 3,894 (10,855) 29,497 2,174 31,671 – – – – – – 29,497 36,089 2,174 2,174 31,671 38,263 58 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 59 Other intangibles include development costs and contract and customer relationships.                                       Notes to the financial statements (CONTINUED) 14. Intangible assets (continued) Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination identified according to operating segments. The carrying amount of goodwill has been allocated as follows: 15. Investment in subsidiaries and joint ventures (continued) The comparable table for 2021 is detailed below: Energy Economics Kempstone Hill 2022 £’000 – 1,084 1,084 2021 £’000 2,174 – 2,174 On 3 November 2009, the Group acquired 100% of the issued share capital of Aupec Limited (“Aupec”), an unlisted company based in Scotland. Aupec is a respected global authority in energy sector economics, valuation and benchmarking and has been providing economic consultancy services to the oil and gas sector for over 30 years. Goodwill on the purchase of Aupec Limited is attributable to the value of the assembled professional team in place acquired with this business as well as the Company’s relationships with a number of blue-chip energy companies. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. There are no intangible assets with indefinite lives in either CGU. Aupec is undergoing a growth strategy change that will focus the company’s offering to a more interactive, cloud-based system for clients. This will also allow Aupec to offer a benchmarking analytics service to clients outside of the energy sector, as such the historic goodwill has been fully impaired. On 31 January 2022, the Group acquired 100% of the issued share capital of Kempstone Hill Wind Energy Limited (“Kempstone”), an unlisted company based in Scotland. The acquisition was immediately revenue and cash flow enhancing. In the last 12 months the wind farm generated 2,850 MWh with a 99.7% availability, enough to power up to 1,000 homes. Kempstone Hill benefits from an attractive inflation-linked, Feed-in Tariff through until 2036. The goodwill associated with Kempstone has been tested with discounted cash flows for the company and no impairment is required. 15. Investment in subsidiaries and joint ventures Company Cost or valuation At 1 July 2021 Additions At 30 June 2022 Amortisation and impairment At 1 July 2021 Impairment At 30 June 2022 Net book amount At 30 June 2022 At 30 June 2021 Subsidiary and joint venture undertakings £’000 £’000 27,443 3,288 30,731 – (1,352) (1,352) 29,379 27,443 Company Cost or valuation At 1 July 2020 At 30 June 2021 Amortisation and impairment At 1 July 2020 At 30 June 2021 Net book amount At 30 June 2021 At 30 June 2020 Subsidiary and joint venture undertakings £’000 27,443 27,443 – – 27,443 27,443 The interests in Group undertakings of the Company, which are directly held, are listed below: Name of Undertaking Class of Holding Interest in subsidiary/ joint venture Nature of Business Registered in Scotland: Aupec Limited Parkmead (E&P) Limited Pitreadie Farm Limited* Ordinary Ordinary Ordinary Kempstone Hill Wind Energy Limited* Ordinary * From 31 January 2022. 100% 100% 100% 100% Energy advisory and consulting services Oil & Gas Exploration and Production Mixed farming Production of renewable energy The registered office of Kempstone Hill Wind Energy Limited, Aupec Limited, Parkmead (E&P) Limited and Pitreadie Farm Limited is located at 4 Queen’s Terrace, Aberdeen, AB10 1XL. The Directors believe that the carrying values of the investments are supported by the subsidiaries underlying value in use. 60 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 61     Notes to the financial statements (CONTINUED) 16. Business combinations Acquisition of Kempstone Hill Wind Energy Limited On 31 January 2022, the Group completed the acquisition of 100% of the share capital of Kempstone Hill Wind Energy Limited (“Kempstone Hill”) to purchase a company with owning a 1.5MW onshore wind farm in Scotland. The fair values of the identifiable assets and liabilities of Kempstone Hill at the acquisition date are shown below: 18. Interest bearing loans Non-current assets Loans issued Non current assets Property, plant and equipment: other Lease assets Deferred tax asset Current assets Debtors Prepayments and accrued income Cash Current creditors Trade creditors Non current liabilities Bank loan Lease liabilities Deferred tax liability Net assets Cash consideration Goodwill on acquisition £ 000 3,083 368 187 85 73 360 (8) (990) (368) (586) 2,204 (3,288) 1,084 The property, plant and equipment, being acquired, were valued at £3,083,000 based on discounted cash flows produced by management. The primary objective of the transaction was to acquire producing turbines. From the date of acquisition to the 30th of June 2022, Kempstone Hill had revenue of £191,000 and made a profit of £19,000. If the acquisition had taken place on 1 July 2021 the Group would have to record revenue of £419,000 and a profit of £46,000 for the year. 17. Financial assets at fair value through other comprehensive income The Group and Company no longer hold financial assets at fair value through other comprehensive income. Group Company 2022 £’000 2,900 2,900 2021 £’000 2,900 2,900 2022 £’000 2,900 2,900 2021 £’000 2,900 2,900 Loans issued On 27 July 2017, The Parkmead Group plc entered into a credit facility with Energy Management Associates Limited, whereby Parkmead agreed to lend up to £2,900,000 to Energy Management Associates Limited. The Loan had an initial period of two years, with a fixed interest rate of 2.5 per cent. On 26 July 2021, The Parkmead Group plc entered into a 24-month extension of the interest-bearing loan to Energy Management Associates Limited of £2,900,000. The Loan will continue to bear a fixed interest rate of 2.5 per cent per annum. The Loan has not been discounted on materiality grounds. Interest charged during the period amounted to £73,000 (2021: £73,000). Loans and advances at amortised cost The fair value of loans and advances is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. 19. Trade and other receivables Current assets Trade receivables Less: loss allowance Trade receivables - net Receivables due from group companies Other receivables Prepayments Current assets Trade receivables Group Company 2021 £’000 2022 £’000 2021 £’000 342 – 342 – – – – – – – 56,011 55,937 831 179 1,352 36 113 56,160 36 89 56,062 2022 £’000 242 – 242 – 1,573 203 2,018 In accordance with IFRS 9, trade and other receivables are recognised and carried at their anticipated realisable value, which implies that a provision for a loss allowance on lifetime expected credit losses of the receivables is recognised. A provision for loss allowance for expected credit losses is performed at each reporting date and is based on a multifactor and holistic analysis depending on several assumptions taken. The Group considers reasonable and supportable information that is available without undue cost or effort and that is relevant for the assessment of credit risk with regard to customer. The Group’s trade and other receivables are all current and not overdue. Of the trade receivables balance at the end of the year £242,000 (2021: £342,000) was due from the Group’s largest customer. There is one (2021: one) other customer who represents more than 5% of the total balance of trade receivables. 62 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 63       Notes to the financial statements (CONTINUED) 19. Trade and other receivables (continued) Payment terms apply to amounts owed by the customers for oil and gas sales, typically this is within 30 days. Historically, invoices are normally paid on or around the due date and this is the established operating cycle under IFRS 9, as a result the loss given default is deemed to be a negligible timing difference. The Group has had no historical losses on trade and other receivables during this period. As long as the customer continues to settle invoices on a monthly basis in line with what has been established practice, there are no indications of significant increase in credit risk, and therefore deem there to be an insignificant probability of default. Therefore, it is not considered necessary to provide for any loss allowance on credit losses. The carrying amounts of the Group’s trade and other receivables (current and non-current) are denominated in the following currencies: 21. Trade and other payables (continued) Non-current liabilities Accruals and deferred income Leases Group Company 2022 £’000 543 639 2021 £’000 597 414 1,181 1,011 2022 £’000 2021 £’000 – – – 15 – 15 Pound Sterling Other currencies Group Company 2022 £’000 722 1,296 2,018 2021 £’000 1,010 342 1,352 2022 £’000 56,160 – 2021 £’000 56,062 – 56,160 56,062 The short term decommissioning provision includes Perth, Athena and Platypus (2021: Perth). Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 31 days (2021: 31 days). No interest is charged on the outstanding balance. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Receivables due from group companies The Company considers that the amounts included in receivables due from group companies will prove recoverable. However, the timing of and the ultimate repayment of these amounts will depend primarily on the growth of revenues for the relevant group companies. Currently, the Company expects the amounts to be repaid over a number of years. 20. Cash and cash equivalents Unrestricted cash in bank accounts Restricted cash Group Company 2022 £’000 17,351 5,912 23,263 2021 £’000 16,857 6,521 23,378 2022 £’000 330 – 330 2021 £’000 4,656 – 4,656 The restricted cash primarily relates to amounts held in trust as security for future decommissioning liabilities under a standard Decommissioning Security Agreement (DSA) covering the Athena asset being £5,912,000 (2021: £6,471,000). The Directors consider that the carrying amount of these assets approximates to their fair value. The credit risk on liquid funds is limited because the counter-party is a bank with a high credit rating. 21. Trade and other payables Current liabilities Trade payables Amounts owed to group companies Other taxes and social security costs Accruals Leases Current tax Short term decommissioning provision Group Company 2022 £’000 2021 £’000 400 418 – – 2022 £’000 28 531 12 2021 £’000 182 242 5 2,348 2,565 1,964 335 241 389 – – – 174 – – 3,731 3,316 2,567 – – 3,004 141 1,432 19,228 24,205 22. Loans Non-current liabilities Loans Group Company 2022 £’000 948 948 2021 £’000 500 500 2022 £’000 2021 £’000 – – – – The 2022 loans carry an interest rate of 6.25%. Close Brothers hold fixed and floating charges over Kempstone Hill Wind Energy Limited. The loan are repayable in full in the second half of 2025. The 2021 loans carry an interest rate of 2.5% with Bank of Scotland holding a floating charge over the loan of Pitreadie Farm Limited, the loan was repaid in March 2022. 23. Decommissioning provisions As at 1 July 2021 Changes in estimates Change in estimates directly to cost of sales Utilisation Short term (Note 21) Unwinding of discount As at 30 June 2022 Group £’000 14,754 6,395 (323) (1,667) (19,228) 1,135 1,066 The decommissioning provision is recorded at the Group’s share of the decommissioning cost expected to be incurred and is based on engineering estimates and reports. Changes in estimates have arisen as a result of an increase in estimated costs of engineering works. The short term decommissioning provision includes P.218, P.1293 and P.1242 (2021: P.218). The long term costs are expected to be incurred at various intervals over the next 11 years. The provision has been estimated using existing technology at current prices, escalated at 2% and discounted at 8%. The economic life and the timing of the decommissioning liabilities are dependent on Government legislation, commodity prices and the future production profiles of the production and development facilities. In addition, the costs of decommissioning are subject to inflationary charges in the service costs of third parties. 64 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 65         Notes to the financial statements (CONTINUED) 23. Decommissioning provisions (continued) The comparable table for 2021 is detailed below: As at 1 July 2020 Changes in estimates Unwinding of discount Utilisation of provision Short term provision As at 30 June 2021 Development and production costs £’000 7,650 6,524 611 (31) (389) Total £’000 7,650 6,524 611 (31) (389) 14,365 14,365 24. Contingent deferred consideration Under the terms of a sale and purchase agreement between Parkmead (E&P) Limited and Dyas Holdings B.V., Parkmead (E&P) Limited are liable to pay a deferred consideration of €3,000,000 on the first commercial sale of oil from the Papekop field development. As the decision to develop this field is yet to be taken by the joint venture partners, it is uncertain whether the deferred consideration will be paid. The fair value, as a result, is deemed to be £nil. 25. Financial instruments and financial risk factors Financial risk management The Group actively monitors and manages the financial risks relating to its operations on a continuous basis. The Group and Company’s operations expose it to a variety of financial risks that include market price risk, interest rate risk, credit risk, liquidity risk, capital risk and currency risk. The Group and Company’s financial instruments comprise equity investments financial assets at fair value through other comprehensive income, cash and cash equivalents, interest bearing loans and various items such as trade receivables and trade payables that arise directly from its operations. The Group has not entered into any derivative or other hedging instrument. Cash and treasury credit risks are mitigated through the exclusive use of institutions that carry published “A-1” (Standard & Poor’s) or better credit ratings in order to minimise counterparty risk. Interest rate risk The Group and Company are exposed to interest rate risk as a result of positive cash balances. Cash and cash equivalents (which are presented as a single class of asset on the statement of financial position) comprise cash at bank and other short-term deposits and liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value. As detailed in Note 20 some of the cash balance is restricted. Floating rate financial assets < 1 year Total 2022 £’000 23,263 25,263 2021 £’000 23,378 23,378 At 30 June 2022, short-term deposits were earning interest at a weighted average fixed deposit rate of 0.0% (2021: 0.32%). Cash at bank earns interest at floating rates based on the GBP Base Rate. Interest earned at floating rates represents an insignificant risk of change in rates. At 30 June 2022, interest bearing loans were earning interest at a fixed interest rate of 2.50% (2021: 2.50%). 25. Financial instruments and financial risk factors (continued) Credit risk The Group’s credit risk is primarily attributable to its trade receivables and interest bearing loans. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control. Outstanding customer receivables are regularly monitored. Historically, invoices are normally paid on or around the due date. The Group has had no historical losses on trade and other receivables during this period. As long as the customer continues to settle invoices on a monthly basis in line with what has been established practice, there are no indications of significant increase in credit risk. At 30 June 2022, the Group had one customer that owed the Group more than £50,000. The requirement for impairment is analysed in respect of trade receivables at each reporting date on an individual basis for each client. The maximum exposure to credit risk at the reporting date amounted to £242,000 (2021: £342,000). The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as its customers are located in several jurisdictions. The Group does not hold collateral as security. Interest bearing loans credit risk is managed by regularly monitoring the underlying asset value coverage of the loanee. The requirement for impairment is analysed in respect of interest bearing loans at each reporting date. The maximum exposure to credit risk at the reporting date amounted to £2,936,000 (2021: £2,936,000). The Group does not hold collateral as security. Liquidity risk The Group and Company actively review their requirements for long-term and short-term debt finance to ensure it has sufficient available funds for operations and planned expansions. The Group and Company monitor their levels of working capital to ensure that they can meet debt repayments as they fall due. The following table shows the contractual maturities of the financial liabilities, all of which are measured at amortised cost: Trade payables and other liabilities 6 months or less 6-12 months More than 1 year Group Company 2022 £’000 19,073 5,132 1,181 25,386 2021 £’000 3,731 – 1,011 2022 £’000 2021 £’000 3,136 2,567 – – – 15 4,742 3,136 2,582 Capital risk The Group and Company considers its capital under management to be its free cash and cash equivalents and its interest bearing loans. The Group and Company’s overall objective from its investing and trading activities is to increase its net assets per share. In assessing opportunities to invest in the energy sector the Group and Company undertakes financial modelling and technical assessments on proposed investments. The Group and Company’s capital management objectives have not changed in the period under review. The Group’s net asset per share was 52 pence in 2022 (2021: 53 pence). Currency risk The Group and Company are exposed to foreign currency risk on trade receivables and cash balances. The currencies giving rise to the risk are United States Dollars and Euros. There are no currency hedging arrangements in place. The value of the Group’s financial assets denominated in foreign currencies at 30 June 2022 was £15,670,000 (2021: £11,445,000); Company £135,000 (2021: £226,000). A 10% change in Sterling exchange rate will result in a profit or loss pre-tax recognised in the statement of profit or loss of £1,567,000 (2021: £1,145,000) in the Group; Company £14,000 (2021: £23,000). The Group is exposed to foreign currency risk on its financial liabilities. The currencies giving rise to the risk are United States Dollars. The value of the Group’s financial liabilities denominated in foreign currencies at 30 June 2022 was £nil (2021: £nil). A 10% change in Sterling exchange rate will result in an increase or decrease of £nil (2021: £nil) in the Group. 66 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 67   Notes to the financial statements (CONTINUED) 25. Financial instruments and financial risk factors (continued) Fair values of financial assets and liabilities The following is a comparison by category of the carrying amounts and fair values of the Group’s financial assets and liabilities at 30 June 2022. Set out below the table is a summary of the methods and assumptions used for each category of instrument. Financial assets at amortised cost Financial liabilities at amortised cost Financial assets at amortised cost 2022 2021 Carrying amount £’000 Fair value £’000 Carrying amount £’000 Fair value £’000 4,715 (26,334) (21,619) 4,715 (26,334) (21,619) 4,073 (5,242) (1,169) 4,073 (5,242) (1,169) The fair value of trade receivables approximates to the carrying amount because of the short maturity of these instruments. The fair value of interest bearing loans reasonably approximates to the carrying amount at the reporting date. Financial liabilities at amortised cost The fair value approximates to the carrying amount because the majority are associated with variable rate interest payments that are re-aligned to market rates at intervals of less than one year. Financial assets at fair value through other comprehensive income The balances are recorded at fair value and are determined by using published price quotations in an active market or using a valuation technique based on the price of recent investment methodology. 26. Share capital and reserves Ordinary shares of £0.015 each Deferred shares of £0.049 each Ordinary shares of £0.015 each Deferred shares of £0.049 each Ordinary shares of £0.015 each Deferred shares of £0.049 each Ordinary shares of £0.015 each Deferred shares of £0.049 each Authorised 2022 No. 2021 No. 296,750,185 296,750,185 368,341,780 368,341,780 665,091,965 665,091,965 £’000 4,451 18,049 22,500 £’000 4,451 18,049 22,500 Allotted, Called Up and Paid Up 2022 No. 2021 No. 109,266,931 109,266,931 368,341,780 368,341,780 477,608,711 477,608,711 £’000 1,639 18,049 19,688 £’000 1,639 18,049 19,688 26. Share capital and reserves (continued) Deferred shares have no voting rights and no rights to distributions and therefore have been excluded from the calculations of Earnings per Share. Other reserves as previously stated in the Group statement of changes in equity In September 2019 9,645,669 ordinary shares were issued on the acquisition of Pitreadie Farm Limited. The non cash consideration included £145,000 recorded against share capital, and £3,376,000 against a merger reserve. The merger reserve represents the premium on the issue of the consideration shares and is non distributable. Recorded in line with Section 612 of the Companies Act 2006. 27. Share based payments Share options – equity settled Share options are granted from time to time at the discretion of the remuneration committee. All employees are eligible to receive share options. At 30 June 2022, 7 employees (2021: 8) held share options. Share options have been awarded under two different schemes: • Unapproved options • Unapproved options with vesting conditions Share appreciation rights – cash settled Certain key management and staff are awarded share appreciation rights (SARs), to be settled in cash. The fair value of the SARs is measured at each reporting date using the Black-Scholes-Merton model. The carrying amount of the liability relating to the SARs at 30 June 2022 is £1,918,000 (2021: £1,500,000). Deferred share payments – cash settled R Findlay and C MacLAren participated in deferred share payments (DSPs) arrangements for Non-Executive Directors. R Findaly will receive 166,666 shares subject to them fulfilling a three year service commitment. C MacLaren will receive 235,756 shares subject to them fulfilling a three year service commitment. The Company reserves the right, at its sole discretion to settle the payment in cash and the DSPs have been accounted for as cash-settled transactions. The fair value of the DSPs is measured at each reporting date using the closing share price of The Parkmead Group plc. The carrying amount of the liability relating to the DSPs at 30 June 2022 is £104,000 (2021: £45,000). (Credit)/expense arising from share based payments The (credit)/expense recognised for employee services received during the year is shown as follows: Equity-settled share based payments Cash-settled share based payments The SARs are settled by cash and are therefore revalued with the movement in share price. 2022 £’000 87 477 562 2021 £’000 (41) 97 56 68 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 69   Notes to the financial statements (CONTINUED) 27. Share based payments (continued) Movements in the year The movement in share option awards during the year ended 30 June 2022 is as follows: 27. Share based payments (continued) The movement in SARs during the year ended 30 June 2022 is as follows: 2022 2021 Number Weighted average exercise price Number Weighted average exercise price Outstanding at 1 July 1,598,300 £0.31 2,148,895 Granted Lapsed Forfeited Outstanding at 30 June Exercisable at 30 June – – 780,000 (302,533) £0.37 (66,667) – – (1,263,928) 1,295,767 215,767 £0.31 £0.37 1,598,300 358,300 £0.36 £0.27 £0.23 £0.39 £0.31 £0.37 Share options outstanding at the end of the year have the following expiry date and exercise prices: Expiry date 21 December 2025 7 December 2027 1 January 2029 1 December 2029 1 January 2030 21 December 2030 Exercise price 2022 2021 £0.41 £0.35 £0.35 £0.35 £0.35 £0.27 65,267 149,000 90,500 209,300 60,000 60,000 300,000 300,000 100,000 100,000 680,000 780,000 1,295,767 1,598,300 The options outstanding at 30 June 2022 had a weighted average remaining contractual life of 7.6 years (2021: 8.3 years). The fair value of the share options granted has been calculated using the Black-Scholes-Merton model. The inputs into the model and resulting fair values were as follows: December 2015 December 2017 November 2019 January 2020 December 2019 January 2020 December 2020 Share price Exercise price Volatility Vesting period Expected life Expected dividend yield Risk free rate Fair value £0.41 £0.35 £0.63 £0.50 £0.50 £0.47 £0.37 £0.41 £0.35 £0.35 £0.35 £0.35 £0.35 £0.27 42% 48% 54% 45% 46% 51% 3 years 10 years 3 years 10 years 3 years 10 years 3 years 10 years 3 years 10 years 3 years 10 years 55.9% 3 years 10 years 0% 0% 0% 0% 0% 0% 0% 1.94% 1.28% 1.56% 1.27% 0.84% 0.82% 0.2% £0.19 £0.18 £0.41 £0.28 £0.28 £0.27 £0.23 Volatility was calculated from an average of the Group’s shares monthly volatility from March 2011. 2022 2021 Number Weighted average exercise price Number Weighted average exercise price Outstanding at 1 July 10,778,154 £0.33 9,314,068 Granted Lapsed Forfeited Outstanding at 30 June Exercisable at 30 June – – – – – – 4,676,420 – (3,212,334) 10,778,154 £0.33 10,778,154 6,101,734 £0.38 6,101,734 £0.39 £0.27 – £0.41 £0.33 £0.38 The fair value of the SARs granted at 30 June 2022 has been calculated using the Black-Scholes-Merton model. The inputs into the model and resulting fair values were as follows: Number of SARs outstanding Share price at 30 June 2022 Exercise price Volatility Vesting Period Expected life Expected dividend yield Risk free rate December 2015 December 2017 December 2017 December 2020 6,424,668 1,444,700 1,444,700 4,676,420 £0.45 £0.45 £0.45 £0.45 £0.41 £0.35 £0.35 £0.27 56.6% 56.6% 56.6% 56.6% 1 year 10 years 1 year 10 years 2 years 10 years 3 years 10 years 0% 0% 0% 0% 2.00% 2.00% 2.00% 2.00% The fair value of the SARs granted at 30 June 2021 has been calculated using the Black–Scholes–Merton model. The inputs into the model and resulting fair values were as follows: Number of SARs outstanding Share price at 30 June 2021 Exercise price Volatility Vesting Period Expected life Expected dividend yield Risk free rate December 2015 December 2017 December 2017 December 2020 3,212,334 1,444,700 1,444,700 4,676,420 £0.45 £0.45 £0.45 £0.45 £0.41 £0.35 £0.35 £0.27 49% 49% 49% 49% 1 year 10 years 1 year 10 years 2 years 10 years 3 years 10 years 0% 0% 0% 0% 0.72% 0.72% 0.72% 0.72% 70 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 71 Notes to the financial statements (CONTINUED) 28. Reconciliation of operating (loss)/profit to net cash flow from continuing operations Group Company 2021 £’000 2022 £’000 (12,771) (3,141) Operating profit/(loss) Depreciation Amortisation and exploration write-off Loss on sale of property, plant and equipment Provision for share based payments Currency translation adjustments Impairment of Goodwill Impairment of investments Decreases/(increase) in receivables Decrease in stock Increase/(decrease) in payables 2022 £’000 5,207 726 860 31 87 (462) 2,174 – (667) 24 58 611 10,855 388 (41) 853 – – 62 65 (1,213) 234 – – 87 (12) – 1,352 98 – 452 (930) 8,038 (1,191) 2021 £’000 (1,186) 249 – – (41) 2 – – (1,423) – 283 (2,117) 29. Reconciliation of liabilities arising from financing activities The Group have a loan from financing activities which can be seen in Note 22. The Company have no liabilities from financing activities. 30. Leases The Group and Company has entered into commercial leases. These non-cancellable leases have remaining terms of between one and five years. All leases include a clause to enable upward revision of lease charges according to prevailing market conditions. Discounted maturity analysis of IFRS 16 Leases: Within one year Within two to five years More than five years Group Company 2022 £’000 141 364 275 780 2021 £’000 335 414 – 749 2022 £’000 – – – – 2021 £’000 174 – – 174 31. Ultimate controlling party and related party transactions In the opinion of the Directors there is no ultimate controlling party. All other transactions and balances with related parties, which are presented for the Group and the Company, are detailed below. Transactions with subsidiaries Transactions with subsidiaries mainly comprise sale and purchase of services in the ordinary course of business at normal commercial terms and in total amounted to £1,255,000 (2021: £2,112,000). The Parkmead Group plc received dividends from subsidiaries of £nil (2021: £nil). Any balances outstanding at 30 June 2022 and 2021 in respect of the above transactions are shown in Note 19 and Note 21. Transactions with Directors In August 2012, the Company entered into a 10 year lease with Tilestamp Limited, a company where T P Cross is a director and a shareholder. In November 2015, the Company entered into an additional 10 year lease with Tilestamp Limited. Invoices paid during the period amounted to £406,000 (2021: £316,000). As at 30 June 2022 a right of use asset for leased buildings was held on the balance sheet of £337,000 (2021: £604,000). As at 30 June 2022 a lease liability for buildings was held on the balance sheet of £364,000 (2021: £641,000). On 27 July 2017, The Parkmead Group plc entered into a credit facility with Energy Management Associates Limited, whereby Parkmead agreed to lend up to £2,900,000 to Energy Management Associates Limited. The Loan was extended on 26 July 2021 for an additional two years, with a fixed interest rate of 2.5 per cent. Energy Management Associates Limited is a company where T P Cross is a director and a shareholder. Further details of the Loan are provided in Note 18. Key management Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group. In the opinion of the Board, the Group’s key management are the directors of The Parkmead Group plc. Information regarding their compensation is given below in aggregate for each category specified in IAS 24 Related Party Disclosures: Short-term employee benefits Post-employment pension benefits Share-based payment transactions 2022 £’000 651 10 477 1,138 2021 £’000 744 10 97 851 72 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 73     Notes to the financial statements (CONTINUED) Officers and professional advisors Nominated Adviser & Broker finnCap 1 Bartholomew Close London EC1A 7BL Secretary and Registered office R A Stroulger 20 Farringdon Street, 8th Floor London, England, EC4A 4AB Registered number 03914068 32. Jointly Controlled Assets Fields in production or under development as at 30 June 2022: Country Licence Block Destination Field Name Field Operator Net unit Interest (%) Netherlands Andel Va Netherlands Andel Va Andel Va Andel Va Brakel Vermilion Energy Netherlands BV Wijk en Aalburg Vermilion Energy Netherlands BV Netherlands Drenthe IV Drenthe IV Grolloo Vermilion Energy Netherlands BV Netherlands Drenthe V Drenthe V Geesbrug Vermilion Energy Netherlands BV Netherlands Drenthe VI Drenthe VI Diever West Vermilion Energy Netherlands BV UK P.1293 14/18b Athena Ithaca Energy (UK) Limited 15 15 15 15 7.5 30 Exploration acreage and discoveries as at 30 June 2022: Country Licence Block Destination Field Name Field Operator Net unit Interest (%) Netherlands Andel Va Netherlands Andel Vb Netherlands Papekop Andel Va Andel Vb Papekop Ottoland Kerkwijk Papekop Vermilion Energy Netherlands BV Vermilion Energy Netherlands BV Vermilion Energy Netherlands BV UK UK UK UK UK UK UK UK UK P.2516 P.218 P.218 P.588 P.2154 P.2400 P.2402 P.2435 P.2406 14/20g, 15/16g Fynn Parkmead (E&P) Limited 15/21e 15/21a Perth Dolphin Parkmead (E&P) Limited Parkmead (E&P) Limited 15/21b, 21c Perth Parkmead (E&P) Limited 14/25a 30/12c, 30/13c, 30/17h, 30/18c Perth West Skerryvore Parkmead (E&P) Limited Parkmead (E&P) Limited 30/19c Ruvaal* Parkmead (E&P) Limited 47/10d, 48/6c Blackadder/Teviot* Parkmead (E&P) Limited 205/12 Davaar* Parkmead (E&P) Limited 15 7.5 15 50 100 100 100 100 30 30 75 100 * Licence expired 30 September 2022. 33. Post balance sheet events On the 1 October 2022, Parkmead E&P Limited increased its equity position on Skerryvore P.2400 to 50% from 30% and moved into phase C which requires the Company to drill and an exploration well. On 26 July 2022, Parkmead E&P Limited successfully permanently plugged and abandoned the single well located on P218 15/21a. On 27 October, Parkmead E&P Limited received confirmation from the North Sea Transition Authority no further actions are required. On 14 November 2022, Parkmead E&P Limited received notification the drilling rig is on site for the ‘LDS’ two-well campaign in the Netherlands. The LDS wells will be drilled from the existing Diever well site and will target a combined mid-case gas-in-place of 37.2 billion cubic feet (“Bcf”) in the prolific Rotliegendes reservoirs within this licence. The Group and Company has considered the supply chain and operational activities in light of the Russian attack on Ukraine and the Directors do not believe that there will be a material impact on the business. Directors T P Cross R A Stroulger C J MacLaren R Findlay Group Head Office 4 Queen’s Terrace Aberdeen AB10 1XL Auditors Jeffreys Henry Audit Limited Finsgate 5-7 Cranwood Street London EC1V 9EE Bankers Bank of Scotland 39 Albyn Place Aberdeen AB10 1YN Solicitors Burness Paull LLP Union Plaza 1 Union Wynd Aberdeen AB10 1DQ Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA 74 I The Parkmead Group plc Annual Report 2022 The Parkmead Group plc Annual Report 2022 I 75 76 I The Parkmead Group plc Annual Report 2022 In keeping with Parkmead’s ESG vision and commitment to minimise the environmental impact of our activities this year’s Annual Report mailing was packaged using fully recyclable materials.Communiqué Associates Limited, Edinburgh am@communique-associates.co.ukT h e P a r k m e a d G r o u p p c A n n u a l l R e p o r t 2 0 2 2 The Parkmead Group plc 4 Queen’s Terrace Aberdeen AB10 1XL United Kingdom www.parkmeadgroup.com ENERGY REFOCUSED Annual Report 2022 

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