Po Valley Energy Limited
Annual Report 2020

Plain-text annual report

Annual Report 2020 PO VALLEY ENERGY LIMITED CONTENTS CORPORATE DIRECTORY .............................................................................................................................................. 1 CHAIRMANS LETTER ..................................................................................................................................................... 2 DIRECTORS’ REPORT .................................................................................................................................................... 3 Remuneration Report ........................................................................................................................................ 9 AUDITOR’S INDEPENDENCE DECLARATION ............................................................................................................... 16 STATEMENT OF FINANCIAL POSITION ....................................................................................................................... 17 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ............................................................... 18 STATEMENT OF CHANGES IN EQUITY ........................................................................................................................ 19 STATEMENT OF CASH FLOWS .................................................................................................................................... 20 NOTES TO THE FINANCIAL STATEMENTS .................................................................................................................... 21 DIRECTORS’ DECLARATION ........................................................................................................................................ 58 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................... 59 TECHNICAL SUMMARY .............................................................................................................................................. 63 ASX ADDITIONAL INFORMATION .............................................................................................................................. 68 PO VALLEY ENERGY LIMITED CHAIRMAN’S LETTER Dear fellow shareholders, 2020 Italy – a very challenging and in the end a very successful year for Po Valley Energy. Through these times the team reached a major milestone with the grant of both the Selva and Teodorico full Environmental approvals in late March 2021. This clears the way to move forward on development on both these highly economic natural gas fields. Italy was the hardest hit nation in Europe during the pandemic and for a large part of the year our team and the critical agencies we dealt with were in full lockdown. During this period, with the team on “smart working” protocols, we took initiatives to tighten our cost structure and at the same time materially advance our major projects. Our Selva Malvezzi (onshore gas) and Teodorico (offshore gas) development projects have been granted preliminary production concession by the Italian Government, and the full grant of the environmental approvals by Ministry of Environment in March 2021 now paves the way for full grant of the production concessions in 2021 and commencement of construction. Selva Malvezzi remains Po Valley’s number one priority, offering low capital costs and high returns. Italian natural gas prices strengthened significantly through 2020 and into 2021 further strengthening the return and cashflow outlook. 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 and full environmental approval in March 2021. We expect full grant of the Production Concession in the second half of 2021 and at that point, will initiate design, development and financing. Advancing these two gas fields into production has a targeted incremental production increase of 28 and 111 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 2020, Po Valley has advanced its Torre del Moro, Bagnolo SW, Ravizza and Bagnolo-in-Piano condensate and oil fields which offer significant upside to investors. 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 Pier Paolo Poncia and supported by our dedicated Non-Executive Directors, Sara Edmonson and Kevin Bailey. I thank the team and the Directors for their guidance and direction in an extremely challenging year. Michael Masterman Chairman Po Valley Energy 1 Directors Company Secretary Registered Office Rome Office Share Register Auditor Solicitors Bank 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 Della Luce 58, Rome Italy Tel: +39 06 42014968 Link Market Services Limited Level 12, 250 St Georges Terrace, Perth WA 6000 Tel: +61 8 9211 6670 HLB Mann Judd (WA Partnership) Level 4, 130 Stirling Street, Perth WA 6000 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 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 2020. 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 58 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. In the last three years, Michael has not been a director of any other listed company. Kevin Bailey AM — Non-Executive Director, DipFP, Age 60 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. In the last three years, Kevin has not been a director of any other listed company. Sara Edmonson — Non-Executive Director, BSBA, MBA Age 41 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. Until recently, Sara was 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 and is completing a Masters in Sustainability Sciences at Harvard University. Sara served on the board of Coro Energy plc from November 2017 to October 2018 and as executive until March 2019. In the last three years, Sara has not been a director of any other listed company. Byron Pirola — Non-Executive Director, BSc, PhD, Age 60 Resigned 3 March 2020 Byron was 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. In the last three years, Byron has not been a director of any other listed company. 3 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 are provided below: Michael Masterman Kevin Bailey Sara Edmonson Byron Pirola No. of board meetings held and attended 17 17 17 1* *meeting attended as an observer 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 loss per share for the Company from continuing operations was (0.16)€ cents (2019: (0.24)€ cents) 6. Operating and financial review The loss for the year from continuing operations was €1,035,548 (2019: €1,504,741). Cash and cash equivalents for the Group at 31 December 2020 amounted to €44,107 (2019: €42,165). 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. 4 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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 have continued 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 newly established Italian government created the new Ministry of Ecological Transition (MiTE). This Ministry gathers some of the key responsibilities pertaining to the Ministry of Economic Development with all responsibilities of Ministry of the Environment; specifically, all activities revolving around energy policies, transport emissions, alternative energy resources, sustainable development policies, circular economy. 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 30th September 2021 and no further prorogations are envisaged. 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. COVID-19 Impact Since the beginning of 2020 Italy has faced a very challenging operating environment as a result of COVID-19 virus impacts and the resulting State of Emergency and associated lockdowns. The Company’s priority remains keeping our operations team safe. The team continues to working safely from the Rome office premises, as and when possible, or remotely in accordance with COVID 19 health and safety rules and directives and with minimal field operations. The Company has implemented initiatives to safeguard its staff and contractors and to reduce its costs and overheads (including suspending director and CEO fees from July 2020) during this difficult economic climate whilst continuing to advance our projects through the approval process. Selva Malvezzi Gas Field (63% PVO*) Podere Gallina Exploration Permit and Selva Malvezzi Preliminary Production Concession In the Selva gas field, east of Bologna, development and preliminary work has continued to prepare for maiden gas production in 2021. During the year, a GPS system was installed at the Podere Maiar well pad which records subsidence data in accordance with the ongoing environmental monitoring plan. The Italian Ministry for Economic Development granted the formal Selva Malvezzi preliminary gas Production Concession (80.68km²) to Po Valley in 2019. In January 2020, the Company received its first formal technical environmental approval from the Italian Ministry. The new Environmental Technical Commission confirmed “environmental compatibility” approval on the 10th November 2020. This environmental approval was a precursor to final sign off by the Environment Minister of the final EIA decree. As announced on 6th April 2021, the final EIA is now approved and duly signed by the Ministers of MITE (Ministry of Ecological Transition) and MIC (Ministry of Culture). The EIA paves the way for the grant of full production licence and the Company is preparing and will submit required documentation during 2Q 2021. The Selva Malvezzi development has a small footprint of less than half a hectare and will have negligible emissions. Under the first phase of the development plan, Po Valley will install a fully automated gas plant at 5 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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 maximum rate of up to 150,000 cubic meters/day (5.3 mmscf/day) from successfully tested C1 and C2 production levels in the Medium-Upper Pliocene sands of the Porto Garibaldi Formation (refer ASX announcement 29 May 2018). *Po Valley holds an economic interest of 63% in the Selva gas field together with joint venture partners United Oil & Gas Plc (United) 20% and Prospex Oil & Gas Plc (Prospex) 17%. In October 2020, the Podere Gallina exploration licence received the final decree from the Economic Development Ministry for the joint venture quota transfer of 20% to United and 17% to Prospex. United and Prospex continue to hold their respective economic interests in the Selva Malvezzi preliminary production concession and transfer of these quota’s will be formally requested to be transferred once final Production Concession is awarded. Teodorico Offshore Gas field development (100% PVO) The Teodorico gas field is located in shallow east coast waters (30m) of the northern Adriatic Sea – the primary source of domestic gas production for much of Italy – and in close proximity to existing east coast offshore gas production facilities. 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. Primary environmental approval was granted in 2019 and the new Environmental Technical Commission confirmed “environmental compatibility” in April 2020. This environmental approval was a precursor to final sign off by the Environment Minister of the final EIA decree. As announced on 6th April 2021, the final EIA are now approved and duly signed by the Ministers of MITE (Ministry of Ecological Transition) and MIC (Ministry of Culture). The EIA paves the way for the grant of full production licences and the Company is preparing and will submit required documentation during 2Q 2021. 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 the study of the petroleum system and the drilling plan for submission to the Government which is planned to be carried out as soon as the exploration activities ban ends in September 2021. Ravizza, Bagnolo in Piano, and Bagnolo SW Exploration (100% PVO) 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. 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 2020, the Group maintained its outstanding occupational health safety and environmental track record with no incidents or near misses to report. 6 PO VALLEY ENERGY LIMITED DIRECTORS’ 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 Board on areas where there is scope for improvement. The Board as a whole is responsible for oversight of the Company’s risk management and control system. 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. Operating risks Exploration, development and production 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. 7 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Estimation of reserves Tenure security Health, safety and environmental matters 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. Climate Change PVE recognises climate-related risks and the need for these to be managed effectively particularly across the energy industry. Key climate-related risks and opportunities relevant to the PVEs operations include: • The transition to a low carbon economy through technological improvements and innovations that support a lower carbon energy efficient system with decreased demand and changing community sentiment for fossil fuels. In addition, increased uncertainty time and cost associated with regulatory bodies granting approvals or licences on fossil fuel intensive projects. Transition to lower carbon economy may also give rise to opportunity for PVE’s potential gas production assets. Natural gas is viewed as a key element to supporting a sustainable energy transition. Possibility to produce Blue H2 (with CCS/CCUS) and/or LNG from PVO gas fields (utilizing access and support via Next Generation EU research development funds) • Physical changes caused by climate change include increased severe weather events and chronic changes to weather patterns which may impact demand for energy and the PVE’s development and production assets and production capability. These events could have a financial impact on the Company through increased operating costs, maintenance costs, revenue generation and sustainability of production assets. • Policy changes by governments which may result in increasing regulation and costs which could have a material impact on the PVE’s operations. PVE is committed to continually improve climate change related disclosures as processes and understanding of climate change related matters improve alongside its activities and operations. 8 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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 2020. 8. Significant events after the balance date Subsequent to the balance date, the Group has received full approved Environmental Impact Assessment (EIA) of Selva Malvezzi and Teodorico and has obtained additional unsecured loans of AU$300,000 from Directors or their related parties. 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. 9 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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 and previous financial years. Indices Production (scm’000) Average realised gas price (€ cents per cubic metre) (Loss) / profit attributable to owners of the Company (€'000s) 2020 2019 2018 2017 2016 2015 - - - - 2,799* 7,155 4,461 9,991 21* 19 21 25 (1,036) (1,504) 2,780 (1,087) (8,699) (6,658) Loss per share (€ cents per share) (0.16) (0.24) (0.43) (0.19) (2.06) (5.02) Share Price at year end - AU$ 0.030 0.052 0.038 0.041 0.025 0.026 * 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. 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 include employment 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 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. 10 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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: Michael Masterman, Chairman and Chief Executive Officer Commencement Date: as Chief Executive Officer 1 November 2017 Fixed remuneration for the year ended 31 December 2020: €140,000 p.a.* Benefit of €2,500 per month for accommodation • • • • No termination benefits Kevin Bailey, Non-Executive Director Commencement Date: 3 May 2016 Fixed remuneration for the year ended 31 December 2020: €7,541 (A$12,000) * • • • No termination benefits Sara Edmonson, Non-Executive Director Commencement Date: 23 December 2019 Fixed remuneration for the year ended 31 December 2020: €15,082 (A$24,000) • • • No termination benefits Byron Pirola, Non-Executive Director Commencement Date: 10 May 2002 Resignation date: 3 March 2020 Fixed remuneration for the period to date of resignation: €2,610 (A$4,154) • • • • No termination benefits *CEO and Director fees were suspended from 1 July 2020, to be reviewed in 2021. 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. Key Management Personnel remuneration outcomes (including link to performance) The remuneration details of each Key Management Personnel (KMP) (being the Directors) during the year is presented in the table below. Directors M Masterman Chairman and Chief Executive Officer K Bailey Non-Executive S Edmonson Non-Executive B Pirola Non-Executive (resigned 3 March 2020) Total for Directors Salary & fees € Other € Termination payments € 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 70,002 140,000 7,541 15,007 15,082 289 2,610 15,007 95,235 170,303 30,000 30,000 - - - - - - 30,000 30,000 - - - - - - - - - - Total € 100,002 170,000 7,541 15,007 15,082 289 2,610 15,007 125,235 200,303 11 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. Options over equity instruments granted as compensation No options were granted as compensation to KMP during the reporting period (2019: Nil). No options vested during 2020. (2019: 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 KMP) have been altered or modified during the reporting period or the prior period. Exercise and lapse of options granted as compensation No options over ordinary shares in the Company were held by any KMP during 2020 and no options were exercised or lapsed during 2020. Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of the Company, held directly and indirectly by KMP, including their personally-related entities is as follows: Held at 31 Dec 2019 Purchased Share based payments Options Exercised Held at Sold / Other 31 Dec 2020 Directors M Masterman 167,971,782 - K Bailey 150,265,152 370,073 S. Edmonson B Pirola (i) 2,966,406 62,784,178 - - (i) (I)Holding at date of resignation 3 March 2020 383,987,518 370,073 - - - - - - - - - - 167,971,782 150,635,225 2,966,406 62,784,178 384,357,591 - - - 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 K Bailey 132,728,169 17,536,983 S. Edmonson 2,966,406 - B Pirola (i) 59,494,135 3,290,043 (i) (I)Holding at date of resignation 3 March 2020 351,881,704 32,105,814 - - - - - - - - - - 167,971,782 150,265,152 2,966,406 62,784,178 383,987,518 - - - 12 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Other transactions and balances with KMP and their related parties The Company obtained financing through unsecured loans provided by existing and former Directors of the Company. The loan agreements have been reached with entities associated with Michael Masterman, Kevin Baily (Directors) and Beronia Investments Pty Ltd (a company related to former Director Byron Pirola and major shareholder). The principal loan amounts outstanding at 31 December 2020 are as follows: Related Party Kevin Bailey Fuiloro Pty Ltd* Loan Amount A$301,676 A$424,227 K & G Bailey as trustee for The Bailey Family Trust* A$287,404 Symmall Pty Ltd* Beronia Investments Pty Ltd A$396,759 A$1,752,637 Interest % p.a 10% 10% 10% 10% 10% Repayment Term 31 Dec 2021** 31 Dec 2021** 31 Dec 2021** 31 Dec 2021** 31 Dec 2021** *Fuiloro Pty Ltd and K & G Bailey as trustee for The Bailey Family Trust are entities associated with Kevin Bailey, and Symmall Pty Ltd is an entity associated with Michael Masterman. **Terms of repayment for these loans have been extended for 12 months from the date of this report The Company has on issue convertible notes with related parties as follows: Related Party K & G Bailey as trustee for The Bailey Family Trust* Symmall Pty Ltd* Convertible Notes 700,000 300,000 *Convertible note redemption dates have been extended for 12 months from the date of this report 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 and interest shall be payable on the principal amount at a rate of 8% per annum. (refer note 20) No KMP have entered into a material contract, other than disclosed above, with any company in the Group. 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 are 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. 13 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 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. 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 resource 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. 16. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, HLB Mann Judd, 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 HLB Mann Judd during or since the financial year. 17. Non audit services During the year HLB Mann Judd, the Company’s auditor, did not provide non-audit services. Refer to note 6 of the financial report for details of the 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 2018 before the group restructuring was completed. This dispute was resolved by mutual agreement on 30 June 2020 with settlement made in full on the disputed invoices (refer Note 5). 14 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 19. Lead Auditor’s independence declaration The lead auditor’s independence declaration is set out on page 16 and forms part of the Directors’ report for the financial year ended 31 December 2020. This report has been made in accordance with a resolution of Directors. Michael Masterman Chairman and Chief Executive Officer 29 April 2021 15 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Po Valley Energy Limited for the year ended 31 December 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. Perth, Western Australia 29 April 2021 L Di Giallonardo Partner 16 PO VALLEY ENERGY LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 CONSOLIDATED NOTES 2020 € 2019 € 10 11 14 12 13 15 17 16 18 19 17 19 20 20 44,107 86,617 130,724 78 947,181 11,199 7,990,040 8,948,498 42,165 283,853 326,018 17,578 947,181 105,145 7,876,926 8,946,830 9,079,222 9,272,848 1,226,182 3,091 2,797 2,067,175 1,571,070 4,870,315 - - - 1,090,159 41,066 2,797 1,272,676 - 2,406,698 58,512 1,563,183 1,621,695 4,870,315 4,028,393 46,641,745 1,192,269 (43,625,107) 46,461,745 1,192,269 (42,589,559) 4,208,907 5,244,455 9,079,222 9,272,848 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 Convertible notes 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. 17 PO VALLEY ENERGY LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Continuing Operations Other income Gain on agreement debt settlement Employee benefit expenses Depreciation expense Corporate overheads Exploration costs expensed Loss from operating activities Finance income Finance expenses Net finance expenses Loss before tax Income tax benefit Loss for the year CONSOLIDATED NOTES 2020 € 5 3 4 7 8 79,122 110,940 (510,569) (41,622) (344,686) (9,000) (715,815) 143 (319,876) (319,733) (1,035,548) - 2019 € 35,144 - (639,131) (41,700) (752,431) (1,500) (1,399,618) 134 (308,398) (308,264) (1,707,882) 203,141 (1,035,548) (1,504,741) Other comprehensive income - Total comprehensive loss for the year (1,035,548) (1,504,741) Basic and diluted loss per share (€) from continuing operations 9 (0.16) (0.24) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes to the financial statements. 18 PO VALLEY ENERGY LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 Attributable to equity holders of the Company Consolidated Balance at 1 January 2019 Adjustment from adoption of AASB16 Adjusted balance at 1 January 2019 Total comprehensive income: Loss for the year Other comprehensive income Total comprehensive loss Transactions with owners recorded directly in equity: Issue of shares (net of costs) Balance at 31 December 2019 Balance at 1 January 2020 Total comprehensive income: Loss for the year Other comprehensive income Total comprehensive income loss Issued capital € Translation Reserve € Accumulated Losses € 45,531,416 1,192,269 (41,080,669) (4,149) 45,531,416 1,192,269 (41,084,818) - - - 1,110,329 - - - - (1,504,741) - (1,504,741) - 46,641,745 1,192,269 (42,589,559) 46,641,745 1,192,269 (42,589,559) - - - - - - (1,035,548) - (1,035,548) (43,625,107) Non- controlling Interests € - - - - - - - - - - Balance at 31 December 2020 46,641,745 The above statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements. 1,192,269 - Total € 5,643,016 (4,149) 5,638,867 (1,504,741) - (1,504,741) 1,110,329 5,244,455 5,244,455 (1,035,548) - (1,035,548) 4,208,907 19 PO VALLEY ENERGY LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTES CONSOLIDATED 2020 € 2019 € Operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Net cash used in operating activities Investing activities Receipts for resource property costs from joint operations partners Payments for resource property costs Payments for other assets Net cash used in investing activities Financing activities Proceeds from the issues of shares Payment of share issue costs Proceeds from borrowings Payments of lease liabilities Net cash flows from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January 10 24 17 Cash and cash equivalents at 31 December 10 25,000 (515,402) 143 (257) (490,516) 166,667 (250,010) (976) (84,319) - - 609,950 (33,173) 576,777 1,942 42,165 44,107 - (1,065,464) 134 (61,961) (1,127,291) - (271,225) - (271,225) 877,550 (8,066) 99,351 (43,758) 925,077 (473,439) 515,604 42,165 The above statement of cash flows should be read in conjunction with the accompanying notes to the financial statements. 20 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 for the year ended 31 December 2020 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 29 April 2021. 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 2020, the Group has recorded a loss after tax from continuing operations of €1,035,548; it has a cash balance of €44,107, net current liabilities of €4,739,591 and had net cash outflows from operations of €490,516. Since the beginning of 2020 Italy has faced a very challenging operating environment as a result of COVID-19 virus impacts and the resulting State of Emergency and associated lockdowns. During this period, PVE has put in place a number of initiatives to safeguard its staff and contractors and to reduce costs with minimised field operations. The Directors recognise that the ability of PVE 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. PVE has the ongoing support of its Board and major shareholders who have provided funding 21 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 through unsecured loans to the Group. Since 31 December 2020, the Group has obtained additional unsecured loans of AU$300,000. Related parties have agreed to extend repayment terms on unsecured loans for 12 months from the date of this report, unless the Board determines there are sufficient funds to repay loans so long as repayment does not cause any solvency issues for the Group. PVE has put in place measures to reduce operating costs. The small executive and consulting team has elected to defer or reduce fees to significantly lower levels until final formal approval of Selva development is obtained and development can commence. PVE has further cut costs to minimum levels for field and technical costs and travel costs due to minimised field operations and travel during current COVID-19 restrictions and continues to reduce costs further where possible in relation to administrative and office costs. Remuneration of the Chief Executive Officer and non-executive Director Kevin Bailey has been suspended since July 2020. In addition, any unpaid director fees as at 31 December 2020 have been deferred for 12 months from the date of this report, unless the Board determines there are sufficient funds to pay these fees so long as repayment does not cause any solvency issues for the Group. Convertible notes held to the value of AUD$1,500,000 (including those held by Directors or their related parties) have had the redemption date extended from June 2021 for 12 months from the date of this report, unless the Board determines there are sufficient funds to redeem these or if the Convertible notes are converted to equity. The Directors believe that ongoing support through additional loans provided, and cost saving measures will provide sufficient working capital pending a more significant fund raising by June 2021 to coincide with the anticipated granting of development approval for Selva. Should the Group not achieve the matters set out above, there is a material uncertainty that may cast significant doubt 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 asset 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. 22 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 represent 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. 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 statement of financial position 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. 23 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 (r) to all periods presented in the consolidated financial statements. The Directors have reviewed all the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group and effective for the current reporting period. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to the Group accounting policies. (a) PRINCIPLES OF CONSOLIDATION Subsidiaries (i) 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. Joint arrangements (ii) 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. 24 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 Transactions eliminated on consolidation (iii) 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 date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the 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 realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted at the balance 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. 25 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (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 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. 26 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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. Depreciation (iii) 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 2020 3 – 5 years 4 – 6 years 2019 3 – 5 years 4 – 6 years The residual value, the useful life and the depreciation method applied to an asset are reviewed at each reporting date. (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. 27 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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. 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. 28 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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. 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. 29 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 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. 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. 30 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 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 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)). (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 date of the statement of financial position 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. 31 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 Annual increases in the provision relating to the unwinding of the discount rate are accounted for in the statement of profit or loss and other comprehensive income 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 Long-term service benefits (i) 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 date which have maturity dates approximating to the terms of the Group’s obligations. Wages, salaries, annual leave, sick leave and non-monetary benefits (ii) 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. Superannuation (iii) The Group contributes to defined contribution superannuation plans. Contributions are recognised as an expense as they are due. 32 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (k) FOREIGN CURRENCY Functional and presentation currency (i) 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)). Foreign currency transactions (ii) 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. Foreign operations (iii) 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 date of the statement of financial position. 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/loss per share (“EPS”) is calculated by dividing the net profit/loss 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. 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. 33 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (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 statement of financial position. 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 SEGMENTS 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. 34 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (p) LEASES The Company as a lessee For any new contracts, 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 statement of financial position. 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 35 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. 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. (q) 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. (r) CHANGES IN ACCOUNTING POLICIES, DISCLOSURES, STANDARDS AND INTERPRETATIONS (i) New and revised Standards and Interpretations on issue not yet adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been early adopted by the Group for the annual reporting period ended 31 December 2020. The Directors do not believe that these new and revised Standards and Interpretations will have a material effect on the Group. (ii) New Standards and Interpretations applicable for the annual reporting period ended 31 December 2020 The Directors have reviewed all the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group and effective for the current reporting period. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to the Group accounting policies. 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. 36 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 group monitors receivable balances on an ongoing basis and as a result believes its exposure to bad debts is not significant. 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. The Group’s exposure to interest rate risk and sensitivity analysis is disclosed in note 22. 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. The Group’s exposure to currency risk and sensitivity analysis is disclosed in note 22. (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. 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. The Group’s contractual maturities of financial liabilities, including estimated interest payments are disclosed in Note 22. 37 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (v) Climate change risk Key climate-related risks and opportunities relevant to the Company’s operations include: • The transition to a low carbon economy through technological improvements and innovations that support a lower carbon energy efficient system with decreased demand and changing community sentiment for fossil fuels, increased uncertainty time and cost associated with regulatory bodies granting approvals or licences on fossil fuel intensive projects. Transition to lower carbon economy also gives rise to opportunity for the Company’s gas production assets. Natural gas is viewed as a key element to supporting a sustainable energy transition. • Physical changes caused by climate change include increased severe weather events and chronic changes to weather patterns which may impact demand for energy and the Company’s production assets and production capability. These events could have a financial impact on the Company through increased operating costs, maintenance costs, revenue generation and sustainability of its production assets. • Policy changes by governments which may result in increasing regulation and costs which could have a material impact on the Company’s operations. Due to the nature of the uncertainties relating to the above risks, the financial impact has not been quantified for the financial year. The Company is committed to continually improve climate change related disclosures as processes and understanding of climate change related matters improve alongside the Company's activities and operations. 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 CONSOLIDATED 2020 € 2019 € 429,114 81,455 510,569 564,039 75,092 639,131 69,382 164,290 54,349 24,261 32,404 344,686 115,528 494,997 60,007 70,953 10,946 752,431 38 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 5: GAIN ON AGREEMENT DEBT SETTLMENT On 30 June 2020, the Group reached an agreement with Apennine Energy S.p.A (formerly Northsun Italia S.p.A (NSI)) to settle a disputed amount in relation to charges made to Po Valley Operations Pty Ltd (PVO) for costs in relation to intercompany costs incurred in 2017/2018 prior to restructuring of the group. The final agreed amount to settle all claims between the companies was €120,000. This has resulted in a net gain to PVO of €110,940. NOTE 6: AUDITOR’S REMUNERATION Audit and review of the Group financial statements Auditors of the Company: HLB Mann Judd Auditors of the Company: Bentleys NSW Audit Pty Ltd 2019 audit Audit and review of the subsidiary financial statements Auditors of the Subsidiary entity: EY S.p.A NOTE 7: 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 INCOME TAX (BENEFIT) / EXPENSE NOTE 8: Current tax Current year Deferred tax Origination and reversal of temporary differences Deferred tax benefit Total income tax benefit CONSOLIDATED 2020 € 23,461 4,804 2019 € - 24,090 - 10,540 143 143 283,208 36,668 319,876 134 134 260,191 48,207 308,398 (319,733) (308,264) - - - - - (203,141) (203,141) (203,141) 39 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 8: INCOME TAX (BENEFIT) / EXPENSE (continued) CONSOLIDATED 2020 € 2019 € Numerical reconciliation between tax expense and pre-tax accounting profit loss Loss for the year before tax from continuing operations (1,035,548) (1,707,882) Income tax benefit expense using the Company’s domestic tax rate of 27. per cent (2019: 27.5%) (284,775) (469,667) Non-deductible expenses: 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 Income tax benefit NOTE 9: EARNINGS PER SHARE Basic and diluted loss per share (€ cents) (26,468) 21,023 241,130 49,090 115,744 29,826 108,600 12,356 - (203,141) CONSOLIDATED 2020 (0.16) 2019 (0.24) The calculation of basic and diluted loss per share from continuing operations was based on the loss attributable to shareholders of €1,035,548 (2019: €1,504,741) and a weighted average number of ordinary shares outstanding during the year of 647,286,102 (2019: 631,578,465). Diluted loss per share is the same as basic loss per share. 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 No. of days 365 218 145 55 Weighted average no. 647,286,102 - - - 647,286,102 Weighted average no. 611,736,318 6,029,485 9,674,730 4,109,590 631,578,465 40 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONSOLIDATED 2019 € 2020 € NOTE 10: CASH AND CASH EQUIVALENTS (a) Cash and cash equivalents 44,107 42,165 Reconciliation of cash flows from operating activities (b) 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 Gain on agreement debt settlement Change in operating assets and liabilities: Decrease/(increase) in receivables Increase in trade and other payables Increase in provisions Increase in deferred tax assets (1,035,548) (1,504,741) 41,622 29,220 161,695 664 (110,940) (39,595) 462,366 - - 41,700 38,611 195,660 2,570 - 215,927 86,082 41 (203,141) Net cash outflow from operating activities (490,516) (1,127,291) (c) Non-cash financing activities Repayment of related party loans (refer Note 24) - 240,845 TRADE AND OTHER RECEIVABLES NOTE 11: Current Trade receivables Sundry debtors Indirect taxes receivable Other deposits receivable 30,821 10,302 27,994 17,500 151,866 85,351 46,636 - 86,617 283,853 The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in Note 22. 41 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 12: PROPERTY PLANT & EQUIPMENT Office Furniture & Equipment: At cost Accumulated depreciation Right-of-use asset: Building (Note 17) 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 CONSOLIDATED 2019 € 2020 € 22,478 (14,703) 7,775 83,317 (79,893) 3,424 11,199 105,145 975 (53,299) - (41,622) 21,503 (12,989) 8,514 136,616 (39,985) 96,631 105,145 9,602 626 - 136,616 (41,700) Carrying amount at end of year 11,199 105,145 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 7,990, 7,876, 7,876, 113, 7,704, 172, Carrying amount at end of period 7,990, 7,876, 42 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 13: RESOURCE PROPERTY COSTS (continued) 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 Group’s internal valuation are comparable to the above independent valuations at €15.1 million and €14.5 million after taking into account changes in prices as compared to those used in the independent valuation. The carrying value of these assets are €4.2 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. DEFERRED TAX ASSETS AND LIABILITIES NOTE 14: 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 CONSOLIDATED 2019 € 2020 € 848,694 98,487 947,181 848,694 98,487 947,181 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. 43 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 14: DEFERRED TAX ASSETS AND LIABILITIES (continued) 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 CONSOLIDATED 2020 € 2019 € 1,104,444 759,112 1,897,340 1,848,250 3,001,784 2,607,362 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) Movement in recognised temporary differences during the year Balance 1 January 2019 € Profit and loss € Equity € 658,474 190,220 85,566 12,921 744,040 203,141 Balance 31 December 2019 € 848,694 98,487 947,181 - - - Consolidated Tax losses Accrued expenses and liabilities Total recognised deferred tax asset NOTE 15: TRADE AND OTHER PAYABLES Profit and loss € Equity € - - - Balance 31 December 2020 € 848,694 98,487 947,181 - - - Trade payables and accruals Other payables CONSOLIDATED 2020 € 2019 € 1,185,894 1,051,524 40,288 38,635 1,226,182 1,090,159 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. 44 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 16: PROVISIONS Current: Employee leave entitlements NOTE 17: LEASES CONSOLIDATED 2020 € 2019 € 2,797 2,797 The Company leased office facilities in Rome. The lease was for a period of six years from the start of the lease in June 2016, but reduced by mutual agreement to terminate early in January 2021. 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 11) Buildings Balance at 1 January (on adoption of AASB16) Reduction in term lease Depreciation Total Amounts recognised in profit or loss Interest on lease liabilities Expenses relating to leases of low-value assets Amounts recognised in statement of cash flows Total cash outflow for leases Lease liabilities Lease liabilities are presented in the statement of financial position separately within liabilities as follows: 96,631 (53,299) (39,908) 3,424 136,616 - (39,985) 96,631 664 1,034 2,570 1,233 33,173 43,758 2020 € 2019 € 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: 3,091 - 41,066 58,512 Within one year One to five years Lease payments Finance charges Net present values 3,575 (484) 3,091 After five years - - - - - - Total 3,575 (484) 3,091 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. 45 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 € 2020 € 2,067,175 1,272,676 Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: 31 December 2020 Currency Nominal Interest rate Year of Maturity Face Value € 31 December 2019 Face Value € Carrying Amount € Carrying Amount € Current liabilities 10% AUD 2021 2,067,175 Unsecured loans 1,272,676 The financing facility above is provided by existing and former Directors of the Company and longstanding shareholders. The loans are unsecured with repayment dates of 31 December 2021 and an interest rate of 10%. The lenders have agreed to extend repayment terms on the loans for 12 months from the date of this report, unless the Board determines there are sufficient funds to repay loans so long as repayment does not cause any solvency issues for the group. The Group’s exposure to currency, interest and liquidity risk related to interest bearing loans are disclosed in note 22. 1,272,676 2,067,175 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 2020 is €1,571,070 (2019: €1, 563,183). 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. 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. 46 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 19: CONVERTIBLE NOTES (continued) The redemption amount is the outstanding facility amount with respect to each note plus any unpaid interest. The redemption dates for A$1,500,000 of the notes above have been extended by 12 months from the date of this report by mutual agreement. NOTE 20: CAPITAL AND RESERVES Share Capital Opening balance - 1 January Shares issued during the reporting period: Placement issue tranche 2 – 27 May 2019 Placement issue - 8 August 2019 Placement issue tranche 2 - 6 November 20 Share issue costs Ordinary Shares 2020 Number 2019 Number 2020 € 2019 € 647,286,102 611,736,318 46,641,745 45,531,416 - - - - 10,095,237 14,545,456 10,909,091 - - - - - 262,337 484,062 371,996 (8,066) Closing balance – 31 December 647,286,102 647,286,102 46,641,745 46,641,745 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 of €1,192,269 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 (2019: Nil). 47 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 21: FINANCIAL REPORTING BY SEGMENTS The Group reportable segments as described below are the Group’s strategic business units. The strategic business units are classified according to field licence areas which are managed separately. All strategic business units are in Italy. For each strategic business unit, the CEO reviews internal management reports on a monthly basis. Exploration, Development and Production gas and oil are the operating segments identified for the Group. The individual exploration, development and production operation sites have been aggregated. External revenues Segment loss before tax Reportable segment assets: Exploration and evaluation Total 2020 € 54,122 2019 € 2020 € 2019 € - 54,122 - (236,973) (432,308) (236,973) (432,308) Resource property costs 7,990,040 7,876,926 7,990,040 7,876,926 Receivables Capital expenditure 30,821 113,114 151,866 172,282 30,821 113,114 151,866 172,282 Reportable segment liabilities (278,977) (352,159) (278,977) (352,159) Reconciliation of reportable segment profit or loss, assets and liabilities Profit or loss: CONSOLIDATED 2020 € 2019 € Total profit loss for reportable segments (236,973) (432,308) Unallocated amounts: Net finance expense Other corporate expenses Consolidated 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 (319,732) (478,843) (308,264) (967,310) (1,035,548) (1,707,882) 8,020,861 1,058,361 8,028,792 1,244,056 9,079,222 9,272,848 (278,977) (352,159) (4,591,338) (3,676,234) (4,870,315) (4,028,393) 48 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 22: FINANCIAL INSTRUMENTS (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 Fixed rate instruments Financial assets Financial liabilities CONSOLIDATED 2020 € 2019 € 44,107 - 44,107 42,165 - 42,165 - (3,638,245) (3,638,245) - (2,835,859) (2,835,859) 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 2020 2019 2020 2019 221 211 - - (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. 49 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 22: FINANCIAL INSTRUMENTS (continued) Cash and cash equivalents Receivables – Current Other assets Note 10 11 CONSOLIDATED Carrying Amount 2020 € 44,107 86,617 78 130,802 2019 € 42,165 283,853 17,578 343,596 (c) Liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments: Carrying amount Contractual cash flows 6 months or less 6 to 12 months 1 – 2 Years 2 – 5 Years Consolidated 31 December 2020 In € Trade and other payables Interest bearing loans Convertible notes 31 December 2019 In € Trade and other payables (1,226,182) (1,226,182) (1,161,837) Lease liabilities (3,091) (3,525) (3,525) - - - (64,345) - (2,273,893) (2,067,175) (2,273,893) - (1,571,070) (1,633,913) (490,174) (163,391) (980,348) (4,867,518) (5,137,513) (1,655,536) (163,391) (3,318,586) 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 Convertible notes (1,272,676) (1,476,427) - (1,476,427) - (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) - - - - - - - - - - 50 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 22: FINANCIAL INSTRUMENTS (continued) (d) Net Fair Values of financial assets and liabilities The carrying amounts of financial assets and liabilities as disclosed in the statement of financial position 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). 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 2020 Level 1 $ Level 2 $ Level 3 $ Lease Liabilities Convertible Notes (refer note 20) - - - 3,091 1,571,070 - 1,571,070 Total $ 3,091 (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 functio currency: Cash Current – Payables Current – Interest bearing loans Non-current – Convertible notes Net Exposure 2020 € CONSOLIDATED 2019 € 29,685 (127,238) (1,272,676) (1,563,183) (2,933,412) 5,340 (110,346) (2,067,175) (1,571,070) (3,743,251) 51 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 22: FINANCIAL INSTRUMENTS (continued) The following significant exchange rates applied during the year: Australian Dollar ($) Pound Sterling (£) Average rate Reporting date spot rate 2020 0.605 1.125 2019 0.620 1.141 2020 0.628 1.175 2019 0.625 1.168 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 2019 was prepared using the same basis. 31 December 2020 Australian Dollar to Euro (€) Pound Sterling (£) 31 December 2019 Australian Dollar to Euro (€) Pound Sterling (£) CONSOLIDATED Profit or loss € (184,926) (2,237) (142,970) (3,700) Equity € - - - - 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 2021. Other than the above, there are no other material commitments or contingent liabilities not provided for in the financial statements of the Group as at 31 December 2020. 52 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 2020 € 125,235 - - - 2019 € 200,303 - - - 125,235 200,303 INTEREST BEARING LOANS The Company obtained financing through unsecured loans provided by existing and former Directors of the Company. The loan agreements have been reached with entities associated with Michael Masterman, Kevin Baily (Directors), Bryon Pirola (former Director and major shareholder). The loan balances and their repayment terms are summarised below: 31 December 2020 Related Party Kevin Bailey Fuiloro Pty Ltd K & G Bailey as trustee for The Bailey Famil Trust Symmall Pty Ltd Beronia Investments Pty Ltd G. Bradley Interest% p.a 10% 10% Repayment Dec-21* Dec-21* 10% 10% 10% 10% Dec-21* Dec-21* Dec-21* Dec-20* Accrued Interest € 6,245 8,911 5,122 7,253 36,814 12,656 Loan Amount A$301,676 A$424,227 A$287,404 A$396,759 A$1,752,637 A$126,736 A$3,289,439 €2,067,175 Total *Related parties have agreed to extend repayment terms on the new unsecured loans for 12 months from the date of this report, unless the Board determines there are sufficient funds to repay loans so long as repayment does not cause any solvency issues for the Group. 77,001 53 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 Intere st% p.a 10% 10% 10% 10% 10% 10% 10% Loan Amount A$663,179 A$156,055 A$528,396 A$264,172 A$190,800 A$126,736 A$106,055 A$2,035,393 €1,272,676 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 Balance at end of year Repayment Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Dec-20 Accrued Interest € 24,312 5,721 19,371 12,408 6,138 4,646 Dec-20 3,888 76,484 CONSOLIDATED 2020 € 1,272,676 609,950 - 161,695 22,854 2019 € 1,201,258 99,351 (240,845) 206,234 6,678 2,067,175 1,272,676 Related party loans repaid during the prior year were settled with issue of 8,722,944 ordinary shares as part of the Directors participation in the private placements. Accrued interest on loans Balance at beginning of year Accrued interest for year Interest capitalised to loans during year Effect of foreign exchange 76,484 161,549 (161,695) 663 155,380 127,338 (206,234) - Balance of accrued interest at end of year 77,001 76,484 54 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE 24: RELATED PARTIES (continued) CONVERTIBLE NOTES The table below summarises the Convertible notes held by related parties at 31 December 2020. The convertible notes are held by entities associated with Kevin Bailey and Michael Masterman (current directors) Refer note 20 for details on the terms of the convertible notes. Symmall Pty Ltd K & G Bailey as trustee for The Bailey Family Trust CONSOLIDATED 2020 € A$300,000 A$700,000 2019 € A$300,000 A$700,000 A$1,000,000 A$1,000,000 Interest accrued on convertible notes included in trade payables and accruals Symmall Pty Ltd K & G Bailey as trustee for The Bailey Family Trust € 38,842 90,631 € 23,599 55,065 78,664 Related parties have agreed to extend redemption date on the convertible notes and any payment of accrued interest for 12 months from the date of this report, unless the Board determines there are sufficient funds to repay loans so long as repayment does not cause any solvency issues for the group, or the convertible notes are redeemed by conversion to equity. 129,473 55 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 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 Financial Performance Loss Other comprehensive loss Total Comprehensive loss CONSOLIDATED 2020 € 2019 € 14,773 7,887,829 7,902,602 43,971 7,429,667 7,473,638 3,735,896 - 3,735,896 1,299,666 1,563,183 2,862,849 4,166,706 4,610,789 46,641,745 (42,475,039) 4,166,706 46,641,745 (42,030,956) 4,610,789 (444,083) - (444,083) (855,727) - (855,727) NOTE 26: INTERESTS IN OTHER ENTITIES AND JOINT OPERATIONS The Company’s interest in joint arrangements at 31 December 2020 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 covered 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 63% quota on the Podere Galina Exploration licence and the quota for 100% of Selva Production Concession Licences. United and Prospex have 20% and 17% economic interests in the production concession and formal transfer of their quota in the production concession will be requested on the granting of the final concession. 56 PO VALLEY ENERGY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 INTERESTS IN OTHER ENTITIES AND JOINT OPERATIONS (continued)Subsidiaries NOTE 26: 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: Po Valley Operations Pty Limited (“PVO”) Country of Incorporat ion Class of Shares 2020 Investment € 2019 Investment € Holding % Australia Ordinary 2,544,225 2,544,225 100 NOTE 27: SUBSEQUENT EVENTS Subsequent to the balance date, the Group has received full approved Environmental Impact Assessment (EIA) of Selva Malvezzi and Teodorico and has obtained additional unsecured loans of AU$300,000 from Directors or their related parties. 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. 57 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 17 to 57, 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 2020 and of its performance, for the financial year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; 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 2020. 3. The Directors draw attention to Note 1.2(a) 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 29 April 2021 Kevin Bailey Non-Executive Director 29 April 2021 58 INDEPENDENT AUDITOR’S REPORT To the members of Po Valley Energy Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Po Valley Energy Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 December 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 1.2(c) in the financial report, which indicates that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. 59 Key Audit Matter How our audit addressed the key audit matter Carrying value of resource property costs Refer to Note 13. In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, the Group capitalises exploration and evaluation expenditure and as at 31 December 2020 had a deferred exploration and evaluation expenditure balance of €7,990,040. Exploration and evaluation expenditure was determined to be a key audit matter as it is the most significant asset of the Group and was an area the most audit effort and involved which communication with charged with governance. those We planned our work to address the audit risk that the capitalised expenditure may no longer meet the recognition criteria of the standard. In addition, we considered it necessary to assess whether facts and circumstances existed to suggest that the carrying amount of the exploration and evaluation expenditure asset may exceed its recoverable amount. Our procedures included but were not limited to the following: processes - We obtained an understanding of the key associated with management’s review of the carrying value of exploration and evaluation expenditure; - We considered the Directors’ assessment of potential indicators of impairment in addition to making our own assessment; - We obtained evidence that the Group has current rights to tenure of its areas of interest; - We considered the nature and extent of planned ongoing activities; - We enquired with management, reviewed ASX announcements and of Directors’ reviewed minutes meetings to ensure that the Group had not resolved to discontinue exploration and evaluation at any of its areas of interest; - We substantiated a sample of expenditure by agreeing to supporting documentation; and - We examined the disclosures made in the financial report. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 60 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - - - - - Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 61 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors’ report for the year ended 31 December 2020. In our opinion, the Remuneration Report of Po Valley Energy Limited for the year ended 31 December 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards HLB Mann Judd Chartered Accountants Perth, Western Australia 29 April 2021 L Di Giallonardo Partner 62 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 2020, the Company’s core portfolio includes a total of 4 onshore Exploration Permits and 1 offshore Exploration Permit and two preliminary awarded Production Concessions with environmental approval granted (Refer ASX Announcement 6 April 2021). Total acreage position of the Company at 31 December 2020 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 April 2021 63 PRODUCTION CONCESSION S PREL. AWARDED (EIA GRANTED) PREL. AWARDED (EIA GRANTED) EXPLORATIO N PERMITS GRANTED PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY Tenement Location Interest held Teodorico (d.40.AC-PY) Italy, Adriatic Offshore 100% Po Valley Selva Malvezzi (1) Italy, Emilia Romagna 100% Po Valley AR94PY Italy, Adriatic Offshore 100% Po Valley Cadelbosco di Sopra Italy, Emilia Romagna 100% Po Valley Grattasasso Italy, Emilia Romagna 100% Po Valley Podere Gallina Italy, Emilia Romagna 63% Po Valley Torre del Moro Italy, Emilia Romagna 100% Po Valley Table 1: Tenements at 31 December 2020 Notes: 1. Transfer approval for United (20%) and PROSPEX (7%) quotas in Selva Malvezzi to be formally requested as soon as Concession is awarded. As at 31 December 2020 all tenements are 100% owned with exception of the Podere Gallina Licence at 63%. PVO holds 100% of the quota in the Selva Malvezzi preliminary awarded production concession but holds a 63% economic interest together with joint venture partners United Oil & Gas Plc (United) 20% and Prospex Oil & Gas Plc (Prospex) 17%. In October 2020, the Podere Gallina exploration licence received the final decree from the Economic Development Ministry for the joint venture quota transfer of 20% to United and 17% to Prospex. United and Prospex continue to hold their respective economic interests in the Selva Malvezzi preliminary production concession and transfer of these quota’s will be formally requested to be transferred once final Production Concession is awarded. In February 2020, the remaining 15% formerly held by Petrorep Italiana in the Cadelbosco di Sopra gas play was transferred to PVO, bringing ownership to 100%. 2) RESERVES AND RESOURCES STATEMENT The following tables summarise the status of the Company’s Reserves & Resources as at 31 December 2020. Company Reserves Reserves as at Reserves as at Gas, Italy (bcf) Developed Undeveloped Teodorico Selva Malvezzi (Podere Maiar) [net] Total Reserves Table 2: Total Company Reserves 31 December 2020 31 December 2019 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 64 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 Gas (bcf) Contingent resources at 1 January 2020 Changes to ownership % of resources1 31 December 2020 31 December 2019 1C 2C 1C 2C 13.1 9.4 26.9 43.4 12.8 9.4 25.8 43.4 1C 2C 12.8 0.3 13.1 25.8 1.1 26.9 Contingent resources at 31 December 2020 Table 4: Reconciliation of changes in Contingent Resources Notes: 1. In 2019, the Company held 85% in the Cadelbosco di Sopra gas play, the remaining 15% formerly held by Petrorep Italiana was transferred to PVO in February 2020 bringing ownership to 100%. The changes in contingent resources relate to the addition of this 15%. The tables 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). 65 PO VALLEY ENERGY LIMITED TECHNICAL SUMMARY Licence Project Reserves Contingent Resources Gas Bcf Prospective Resources 1P 2P 3P 1C 2C 3C Low Best High Teodorico outside 12miles 26.7 36.5 47.5 AR94PY Teodorico Inside 12 miles PL3-C 7.4 10.6 14.0 7.9 15.9 25.0 Selva (Podere Maiar1) 2.6 8.4 18.8 Selva level A South Podere Gallina Selva level B North [Net] Selva level B South Cembalina Fondo Perino East Selva Riccardina Zini (Qu-B) Cadelbosco Canolo (Qu-A) di Sopra Canolo (Plioc) Zini (Qu-A) 0.7 2.2 0.6 1.1 5.6 2.2 2.3 11.2 5.9 1.1 0.7 0.4 2.7 1.1 3.6 4.6 1.7 10.5 1.3 6.4 18.3 8.2 2.1 9.2 21.9 24.4 3.0 12.9 25.6 81.2 0.6 1.4 2.4 Table 4: Gas Reserves and Resources by Field at 31 December 2020 (As Per CPR Dated 24 April 2019) Licence Project Reserves Contingent Resources Oil MMbbl Prospective Resources 1P 2P 3P 1C 2C 3C Low Best High Torre del Moro Torre del Moro 65.0 106.0 240.0 Cadelbosco Bagnolo in Piano 6.6 27.3 80.6 Grattasasso Bagnolo SW Ravizza 22.1 54.5 112.0 2.8 16.1 41.6 Table 5: Oil Reserves and Resources by Field at 31 December 2020 (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. 66 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. 67 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 2021. 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 1 Michael Masterman 2 Mr Kevin Bailey & Mrs Grace Bailey 3 4 5 Quo Vadis Pty Ltd Fuiloro Pty Ltd 6 HSBC Custody Nominees (Australia) Limited 7 P & N Dairies Pty Ltd 8 9 Beronia Investments Pty Ltd 10 Mr Laurie Mark Macri 11 Beronia Investments Pty Ltd 13 Mr Paul Kenneth Lambert & Mrs Nadine Alison Lambert 12 Citicorp Nominees Pty Limited 16 Mr Laurence Mark Macri & Mrs Christine Simone Macri 14 Beronia Investments Pty Ltd 15 Donus Australia Foundation Limited 17 Mr Chris Carr & Mrs Betsy Carr 18 Mr Graham John Bradley 19 Mr Kevin Christopher Bailey 20 Henderson International Pty Limited Total Number 86,234,079 79,002,181 78,446,050 42,262,155 30,799,806 25,061,679 25,030,188 24,042,460 20,718,217 20,310,674 19,868,413 10,850,921 10,071,401 9,783,083 9,716,708 9,500,000 9,000,000 8,857,965 8,000,000 6,415,500 533,971,480 % 13.32 12.21 12.12 6.53 4.76 3.87 3.87 3.71 3.20 3.14 3.07 1.68 1.56 1.51 1.50 1.47 1.39 1.37 1.24 0.99 82.49 2. SUBSTANTIAL SHAREHOLDERS 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 Beronia Investments Pty Ltd Supervised Investments Australia Limited Mr Paul Kenneth Lambert Number 167,971,782 150,635,225 51,303,338 45,450,899 34,813,665 % 25.95 23.27 7.93 7.03 5.47 68 PO VALLEY ENERGY LIMITED ASX ADDITIONAL INFORMATION 3. NUMBER OF SECURITY HOLDERS AND SECURITIES ON ISSUE Total number of fully paid ordinary shares on issue is 647,286,103 held by 383 shareholders. 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 % 9,941 40,172 136,595 5,952,007 641,147,388 647,286,103 0.00 0.01 0.02 0.92 99.05 100.00 6. UNMARKETABLE PARCEL OF SHARES The number of shareholders holding less than a marketable parcel of ordinary shares is 136 based on the Po Valley Energy Limited closing share price of $0.035 on 15 April 2021. 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. 69  

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