Po Valley Energy Limited
Annual Report 2019

Plain-text annual report

Annual Report 2019 PO VALLEY ENERGY LIMITED CONTENTS CORPORATE DIRECTORY .............................................................................................................................................. 2 CHAIRMAN’S STATEMENT ........................................................................................................................................... 3 YEAR IN REVIEW ........................................................................................................................................................... 5 DIRECTORS’ REPORT .................................................................................................................................................... 6 Remuneration Report ...................................................................................................................................... 12 AUDITOR’S INDEPENDENCE DECLARATION ............................................................................................................... 21 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................................................. 22 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME .................................... 23 STATEMENT OF CHANGES IN EQUITY ........................................................................................................................ 24 CONSOLIDATED STATEMENT OF CASH FLOWS ......................................................................................................... 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................................................................... 26 DIRECTORS’ DECLARATION ........................................................................................................................................ 65 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................... 66 ASX ADDITIONAL INFORMATION .............................................................................................................................. 70 TECHNICAL SUMMARY .............................................................................................................................................. 73 1 Directors Company Secretary Registered Office Rome Office Share Register Auditor Solicitors Banks PO VALLEY ENERGY LIMITED CORPORATE DIRECTORY Michael Masterman Kevin Bailey Sara Edmonson Chairman and Chief Executive Officer Non-Executive Director Non-Executive Director Kevin Hart Suite 8, 7 The Esplanade, Mt. Pleasant WA 6153 Australia Tel: +61 8 9316 9100 Via Francesco Crispi 90, 00187 Rome Italy Tel: +39 06 42014968 Link Market Services Limited Level 12, 250 St Georges Terrace, Perth WA 6000 Bentleys NSW Audit Pty Ltd Level 14, 60 Margaret Street Sydney NSW 2000 Australia Steinepreis Paganin Level 4, The Read Buildings,16 Milligan Street, Perth WA 6000 Australia Bankwest 108 St. Georges Terrace, Perth WA 6000, Australia Stock Exchange Listing Po Valley Energy Limited shares are listed on the Australian Securities Exchange (ASX) under the code PVE Website address www.povalley.com 2 PO VALLEY ENERGY LIMITED CHAIRMAN’S STATEMENT Dear fellow shareholders, Po Valley Energy advanced and upgraded its north Italian gas development and oil/gas condensate exploration projects through 2019 and 2020. Our Selva (onshore gas) and Teodorico (offshore gas) development projects have been granted preliminary production concession by the Italian Government, and its Ministry of Environment has confirmed completion of the environmental approval process. The approval and development of Selva Malvezzi is Po Valley’s number one priority, offering low capital costs and high returns even in the challenging global oil and gas environment evident in the opening months of calendar 2020. Primary environmental approval was received and published by the Ministry in January 2020. Initial works including installation of GPS monitoring equipment are underway and your Board expects final production concession approval in the second half of 2020. The field is a Joint Venture between Po Valley Energy (63%), United Oil and Gas Plc (20%) and Prospex Oil and Gas Plc (17%). Our offshore Adriatic gas field, Teodorico, which was granted a preliminary Production Concession by the Italian Ministry’s Hydrocarbon Commission in 2016, advanced substantially during the past year. Maiden 2P reserves of 37 bcf have been declared. Primary environmental approval was received and published by the Ministry in February 2019 and additional requested documentation for water handling/decommissioning was submitted to the Ministry in July 2019. We expect full grant of the Production Concession in the second half of 2020 and at that point, will initiate design, development and financing. Advancing these two gas fields into production has a targeted incremental production increase of 111 and 28 million cubic meters per year respectively in their first year of production. Achieving this first gas for both these fields remains the primary priority of the Company. During 2019, Po Valley declared maiden Prospective Resources at Torre del Moro (oil/gas condensate) and Bagnolo SW (oil) of 106 million and 54.5 million barrels recoverable best estimate respectively and an increase in Contingent Resources in Ravizza (oil) and Bagnolo-in-Piano (oil) to 45.6 million barrels (2C). This has delivered your Company large onshore gas condensate and oil exploration assets to advance over the next 18 months. Italy has faced a very challenging environment in 2020 as a result of COVID-19 virus impacts and the resulting State of Emergency and associated lockdowns. Energy is excluded from these restrictions and this has enabled Po Valley to advance low cost preliminary work at Selva. All members of our Po Valley team in Italy have moved to Smart Working from home and are taking all necessary safety measures in line with that country’s State of Emergency. The Italian Government has also provided a range of tax deferrals and grants, which, together with our own initiatives, has materially reduced the Company’s running costs. We are working to ensure that once the crisis is over, that Po Valley can rapidly advance our Selva development. 3 PO VALLEY ENERGY LIMITED CHAIRMAN’S STATEMENT Po Valley shareholders have been exceptionally well served by the Company’s dedicated and expert team in Italy, led by Giorgio Bertuzzi, Daniele Marzorati, Gianluca De Rosa and Pierpalo Poncia and supported by dedicated Non- Executive Directors, Byron Pirola and Kevin Bailey. Byron retired from the PVE Board in March this year but remains a committed shareholder. I thank Byron in particular, and the entire team, for their outstanding contribution to the Company during the past 18 months. Michael Masterman Chairman Po Valley Energy 4 PO VALLEY ENERGY LIMITED YEAR IN REVIEW • Preliminary Production concession for Selva granted early 2019 • Upgrade of Reserves for Selva • Maiden Prospective Resources at Torre del Moro and Bagnolo SW • PVE retains North Italian oil assets, Cadelbosco di Sopra and Grattasasso • Advanced regulatory approvals and planning to progress Selva and Teodorico to production 5 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT The Directors present their report together with the financial report of Po Valley Energy Limited (“the Company” or “PVE”) and of the Group, being the Company and its controlled entities (“the Group” or “Po Valley”), for the year ended 31 December 2019. 1. Directors The Directors of the Company at any time during or since the end of the financial year are: Michael Masterman — Chief Executive Officer and Chairman, BEcHons, Age 57 Director since 22 June 1999 Michael is a co-founder of PVE. Michael first took up the position of CEO of PVE in 2002 up to October 2010 when he took up an executive position at Fortescue Metal Group until June 2014. Prior to joining PVE, Michael was CFO and Executive Director of Anaconda Nickel (now Minara Resources), and he spent 8 years at McKinsey & Company serving major international resource companies principally in the area of strategy and development. He is also Chairman of W Resources Plc, an AIM listed company with tungsten and gold assets in Spain and Portugal. Michael was appointed as Chairman of PVE on 22 April 2016 and took up the role of Chief Executive Officer on 1 November 2017. Byron Pirola — Non-Executive Director, BSc, PhD, Age 59 Director from 10 May 2002 to 3 March 2020 Byron is a co-founder of PVE and is based in Sydney. He is currently a Director and Managing Director of Port Jackson Partners Limited, a Sydney based strategic management consulting firm. Prior to joining Port Jackson Partners in 1992, Byron spent six years with McKinsey & Company working out of the Sydney, New York and London offices and across the Asian region. He has extensive experience in advising CEOs and boards of both large public and small developing companies across a wide range of industries and geographies. Kevin Bailey AM — Non-Executive Director, DipFP, Age 59 Director since 3 May 2016 Kevin was appointed as a director on 22 April 2016. He has been a shareholder of PVE since April 2008 and brings significant business acumen and experience to the Board. Mr. Bailey is a highly successful businessman with a range of business interests, both local and overseas. He worked for 28 years as a Certified Financial Planner and was a founding director of Shadforth Financial Group Limited. He was a member of the Prime Minister’s Community Business Partnership and devotes considerable time to philanthropic interests. Mr. Bailey is currently Chairman of Parousia Media Pty Ltd and has served as director of various entities including the Investment Advisory Board of the Timor Leste Petroleum Fund, the $17bn Sovereign Wealth Fund of Timor Leste, Outward Looking International Pty Ltd, Halftime Australia Pty Ltd, Alpha Australia, Empart Inc, and Dads4Kids Fatherhood Foundation. Sara Edmonson — Non-Executive Director, BSBA, MBA Age 40 Director since 23 December 2019 Sara was appointed as a director on 23 December 2019. Sara has extensive experience in natural gas, the critical transition fuel for a low carbon future, having led PVE from July 2010 to 2017. She is currently the President at Associazione Energia Nazionale, an Italian association created to promote sustainable production, transportation and use of domestic energy and is fluent in Italian, having previously worked both in Italy and internationally for Ernst & Young Transaction Advisory Services. During her tenure at EY Sara advised numerous blue-chip corporate clients on transactions in Russia, Romania, Turkey and the US including the US$5 billion acquisition of DRS Technologies by Finmeccanica in 2008. She holds an MBA from St John’s University in New York City. Sara served on the board of Coro Energy plc from November 2017 to October 2018 and as executive until March 2019. 6 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 2. Company Secretary Kevin Hart – Company Secretary, B.Comm, FCA Appointed 17 April 2018 Kevin Hart is a Chartered Accountant and was appointed to the position of Company Secretary on 17 April 2018. He has over 25 years’ experience in accounting and the management and administration of public listed entities in the mining and exploration industry. He is currently a partner in an advisory firm, Endeavour Corporate, which specialises in the provision of company secretarial and accounting services to ASX listed entities. 3. Directors Meetings The number of formal meetings of the Board of Directors held during the financial year and the number of meetings attended by each director is provided below: No. of board meetings held No. of board meetings attended Michael Masterman 10 10 Byron Pirola Kevin Bailey 10 10 10 10 Sara Edmonson - - The roles and responsibilities normally undertaken by the Audit and Risk Committee and the Remunerations and Nominations Committee have been dealt with by the full board as part of its duly convened meetings rather than through separate committees. 4. Principal Activities The principal continuing activities of the Group in the course of the year were: • The exploration for gas and oil in the Po Valley region in Italy. • Appraisal and development of gas and oil fields. 5. Earnings per share The basic and diluted earnings / (loss) per share for the Company from continuing operations was (0.24)€ cents (2018: (0.31)€ cents and 0.78€ from discontinued operations). 6. Operating and financial review The loss for the year from continuing operations was €1,504,741 (2018: €1,832,552). Cash and cash equivalents for the Group at 31 December 2019 amounted to €42,165 (2018: €515,604). The Company completed a private placement of A$1.4 million for the issue of 25,454,547 shares during the year in two tranches. The first tranche of the placement was completed in August 2019 with receipt of A$800,000 from sophisticated investors and the second tranche completed with director participation for A$600,000. Selva Gas Field (63% PVO*) Selva advanced during the year with addition of significant additional 2C and 2P resources to the existing reserves in the production concession application area and importantly good progress with the environmental approval process. Po Valley was formally granted the Selva Malvezzi preliminary gas Production Concession (80.68km²) by the Italian Ministry for the Economic Development. Following concession preliminary award, Reserves of 13.3bcf (2P) were certified and new Contingent Resources in the Selva North and South Flank of 14.1bcf (2C) have been added. 7 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT With the benefit of the successful Podere Maiar well, and access to well and seismic data, the East Selva field’s chance of success has been increased to 40% and a new large prospective resource for the Riccardina structure added, taking this concession’s total Prospective Resources (best) to 91.5bcf. The Environmental Impact Assessment (‘EIA’) study for Selva was submitted during the year. With the Italian Government confirming preliminary technical environmental approval for the Selva gas field development and preliminary work has now commenced to prepare the field for gas production in 2020. Final EIA decree is expected in the second quarter of 2020. Under the first phase of the development plan, PVO will install a fully automated gas plant at the existing Selva/Podere Maiar 1dir well site and install a one-kilometre long pipeline to connect the well with the nearby Italian National Gas Grid. Based on dynamic reservoir studies, the field development is designed to produce at a rate of up to 150,000 cubic metres (5.3 mmscf/day) a day from successfully tested C1 and C2 production levels in the Medium-Upper Pliocene sands of the Porto Garibaldi Formation. *Po Valley Operations Pty Ltd (100% owned subsidiary of PVE, “PVO”) holds the quota for 100% of the Podere Gallina and Selva Licences. United and Prospex have 20% and 17% economic interests and are awaiting Italian government approval for the 20% and 17% quotas to be transferred. Teodorico Offshore Gas field development (100% PVO) The Teodorico gas field is located in shallow waters of the northern Adriatic Sea – the primary source of domestic gas production for much of Italy – and in close proximity to existing off-shore gas production facilities. Following the granting of the primary environmental approval in 2019, Teodorico continued during the year to advance through the regulatory approval process. Key related EIA approval integrated documentation has now been submitted and Po Valley expects to complete the regulatory approval process in 2020. Teodorico has the largest gas-in-place of all of Po Valley’s gas fields and is at an advanced stage of assessment, ready for development. Torre del Moro Gas/Oil Condensate exploration (100% PVO) Torre del Moro is a very large oil prospect at a maiden Prospective Resource of 106 million barrels best estimate and has the potential to transform the size and scale of the company’s operations. The current focus of activities for the Torre del Moro site, south of Forli, is to identify the best drilling location, prepare a petroleum system study and the drilling plan for submission to the Government as soon as the exploration activities ban will end in February 2021. Ravizza, Bagnolo in Piano, and Bagnolo SW Exploration (100% PVO) The significant upgrade in the estimated 2C resources in Bagnolo in Piano (Cadelbosco exploration licence) and Ravizza (Grattasasso exploration licence) oil discoveries from 5.6 million and 4.4 million barrels respectively to 27.3 million and 16.1 million barrels (as independently assessed and validated by French consultancy CGG), flows from fresh seismic revision and geological evaluation work. This enhanced structure volumes and recovery factors, increases derived from the use of horizontal development wells (extensively drilled in these kind of reservoirs). In addition, available data of similar oil fields such as Cavone and Villafortuna were utilised. In addition to these Contingent Resources estimates, a maiden Prospective Resource of 54.5 million barrels (best estimate) has been defined in the Bagnolo SW prospect (Torre del Moro exploration licence), being a geological/structural south-western extension of the Bagnolo in Piano oil discovery (refer ASX announcement 26 April 2019). Development design work for these two proven undeveloped oil fields between Bologna and Parma has advanced with production profiles, development plan, design and verification work at an advanced stage. Po Valley’s objective is to complete production planning and well design during 2020. 8 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Strategy Po Valley remains a northern Italy-focused energy development and exploration company with a streamlined focus on five large assets: • The onshore gas development at Selva Malvezzi; • Offshore Adriatic gas development at Teodorico; • The large-scale gas/oil condensate exploration licence at Torre del Moro, and • The expanded Ravizza (Grattasasso Permit) and Bagnolo (Cadelbosco Permit) oil reservoirs and extensions. Po Valley’s priority is very focused on bringing the low cost Selva and Teodorico fields into gas production. The size and scale of Torre del Moro and Ravizza / Bagnolo in Piano, warrant initiatives to de-risk and prioritise the projects and design drilling programs. While the current Italian regulatory environment remains challenging, the Italian Ministry has confirmed that recent government amendments to energy policy will not affect the approval processes for Selva and Teodorico, both of which continue to progress through the normal approval procedures. Gas remains a critical transition fuel in Italy’s move to greater renewables and the development and employment generation from the Company’s two advanced projects enjoy good local support. The fields and prospects in granted exploration licences (Torre del Moro, Bagnolo in Piano, and Ravizza) are covered under the Italian Government’s Plan of Areas Program. Under this program, which was recently reviewed in Parliament, the timeframe for field activities such as drilling and related approvals is suspended until August 2021 (30 months from the date of Ministerial decree in February 2019) as the Ministry conducts an environmental clearance program. This aligns with the Group’s technical advancement program on Torre del Moro, Bagnolo in Piano, and Ravizza, allowing Po Valley to advance and prioritise low cost geological and geophysical evaluation, and to advance drilling location selection and prepare drilling programs over a prudent timeframe. The Group’s drilling programs have very small footprints and are designed to the highest environmental and safety standards. While Po Valley is confident that the areas in which it operates should clear the environmental clearance process, there is always a risk of delay or non-clearance. During the month of March 2020, the Italian government imposed a nationwide lockdown as a preventative measure to reduce the contagion of Covid-19. We are pleased to report that all Po Valley employees are healthy and are working from home. Importantly, we have seen evidence that the Italian Ministries continue to be operational therefore we do not expect significant delays in the ongoing environmental approvals for Selva Malvezzi and Teodorico. Importantly, the oil and gas industry was declared an "essential service" by the Italian government underpinning its strategic importance in the Italian economy. Financial performance Net loss before impairment expense is reconciled to comprehensive loss (after impairment expense) for the period as follows: Comprehensive income reconciliation table (in Euro) 2019 2018 Net loss from continuing operations before impairment expense (unaudited) (1,503,241) (1,013,582) Impairment of investment in associate Exploration costs expensed Net profit / (loss) from discontinued operations - (816,426) (1,500) (2,544) - 4,406,460 Comprehensive income / (loss) for the year (1,504,741) 2,573,908 9 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Net loss from continuing operations before impairment expense, which is not reviewed or audited, is calculated to show impact of impairment losses on the total comprehensive income for the year. The net profit from discontinued operations in 2018 is a result of the restructuring of the Group and the spin-off of Coro Energy Plc (formerly Saffron Energy Plc). Health and safety Paramount to Po Valley’s ability to pursue its strategic priorities is a safe workplace and a culture of safety first. The Company regards environmental awareness and sustainability as key strengths in planning and carrying out business activities. Po Valley’s daily operations are conducted in a way that adheres to these principles and management are committed to their continuous improvement. Whilst growing from exploration roots, the Company has strived to continually improve underlying safety performance. The Company has adopted an HSE Management System which provides for a series of procedures and routine checks (including periodical audits) to ensure compliance with all legal and regulatory requirements and best practices in this area. In 2019, the Group maintained its outstanding occupational health safety and environmental track record with no incidents or near misses to report. Principle risks and uncertainties Oil and gas exploration and appraisal involves significant risk. The future profitability of the Company and the value of its shares are directly related to the results of exploration and appraisal activities. There are inherent risks in these activities. No assurances can be given that funds spent on exploration and appraisal will result in discoveries that will be commercially viable. Future exploration and appraisal activities, including drilling and seismic acquisition may result in changes to current perceptions of individual prospects, leads and permits. The Company identifies and assesses the potential consequences of strategic, safety, environmental, operational, legal, reputational and financial risks in accordance with the Company’s risk management policy. PVE management continually monitors the effectiveness of the Company’s risk management, internal compliance and control systems which includes insurance coverage over major operational activities, and reports to the Audit and Risk Committee on areas where there is scope for improvement. The Charter for the Audit and Risk Committee is available on the Company’s website. The principal risks and uncertainties that could materially affect PVE future performance are described below. External risks Exposure to gas pricing Changes to law, regulations or Government policy Volatile oil and gas prices make it difficult to predict future price movements with any certainty. Decline in oil or gas prices could have an adverse effect on PVE. The Company does not currently hedge its exposures to gas price movements long term. The profitability of the Company’s prospective gas assets will be determined by the future market for domestic gas. Gas prices can vary significantly depending on other European gas markets, oil and refined oil product prices, worldwide supply and the terms under which long term take or pay arrangements are agreed. Changes in law and regulations or government policy may adversely affect PVE’s business. Examples include changes to land access or the introduction of legislation that restricts or inhibits exploration and production. Similarly changes to direct or indirect tax legislation may have an adverse impact on the Company’s profitability, net assets and cash flow. Uncertainty of timing of regulatory approvals Delays in the regulatory process could hinder the Company’s ability to pursue operational activities in a timely manner including drilling exploration and development wells, to install infrastructure, and to produce oil or gas. In particular, oil and gas operations in Italy are subject to both Regional and Federal approvals. 10 Operating risks Exploration, development and production Estimation of reserves Tenure security Health, safety and environmental matters PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT The future value of PVE will depend on its ability to find, develop, and produce oil and gas that is economically recoverable. The ultimate success or otherwise of such ventures requires successful exploration, establishment of commercial reserves, establishment and successful effective production and processing facilities, transport and marketing of the end product. Through this process, the business is exposed to a wide variety of risks, including failure to locate hydrocarbons, changes to reserve estimates or production volumes, variable quality of hydrocarbons, weather impacts, facility malfunctions, lack of access to appropriate skills or equipment and cost overruns. The estimation of oil and natural gas reserves involves subjective judgments and determinations based on geological, technical, contractual and economic information. It is not an exact calculation. The estimate may change because of new information from production or drilling activities. Exploration licences held by PVE are subject to the granting and approval by relevant government bodies. Government regulatory authorities generally require the holder of the licences to undertake certain proposed exploration commitments and failure to meet these obligations could result in forfeiture. Exploration licences are also subject to partial or full relinquishments after the stipulated period of tenure if no alternative licence application (e.g. production concession application) is made, resulting in a potential reduction in the Company’s overall tenure position. In order for production to commence in relation to any successful oil or gas well, it is necessary for a production concession to be granted. Exploration, development and production of oil and gas involves risks which may impact the health and safety of personnel, the community and the environment. Industry operating risks include fire, explosions, blow outs, pipe failures, abnormally pressured formations and environmental hazards such as accidental spills or leakage of petroleum liquids, gas leaks, ruptures, or discharge of toxic gases. Failure to manage these risks could result in injury or loss of life, damage or destruction of property and damage to the environment. Losses or liabilities arising from such incidents could significantly impact the Company’s financial results. In addition to the external and operating risks described above, the Company’s ability to successfully develop future projects including their infrastructure is contingent on the Company’s ability to fund those projects through operating cash flows and affordable debt and equity raisings. 7. Dividends No dividends have been paid or declared by the Company during the year ended 31 December 2019. 8. Significant events after the balance date In February 2020, the Company entered into a Master Service Agreement for the provision of technical, administrative and commercial services to an oil and gas company with assets within the Po Valley region. These services will provide the Company with income of €25,000 per month for a minimum period of 3 months and until the agreement is terminated by either party. During the month of March 2020, the Italian government imposed a nationwide lockdown as a preventative measure to reduce the contagion of Covid-19. Po Valley employees are working from home during this time. Importantly, we have seen evidence that the Italian Ministries continue to be operational therefore we do not expect significant delays in the ongoing environmental approvals for Selva Malvezzi and Teodorico. Importantly, the oil and gas industry was declared an "essential service" by the Italian government underpinning its strategic 11 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT importance in the Italian economy. However, the timing, full extent of the impact and recovery from Covid-19 on our employees and business operations continues to evolve as at the date of this report. As such, the Group is unable to estimate the effects on the Group’s financial position, liquidity and operations in the 2020 financial year. Other than the above, there were no other events between the end of the financial year and the date of this report that, in the opinion of the Directors, affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group. 9. Likely Developments The Company plans to seek a suitable farm-out partner for selected assets. The Company also plans to continue to invest in its current exploration portfolio through geological and geophysical studies and, subject to available finances, in its planned drilling program for high potential gas prospects. 10. Environmental Regulation The Company’s operations are subject to environmental regulations under both national and local municipality legislation in relation to its mining exploration and development activities in Italy. Company management monitor compliance with the relevant environmental legislation. The Directors are not aware of any breaches of legislation during the period covered by this report. 11. Remuneration Report - audited The Remuneration Report outlines the remuneration arrangements which were in place during the year, and remain in place as at the date of this report, for the Directors and executives of the Company. Remuneration Policy The Board is responsible for reviewing and recommending compensation arrangements for the Directors, the Chief Executive Officer and the senior executive team. The Board assesses the appropriateness of the size and structure of remuneration of those officers on a periodic basis, with reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. The Company aims to ensure that the level and composition of remuneration of its Directors and executives is sufficient and reasonable in the context of the internationally competitive industry in which the Company operates. All senior executives except the company secretary are based in Rome and when setting their remuneration, the Board must have regard to remuneration levels and benefit arrangements that prevail in the European oil and gas industry which remains highly competitive. Consequences of performance on shareholder wealth In considering the Group’s performance and benefits for shareholders wealth the Board has regard to the following indices in respect of the current financial year and the previous financial periods. Indices Production (scm’000) Average realised gas price (€ cents per cubic metre) 2019 2018 2017 2016 2015 2014 - - 2,799* 7,155 4,461 9,991 18,560 21* 19 21 25 27 Profit / (loss) attributable to owners of the Company (€'000s) (1,504) 2,780 (1,087) (8,699) (6,658) (1,262) Earnings / (loss) per share (€ cents per share) (0.24) (0.31) (0.19) (2.06) (5.02) (1.03) Share Price at year end - AU$ 0.052 0.038 0.041 0.025 0.026 0.10 * production and gas prices for 2018 relates to the period prior to restructuring of the Group and deconsolidation of Coro Energy Plc (formally Saffron Energy Plc). PVE currently does not have any producing assets. 12 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT In establishing performance measures and benchmarks to ensure incentive plans are appropriately structured to align corporate behaviour with the long-term creation of shareholder wealth, the Board has regard for the stage of development of the Company’s business and gives consideration to each of the indices outlined above and other operational and business development achievements of future benefit to the Company which are not reflected in the aforementioned financial measures. Senior Executives and Executive Directors The remuneration of PVE senior executives is based on a combination of fixed salary, short term incentive bonus’ which is based on performance and in some cases a long term incentive payable in cash or shares. Other benefits include employment insurances, accommodation and other benefits, and superannuation contributions. In relation to the payment of annual bonuses, the board assesses the performance and contribution of executives against a series of objectives defined at the beginning of the year. These objectives are a combination of strategic and operational company targets which are considered critical to shareholder value creation and objectives which are specific to the individual executive. More specifically, objectives mainly refer to operating performance from both a financial and technical standpoint and growth and development of the Company’s asset base. The Board exercises its discretion when determining awards and exercises discretion having regard to the overall performance and achievements of the Company and of the relevant executive during the year. No remuneration consultants were used during the current or previous year. Non-Executive Directors The remuneration of PVE Non-Executive Directors comprises cash fees. There is no current scheme to provide performance-based bonuses or retirement benefits to Non-Executive Directors. The Board of Directors and shareholders approved the maximum agreed remuneration pool for Non-Executive Directors at the annual general meeting in May 2011 at €250,000 per annum. Service contracts The major provisions of the service contracts held with the specified directors and executives, in addition to any performance related bonuses and/or options are as follows: Directors: Michael Masterman, Chairman and Chief Executive Officer • Commencement Date: as Chief Executive Officer 1 November 2017 • Fixed remuneration for the year ended 31 December 2019: €140,000 p.a. • Benefit of €2,500 per month for accommodation • No termination benefits Byron Pirola, Non-Executive Director • Commencement Date: 10 May 2002 • Resignation date: 3 March 2020 • Fixed remuneration for the year ended 31 December 2019: €15,007 (A$24,000) • No termination benefits Kevin Bailey, Non-Executive Director • Commencement Date: 3 May 2016 • Fixed remuneration for the year ended 31 December 2019: €15,007 (A$24,000) • No termination benefits 13 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Sara Edmonson, Non-Executive Director • Commencement Date: 23 December 2019 • Fixed remuneration for the year ended 31 December 2019: €15,007 (A$24,000) • No termination benefits The Non-Executive Directors are not appointed for any fixed term but rather are required to retire and stand for re-election in accordance with the Company’s constitution and the ASX Listing Rules. 14 5 1 . l l w o e b e b a t e h t n i D E T I M I L Y G R E N E Y E L L A V O P T R O P E R ’ S R O T C E R D I d e t n e s e r p s i r a e y e h t g n i r u d ) P M K ( l e n n o s r e P t n e m e g a n a M y e K r e h t o d n a r o t c e r i D h c a e f o s l i a t e d n o i t a r e n u m e r e h T ) e c n a m r o f r e p o t k n i i l g n d u l c n i ( s e m o c t u o n o i t a r e n u m e r l e n n o s r e P t n e m e g a n a M y e K l a t o T € n o i t a n m r e T i s t n e m y a p € r e h t O € s e e f & y r a a S l € 0 0 0 , 0 7 1 0 0 5 , 9 5 1 7 0 0 , 5 1 0 9 7 4 1 , - 9 8 2 7 0 0 , 5 1 0 9 7 4 1 , 3 0 3 , 0 0 2 0 8 0 , 9 8 1 - - - - - - - - - - 0 0 0 , 0 3 0 0 0 0 3 , - - - - - - 0 0 0 , 0 3 0 0 0 0 3 , 0 0 0 , 0 4 1 0 0 5 , 9 2 1 7 0 0 , 5 1 0 9 7 4 1 , - 9 8 2 7 0 0 , 5 1 0 9 7 4 1 , 3 0 3 , 0 7 1 0 8 0 , 9 5 1 9 1 0 2 8 1 0 2 9 1 0 2 8 1 0 2 9 1 0 2 8 1 0 2 9 1 0 2 8 1 0 2 9 1 0 2 8 1 0 2 r e c i f f O e v i t u c e x E f e h C d n a n a m i r i a h C n a m r e t s a M M s r o t c e r i D ) 9 1 0 2 c e D 3 2 d e t n o p p a ( i e v i t u c e x E - n o N n o s n o m d E S ) 0 2 0 2 h c r a M 3 d e n g i s e r ( e v i t u c e x E - n o N l a o r i P B e v i t u c e x E - n o N s r o t c e r i D r o f l a t o T y e l i a B K n o i t r o p o r P f o t a r e n u m e r n o i n a m r o f r e p l d e t a e r e c % - % 2 2 0 5 6 8 8 , 7 4 8 , 9 - - 0 5 6 , 8 8 7 4 8 , 9 3 0 3 , 0 0 2 - 0 3 7 , 7 7 2 7 4 8 , 9 - - - - - - - - - - 3 0 8 8 7 , 0 3 2 9 1 , - - 3 0 8 , 8 7 0 3 2 , 9 1 - - 3 8 8 , 7 6 2 0 3 2 9 1 , - - - - - - d e n i f e D l a t o T € n o i t u b i r t n o c n o i t a n m r e T i n a p l € s t n e m y a p € l a t o T - t r o h S m r e t € h s a C I T S s t n e m y a p € € e r a h S d e s a b l a t o T e s a B € - 3 7 5 9 5 , - 3 0 8 , 8 7 - - - - r e h t O € r a C € & y r a a S l s e e f € - - 0 0 5 , 1 3 7 0 8 5 , - - 0 0 5 , 1 3 0 3 , 7 7 9 1 0 2 8 1 0 2 9 1 0 2 8 1 0 2 3 0 3 , 0 0 2 0 0 0 , 0 3 - 3 0 3 , 0 7 1 9 1 0 2 3 5 6 , 8 4 2 0 0 0 0 3 , 0 0 5 , 1 3 5 1 , 7 1 2 8 1 0 2 ) 1 ( n o s n o m d E a r a S P M K d n a s r o t c e r i D l a t o T P M K P M K r o f l a t o T 6 1 i - n p s d n a p u o r G e h t f o g n i r u t c u r t s e r e h t d e t e p m o c l y n a p m o C e h t t a h t e t a d e h t o t p u n o i t a r e n u m e r s t n e s e r p e r 8 1 0 2 r o f e v o b a e b a t e h t n l i n o i t a r e n u m e r e h T . ) ’ ’ o r o C “ ( ) c l P y g r e n E . ) 7 e t o n r e f e r ( o r o C f o f f o n o r f f a S y l r e m r o f ( c l P y g r e n E o r o C f o r e c i f f i i O e v i t u c e x E f e h C s a d e t n o p p a n e h t d n a 7 1 0 2 r e b o t c O 1 3 o t p u d t L y g r e n E y e l l a V o P f o r e c i f f o e v i t u c e x E f e h C s a w n o s d n o m d E a r a S ) 1 ( i D E T I M I L Y G R E N E Y E L L A V O P T R O P E R ’ S R O T C E R D I m r e t t r o h S PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Analysis of bonuses included in remuneration There was no short-term incentive bonus awarded in remuneration in the current year. The short-term incentive bonus awarded to S Edmonson in 2018 was in her capacity as Chief Executive Officer of Coro Energy Plc (formerly Saffron Energy Plc) (“Coro’’). The amount of €19,230 included in remuneration related to the period up to the date the Company completed restructuring of the Group and spin off of Coro and vested in that financial year based on achievement of personal goals and satisfaction of specified operational performance criteria. The bonus award was based on performance, and specifically for having reached the agreed operational strategic objectives. These performance objectives are linked to financial performance and Company value indirectly. Options over equity instruments granted as compensation No options were granted as compensation to Directors or key management personnel during the reporting period (2018: Nil). No options vested during 2019. (2018: Nil) Modification of terms of equity-settled share-based payment transactions No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period or the prior period. Exercise and lapse of options granted as compensation No options granted as compensation were exercised during 2019. There were no options outstanding during 2019. No options were exercised by directors or key management personnel. No options over ordinary shares in the Company were held by any key management personnel during 2019. Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of the Company, held directly and indirectly by key management personnel, including their personally-related entities is as follows: Held at 31 Dec 2018 Purchased Share based payments Options Exercised Held at Sold / Other 31 Dec 2019 Directors M Masterman 156,692,994 11,278,788 B Pirola K Bailey 59,494,135 3,290,043 132,728,169 17,536,983 S. Edmonson 2,966,406(i) - 351,881,704 32,105,814 (i) (i)Holding at date of appointment - - - - - - - - - - - - - 167,971,782 62,784,178 150,265,152 2,966,406 383,987,518 17 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Held at 31 Dec 2017 Purchased Share based payments Options Exercised Held at Sold / Other 31 Dec 2018 (ii) Directors M Masterman 156,692,994 B Pirola K Bailey Executives S. Edmonson 59,494,135 132,728,169 348,915,298 2,966,406(i) 2,966,406 - - - - - - - - - - - - - - - - - - - 156,692,994 59,494,135 132,728,169 - 348,915,298 - - 2,966,406(ii) 2,966,406 (i) Sara Edmondson was Chief Executive officer of Po Valley Energy Ltd up to 31 October 2017 and then appointed as Chief Executive Officer of Coro Energy Plc (formerly Saffron Energy Plc)(“Coro’’). Shares in the table above were held at the time of restructuring of the Group (refer note 7). Other transactions and balances with KMP and their related parties The Company obtained financing through a streamlined facility provided by existing and former Directors of the Company. Refer to Note 24 for further details. The amounts outstanding at 31 December 2019 are as follows: Related Party Beronia Investments Pty Ltd Beronia Investments Pty Ltd Beronia Investments Pty Ltd Kevin Bailey Fuiloro Pty Ltd G. Bradley K & G Bailey as trustee for The Bailey Family Trust Loan Amount A$663,179 A$156,055 A$528,396 A$264,172 A$190,800 A$126,736 A$106,055 Interest % p.a 10% 10% 10% 10% 10% 10% 10% Repayment Term 19 months 19 months 19 months 19 months 19 months 19 months 19 months No key management personnel have entered into a material contract, other than disclosed above, with the Group or the Company. 18 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 12. Directors’ interests At the date of this report, the direct and indirect interests of the Directors in the shares and options of the Company, as notified by the Directors to the ASX in accordance with S205G (1) of the Corporations Act 2001, at the date of this report is as follows: M Masterman B Pirola K Bailey S Edmonson 13. Share Options Ordinary Shares Convertible Notes 167,971,782 62,784,178 150,635,225 2,966,406 300,000 - 700,000 - Options granted to directors and executives of the Company The Company has not granted any options over unissued ordinary shares in the Company to any directors or specified executive during or since the end of the financial year. Unissued shares under option At the date of this report there are no unissued ordinary shares of the Company under option. Shares issued on exercise of options The Company has not issued any shares as a result of the exercise of options during or since the end of the financial year end. 14. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of PVE support and have adhered to the principles of sound corporate governance. The Board recognises the recommendations of the ASX Corporate Governance Council and considers that PVE is in compliance with those guidelines which are of importance to the commercial operation of a junior listed gas exploration and production company. The Company has elected to publish its Statement of Corporate Governance Practices on its website www.povalley.com. In addition, each year the Key to Disclosures - Corporate Governance Council Principles and Recommendations will be available to shareholders at the same time that the Annual Report is released. 15. Indemnification and insurance of officers The Company has agreed to indemnify current Directors against any liability or legal costs incurred by a Director as an officer of the Company or entities within the Group or in connection with any legal proceeding involving the Company or entities within the Group which is brought against the Director as a result of his capacity as an officer. During the financial year the Company paid premiums to insure the Directors against certain liabilities arising out of the conduct while acting on behalf of the Company. Under the terms and conditions of the insurance contract, the nature of liabilities insured against and the premium paid cannot be disclosed. 19 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 16. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Bentleys NSW Audit Pty Ltd, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Bentleys NSW Audit Pty Ltd during or since the financial year. 17. Non audit services During the year Bentleys NSW Audit Pty Ltd, the Group’s auditor, did not provide non-audit services. Refer to note 5 of the financial report for details of auditor’s remuneration. 18. Proceedings on behalf of the Company In 2019 a legal proceeding was initiated by Northsun Italia (a wholly owned subsidiary of Coro Energy Plc) against Po Valley Energy’s operating subsidiary Po Valley Operations in respect of a few disputed invoices related to intercompany services carried out in 2017 and early 2018 before the group restructuring was completed. The legal proceeding commenced in 2019 and a final decision from the Italian courts is expected in 2020. The full amount of the invoices in dispute has been provided for in the financial statements. 19. Lead Auditor’s independence declaration The lead auditor’s independence declaration is set out on page 21 and forms part of the Directors’ report for the financial year ended 31 December 2019. This report has been made in accordance with a resolution of Directors. Michael Masterman Chairman and Chief Executive Officer 31 March 2020 20  21 PO VALLEY ENERGY LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 CONSOLIDATED NOTES 2019 € 2018 € 10 11 14 12 13 15 17 16 18 17 19 20 20 42,165 283,853 326,018 17,578 947,181 105,145 7,876,926 8,946,830 515,604 499,780 1,015,384 27,455 744,040 9,602 7,704,644 8,485,741 9,272,848 9,501,125 1,090,159 41,066 2,797 1,272,676 2,406,698 1,122,845 - 2,756 1,201,258 2,326,859 58,512 1,563,183 - 1,531,250 1,621,695 1,531,250 4,028,393 3,858,109 46,461,745 1,192,269 (42,589,559) 45,531,416 1,192,269 (41,080,669) 5,244,455 5,643,016 9,272,848 9,501,125 Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-Current Assets Other assets Deferred tax assets Property, plant & equipment Resource property costs Total Non-Current Assets Total Assets Liability and equity Current Liabilities Trade and other payables Lease liabilities Provisions Interest bearing loans Total Current Liabilities Non-Current Liabilities Lease liabilities Convertible notes Total Non-Current Liabilities Total Liabilities Equity Issued capital Reserve Accumulated losses Total Equity Total Equity and liabilities The above statement of financial position should be read in conjunction with the accompanying notes to the financial statements. 22 PO VALLEY ENERGY LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 CONSOLIDATED NOTES 2019 € Continuing Operations Other income Employee benefit expenses Depreciation expense Corporate overheads Impairment losses Exploration costs expensed Profit / (loss) from operating activities Finance income Finance expenses Net finance expenses Loss before tax Income tax (expense) / benefit Loss for the year Discontinued Operations Profit / (loss) for the period from discontinued operations Profit / (loss) for the period Other comprehensive income 3 4 6 6 8 7 2018 € 161,563 (577,570) (1,067) (651,169) (816,426) (2,544) (1,887,213) 286 (85,797) (85,511) (1,972,724) 140,172 35,144 (639,131) (41,700) (752,431) - (1,500) (1,399,618) 134 (308,398) (308,264) (1,707,882) 203,141 (1,504,741) (1,832,552) - - - 4,406,460 2,573,908 - Total comprehensive income / (loss) for the year (1,504,741) 2,573,908 Profit / (loss) attributable to: Members of the Company Non-controlling interests Profit / (loss) for the period Total comprehensive income / (loss) attributable to: Members of the Company Non-controlling interests Total comprehensive income / (loss) for the period Basic and diluted earnings / (loss) per share (€) from continuing operations Basic and diluted earnings / (loss) per share (€) from discontinued operations 9 9 (1,504,741) - (1,504,741) (1,504,741) - (1,504,741) (0.24) - 2,780,060 (206,152) 2,573,908 2,780,060 (206,152) 2,573,908 (0.31) 0.78 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes to the financial statements. 23 5 9 9 , 9 7 4 ) 6 0 4 , 6 ( 6 1 0 , 3 4 6 , 5 ) 9 4 1 , 4 ( 6 1 0 , 3 4 6 , 5 7 6 8 , 8 3 6 , 5 ) 7 4 8 0 1 4 , , 4 ( - ) 1 4 7 4 0 5 , , 1 ( ) 1 4 7 4 0 5 , , 1 ( , 9 2 3 0 1 1 , 1 5 5 4 , 4 4 2 , 5 l a t o T € s t s e r e t n I € s e s s o L € e v r e s e R € g n i l l o r t n o c l d e t a u m u c c A n o i t a l s n a r T d e u s s I l a t i p a c € 6 6 3 , 6 0 0 , 7 8 5 5 , 2 1 2 ) 9 2 7 , 0 6 8 , 3 4 ( 9 6 2 , 2 9 1 , 1 8 6 2 , 2 6 4 , 9 4 - n o N y n a p m o C e h t l f o s r e d o h y t i u q e o t e b a t u b i r t t A l - - - , 8 0 9 3 7 5 , 2 ) 2 5 1 , 6 0 2 ( , 0 6 0 0 8 7 , 2 , 8 0 9 3 7 5 , 2 ) 2 5 1 , 6 0 2 ( , 0 6 0 0 8 7 , 2 - - ) 6 0 4 , 6 ( - - - - - - - - - - - - - 5 9 9 , 9 7 4 ) 7 4 8 0 1 4 , , 4 ( - - - - - - - - - ) 9 4 1 , 4 ( ) 9 6 6 , 0 8 0 , 1 4 ( 9 6 2 , 2 9 1 , 1 6 1 4 , 1 3 5 , 5 4 ) 9 6 6 , 0 8 0 , 1 4 ( 9 6 2 , 2 9 1 , 1 6 1 4 , 1 3 5 , 5 4 ) 8 1 8 , 4 8 0 , 1 4 ( 9 6 2 , 2 9 1 , 1 6 1 4 , 1 3 5 , 5 4 - - ) 1 4 7 4 0 5 , , 1 ( ) 1 4 7 4 0 5 , , 1 ( - - - - - - - , 9 2 3 0 1 1 , 1 ) 9 5 5 , 9 8 5 , 2 4 ( 9 6 2 , 2 9 1 , 1 5 4 7 , 1 4 6 , 6 4 4 2 . s t n e m e t a t s l a i c n a n i f e h t o t s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i : y t i u q e n i y l t c e r i d d e d r o c e r s r e n w o h t i w s n o i t c a s n a r T ) s t s o c f o t e n ( s e r a h s f o e u s s I l a t i p a c f o n r u t e R : e m o c n i e v i s n e h e r p m o c l a t o T 8 1 0 2 y r a u n a J 1 t a e c n a a B l r a e y e h t r o f ) s s o l ( / t i f o r P e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T d e t a d i l o s n o C i y r a d i s b u s f o l a s o p s i d n o t s e r e t n i g n i l l o r t n o c - n o N d a e r e b d u o h s l y t i u q e n i s e g n a h c f o t n e m e t a t s e v o b a e h T : y t i u q e n i y l t c e r i d d e d r o c e r s r e n w o h t i w s n o i t c a s n a r T 9 1 0 2 r e b m e c e D 1 3 t a e c n a a B l ) s t s o c f o t e n ( s e r a h s f o e u s s I : e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f ) s s o l ( / t i f o r P e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T 6 1 B S A A f o n o i t p o d a m o r f t n e m t s u d A j 8 1 0 2 r e b m e c e D 1 3 t a e c n a a B l 9 1 0 2 y r a u n a J 1 t a e c n a a B l 9 1 0 2 y r a u n a J 1 t a e c n a a b d e t s u d A j l D E T I M I L Y G R E N E Y E L L A V O P Y T I U Q E N I S E G N A H C F O T N E M E T A T S 9 1 0 2 R E B M E C E D 1 3 D E D N E R A E Y E H T R O F PO VALLEY ENERGY LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Operating activities Payments to suppliers and employees Interest received Interest paid Net operating cash flows used in discontinued operations Net cash used in operating activities Investing activities Receipts for resource property costs from joint operations partners Payments for resource property costs Net investing cash flows used in discontinued operations Net cash flows used in investing activities Financing activities Proceeds from the issues of shares Payment of share issue costs Proceeds from convertible notes Proceeds from borrowings Payments of lease liabilities Net financing cash flows provided by discontinued operations Net cash flows from financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at 1 January 19 18 NOTES CONSOLIDATED 2019 € 2018 € (1,065,464) 134 (61,961) (1,281,537) 286 (13,470) 10 - (1,127,291) (164,730) (1,459,451) - (271,225) - (271,225) 877,550 (8,066) - 99,351 (43,758) - 925,077 (473,439) 515,604 1,742,693 (2,748,836) (927,652) (1,933,795) 483,009 (3,015) 1,580,038 731,719 - 726,985 3,518,736 125,490 390,114 Cash and cash equivalents at 31 December 10 42,165 515,604 The above statement of cash flows should be read in conjunction with the accompanying notes to the financial statements. 25 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1.1 REPORTING ENTITY Po Valley Energy Limited (“the Company” or “PVE”) is a company domiciled in Australia. The address of the Company’s registered office is Suite 8, 7 The Esplanade Mt Pleasant WA 6153. The Consolidated Financial Statements of the Company for the year ended 31 December 2019 comprises the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and jointly controlled entities and operations. The financial statements were approved by the Board of Directors on 31 March 2020. The Group primarily is involved in the exploration, appraisal and development of gas properties in the Po Valley region in Italy and is a for profit entity. 1.2 BASIS OF PREPARATION (a) STATEMENT OF COMPLIANCE The financial report is a general-purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASB’s) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group also complies with International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board (IASB). (b) BASIS OF MEASUREMENT These consolidated financial statements have been prepared on the basis of historical cost. (c) GOING CONCERN The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. For the year ended 31 December 2019, the Group has recorded a loss after tax from continuing operations of €1,504,741; it has a cash balance of €42,165 net current liabilities of €2,080,680 and had net cash outflows from continuing operations of €1,127,291. In addition, the Group may be impacted by the subsequent event (COVID-19) as noted in note 27. These conditions indicate a material uncertainty that may cast a significant doubt about the entity's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The Directors believe that sufficient funds will be available to meet the Group’s immediate working capital requirements. However, the Directors recognise that the ability of the Group to continue as a going concern is dependent on the Group being able to secure additional funding through either the issue of new equity, convertible debt, sale of operating or non-operating interests in assets or a combination of these and other funding instruments and options as required to fund ongoing planned activities and for working capital. The Directors are currently reviewing a range of financing options and reviewed the Group’s cashflow requirements for the 15 months ended 31 March 2021 and are of the opinion that sufficient funds will be available in order to meet its ongoing obligations. 26 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Should the Group not achieve the matters set out above, there is uncertainty whether the Group would continue as a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include adjustments relating to the recoverability or classification of the recorded assets amounts nor to the amounts or classification of liabilities that might be necessary should the Group not be able to continue as a going concern. (d) FUNCTIONAL AND PRESENTATION CURRENCY The consolidated financial statements are presented in Euro, which is the Company’s and each of the Group entity’s functional currency. (e) USE OF ESTIMATES AND JUDGEMENTS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of non-current assets The ultimate recoupment of the value of resource property costs and property plant and equipment is dependent on successful development and commercial exploitation, or alternatively, sale, of the underlying properties. The Group undertakes at least on an annual basis, a comprehensive review for indicators of impairment of these assets. Should an impairment indicator exist, the area of interest or CGU is tested for impairment. There is significant estimation involved in determining the inputs and assumptions used in determining the recoverability amounts. The key areas of estimation involved in determining recoverable amounts include: • Recent drilling results and reserves and resources estimates • Environmental issues that may impact the underlying licences • The estimated market value of assets at the review date • Fundamental economic factors such as the gas price and current and anticipated operating costs in the industry • Future production rates The post-tax discount rate used for impairment purposes is 10%. Rehabilitation provisions Any provisions made for rehabilitation represents the discounted value of the present obligations to restore, dismantle and rehabilitate a well site. Significant estimation is required in determining the provisions for rehabilitation and closure as there are many transactions and other factors that will affect ultimate costs necessary to rehabilitate the sites when required. The discounted value reflects a combination of management’s best estimate of the cost of performing the work required, the timing of the cash flows and the discount rate. A change in any, or a combination of, the key assumptions used to determine the provisions could have a material impact on the carrying value of the provisions. 27 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 A provision, when recognised ,for each site is reviewed at each reporting date and updated based on the facts and circumstances available at that time and any subsequent changes to the estimated future costs for operating sites will be recognised in the balance sheet by adjusting both the restoration and rehabilitation asset and provision. Reserve estimates Estimation of reported recoverable quantities of Proven and Probable reserves include estimates regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. A change in any, or a combination of, the key assumptions used to determine the reserve estimates could have a material impact on the carrying value of the project via depreciation rates or impairment assessments. The reserve estimates are reviewed at each reporting date and any changes to the estimated reserves are recognised prospectively to depreciation and amortisation. Any impact of the change in the reserves is considered on asset carrying values and impairment losses, if any, are immediately recognised in the profit or loss. Recognition of deferred tax assets The recoupment of deferred tax assets is dependent on the availability of profits in future years. The Group undertakes a forecasting exercise at each reporting date to assess its expected utilisation of these losses. The key areas of estimation involved in determining the forecasts include: • • • Future production rates Economic factors such as the gas price and current and anticipated operating costs in the industry Capital expenditure expected to be incurred in the future A change in any, or a combination of, the key assumptions used to determine the estimates could have a material impact on the carrying value of the deferred tax asset. Changes to estimates are recognised in the period in which they arise. 1.3 SIGNIFICANT ACCOUNTING POLICIES The Group has consistently applied the accounting policies set out in notes 1.3 (a) to 1.3 (q) to all periods presented in the consolidated financial statements, except for new accounting policies adopted as detailed below. New and amended standards adopted by the group AASB16 ‘Leases’ AASB16 Leases became applicable to the current reporting period. AASB16 Leases replaced AASB117 Leases. The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting AASB16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated. At the date of initial application, the Company has elected to apply AASB16 to contracts that were previously identified as leases under the definition of a lease from AASB117 and has not applied AASB16 to arrangements that were previously not identified as leases under AASB117. 28 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 The Company has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of AASB16, being 1 January 2019. At this date, the Company has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition. Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Company has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of AASB16. On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Company has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term. For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under AASB117 immediately before the date of initial application. On transition to AASB16 the weighted average incremental borrowing rate applied to lease liabilities recognised under AASB16 was 1.83%. The Company has benefited from the use of hindsight for determining lease term when considering options to extend and terminate leases. Impact on transition On transition to AASB16, the Company recognised right-of-use assets and lease liabilities, recognising the difference in accumulated losses. The impact on transition is summarised below. Right-of-use assets – property, plant and equipment Lease liabilities Accumulated losses 1 January 2019 € 136,617 (140,766) 4,149 The following is a reconciliation of total operating lease commitments at 31 December 2018 to the lease liabilities recognised at 1 January 2019: Leases of low value assets / with remaining lease of less than 12 months Total operating lease commitments at 31 December 2018 Recognition exemptions: - Operating lease liabilities before discounting Discounting using incremental borrowing rate Operating lease liabilities recognised under AASB16 at 1 January 2019 Refer Note 1.3 (p) and Note 17 for further details. € 147,408 (833) 146,575 (5,809) 140,766 29 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (a) PRINCIPLES OF CONSOLIDATION (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Investments in subsidiaries are carried at cost less any impairment losses. In the Company’s separate financial statements, investments in subsidiaries are carried at cost less any impairment losses. (ii) Joint arrangements The Group classifies its interests in joint arrangements as either joint operations or joint ventures (see below) depending on the Group’s rights to the assets and obligation for the liabilities of the arrangements. When making this assessment, the Group considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Joint operation - when the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation. Joint venture – when the Group has rights only to the net assets of the arrangement, it accounts for its interest using the equity method adopted for associates. (iii) Transactions eliminated on consolidation Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (b) TAXATION Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity or in comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of 30 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Judgement is required to determine which arrangements are considered to be a tax on income as opposed to an operating cost. Judgement is also required to determine whether deferred tax assets are recognised in the statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, oil and natural gas prices, reserves, operating costs, decommissioning costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realise the net deferred tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods. (c) IMPAIRMENT Non-financial assets The Company assesses at each reporting date whether there is an indication that an asset (or CGU) may be impaired. Management has assessed its CGUs as being an individual field, which is the lowest level for which cash inflows are largely independent of those of other assets. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s or CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). The recoverable amount 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, in which case the asset is tested as part of a larger CGU to which it belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset/CGU is considered impaired and is written down to its recoverable amount. In calculating VIU, the estimated future cash flows are discounted to their present value using a pre- tax discount rate (12.7%) that reflects current market assessments of the time value of money and the risks specific to the asset/CGU. The Company bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecasts generally cover the forecasted life of the CGUs. VIU does not reflect future cash flows associated with improving or enhancing an asset’s performance. Impairment losses of continuing operations, including impairment of inventories, are recognised in the statement of profit or loss and other comprehensive income in those expense categories consistent with the function of the impaired asset. For assets/CGUs, an assessment is made at each reporting date to determine whether there is an 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 CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to 31 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 determine the asset’s/CGU’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset/CGU does not exceed either its recoverable amount, or the carrying amount that would have been determined, net of depreciation/amortisation, had no impairment loss been recognised for the asset/CGU in prior years. Such a reversal is recognised in the statement of profit or loss and other comprehensive income. (d) PROPERTY, PLANT AND EQUIPMENT Recognition and measurement (i) Items of property, plant and equipment are recorded at cost less accumulated depreciation, accumulated impairment losses and pre-commissioning revenue and expenses. The cost of plant and equipment used in the process of gas extraction are accounted for separately and are stated at cost less accumulated depreciation and impairment costs. Cost includes expenditure that is directly attributable to acquisition of the asset. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised within “other income” in profit or loss. Subsequent expenditure (ii) Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with expenditure will flow to the Group. (iii) Depreciation Property, plant and equipment Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The depreciation will commence when the asset is installed ready for use. The estimated useful lives of each class of asset fall within the following ranges: Office furniture & equipment Right-of-use assets: buildings 2019 3 – 5 years 4 – 6 years 2018 3 – 5 years - The residual value, the useful life and the depreciation method applied to an asset are reviewed at each reporting date. 32 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (e) FINANCIAL INSTRUMENTS Initial recognition and measurement Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions to the instrument. For financial assets, this is the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable), except where the instrument is classified "at fair value through profit or loss", in which case transaction costs are expensed to profit or loss immediately. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Trade receivables are initially measured at the transaction price if the trade receivables do not contain a significant financing component or if the practical expedient was applied as specified in AASB 15.63. Classification and subsequent measurement of financial assets Financial assets are subsequently measured at: • amortised cost; • • fair value through other comprehensive income; or fair value through profit or loss. Measurement is on the basis of two primary criteria: • • the contractual cash flow characteristics of the financial asset; and the business model for managing the financial assets. A financial asset that meets the following conditions is subsequently measured at amortised cost: • • the financial asset is managed solely to collect contractual cash flows; and the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates. A financial asset that meets the following conditions is subsequently measured at fair value through other comprehensive income: • • the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates; the business model for managing the financial assets comprises both contractual cash flows collection and the selling of the financial asset. By default, all other financial assets that do not meet the measurement conditions of amortised cost and fair value through other comprehensive income are subsequently measured at fair value through profit or loss. Classification and subsequent measurement of financial liabilities Financial liabilities are subsequently measured at: • amortised cost; or • fair value through profit or loss. A financial liability is measured at fair value through profit and loss if the financial liability is: • a contingent consideration of an acquirer in a business combination to which AASB 3: Business Combinations applies; • held for trading; or • initially designated as at fair value through profit or loss. 33 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 All other financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest expense in profit or loss over the relevant period. The effective interest rate is the internal rate of return of the financial asset or liability. That is, it is the rate that exactly discounts the estimated future cash flows through the expected life of the instrument to the net carrying amount at initial recognition. Derecognition Derecognition refers to the removal of a previously recognised financial asset or financial liability from the statement of financial position. Derecognition of financial liabilities A liability is derecognised when it is extinguished (i.e. when the obligation in the contract is discharged, cancelled or expires). An exchange of an existing financial liability for a new one with substantially modified terms, or a substantial modification to the terms of a financial liability is treated as an extinguishment of the existing liability and recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. Derecognition of financial assets A financial asset is derecognised when the holder's contractual rights to its cash flows expires, or the asset is transferred in such a way that all the risks and rewards of ownership are substantially transferred. Compound financial instruments Compound instruments (convertible notes) issued by the Group are classified as either financial liabilities or equity in accordance with the substance of the arrangements. An option that is convertible and that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own equity instruments will be classified as equity. The fair value of the liability component is estimated on date of issue. This is done by using the prevailing market interest rate of the same kind of instrument. This amount is recognised using the effective interest method as a liability at amortised cost until conversion or the end of life of the instrument. The equity portion is calculated by deducting the liability amount from the fair value of the instrument as a whole. The equity portion is not remeasured after initial recognition. Equity will remain as such until the option is exercised. When the option is exercised a corresponding amount will be transferred to share capital. If the option lapses without the option being exercised the balance in equity will be recognised in profit or loss. Costs of the transaction of the issue of convertible instruments are proportionally allocated to the equity and liability. Transaction costs in regards to the liability are included in the carrying amount of the liability and are amortised over its life using the effective interest method. Transaction cost in equity is directly recognised in equity. 34 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Impairment The Group recognises a loss allowance for expected credit losses on financial assets that are measured at amortised cost or fair value through other comprehensive income. Expected credit losses are the probability-weighted estimate of credit losses over the expected life of a financial instrument. A credit loss is the difference between all contractual cash flows that are due and all cash flows expected to be received, all discounted at the original effective interest rate of the financial instrument. The Group uses the following approaches to impairment, as applicable under AASB 9: Financial Instruments: • the general approach • the simplified approach • the purchased or originated credit impaired approach; and • low credit risk operational simplification. Recognition of expected credit losses in financial statements At each reporting date, the Group recognises the movement in the loss allowance as an impairment gain or loss in the statement of profit or loss and other comprehensive income. The carrying amount of financial assets measured at amortised cost includes the loss allowance relating to that asset. Assets measured at fair value through other comprehensive income are recognised at fair value, with changes in fair value recognised in other comprehensive income. Amounts in relation to change in credit risk are transferred from other comprehensive income to profit or loss at every reporting period. For financial assets that are unrecognised (e.g. loan commitments yet to be drawn, financial guarantees), a provision for loss allowance is created in the statement of financial position to recognise the loss allowance. (f) INVENTORIES Inventories are measured at the lower of cost and net realisable value and includes expenditure incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price less selling expenses. (g) RESOURCE PROPERTIES Resource property costs related to drilling are accumulated in respect of each separate area of interest. Exploration properties Exploration properties are carried at balance sheet date at cost less accumulated impairment losses. Exploration properties include the cost of acquiring resource properties, mineral rights and exploration, evaluation expenditure incurred subsequent to acquisition of an area of interest. Exploration properties are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing. 35 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technically feasibility and commercial viability or facts and circumstances suggest that the carrying value amount exceeds the recoverable amount. Exploration and evaluation assets are tested for impairment when any of the following facts and circumstances exist: • The term of the exploration license in the specific area of interest has expired during the reporting period or will expire in the near future, and is not expected to be renewed; • Substantive expenditure on further exploration for an evaluation of mineral resources in the specific area are not budgeted nor planned; • Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the decision was made to discontinue such activities in the specific area; or • Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Areas of interest which no longer satisfy the above policy are considered to be impaired and are measured at their recoverable amount, with any subsequent impairment loss recognised in the profit and loss. Development properties Development properties are carried at balance sheet date at cost less accumulated impairment losses. Development properties represent the accumulation of all exploration, evaluation and acquisition costs in relation to areas where the technical feasibility and commercial viability of the extraction of gas resources in the area of interest are demonstrable and all key project permits, approvals and financing are in place. When there is low likelihood of the development property being exploited, or the value of the exploitable development property has diminished below cost, the asset is written down to its recoverable amount. Production properties Production properties are carried at balance sheet date at cost less accumulated amortisation and accumulated impairment losses. Production properties represent the accumulation of all exploration, evaluation and development and acquisition costs in relation to areas of interest in which production licences have been granted and the related project has moved to the production phase. Amortisation of costs is provided on the unit-of-production basis, separate calculations being performed for each area of interest. The unit-of-production base results in an amortisation charge proportional to the depletion of economically recoverable reserves. Amortisation of resource properties commences from the date when commercial production commences. When the value of the exploitable production property has diminished below cost, the asset is written down to its recoverable amount. The Group reviews the recoverable amount of resource property costs at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated (refer Note 1.3 (c)). 36 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (h) PROVISIONS Restoration and rehabilitation costs Long term environmental obligations are based on the Group’s environmental and rehabilitation plans, in compliance with current environmental and regulatory requirements. Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbances that have occurred up to the balance sheet date and abandonment of well sites and production fields. Increases due to additional environmental disturbances, relating to the development of an asset, are capitalised and recorded in resource property costs, and amortised over the remaining useful lives of the areas of interest. The net present value is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the liability. Annual increases in the provision relating to the unwinding of the discount rate are accounted for in the statement of profit or loss as finance expense. The estimated costs of rehabilitation are reviewed annually and adjusted against the relevant rehabilitation asset, as appropriate for changes in legislation, technology or other circumstances including drilling activity and are accounted for on a prospective basis. Cost estimates are not reduced by potential proceeds from the sale of assets. (i) FINANCE INCOME AND EXPENSES Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance expenses comprise interest expense on borrowings or other payables and unwinding of the discount of provisions and changes in the fair value of financial assets through profit and loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of qualifying assets are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported as net amounts. (j) EMPLOYEE BENEFITS (i) Long-term service benefits The Group’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including on-costs and expected settlement dates, and is discounted using the rates attached to the Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Group’s obligations. (ii) Wages, salaries, annual leave, sick leave and non-monetary benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax. 37 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (iii) Superannuation The Group contributes to defined contribution superannuation plans. Contributions are recognised as an expense as they are due. (k) FOREIGN CURRENCY (i) 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 Euro, which is PVE’s functional and presentation currency (refer note 1.2 (d)). (ii) Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 profit or loss as finance income or expense. Non-monetary assets and liabilities denominated in foreign currencies are translated at the date of transaction or the date fair value was determined, if these assets and liabilities are measured at fair value. Foreign currency differences arising on retranslation are recognised in profit and loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognised directly in equity. (iii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation are translated to Euro at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Euro at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. Foreign exchange gains and losses arising from monetary items receivable from or payables to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity in the foreign currency translation reserve. (l) EARNINGS/LOSS PER SHARE Basic earnings per share (“EPS”) is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue. 38 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Diluted EPS is calculated by dividing the net profit attributable to members of the parent entity, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue. (m) OTHER INDIRECT TAXES Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST) and value added tax (VAT) except where the amount of GST or VAT incurred is not recoverable from the taxation authority. In these circumstances, the GST or VAT is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST or VAT included. The net amount of GST or VAT recoverable from, or payable to, the relevant taxation authority is included as a current asset or liability in the balance sheet. Cash flows are included in the statement of cash flows on a net basis. The GST and VAT components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the relevant taxation authority are classified as operating cash flows. (n) SEGMENT REPORTING DETERMINATION AND PRESENTATION OF OPERATING STATEMENTS The Group determines and presents operating segments based on the information that internally is provided to the CEO, who is the Group’s chief operating decision maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and resource property costs. (o) REVENUE Revenue is measured at the fair value of the consideration received or receivable, net of the amount of value added tax (“VAT”) payable to the taxation authority. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management involved with the goods, and the amount of revenue can be measured reliably. Sale of gas Gas sales revenue is recognised when control of the gas passes at the delivery point. Proceeds received in advance of control passing are recognised as unearned revenue. 39 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (p) LEASES Accounting Policy Applicable from 1 January 2019 The Company as a lessee For any new contracts entered into on or after 1 January 2019, the Company considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Company assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Company the Company has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract the Company has the right to direct the use of the identified asset throughout the period of use. • • The Company assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. Measurement and recognition of leases as a lessee At lease commencement date, the Company recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Company, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in- substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Company has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. 40 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 On the statement of financial position, right-of-use assets have been included in property, plant and equipment (except those meeting the definition of investment property) and lease liabilities have been disclosed separately under current and non-current liabilities. The Company as a lessee - Finance leases Management applies judgment in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease payments in relation to the asset’s fair value, and whether the Company obtains ownership of the asset at the end of the lease term. For leases of land and buildings, the minimum lease payments are first allocated to each component based on the relative fair values of the respective lease interests. Each component is then evaluated separately for possible treatment as a finance lease, taking into consideration the fact that land normally has an indefinite economic life. The Company depreciates assets held under finance leases on a straight-line basis over the useful lives of the asset. The interest element of lease payments is charged to profit or loss, as finance costs over the period of the lease. Operating leases All other leases are treated as operating leases. Where the Company is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. Accounting policy applicable to prior periods before 1 January 2019 Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the property, plant and equipment accounting policy. Other leases are operating leases and the leased assets are not recognised on the Group’s balance sheet. Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. CHANGES IN ACCOUNTING POLICIES, DISCLOSURES, STANDARDS AND INTERPRETATIONS Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 31 December 2019. (q) (r) 41 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 2: FINANCIAL RISK MANAGEMENT Exposure to credit, market and liquidity risks arise in the normal course of the Group’s business. This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report. Risk recognition and management are viewed as integral to the Group's objectives of creating and maintaining shareholder value, and the successful execution of the Group's strategies in gas exploration and development. The Board as a whole is responsible for oversight of the processes by which risk is considered for both ongoing operations and prospective actions. Management is responsible for establishing procedures which provide assurance that major business risks are identified, consistently assessed and appropriately addressed. (i) Credit risk The Group invests in short term deposits and trades with recognised, creditworthy third parties. Cash and short-term deposits are made with institutions that have a credit rating of at least A1 from Standard & Poor’s and A from Moody's. Management has a credit policy in place whereby credit evaluations are performed on all customers and parties the Company and its subsidiaries deal with. The exposure to credit risk is monitored on an ongoing basis. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. (ii) Market Risk Interest rate risk The Group is primarily exposed to interest rate risk arising from its cash and cash equivalents and borrowings. The Group does not hedge its exposure to movements in market interest rates. The Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in bank accounts earning interest. Currency risk The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than the respective functional currencies of consolidated entities. The currency giving rise to this risk is primarily Australian dollars. In respect to monetary assets held in currencies other than Euro, the Group ensures that the net exposure is kept to an acceptable level by minimising their holdings in the foreign currency where possible by buying or selling foreign currencies at spot rates where necessary to address short term imbalances. (iii) Capital Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of issued share capital plus accumulated losses/earnings. The Board monitors accumulated losses/earnings. The Board seeks to encourage all employees of the Group to hold ordinary shares. 42 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position from shareholders. The Group does not have a defined share buy-back plan and there were no changes in the Group’s approach to capital management during the year. There are no externally imposed restrictions on capital management. (iv) Liquidity Risk The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Management prepares regular cash flow forecasts taking into consideration debt facility obligations. Capital expenditures are planned around cash flow availability. NOTE 3: EMPLOYEE BENEFIT EXPENSES Wages and salaries Contributions to defined contribution plans NOTE 4: CORPORATE OVERHEADS Corporate overheads comprise: Company administration and compliance Professional fees Office costs Travel and entertainment Other expenses NOTE 5: AUDITORS’ REMUNERATION Auditors of the Company: Bentleys NSW Audit Pty Ltd Audit and review of the Group financial statements Auditors of the Subsidiary entity: EY S.p.A Audit and review of the subsidiary financial statements For corporate tax services For other services CONSOLIDATED 2019 € 2018 € 564,039 75,092 639,131 502,368 75,202 577,570 115,528 494,997 60,007 70,953 10,946 752,431 101,522 357,611 105,588 66,697 19,751 651,169 24,090 26,581 10,540 - - 10,540 8,000 15,600 16,800 40,400 43 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 6: FINANCE INCOME AND EXPENSE Recognised in profit and loss: Interest income Finance income Interest expense Foreign exchange (gains) / losses (net) Finance expense Net finance expense NOTE 7: DISCONTINUED OPERATIONS CONSOLIDATED 2019 € 2018 € 134 134 286 286 260,191 48,207 308,398 (308,264) 169,200 (83,403) 85,797 (85,511) During the prior period, PVE completed the restructuring and spin-off of its subsidiary Saffron Energy Plc, now Coro Energy Plc (“Coro”). On 9 April 2018, Coro acquired Sound Energy Italy and completed a GBP14 million capital raise, thereby diluting the Company’s 100m shareholding in Coro to 13.92%, and with no members on the Board of Coro, this has resulted in deconsolidation of Coro from the Group results. An effective date for accounting purposes of 31 March 2018 has been used for the deconsolidation given the level of operating transactions between this date and 9 April 2018 were immaterial. Net assets of discontinued operation at the date of loss of control The carrying amount of assets and liabilities as at the date of deconsolidation were: 2019 € 2018 € Cash and cash equivalents Trade and other receivables Inventory Other non-current assets Deferred tax assets Property plant and equipment Resource property costs Trade and other payables Provisions – current Provisions – non-current Net assets of discontinued operation - - - - - - - - - - - 496,589 1,696,458 252,034 79,685 1,994,913 2,097,515 2,404,528 (3,100,666) (37,510) (4,827,080) 1,056,466 44 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 7: DISCONTINUED OPERATIONS (continued) CONSOLIDATED Financial performance from discontinued operation The financial performance presented for the 3 months ended 31 March 2018 was as follows: 2019 € Revenue Operating expenses Depreciation and amortisation expense Gross profit Other income Administrative and corporate expenses Net finance costs Impairment losses Loss from discontinued operations Gain on deconsolidation of discontinued operations Profit / (loss) from discontinued operations before tax Income tax expense Profit / (loss) from discontinued operations Profit / (loss) attributable to members of the Company Profit / (loss) attributable to Non-controlling interests Net profit from discontinued operations Cash flows from discontinued operation The net cash flows from discontinued operations were as follows: Net cash used in operations Net cash used in investing activities Net cash and cash equivalents disposed of Net cash provided by financing activities 2018 € 584,676 (207,589) (55,784) 321,303 3,927 (664,230) (73,303) - (412,303) 4,818,763 4,406,460 - 4,406,460 4,612,612 (206,152) 4,406,460 - - - - - - - - - - - - - - - - 2019 € 2018 € - - - - - (164,730) (431,063) (496,589) 726,985 (365,397) In the prior year, the Company obtained shareholder approval to distribute the 100m shares it held in Coro to shareholders as a return of capital. Shareholders received 1 Coro share for every 5.9 shares held in PVE. The fair value of the distribution was determined as the closing market price of the Coro shares on the record date for distribution. The Coro share price on that date was €0.0441 (GBP0.03875) per share. The total value of the distribution to shareholders was €4,410,847. The decrease in value of shares held at the record date for distribution has been recognised as an impairment of €816,426 in the statement of profit and loss and other comprehensive income for 2018. 45 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 INCOME TAX (BENEFIT) / EXPENSE NOTE 8: Current tax Current year Deferred tax Origination and reversal of temporary differences Deferred tax (benefit) / expense Total income tax (benefit) / expense CONSOLIDATED 2019 € 2018 € - - (203,141) (140,172) (203,141) (140,172) (203,141) (140,172) Numerical reconciliation between tax expense and pre-tax accounting profit / (loss) Profit / (loss) for the year before tax from continuing operations (1,707,882) (1,972,724) Income tax (benefit) / expense using the Company’s domestic tax rate of 27.5 per cent (2018: 27.5%) (469,667) (542,500) Non-deductible expenses: Fair value adjustments Other Effect of tax rates in foreign jurisdictions Current year losses and temporary differences for which no deferred tax asset was recognised Changes in temporary differences - 115,744 29,826 108,600 12,356 224,517 14,928 24,015 115,382 23,486 Income tax (benefit) / expense (203,141) (140,172) NOTE 9: EARNINGS PER SHARE Basic and diluted earnings / (loss) per share (€ cents) from continuing operations Basic and diluted earnings / (loss) per share (€ cents) from discontinued operations (0.24) (0.31) - 0.78 The calculation of basic and diluted loss per share from continuing operations was based on the loss attributable to shareholders of €1,504,741 (2018: €1,832,552) and a weighted average number of ordinary shares outstanding during the year of 631,578,465 (2018: 593,766,325). The calculation of basic and diluted earnings per share from discontinued operations in 2018 was based on the profit attributable to members of €4,612,612 and a weighted average number of ordinary shares outstanding during the half year of 593,766,325. Diluted earnings / (loss) per share is the same as basic earnings / (loss) per share. 46 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 9: EARNINGS PER SHARE (continued) The number of weighted average shares is calculated as follows: Number of shares on issue at beginning of the year 10,095,237 shares issued 27 May 2019 14,545,456 shares issued on 8 August 2019 10,909,091 shares issue on 6 November 2019 18,476,190 shares issued on 21 December 2018 No. of days 365 218 145 55 10 CONSOLIDATED 2019 Weighted average no. 611,736,318 6,029,485 9,674,730 4,109,590 - 631,578,465 2018 Weighted average no. 593,260,128 - - - 506,197 593,766,325 CONSOLIDATED 2019 € 2018 € NOTE 10: CASH AND CASH EQUIVALENTS (a) Cash and cash equivalents 42,165 515,604 Reconciliation of cash flows from operating activities (b) Profit / (loss) for the year Adjustment for non-cash items: Depreciation and amortisation Unrealised foreign exchange losses related to financing activities Interest capitalised to loans / borrowings Interest on lease liabilities Impairments Profit from discontinued operations Change in operating assets and liabilities: Decrease/(increase) in receivables Increase/(decrease) in trade and other payables (Decrease)/Increase in provisions (Increase)/Decrease in deferred tax assets (1,504,741) 2,573,908 41,700 38,611 195,660 2,570 - - 215,927 86,082 41 (203,141) 1,067 - - - 816,426 (4,406,460) (100,758) (20,728) (18,004) (140,172) Cash flows used in discontinued operations - (164,730) Net cash inflow from operating activities (1,127,291) (1,459,451) (c) Non-cash financing activities Repayment of related party loans (refer Note 24) 240,845 - 47 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 TRADE AND OTHER RECEIVABLES NOTE 11: Current Trade receivables Sundry debtors Indirect taxes receivable CONSOLIDATED 2019 € 2018 € 151,866 85,351 46,636 205,605 4,443 289,732 283,853 499,780 The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in Note 22. NOTE 12: PROPERTY PLANT & EQUIPMENT Office Furniture & Equipment: At cost Accumulated depreciation Right-of-use asset: Building At Cost Accumulated depreciation Total property plant & equipment Reconciliations: Reconciliation of the carrying amounts for each class of Plant & equipment are set out below: Carrying amount at beginning of year Additions Adjustment of right-of-use assets on transition to AASB16 Depreciation expense Depreciation expense of assets in discontinued operations (refer note 7) Assets relating to discontinued operations (refer note 7) Carrying amount at end of year Gas Producing plant and equipment: Carrying amount at beginning of period Additions / Reclassification Depreciation expense discontinued operations Impairment losses Assets relating to discontinued operations (refer note 7) Carrying amount at end of year 21,503 (12,989) 8,514 136,616 (39,985) 96,631 105,145 9,602 626 136,616 (41,700) - - 105,145 - - - - - - 105,145 24,576 (14,974) 9,602 - - - 9,602 18,258 - - (1,067) (1,057) (6,532) 9,602 2,140,611 - (49,628) - (2,090,983) - 9,602 48 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 13: RESOURCE PROPERTY COSTS Resource Property costs Exploration and Evaluation Reconciliation of carrying amount of resource properties Exploration and Evaluation Phase Carrying amount at beginning of period Exploration expenditure Impairment losses Assets relating to discontinued operations (refer note 7) CONSOLIDATED 2019 € 2018 € 7,876,926 7, 704,644 7,704,644 9,182,411 172,282 636,128 - - - (2,113,895) Carrying amount at end of period 7,876,926 7,704,644 Resource property costs in the exploration and evaluation phase have not yet reached a stage which permits a reasonable assessment of the existence of or otherwise of economically recoverable reserves. The ultimate recoupment of resource property costs in the exploration phase is dependent upon the successful development and exploitation, or alternatively sale, of the respective areas of interest at an amount greater than or equal to the carrying value. Where exploration permits have expired or not renewed, the costs previously capitalised are expensed to the statement of profit and loss. The Group reviewed the carrying value of its assets and cash generating units using a Value in Use CGU valuation, in particular a valuation on Selva and Teodorico projects was calculated to determine the recoverable amount of each of these fields. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). In calculating VIU, the estimated future cash flows are discounted to their present value using an after-tax discount rate (10%) that reflects current market assessments of the time value of money and the risks specific to the assets. The Company bases its calculation on detailed budgets and forecasts, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecasts generally cover the forecasted life of the CGUs. VIU does not reflect future cash flows associated with improving or enhancing an asset’s performance. Furthermore, independent valuations were performed for the purposes of estimating the reserves of these projects by CGG Services (UK) Limited (“CGG”). The recoverable amount determined by the CGG report of Selva and Teodorico was €18.2 million and €17.8 million respectively. The recoverable amount determined by the Groups internal valuation was higher than these amounts. The carrying value of these assets is significantly lower at €4.1 million and €2.9 million respectively. As a result of this assessment, with the recoverable amount exceeding the carrying value of these assets, no impairment has been required. 49 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 13: RESOURCE PROPERTY COSTS (continued) Production Phase Carrying amount at beginning of period Additions Amortisation of producing assets in discontinued operations Assets relating to discontinued operations (refer note 7) Carrying amount at end of period The Group currently does not have any production assets CONSOLIDATED 2019 € 2018 € - - - - - 159,390 137,400 (6,157) (290,633) - NOTE 14: DEFERRED TAX ASSETS AND LIABILITIES Recognised deferred tax assets Deferred tax assets have been recognised in respect of the following items: Tax losses Accrued expenses and liabilities Recognised deferred tax assets 848,694 658,474 98,487 85,566 947,181 744,040 The tax losses in both Italy and Australia do not expire. The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have been recognised in respect of these items because it is probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Tax losses Deductible temporary differences Unrecognised deferred tax assets 759,112 1,100,264 1,848,250 1,840,089 2,607,362 2,940,353 Deferred tax benefit will only be obtained if: (i) the relevant company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; the relevant company continues to comply with the conditions for deductibility imposed by tax legislation; and No changes in tax legislation adversely affect the relevant company in realising the benefit from the deductions for the losses. (ii) (iii) 50 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 14: DEFERRED TAX ASSETS AND LIABILITIES (continued) Movement in recognised temporary differences during the year Discontinu ed operations (refer note 7) € Balance 1 January 2018 € Profit and loss € Equity € Consolidated Balance 31 December 2018 € Profit and loss € Equity € Balance 31 December 2019 € Tax losses Accrued expenses and liabilities Total recognised deferred tax asset 1,970,177 (1,446,919) 135,216 628,332 (547,994) 5,228 2,598,509 (1,994,913) 140,444 - - - 658,474 190,220 85,566 12,921 744,040 203,141 - - - 848,694 98,487 947,181 NOTE 15: TRADE AND OTHER PAYABLES Trade payables and accruals Other payables CONSOLIDATED 2019 € 2018 € 1,051,524 1,112,384 38,635 10,461 1,090,159 1,122,845 Accrued interest on interest bearing loans of €76,484 (2018: €155,380) is included in trade payable and accruals (refer note 24) The Group’s exposure to currency and liquidity risks related to trade and other payables are disclosed in note 22. PROVISIONS NOTE 16: Current: Employee leave entitlements Non-Current: Restoration provision Reconciliation of restoration provision: Opening balance Increase in provision due to revised estimates Increase in provision from unwind of discount rate in discontinued operations Provisions relating to discontinued operations (refer note 7) 2,797 2,756 - - - - - - 4,802,873 24,207 (4,827,080) Closing balance The Group has considered its obligations for restoration and rehabilitation of the well development planned for the Selva field. The Company estimates that the cost of restoration of the well development will be €2,065,119 to be incurred once production ceases at the end of estimated production life estimated to be 15 years. A provision for these restoration costs will be recognised once the final production concession is granted and development has commenced as anticipated in 2020. - - 51 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 17: LEASES Leases as lessee The Company leases office facilities in Rome, the lease runs for a period of six years from start of the lease in June 2016. Previously this lease was classified as an operating lease under AASB117. The Company leases office equipment under short term contracts for low-value items and as such the Company has elected not to recognise right-of use assets and lease liabilities for these leases. Payments made under such leases are expensed on a straight-line basis. Information about leases for which the Company is a lessee is presented below. Right-of-use assets Right-of-use assets related to leased properties that do not meet the definition of investment property and are presented as property, plant and equipment (see Note 12) Buildings Balance at 1 January (on adoption of AASB16) Additions to right-of-use assets Depreciation Balance at 31 December 2019 Amounts recognised in profit or loss 2019 - Leases under AASB16 Interest on lease liabilities Expenses relating to leases of low-value assets 2018 - Leases under AASB117 Lease expense Amounts recognised in statement of cash flows Total cash outflow for leases € 136,616 - (39,985) 96,631 € 2,570 1,233 35,220 31 December 2019 € 43,758 Lease liabilities Lease liabilities are presented in the statement of financial position separately within liabilities as follows: 31 December 2019 € 31 December 2018 € Lease liabilities (current) Lease liabilities (non-current) The Group has a lease for the main operation office in Rome Italy. Future minimum lease payments at 31 December were as follows: 41,066 58,512 - - Within one year One to five years After five years Lease payments Finance charges Net present values 42,900 (1,834) 41,066 59,916 (1,404) 58,512 - - - Total 102,816 (3,238) 99,578 Lease payments not recognised as a liability The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. 52 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 18: INTEREST BEARING LOANS This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 22. Current liabilities Loans CONSOLIDATED 2019 € 2018 € 1,272,676 1,201,258 Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: 31 December 2019 31 December 2018 Currency Nominal Interest rate Year of Maturity Face Value € Carrying Amount € Face Value € Carrying Amount € Current liabilities 10% AUD 2020 Unsecured loans 1,201,258 The Group obtained financing through a streamlined facility provided by existing and former Directors of the Company and longstanding shareholders. The facility arrangement has a term of 19 months and an interest rate of 10%. (refer note 24 for details of related party balances) The Group’s exposure to currency, interest and liquidity risk related to interest bearing loans are disclosed in note 22. 1,201,258 1,272,676 1,272,676 NOTE 19: CONVERTIBLE NOTES The Company issued convertible notes equivalent to A$2,500,000 in 2018. The Euro value of these convertible notes at 31 December 2019 is €1,563,183 (2018: €1,531,250). The convertible notes are convertible into fully paid ordinary shares of the Company at a conversion price of A$0.042 per share. The notes are to be converted or otherwise redeemed within three years of issue (repayment date) and interest shall be payable in cash on the principal amount at a rate of 8% per annum, calculated monthly and payable 6 monthly in arrears. Subject to shareholder approval, if required, the noteholder may, before the maturity date, convert the convertible note into shares by providing the Company with written notice of the conversion. The Company has the right to elect to redeem any unconverted convertible notes by giving 30-day notice to the noteholder. Redemption of the notes occurs on: a) The repayment date; b) Within 10 business days on the occurrence of an event of default which has not been remedied within the prescribed period; or c) On a change in control of the Company (including a takeover) or the sale of the Company’s main undertaking unless the noteholder elects to convert the Convertible Notes into shares. The redemption amount is the outstanding facility amount with respect to each note plus any unpaid interest. 53 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 20: CAPITAL AND RESERVES Share Capital Opening balance - 1 January Shares issued during the year: Placement issue tranche 2 – 27 May 2019 Placement issue - 8 August 2019 Placement issue tranche 2 - 6 November 2019 Placement issue of 21 December 2018 Return of capital Ordinary Shares 2019 Number 2018 Number 2019 € 2018 € 611,736,318 593,260,128 45,531,416 49,462,268 10,095,237 14,545,456 10,909,091 - - - - - 18,476,190 - 262,337 484,062 371,996 - - - - - 483,009 (4,410,847) Share issue costs - - (8,066) (3,014) Closing balance – 31 December 647,286,102 611,736,318 46,641,745 45,531,416 All ordinary shares are fully paid and carry one vote per share and the right to dividends. In the event of winding up the Company, ordinary shareholders rank after creditors. Ordinary shares have no par value. Translation Reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. The historical balance comprises of translation differences prior to change in functional currency of a foreign operation. Dividends No dividends were paid or declared during the current year (2018: Nil). 54 5 5 ) 3 6 6 7 2 5 ( , ) 9 5 1 2 5 3 ( , - ) 4 8 7 5 5 ( , - ) 4 8 7 5 5 ( , - 6 6 8 1 5 1 , 7 2 5 1 7 7 , - 6 6 8 1 5 1 , 2 8 2 2 7 1 , , 4 4 6 4 0 7 7 , , 6 2 9 6 7 8 7 , - - - 0 0 4 7 3 1 , 6 7 6 4 8 5 , - 8 1 0 2 € 9 1 0 2 € 6 7 6 4 8 5 , 8 1 0 2 € , 3 1 6 1 4 7 3 , ) 8 0 3 2 3 4 ( , , 0 6 4 6 0 4 4 , - - - - - - - - - D E T I M I L Y G R E N E Y E L L A V O P S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 9 1 0 2 R E B M E C E D 1 3 D E D N E R A E Y E H T R O F l d e i f o t i g n d r o c c a d e i f i s s a l c e r a s t i n u s s e n i s u b c i g e t a r t s e h T . s t i n u s s e n i s u b c i g e t a r t s s ’ p u o r G e h t e r a w o e b l d e b i r c s e d s a s t n e m g e s l e b a t r o p e r p u o r G e h T S T N E M G E S Y B G N I T R O P E R L A I C N A N I F : 1 2 E T O N t n e m e g a n a m l a n r e t n i s w e i v e r O E C e h t , t i n u s s e n i s u b c i g e t a r t s h c a e r o F . y l a t I n i e r a s t i n u s s e n i s u b c i g e t a r t s l l A . y l e t a r a p e s d e g a n a m e r a h c i h w s a e r a e c n e c i l l a u d i v i d n i e h T . p u o r G e h t r o f d e i f i t n e d i s t n e m g e s g n i t a r e p o e h t e r a l i o d n a s a g n o i t c u d o r P d n a t n e m p o e v e D l , n o i t a r o p x E l . s i s a b y l h t n o m a n o s t r o p e r . d e t a g e r g g a n e e b e v a h s e t i s n o i t a r e p o n o i t c u d o r p d n a t n e m p o e v e d l , n o i t a r o p x e l l a t o T n o i t a r e p o d e u n i t n o c s i D l n o i t a u a v e d n a n o i t a r o p x E l 9 1 0 2 € - - 8 1 0 2 € 9 1 0 2 € s e u n e v e r l a n r e t x E o r u e n I ) 7 4 8 4 6 6 ( , ) 8 0 3 2 3 4 ( , x a t e r o f e b t i f o r p / ) s s o l ( t n e m g e S - - - 6 6 8 1 5 1 , 7 2 1 4 3 6 , - 6 6 8 1 5 1 , 2 8 2 2 7 1 , , 4 4 6 4 0 7 7 , , 6 2 9 6 7 8 7 , n o i t a s i t r o m a d n a n o i t a i c e r p e D : s t e s s a t n e m g e s e b a t r o p e R l s t s o c y t r e p o r p e c r u o s e R t n e m p u q E & i t n a P l l s e b a v i e c e R e r u t i d n e p x e l a t i p a C ) 3 6 6 7 2 5 ( , ) 9 5 1 2 5 3 ( , s e i t i l i b a i l t n e m g e s e b a t r o p e R l PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 21: FINANCIAL REPORTING BY SEGMENTS (continued) Reconciliation of reportable segment profit or loss, assets and liabilities Profit or loss: CONSOLIDATED 2019 € 2018 € Total profit / (loss) for reportable segments (432,308) 3,741,613 Unallocated amounts: Net finance expense Other corporate expenses Consolidated profit / (loss) before income tax Assets: Total assets for reportable segments Other assets Consolidated total assets Liabilities: Total liabilities for reportable segments Other liabilities Consolidated total liabilities NOTE 22: FINANCIAL INSTRUMENTS (308,264) (85,511) (967,310) (1,222,366) (1,707,882) 2,433,736 8,028,792 7,856,510 1,244,056 1,644,615 9,272,848 9,501,125 (352,159) (527,663) (3,676,234) (3,330,446) (4,028,393) (3,858,109) (a) Interest Rate Risk Exposures Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: Variable rate instruments Financial assets Financial liabilities 42,165 - 42,165 515,604 - 515,604 Fixed rate instruments Financial assets Financial liabilities - (2,835,859) (2,835,859) - (2,732,508) (2,732,508) 56 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 22: FINANCIAL INSTRUMENTS (continued) Cash flow sensitivity analysis for variable rate instruments: A strengthening of 50 basis points in interest rates at the reporting date would have increased / (decreased) equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2018. Effect in €’s 31 December Variable rate instruments Profit or loss Equity 2019 2018 2019 2018 211 2,578 - - (b) Credit Risk Exposure to credit risk The Group is not exposed to significant credit risk. Credit risk with respect to cash is held with recognised financial intermediaries with acceptable credit ratings. The Group has limited its credit risk in relation to its receivables. Receivables from joint operations partners fall under the Joint Operations Agreement for the development of the Selva project. Other receivables from Government agencies have limited credit risk as these are either offset against other indirect taxes or payroll taxes payable first with any remainder receivable within a 12-month period. The carrying amount of the Group’s financial assets represents the maximum credit exposure and is shown in the table below. No receivables are considered past due nor were any impairment losses recognised during the period. Cash and cash equivalents Receivables – Current Other assets Note 10 11 CONSOLIDATED Carrying Amount 2019 € 42,165 283,853 17,578 343,596 2018 € 515,604 499,780 27,455 1,042,389 57 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 22: FINANCIAL INSTRUMENTS (continued) (c) Liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments: - - - - - Consolidated 31 December 2019 In € Trade and other payables Carrying amount Contractual cash flows 6 months or less 6 to 12 months 1 – 2 Years 2 – 5 Years (1,090,159) (1,090,159) (1,090,159) - - Lease liabilities (99,578) (103,675) (21,450) (21,450) (60,775) Interest bearing loans (1,272,676) (1,476,427) - (1,476,427) - Convertible notes (1,563,183) (1,816,444) (128,207) (62,527) (1,625,710) (4,025,596) (4,486,705) (1,239,816) (1,560,404) (1,686,485) Consolidated 31 December 2018 In € Trade and other payables Interest bearing loans Convertible notes Carrying amount Contractual cash flows 6 months or less 6 to 12 months 1 – 2 Years 2 – 5 Years (1,040,040) (1,040,040) (1,040,040) - - (1,201,258) (1,531,250) (1,356,638) (1,882,770) - (106,520) (1,356,638) (61,250) - (1,715,000) (3,772,548) (4,279,448) (1,146,560) (1,417,888) (1,715,000) - - - - (d) Net Fair Values of financial assets and liabilities The carrying amounts of financial assets and liabilities as disclosed in the balance sheet equate to their estimated net fair value. Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). 58 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 22: FINANCIAL INSTRUMENTS (continued) Current receivables, current payables and cash & cash equivalents are not measured at fair value. Due to their short- term nature, the carrying amount of current receivables, current payables and cash and cash equivalents is assumed to approximate their fair value. The table below summarises financial assets and liabilities at fair value at each level of measurement: At 31 December 2019 Lease Liabilities Convertible Notes (refer note) Level 1 $ Level 2 $ Level 3 $ Total $ - - - - 99,578 99,578 1,563,183 - 1,563,183 1,563,183 99,578 1,662,761 (e) Foreign Currency Risk The Group is exposed to foreign currency risk on purchases and borrowings that are denominated in a currency other than Euro. The currencies giving rise to this risk is primarily Australian Dollars and Pound Sterling. Amounts receivable/(payable) in foreign currency other than functional currency: Cash Current – Payables Current – Interest bearing loans Non-current – Convertible notes Net Exposure CONSOLIDATED 2019 € 29,685 (127,238) (1,272,676) (1,563,183) (2,933,412) 2018 € 413,682 (68,022) (1,201,258) (1,531,250) (2,386,848) The following significant exchange rates applied during the year: Australian Dollar ($) Pound Sterling (£) Average rate Reporting date spot rate 2019 0.620 1.141 2018 0.632 1.130 2019 0.625 1.175 2018 0.616 1.113 Sensitivity Analysis A 5 percent strengthening of the Australian dollar against the Euro (€) at 31 December would have increased (decreased) equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis for 2018 was prepared using the same basis. 31 December 2019 Australian Dollar to Euro (€) Pound Sterling (£) 31 December 2018 Australian Dollar to Euro (€) Pound Sterling (£) CONSOLIDATED Profit or loss € (142,970) (3,700) Equity € - - (128,673) (308) - - 59 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 22: FINANCIAL INSTRUMENTS (continued) A 5 percent weakening of the Australian dollar against the Euro (€) at 31 December would have the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. NOTE 23: COMMITMENTS AND CONTINGENCIES Contractual Commitments and contingencies The Company has considered its obligations for restoration and rehabilitation of the well development planned for the Selva field. The Company estimates that the cost of restoration of the well development will be €2,065,119 to be incurred once production ceases at the end of estimated production life estimated to be 15 years. A provision for these restoration costs will be recognised once the final production concession is granted and development has commenced as anticipated in 2020. Other than the above, there are no other material commitments or contingent liabilities not provided for in the financial statements of the Company or the Group as at 31 December 2019. NOTE 24: RELATED PARTIES KEY MANAGEMENT PERSONNEL COMPENSATION The key management personnel compensation included in employee benefit expenses (see note 3) is as follows: Short-term employee benefits Termination benefits Other long term benefits Post-employment benefits Consolidated 2019 € 200,303 - - - 2018 € 267,883 - - 9,847 200,303 277,730 INTEREST BEARING LOANS The Company obtained financing through a streamlined facility provided by existing and former Directors of the Company. The facility agreements have been reached with entities associated with Kevin Bailey (current director), Byron Pirola (director up to 3 March 2020) and Graham Bradly (former director and current shareholder). The loan balances and their repayment terms are summarised below: 60 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 24: RELATED PARTIES (continued) 31 December 2019 Related Party Beronia Investments Pty Ltd Beronia Investments Pty Ltd Beronia Investments Pty Ltd Kevin Bailey Fuiloro Pty Ltd G. Bradley K & G Bailey as trustee for The Bailey Family Trust Loan Amount A$663,179 A$156,055 A$528,396 A$264,172 A$190,800 A$126,736 Interest % p.a 10% 10% 10% 10% 10% 10% Repayment Term 19 months 19 months 19 months 19 months 19 months 19 months Accrued Interest € 24,312 5,721 19,371 12,408 6,138 4,646 A$106,055 10% 19 months 3,888 76,484 Related party loans were extended by mutual agreement to 31 December 2020 with the lenders agreeing to capitalise interest accrued on the outstanding loans up to 1 June 2019. 31 December 2018 Beronia Investments Pty Ltd Beronia Investments Pty Ltd Beronia Investments Pty Ltd Kevin Bailey Fuiloro Pty Ltd Fuiloro Pty Ltd G. Bradley Symmall Pty Ltd Beronia Investments Pty Ltd K & G Bailey as trustee for The Bailey Family Trust 12 months 6 months 6 months 6 months 12 months 6 months 12 Months 6 months 6 months A$236,181 A$459,696 A$395,000 A$237,305 A$6,191 A$240,000 A$94,927 A$90,000 A$100,000 45,752 30,694 19,607 16,963 730 20,525 17,409 1,302 1,199 10% 10% 10% 10% 10% 10% 10% 10% 10% A$100,000 6 months 1,199 10% Movement on related party loans is summarised below: Balance at beginning of year Loans received Loans repaid Interest capitalised on loans Effect of foreign exchange 155,380 CONSOLIDATED 2019 € 1,201,258 99,351 (240,845) 206,234 6,678 2018 € 526,892 731,719 - - (57,353) Balance at end of year 1,201,258 Related party loans repaid during the year were settled with issue of 8,722,944 ordinary shares as part of the Directors participation in the private placements. 1,272,676 61 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 24: RELATED PARTIES (continued) Accrued interest on loans Balance at beginning of year Accrued interest for year Interest capitalised to loans during year 155,380 127,338 (206,234) 54,888 100,492 - Balance of accrued interest at end of year 76,484 155,380 CONVERTIBLE NOTES The table below summarises the Convertible notes held by related parties at 31 December 2019. The convertible notes are held by entities associated with Kevin Bailey and Michael Masterman (current directors) Refer note 19 for details on the terms of the convertible notes. Symmall Pty Ltd K & G Bailey as trustee for The Bailey Family Trust Interest accrued on convertible notes included in trade payables and accruals Symmall Pty Ltd K & G Bailey as trustee for The Bailey Family Trust NOTE 25: PARENT ENTITY DISCLOSURES Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Accumulated losses Total equity A$300,000 A$700,000 A$300,000 A$700,000 A$1,000,000 A$1,000,000 € 23,599 55,065 78,664 € 17,666 7,572 25,238 2019 € 2018 € 43,971 7,429,667 7,473,638 440,283 6,643,667 7,083,951 1,299,666 1,563,183 2,862,849 1,196,513 1,531,250 2,727,763 4,610,789 4,356,187 46,641,745 (42,030,956) 4,610,789 45,531,416 (41,175,229) 4,356,187 62 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 25: PARENT ENTITY DISCLOSURES (continued) Financial Performance Loss Other comprehensive loss Total Comprehensive loss (855,727) - (855,727) (1,285,086) - (1,285,086) NOTE 26: INTERESTS IN OTHER ENTITIES AND JOINT OPERATIONS The Company’s interest in joint arrangements at 31 December 2019 are as follows: Joint Operation Manager Company’s Interest Principal Activity (Exploration) Selva Malvezzi Field Po Valley Operations 63%* Gas The Company has a farm-out agreement and Joint Operations Agreement (“JOA”) with United Oil and Gas Plc (“United”) (20% economic interest) and Prospex Oil and Gas Plc (“Prospex”) (17% economic interest). In exchange for their respective interests United and Prospex cover 74% of the completed Podere Maiar-1 well cost. The Company received preliminary award of the Selva Production concession in January 2019. Development of the production well and field connection pipework will be undertaken under the terms of the JOA with United and Prospex. *The Company holds the quota for 100% of the Podere Gallina and Selva Licences. United and Prospex have 20% and 17% ecomonic interests and are awaiting Italian government approval for the 20% and 17% quotas to be transferred. Subsidiaries The parent and ultimate controlling party of the Group is Po Valley Energy Limited. The investments held in controlled entities are included in the financial statements of the parent at cost less any impairment losses. Set out below is a list of the significant subsidiaries of the Group. Name: Country of Incorporation Class of Shares 2019 Investment € 2018 Investment € Holding % Po Valley Operations Pty Limited (“PVO”) NOTE 27: SUBSEQUENT EVENTS Australia Ordinary 2,544,225 2,544,225 100 In February 2020, the Company entered into a Master Service Agreement for the provision of technical, administrative and commercial services to an oil and gas company with assets within the Po Valley region. These services will provide the Company with income of €25,000 per month for a minimum period of 3 months and until the agreement is terminated by either party. During the month of March 2020, the Italian government imposed a nationwide lockdown as a preventative measure to reduce the contagion of Covid-19. Po Valley employees are working from home during this time. Importantly, we have seen evidence that the Italian Ministries continue to be operational therefore we do not expect significant delays in the ongoing environmental approvals for 63 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 NOTE 27: SUBSEQUENT EVENTS (continued) Selva Malvezzi and Teodorico. Importantly, the oil and gas industry was declared an "essential service" by the Italian government underpinning its strategic importance in the Italian economy. However, the timing, full extent of the impact and recovery from Covid-19 on our employees and business operations continues to evolve as at the date of this report. As such, the Group is unable to estimate the effects on the Group’s financial position, liquidity and operations in the 2020 financial year. Other than the above, there were no other events between the end of the financial year and the date of this report that, in the opinion of the Directors, affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group. 64 PO VALLEY ENERGY LIMITED DIRECTORS’ DECLARATION 1. In the opinion of the directors of PVE (“the Company”): i) the financial statements and notes, as set out on pages 22 to 64, and the remuneration disclosures that are contained in the Remuneration report in the Directors’ report, are in accordance with the Corporations Act 2001, including: a. b. giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its performance, for the financial year ended on that date; and complying with Australian Accounting Standards Accounting Interpretations) and the Corporations Regulations 2001; (including the Australian ii) subject to the matters disclosed in Note 1.2(c), there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The directors have been given the declarations required by 295A of the Corporations Act 2001 by the chief executive officer for the financial year ended 31 December 2019. 3. The Directors draw attention to Note 1.2 to the Financial Statements which include a statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of directors. Michael Masterman Chairman and Chief Executive Officer 31 March 2020 Kevin Bailey Non-Executive Director 31 March 2020 65 66 67 68 69 PO VALLEY ENERGY LIMITED ASX ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange Limited Listing Requirements and not disclosed elsewhere in this report is set out below. Information regarding share holdings is current as at 15 April 2020. ORDINARY SHAREHOLDERS 1. TOP TWENTY SHAREHOLDERS Details of the 20 largest shareholders of quoted fully paid ordinary shares by registered shareholding are: Name Symmall Pty Ltd J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited Fuiloro Pty Ltd P & N Dairies Pty Ltd Beronia Investments Pty Ltd 1 Michael Masterman 2 Mr Kevin Bailey & Mrs Grace Bailey 3 4 5 Quo Vadis Pty Ltd 6 7 8 9 10 Mr Laurie Mark Macri 11 Beronia Investments Pty Ltd 12 Citicorp Nominees Pty Limited 13 Mr Paul Kenneth Lambert & Mrs Nadine Alison Lambert 14 Beronia Investments Pty Ltd 15 Donus Australia Foundation Limited 16 Mr Laurence Mark Macri & Mrs Christine Simone Macri 17 Mr Chris Carr & Mrs Betsy Carr 18 Mr Graham John Bradley 19 Mr Kevin Christopher Bailey 20 Henderson International Pty Limited Total 2. SUBSTANTIAL SHAREHOLDERS Number 86,234,079 79,002,181 78,446,050 42,054,444 30,799,806 25,105,188 25,061,679 23,942,460 20,718,217 20,310,674 19,868,413 11,573,968 10,815,921 9,716,708 9,460,000 9,175,900 9,000,000 8,857,965 8,000,000 6,415,500 534,559,153 % 13.32 12.21 12.12 6.50 4.76 3.88 3.87 3.70 3.20 3.14 3.07 1.79 1.67 1.50 1.46 1.42 1.39 1.37 1.24 0.99 82.60 The following table shows holdings of 5% or more of voting rights as disclosed in substantial holding notices given to the Company or, in the case of directors, information available to the Company and disclosed to ASX in Directors Interest Notices: Fully paid Ordinary Shares Name Michael Masterman Kevin Bailey Byron Pirola Supervised Investments Australia Limited Mr Paul Kenneth Lambert Number 167,971,782 150,635,225 62,784,178 50,082,268 34,813,665 % 25.95 23.27 9.70 8.19 5.47 3. NUMBER OF SECURITY HOLDERS AND SECURITIES ON ISSUE Total number of fully paid ordinary shares on issue is 647,286,103 held by 394 shareholders. 70 PO VALLEY ENERGY LIMITED ASX ADDITIONAL INFORMATION 4. VOTING RIGHTS The voting rights attached to ordinary shares are that on a show of hand, every member present, in person or proxy, has one vote and upon a poll, each share shall have one vote. 5. DISTRIBUTION OS SECURITY HOLDERS Quoted Securities Category 1 to 1,000 1001 to 5000 5001 to 10000 10,001 to 100,000 100,000 and over Total Holders 83 18 18 152 123 394 Fully paid Ordinary Shares % 7,659 43,954 136,295 6,809,924 640,288,271 647,286,103 0.00 0.01 0.02 1.05 98.92 100.00 6. UNMARKETABLE PARCEL OF SHARES The number of shareholders holding less than a marketable parcel of ordinary shares is 122 based on the Po Valley Energy Limited closing share price of $0.044 on 15 April 2020. 7. ON MARKET BUY-BACK There is no current on market buy-back. UNQUOTED SECURITIES Po Valley Energy Limited has the following unquoted securities on issue: Category Convertible Notes Number 2,500,000 Number of holders 6 Convertible notes on issue have a maturity of 3 years from date of issue and interest payable of 8% p.a. Convertible notes are convertible into 59,523,809 ordinary fully paid shares based on the conversion price of $0.042 per fully paid ordinary share. 71 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY The following information is provided in order to comply with Chapter 5 of the ASX Listing Rules and include general requirements applicable to the public reporting of petroleum resources and specific information to be included in the oil and gas exploration: 1) TENEMENTS Po Valley Energy Limited (the “Company”, “Po Valley Energy” or “PVE”) holds 100% of Po Valley Operations Pty Ltd (“PVO”). PVO holds the titles to all exploration permits and production concessions and its operations are located entirely in the north of Italy. As at 31 December 2019, the Company’s core portfolio includes a total of 4 onshore Exploration Permits and 1 offshore Exploration Permit and two preliminary awarded Production Concessions. Total acreage position of the Company at 31 December 2019 is 1,690 km2. For an illustration of each asset’s location please refer to the map in Figure 1 and Table 1. Figure 1: Licences map at 31 December 2019 72 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY Tenement Location Interest held N O I T C U D O R P S N O I S S E C N O C PREL. AWARDED PREL. AWARDED Teodorico (d.40.AC-PY) Italy, Adriatic Offshore 100% Po Valley Selva Malvezzi (1) Italy, Emilia Romagna 100% Po Valley S T I M R E P N O I T A R O L P X E AR94PY Italy, Adriatic Offshore Cadelbosco di Sopra (gas) (2) Italy, Emilia Romagna GRANTED Cadelbosco di Sopra (oil) (2) Italy, Emilia Romagna Grattasasso Italy, Emilia Romagna 100% Po Valley 85% Po Valley (op.) 100% Po Valley 100% Po Valley (op.) Podere Gallina(1) Italy, Emilia Romagna 100% Po Valley Torre del Moro Italy, Emilia Romagna 100% Po Valley Table 1: Tenements at 31 December 2019 Notes: 1. PVO holds the quota for 100% of the Podere Gallina and Selva Malvezzi licences. United Oil and Gas and Prospex have 20% and 17% economic interests; the Italian government has preliminarily approved the 20% and 17% licences quotas to be transferred to them in Podere Gallina Permit; transfer approval for Selva Malvezzi has to be formally requested. 2. Cadelbosco di Sopra 85% is related only to the “gas play” - After Petrorep Italiana request, Italian government on 25 February 2020 approved the 15% licence quota to be transferred from Petrorep Italiana to Po Valley Operations. As at 31 December 2019 all tenements are 100% owned with exception of the Cadelbosco gas play at 85%. The Company holds 100% of the quota for the Podere Gallina Licence but a 63% economic interest on the basis of the 2017 Farm-in Agreement with United Oil & Gas (20%) and Prospex Oil & Gas (17%) in the Podere Gallina licence (promotion on the Podere Maiar 1 well). United and Prospex received from the Italian government on 13 March 2020 a preliminary approval for the 20% and 17% quotas transfer in Podere Gallina permit; request for quotas transfer approval for Selva Malvezzi will follow after formal request. The Farm-in Agreement for Cadelbosco (correlated only to the gas play) was completed in June 2012 with Petrorep Italiana Spa for its 15% interest. Petrorep in 2019 lodged the application to transfer its 15% licence quotas to Po Valley Operations and on 25 February 2020 the Italian government granted this quotas transfer. 2) RESERVES AND RESOURCES STATEMENT The following tables summarise the status of the Company’s Reserves & Resources as at 31 December 2019. Company Reserves Reserves as at Reserves as at 31 December 2019 31 December 2018 Gas, Italy (bcf) Developed Undeveloped Teodorico Selva Malvezzi (Podere Maiar) [net] Total Reserves Table 2: Total Company Reserves 1P - 26.70 2.60 29.30 2P - 36.50 8.40 44.90 1P - 26.70 2.60 29.30 2P - 36.50 8.40 44.90 73 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY The Company does not have unconventional petroleum Resources in its portfolio. The Company does not have any material concentration of Undeveloped Reserves in Oil & Gas projects that remained undeveloped for more than 5 years from the date they were initially reported. Company Contingent Resources Contingent Resources as at Contingent Resources as at Gas (bcf) Oil (MMbbls) Table 3: Total Company Contingent Resources 31 December 2019 1C 2C 31 December 2018 1C 2C 12.8 9.4 25.8 43.4 12.8 9.4 25.8 43.4 The table on the following page of the Technical Summary shows the detailed estimate for each field. There have been no material changes to Reserves and Resource estimates since the prior year. In reference to the Reserves and Resources estimation process, the Company commits to a regular independent audit in order to obtain a certified update of its Reserves & Resources portfolio. The last review took place in April 2019. The reserves and resource estimates of the gas fields Teodorico and Selva were independently evaluated by the geological and petroleum reservoir consultancy firm CGG (UK) Services Ltd in 2018 and 2019. The two oil discoveries (Bagnolo in Piano and Ravizza) were initially evaluated by CGG (UK) Services Ltd in 2013 and reviewed in 2019. All figures have been determined using a deterministic method except Teodorico which was estimated using a probabilistic method. Estimates of the recoverable volumes for each field and a detailed explanation of how this review was carried out as required under the Chapter 5 ASX Listing Rules are provided in the ASX media releases entitled “Po Valley Upgrades Selva Resources” and “Po Valley Oil Resource Update” dated 26 April 2019 together with a Competent Persons Report issued by CGG(UK) Services Ltd covering all Po Valley assets dated 24 April 2019. All estimates are based on independent evaluations in accordance with SPE/WPC/AAPG/SPEE Petroleum Resource Management System (2007/2011). 74 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY Table 4: Gas Reserves and Resources by Field at 31 December 2019 and 31 December 2018 (As Per CPR Dated 24 April 2019) Table 5: Oil Reserves and Resources by Field at 31 December 2019 and 31 December 2018 (As Per CPR Dated 24 April 2019) Qualified Petroleum Reserves and Resources Evaluator: Statements in this Annual Report regarding estimates of petroleum Reserves and Contingent and Prospective Resources are based on the technical work carried out by Po Valley Technical Team validated/certified by the geological and petroleum reservoir consultancy firm CGG (UK) Services Ltd. CGG (UK) Services Ltd has approved the Reserves statement as a whole and has consented to: (a) the inclusion of the estimated petroleum Reserves and Contingent and Prospective Resources and supporting information in this Annual Report in the form and context in which they are presented; and (b) the inclusion of the Reserves statement in this Annual Report in the form and context in which it appears. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of oil and gas reserves that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. 75 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY The Reserves and Resources Statement is based on, and fairly represents, information and supporting documentation prepared by or under the supervision of Andrew Webb, Manager of Petroleum Reservoir and Economics of CGG Services (UK) Limited (“CGG”) Reference no. 8P512. CGG compiled these estimates to confirm with the definitions or the Petroleum Resources Management Systems (2007 and 2011) as published by the Society of Petroleum Engineers (SPE). These estimates were prepared as part of a CPR dated 24 April 2019 which was lodged with the ASX on 26 April 2019. Mr Webb is qualified in accordance with the requirements of ASX Listing Rule 5.41 and consents to the inclusion of the information in this report of the matters in the form and context in which it appears. RESERVES are those quantities of hydrocarbon anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Proved Reserves are those quantities of hydrocarbon, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations (1P). Probable Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). Possible Reserves are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of proved plus probable plus possible (3P) Reserves, which is equivalent to the high estimate scenario. CONTINGENT RESOURCES are those quantities of hydrocarbon estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. PROSPECTIVE RESOURCES are those quantities of hydrocarbon that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. For Contingent Resources, the general cumulative terms low/best/high estimates are denoted as 1C/2C/3C respectively. For Prospective Resources, the general cumulative terms low/best/high estimates still apply. No specific terms are defined for incremental quantities within contingent and Prospective Resources. 76  

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