REGISTERED NUMBER: 03896382 (England and Wales)
Strategic Report, Report of the Directors and
Financial Statements for the Year Ended 31 December 2018
for
Prospex Oil And Gas Plc
Prospex Oil And Gas Plc
Contents of the Financial Statements
for the year ended 31 December 2018
Company Information
Chairman's Report
Corporate governance
Strategic Report
Report of the Directors
Statement of Directors' Responsibilities
Report of the Independent Auditors
Statement of Profit or Loss and Other Comprehensive
Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Statement of Cash Flows
Notes to the Financial Statements
Page
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Prospex Oil And Gas Plc
Company Information
for the year ended 31 December 2018
DIRECTORS:
E R Dawson
Dr. R P Mays
W H Smith
J N Smith
SECRETARY:
G Desler
REGISTERED OFFICE:
Stonebridge House
Chelmsford Road
Hatfield Heath
Essex
CM22 7BD
REGISTERED NUMBER:
03896382 (England and Wales)
AUDITORS:
Adler Shine LLP
Chartered Accountants & Statutory Auditor
Aston House
Cornwall Avenue
London
N3 1LF
1
Prospex Oil And Gas Plc
Chairman's Report
for the year ended 31 December 2018
The discovery of commercial hydrocarbon accumulations, the commencement of production, the generation of first
revenues, the acquisition of an interest in a high impact project - All are key objectives for any oil and gas company, let
alone a junior investment company such as Prospex Oil & Gas. It is therefore noteworthy that Prospex's 2018 report
card includes all the above: a commercial gas discovery at the Selva field on the Podere Gallina permit, Italy; the
commencement of gas production and first revenues at the Bainet field on the Suceava Concession, Romania; and the
acquisition of a further 12.5% interest in the large Tesorillo gas project, Spain, on which there is an historic discovery
and 830Bcf of gross unrisked prospective resources.
Success on the ground has been reflected in the Company's full year financial results which include a maiden net profit
after taxation from continuing operations of £779,904, compared to 2017's loss of £3,161,241, and a 77% increase in
the net book value of our investments to £4,307,617 as at 31 December 2018 (2017: £2,426,789). Comparing this last
figure to the Company's current market capitalisation of approximately £3million highlights how Prospex is not only a
fast-growing junior oil and gas investment company, but also a value play trading at a significant discount to net assets.
Due to the progress made to date in de-risking two of our three projects via the drill bit and the considerable run room
they offer, we would argue there is a strong case for our shares to trade at a premium to net book value rather than a
discount.
One of these substantially de-risked projects is the Podere Gallina Exploration Permit in Italy. Here we have reported
(post period end) maiden gas 2P reserves of 2.26Bcf net to Prospex's 17% interest, as contingent resources previously
assigned to the Selva gas field were reclassified as reserves following the successful testing of the Podere Maiar well
('PM-1') in January 2018. This represents the first time that reserves have been assigned to one of our projects by an
independent third party, in this case via a Competent Person's Report produced by geophysical services consultancy,
CGG Services (UK) Limited ('CGG'). Being assigned first reserves is a major milestone. Not only does it provide Prospex
with significant asset backing, particularly when compared to our current market valuation, it also opens up new channels
of non-dilutive funding, such as reserves-based lending. Additionally, production from these reserves will lead to a step
up in our internally generated revenues which in turn will provide another source of funding for investment in late stage
onshore European opportunities both inside and outside our existing portfolio.
January 2019's preliminary award of a production concession for Podere Gallina keeps first production at Selva on course
to commence in 2020 at a gross rate of up to 150,000m3/day. At this level and at current gas prices, Selva alone
promises to generate significant cash flow for reinvestment across our asset base. This includes Podere Gallina where
multiple follow-up targets, many larger than Selva, have already been identified. The scale of the additional run room
at Podere Gallina was quantified by the substantial resource upgrade we reported post period end. In addition to 13.3Bcf
of gross 2P reserves, Selva's two historic gas producing North Flank and South Flank reservoirs are estimated by CGG
to have a 60% - 70% chance of holding 14.1Bcf of gross contingent resources ('2C'). At the same time, aggregate gross
prospective resources (best estimate) for four large prospects (East Selva, Fondo Perino, Cembalina, and Riccardina)
have increased by 74% to 91.5Bcf from 52.7Bcf. Following the upgrade, our 17% interest in Podere Gallina now
translates into net 2P reserves / 2C resources / prospective resources of 2.26Bcf / 2.40Bcf / 15.56Bcf respectively. The
joint venture partners are keen to prove up Podere Gallina's potential and bring Selva online.
This is what we are doing in Romania where our wholly-owned subsidiary PXOG Massey Limited has a 50% non-operated
interest in the EIV-1 Suceava Concession, onshore Romania. A proven hydrocarbon basin, multiple targets, access to
existing infrastructure, and a supportive regulatory environment - we recognised from the outset that Suceava has the
potential to deliver fast track, low cost exploration and development opportunities. The successful Bainet-1 well, in
which we participated in late 2017, provides proof of concept. In less than 12 months of the discovery being made in
November 2017, the field was brought into production in September 2018. Between discovery and first production, a
2.2km flowline was successfully laid connecting Bainet-1 to the existing Bilca production facility, which in turn indirectly
connected the field to Romania's Transgaz-owned national gas grid. At the same time, the relevant Government
approvals required to commence production were sought and subsequently secured. In all, Bainet-1 was drilled and tied
into production in line with the original €800,000 gross cost estimate (€400,000 net to Prospex).
Production at Bainet-1 commenced in September 2018 and averaged 18,000m3/day during the period to the end of the
year. Moving forward the Joint Venture is assuming an average production rate of 15,000m3/day for 2019 budgeting
purposes.
In terms of production, Bainet-1 is relatively small. However, when the low costs and short timelines are considered
alongside the presence of multiple copycat structures, the potential to rapidly build Suceava into a highly cash flow
generative platform becomes clear. We are looking to do just this, and post period end we announced the enlargement
of the Exploration Area of the Concession, which automatically added a new Bainet-1 lookalike gas prospect to our
inventory of targets. The new gas prospect, Bainet-West, is well defined on 2D seismic and has similar seismic attributes
to Bainet-1, which was drilled to a total depth of 600m and encountered 9m of reservoir with 8m of net gas pay consisting
of a good quality Sarmatian sandstone reservoir also found in producing fields in and around the Concession. Lying at a
similar depth to Bainet-1, the new gas prospect, which is similarly positioned in relation to a fault, is a priority target
and the operator has commenced work on securing the relevant permits in order to drill an exploration well. Based on
our experience with Bainet-1, we are confident that drilling operations will be able to commence later this year.
2
Prospex Oil And Gas Plc
Chairman's Report
for the year ended 31 December 2018
Drilling is also a priority at the 38,000ha Tesorillo Project in southern Spain. Tesorillo lies in a proven hydrocarbon region
and comprises two petroleum exploration permits, Tesorillo and Ruedalabola. Tesorillo holds the 1956 Almarchal-1
discovery well and has multi-Tcf potential over a thick section of possible gas pay, including zones which flowed gas to
surface on testing. Drill stem tests and log analysis also confirmed 48m of gas play from two Miocene Aljibe Formation
sandstone intervals, whilst a further 492m of potential gas play has been interpreted from logs but unconfirmed by
testing. Ruedalabola contains the 1957 Puerto de Ojen-1 well, which is located 15km to the east of Almarchal and has
displayed similar gas reservoir zones to Almarchal-1 but could not be tested for mechanical reasons.
As with Podere Gallina and Suceava, Tesorillo has excellent access to infrastructure being located 3.9km from the
European landing point of the North African Maghreb gas pipe-line, providing access to high priced European gas markets.
Unlike Podere Gallina and Suceava, Prospex is acquiring an up to 49.9% interest in the project via an to earn-in option
based on the results of work programmes centred on de-risking targets ahead of drilling to test a historic gas discovery
and prove up the potentially significant resources. A report undertaken by Netherland Sewell and Associates in 2015
estimated that Tesorillo could hold gross unrisked Prospective Resources of 830Bcf of gas (Best Estimate), with upside
in excess of 2Tcf. Following favourable progress on the 2018 work programme, in December 2018 the Company decided
to increase its interest in the project from 2.5% to 15% for a net consideration of €153,250.
There were three strands to the 2018 work programme, the first of which was general field studies to populate the
Environmental and Social Impact Assessment ('ESIA') report on Tesorillo, which is required for the permitting of two new
wells, the first of which is likely to twin the Almarchal-1 discovery. As at the end of the reporting period, ca.70% of the
overall fieldwork required for the ESIA had been completed with the remaining work to be carried out once a well location
has been decided. The second strand was centred on a detailed surface structural geology mapping exercise by a leading
expert from Granada University. The new map and related cross-sections show that the structural subsurface geometry
of the exploration target, the Aljibe sandstone in the Lowermost Miocene, is possibly formed by several folds and thrust
ramps of 3 to 5km length which are inferred to be potential gas traps. The third strand involved an Audio Magneto
Telluric survey to help evaluate the subsurface geology of the permit area and test for resistivity as a further indication
of the presence of hydrocarbons. This has been completed over key areas of interest and the raw field data acquired is
currently being processed.
The results of strands two and three will increase our geological and geophysical understanding of the permit area and
will be used to decide the location of the new exploration wells. The final results will also likely be fed into an updated
Competent Person's Report. A further work stream is underway to reprocess raw 2D seismic data acquired by Repsol in
1991 using modern depth migration techniques. This data includes a line that intersects the Almarchal-1 well.
Financial Review
For the year ended 31 December 2018, the Company is reporting a net profit after taxation from continuing operations
of £779,904 (2017: loss - £3,161,241). Unrealised gains arising on financial assets at fair value totalled £1,710,418
(2017: loss - £613,723). Administrative expenses of £1,064,151 for the year, before bad debt provisions for continuing
operations, remained in line with those incurred during the previous year (2017: £1,003,630). No bad debt provisions
were taken against amounts due from subsidiary undertakings during the year (2017: £1,543,888).
During the year, the Company raised £1.2m via an oversubscribed placing of 200,000,000 ordinary shares to fund the
Company's share of costs of work programmes across its portfolio. This included the successful flow testing of the Podere
Maiar well in Italy in Q1 2018; the tie in at the Bainet-1 gas discovery in Romania in Q2 2018; and work to further
delineate the gas discovery at Tesorillo in Spain.
In October the Company raised £480,000 of debt capital through the issue of loan notes. These funds were raised
primarily to fund the Company's share of the budgeted early stage development costs (including environmental
monitoring) at the Selva gas discovery on the Podere Gallina Permit in Italy. The loan notes bear interest at 10% per
annum, capitalised to 30 June 2019, with the first biannual cash payment on 31 December 2019. Capital repayments
start in December 2020 with final repayment on 30 June 2022 (four equal payments).
As at 31 December 2018, the Company held cash and cash equivalents of £233,138 (2017: £850,060). Subsequent to
the reporting period, in March 2019, the Company raised £800,000 gross via an oversubscribed placing of 400,000,000
new ordinary shares primarily to fund the Company's share of costs for the 2019 work programme at Suceava which
includes plans to drill the Bainet-West prospect.
3
Prospex Oil And Gas Plc
Chairman's Report
for the year ended 31 December 2018
Outlook
In little more than 18 months, we have acquired material interests in three European onshore projects, drilled two wells,
resulting in two commercial gas discoveries, brought one of these onto production, booked maiden gas reserves for the
other, and now we have reported our first net profit. The rapid progress we have made is testament to the quality of
our asset base and the rigorous screening process we apply to all potential new ventures. Our focus on late stage
projects in proven hydrocarbon regions with drill-ready prospects, multiple follow-up targets, access to existing
infrastructure and short timelines to activity has served us well. We intend to build on this success going forward and
while there is still much to go for with our existing assets, we continue to evaluate potential new projects to grow our
portfolio further.
Key to delivering shareholder value is hitting the milestones we set ourselves. Drilling success, first production and
acquisitions do not happen overnight. An investment of considerable time and resources lie behind all these
achievements. The seeds of the successes disclosed over the course of 2018 were very much planted in prior reporting
periods. With an eye on future value generating activity, the year under review has been no different. Much work has
taken place to ensure that 2018's success is no one-off and that, importantly, our shareholders continue to be exposed
to the consistent flow of high impact activity that we set out to deliver. Thanks to the work carried out over the course
of the year, shareholders can expect more of the same in 2019 and beyond.
Finally, I would like to take this opportunity to thank the Board and the management team for their continued hard work
and support over the course of the year. I look forward to working with them all in the year ahead, as we focus on
delivering on our overriding objective which remains to generate value for all our shareholders.
Bill Smith
Non-Executive Chairman
11 June 2019
4
Prospex Oil And Gas Plc
Corporate governance
for the year ended 31 December 2018
Corporate Governance is a term used to describe the methods by which your Board of Directors set the strategic aims
of the Company, provide leadership to achieve the goals and manage the risks the Company faces. Whilst there is a
significant body of regulation which pertains to Corporate Governance, fundamentally your Board believes good
governance is based on integrity of people and process, setting the right goals, having the right people and tools to
achieve the goals and acting in a disciplined fashion to understand and manage risks inherent in the business. This is a
way of life, not an abstract set of rules imposed by regulators.
To assist the Board in reporting to shareholders and to provide a framework to gauge action against, the Company has
adopted the QCA Corporate Governance Code which is widely recognised. We believe that the governance practices at
Prospex are aligned with the ten principles of good governance set out in the Code, but where there are variations, this
report will explain the differences. Some elements of the reporting are found in the Annual Reports of the Company sent
to all shareholders and others on the Company's website (www.prospexoilandgas.com) with a full index to reporting
found on the website.
As non-executive Chair, I have responsibility for leadership of corporate governance and, in conjunction with
management, establishing appropriate agendas for Board meetings, ensuring that the executives and the Board are fully
engaged in appropriate aspects of strategy development, decision making, risk analysis and overall implementation.
The Ten Principles in relation to Prospex
Principle 1 - Establish a strategy and business model which promote long term value for shareholders.
The Corporate strategy is to increase shareholder value through building a sizable oil and gas investment portfolio
focusing on high impact onshore, shallow and offshore European opportunities located in working hydrocarbon systems.
Building a portfolio can set a number of challenges, including: geological selection, whilst the team are experienced, the
nature of the business that includes an element of exploration is inherently risky; the number of opportunities are finite
and, in developing the value opportunities, are exposed to a number of political and commercial risks that have to be
navigated.
Principle 2 - Seek to understand and meet shareholder needs and expectations.
The primary communication tool is the Company's website, which sets out details of implementation of the strategy,
including acquisition of a diverse portfolio of assets, participating in the drilling of three wells resulting in two commercial
gas discoveries and value enhancing activities in all areas of interest. This frames the shareholder expectation as an
investment in a small, but growing, oil and gas investment company.
New information is released via the regulatory news service (RNS) and the website is update accordingly. The annual
general meeting gives a formal forum for two-way communication. In addition, investor presentations, investor meetings
and investor conference attendance are opportunities for investor commentary, as are informal communications. The
Managing Director, Edward Dawson, is the primary contact with the overall investment community.
Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long
term success.
While the principal focus of a listed company is to enhance value for its investors, Prospex has positive engagement with
a wide and diverse set of stakeholders and is involved in socially responsible activities. One of the primary social benefits
is to increase access to energy, including electrical power when natural gas is used to generate electricity, for those
regions in which the Company invests. Environmental protection is a key element in all development decisions and
extensive consultation with residents and regulators is undertaken prior to any work.
Hydrocarbon exploration and development is a highly regulated business in all jurisdictions, and, in all active investments,
the Company, together with the Joint Venture Operator, actively engages with the regulators.
Through its relationship with the Operators on the joint-ventures, the Company endeavours to ensure that Corporate
Social responsibility opportunities are sought and enabled, formally through community projects and informally through
employment of local residents and contractors. The directors’ collective experience in oil and gas businesses, including
past experience with deep water drilling and production, has embedded a safety-oriented culture in the Company which
it brings to all its joint venture dealings.
5
Prospex Oil And Gas Plc
Corporate governance
for the year ended 31 December 2018
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the
organisation.
Risk is inherent in all aspects of oil and gas activity, but the Company mitigates its risks through careful opportunity
review and modelling, thorough due diligence, pursuing assets in areas with stable governments with appropriate fiscal
regimes, and selecting investments with a variety of risk/reward exposure. A focus on value creation permeates all
corporate activities from initial business development review, to detailed geological assessment, including financial
modelling to post activity review for the purpose of formalising learnings from success and opportunities for improvement.
No significant expenditure is authorised without formal Board review, either in an annual budget or on a case by case
basis for larger projects. Joint venture partners and key suppliers are subject to extensive review for experience, integrity
and ability, not simply on a low-cost basis. As the Company proceeds to natural gas production, additional risks will be
identified and individuals with the skills and experience required will be retained.
Principle 5 - Maintain the Board as a well-functioning, balanced team led by the chair.
Non-executive Directors with diverse backgrounds and experience form the majority on the Board of Directors. As the
Company is in a stage of rapid development, the Directors meet many times a year, with formal meetings at least once
per calendar quarter. Given the small size of the Board, there is frequent communication among the Board members and
between each Non-Executive Director ("NED") and the staff at all levels. Audit committee and remuneration committee
functions are reserved for the NEDs. All of the Non-Executive Directors are considered independent as recommended by
the QCA Code.
Principle 6 - Ensure that between them the directors have the necessary up to date experience, skills and
capabilities.
The Board discusses its own performance and undertakes a skills assessment, recruiting to fill needs as required. The
website has detailed information about each director’s education, experience and skills. The current group of directors
all have international oil and gas experience in multiple jurisdictions, and are currently or have been, executives and
directors of more than a dozen listed companies.
Principle 7 - Evaluate Board performance on clear and relevant objectives, seeking continuous improvement.
A desire for continuous improvement pervades all aspects of Prospex. A Board review of its own performance and
composition are on the Board agenda at least once per year. Each of the Directors is or has been a NED of other
businesses and thus has maturity and experience in such reviews. From time to time, a skills analysis discussion is
undertaken with recognition that, as the Company grows in complexity, additional skills will be required. However,
Prospex does not currently have written criteria of board performance nor expectations.
Principle 8 - Promote a corporate culture that is based on ethical values and behaviours.
At this time, with a small number of staff, everyday interactions are sufficient to communicate throughout the
organisation that integrity is a cornerstone of the Company and no unethical behaviour will be tolerated. As the Company
grows, this ethos will be maintained with enhancement through formal policies. Internal financial controls in place are
appropriate for a company the size and complexity of Prospex but will be added to as the business grows.
Principle 9 - Maintain governance structures and processes that are fit for purpose and support good
decision-making by the board.
Each NED brings a specific skill set and experience which is important for the Company to achieve its objectives. On a
regular basis, the NED will work directly with the Company staff to support activity, ranging from negotiating and
documenting transaction terms to detailed technical review of prospective investment opportunities. Given the size of
the Company and the size of the Board, the functions of Audit Committee and Remuneration Committee are maintained
by the Board as a whole led by an individual NED. As the Company grows, formal committee structures and defined term
of reference for the Committees will be developed.
Principle 10 - Communicate how the company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders.
The website is the main repository of information about the Company's current activity in each project area and also
includes the current and past Annual Reports which describe the work of the Company and the Board. New information
is released via the regulatory news service (RNS) and the website is update accordingly. Having adopted the QCA Code,
Annual Reports include a summary of the activity of the main committees including the Audit Committee and the
Remuneration Committee. Any interested party seeking more information or to express a view is invited to contact the
MD or the Chair directly using the contact information contained in the website.
Remuneration committee
The Remuneration Committee consists of William Smith and Richard Mays who also chairs the committee, and is
responsible for making recommendations to the Board, within agreed terms of reference, on the Company's framework
of executive remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits
for any executive directors, including performance related bonus schemes, pension rights and compensation payments.
The Board itself determines the remuneration of the non-executive directors.
6
Prospex Oil And Gas Plc
Corporate governance
for the year ended 31 December 2018
Audit committee
The Audit Committee consists of Richard Mays and William Smith, who also chairs the committee, and provides a forum
for reporting by the Company's external auditors. The Committee is responsible for reviewing a wide range of matters,
including half-year and annual results before their submission to the Board, and for monitoring the controls that are in
force to ensure the integrity of information reported to shareholders. The Committee advises the Board on the
appointment of external auditors and on their remuneration for both audit and non-audit work, and discusses the nature,
scope and results of the audit with the external auditors. The Committee keeps under review the cost effectiveness and
the independence and objectivity of the external auditors
7
Prospex Oil And Gas Plc
Strategic Report
for the year ended 31 December 2018
The directors present their strategic report for the year ended 31 December 2018.
PRINCIPAL ACTIVITY
The principal activity of the Company is that of an Investment Company.
STRATEGY
The Company's Investing Policy is to invest in and/or acquire companies and/or projects within the natural resources
and/or energy sector with potential for growth and/or income. The Company may also directly apply for new exploration
licences or invest in existing licences. It is anticipated that the geographical focus will primarily be Europe. However,
investments may also be considered in other regions should the directors consider that valuable opportunities exist, and
returns can be achieved.
BUSINESS REVIEW
A review of the development and performance of the Company, including important events, progress during the year
and likely future developments, can be found in the Chairman's Statement.
In summary:
- administrative expenses, before bad debt provision for continuing operations for the year rose to £1,064,151 (2017:
£1,003,630)
- bad debt provision against amount due from subsidiary undertaking - £nil (2017: £1,543,888)
- unrealised gain arising on financial assets at fair value through profit or loss was £1,710,418 (2017: unrealised loss -
£613,723)
- net profit after taxation from continuing operations was £779,904 (2017: loss - £3,161,241)
- as at 31 December 2018, the Company had cash and cash equivalents of £233,138 (2017: £850,060)
KEY PERFORMANCE INDICATORS
The business Key Performance Indicator ('KPI') monitored by the Board is focussed on managing the investing activities
of the Company. The financial KPI is to ensure that there is adequate funding in place to cover the Company's investing
activities and holding company costs.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company invests in early stage investments in the natural resources sector which is subject to a range of inherent
risks and uncertainties. Being at an early stage, the prime risks to which the Group is subject are the access to sufficient
funding to continue its operations, the status and financing of its partners, changes in cost and reserves estimates for
its investment assets, changes in forward commodity prices and the successful development of its oil and gas reserves.
Key risks and associated mitigation are set out below.
Investment returns: Management seeks to raise funds and then to generate shareholder returns through
investment in a portfolio of exploration and development entities leading to the drilling of wells, the discovery of
commercial reserves followed by their exploitation. Delivery of this business model carries several key risks.
Risk
Market support may be eroded obstructing fundraising
and lowering the share price
Mitigation
Management regularly communicates
its strategy
to
shareholders
Focus is placed on building an asset portfolio capable of
delivering regular news
flow and offering continuing
prospects
General market conditions may fluctuate, hindering
delivery of the Company’s business plan
Management aims to retain adequate working capital and
secure finance facilities sufficient to ride out down-turns
should they arise
Each asset carries its own risk profile and no outcome can
be certain
Management aims to avoid over-exposure to individual
assets and to identify the associated risks objectively
Company may not be able to raise funds to exploit its
assets or continue as a going concern
Management maintains regular dialogue with a variety of
potential funding partners.
8
Prospex Oil And Gas Plc
Strategic Report
for the year ended 31 December 2018
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Investments: Investments may not go to plan, leading to damage, pollution, cost overruns and poor outcomes.
Risk
Individual investments may not deliver recoverable oil
and gas reserves
Mitigation
A commitment to invest is only made after thorough research
into both the management and the business of the target,
both of which are closely monitored thereafter
Resource estimates may be misleading curtailing actual
reserves recovered
Regular third-party reports are commissioned. A prudent
range of possible outcomes are considered within the
planning process
Personnel: The Company relies upon a pool of experienced and motivated personnel to identify and execute
successful investment strategies
Risk
Key personnel may be lost to other companies
Mitigation
The Remuneration Committee
regularly
evaluates
incentivisation schemes to ensure they remain competitive
The competition for qualified personnel in the oil and gas
industry can be intense and there can be no assurance
that the Company will be able to attract and retain all
personnel necessary in the required jurisdictions for the
future development and operation of its business
The Company continues to review and adopt attractive
packages for both staff and contractors
Commercial environment: World and regional markets continue to be volatile with fluctuations and infrastructure
access issues that might hinder the Company’s business success.
Risk
Volatile commodity prices mean that the Company
investments cannot be certain of the future sales value
of its products
Mitigation
Gas may be sold under long-term contracts reducing
exposure to short term fluctuations oil and gas price hedging
contracts may be utilised where viable
Brexit
on its business model
The Group does not see Brexit having any significant impact
ON BEHALF OF THE BOARD:
E R Dawson - Director
Date: 11 June 2019
9
Prospex Oil And Gas Plc
Report of the Directors
for the year ended 31 December 2018
The directors present their report and financial statements for the year ended 31 December 2018.
DIVIDENDS
No dividends will be distributed for the year ended 31 December 2018.
The results for the year are set out on page 16.
EVENTS SINCE THE END OF THE YEAR
Information relating to events since the end of the year is given in the notes to the financial statements.
DIRECTORS
The directors shown below have held office during the whole of the period from 1 January 2018 to the date of this report.
E R Dawson
Dr. R P Mays
W H Smith
J N Smith
The Directors of the Company held the following beneficial interests in the ordinary shares of the Company:
Edward Dawson
Richard Mays
William Smith
James Smith
2018
No. of shares
5,272,919
2,811,474
9,139,344
10,000,000
2017
No. of shares
2,639,344
2,811,474
9,139,344
4,000,000
Share options and share warrants
The Directors of the Company held share options granted under the Company share option scheme and warrants to
subscribe for shares as indicated below. No share options or warrants were exercised during the year. Full details of the
share options and warrants held are disclosed in note 24 to the financial statements.
Share options
Edward Dawson
Richard Mays
William Smith
James Smith
Share warrants
Edward Dawson
Richard Mays
William Smith
James Smith
2018
No. of shares
24,322,148
14,720,508
14,720,508
11,831,168
2017
No. of shares
24,332,148
14,720,508
14,720,508
11,831,168
65,594,332
65,594,332
2018
No. of shares
-
2,750,000
2,750,000
1,375,000
2017
No. of shares
-
-
-
-
6,875,000
-
FINANCIAL INSTRUMENTS
The company's financial risk management objectives and policies are set out in note 19 to the financial statements.
GOING CONCERN
In common with many investment companies, the Company raises finance for its investments, as and when required.
The Directors prepare annual budgets and cash flow projections that extend beyond 12 months from the date of this
report.
10
Prospex Oil And Gas Plc
Report of the Directors
for the year ended 31 December 2018
DIRECTORS' INSURANCE
The Directors and officers of the Company are insured against any claims against them for any wrongful act in their
capacity as a Director, officer or employee of the Company, subject to the terms and conditions of the policy
SUBSTANTIAL SHAREHOLDINGS
The Company has been notified of the following voting rights as a shareholder of the company as at 24 April 2019:
Simon Chantler
No. of ordinary
shares
73,000,000
% of issued
share capital
4.50%
The market value of the Company's shares at 31 December 2018 was 0.27p and the high and low share prices during
the period were 0.69p and 0.22p respectively.
CREDITOR PAYMENT POLICY
The company's current policy concerning the payment of trade creditors is to:
- settle the terms of payment with suppliers when agreeing the terms of each transaction;
- ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
- pay in accordance with the company's contractual and other legal obligations.
On average, trade creditors at the year-end represented 20 days' purchases.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies
Act 2006) of which the company's auditors are unaware, and each director has taken all the steps that he or she ought
to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish
that the company's auditors are aware of that information.
AUDITORS
The auditors, Adler Shine LLP, will be proposed for re-appointment at the forthcoming Annual General Meeting.
ON BEHALF OF THE BOARD:
E R Dawson - Director
Date: 11 June 2019
11
Prospex Oil And Gas Plc
Statement of Directors' Responsibilities
for the year ended 31 December 2018
Company law requires the Directors to prepare financial statements for each financial year. The Directors have, as
required by the AIM Rules of the London Stock Exchange, elected to prepare the Company financial statements in
accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU).
The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and
performance of the Company; the Companies Act 2006 provides in relation to such financial statements that references
in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair
presentation.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In
preparing each of the Company financial statements the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether the financial statements have been prepared in accordance with IFRSs as adopted by the EU, subject to
any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The maintenance and integrity of the company's website is the responsibility of the Directors. The Directors' responsibility
also extends to the ongoing integrity of the financial statements contained therein.
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website.
Financial statements are published on the company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may vary from legislation in other
jurisdictions.
12
Report of the Independent Auditors to the Members of
Prospex Oil And Gas Plc
Opinion
We have audited the financial statements of Prospex Oil And Gas Plc (the 'company') for the year ended
31 December 2018 which comprise the Statement of Profit or Loss and Other Comprehensive Income, the Statement of
Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and Notes to the Statement of Cash
Flows, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
In our opinion the financial statements:
- give a true and fair view of the state of the company's affairs as at 31 December 2018 and of its profit for the year
then ended;
- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the
financial statements section of our report. We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to
you where:
- the directors' use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
- the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the company's ability to continue to adopt the going concern basis of accounting for a period
of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The key audit matters identified were:
Going concern
Area of focus
Refer to Note 2 to the financial statements for the directors' disclosures of related accounting policies, judgements and
estimates. The Directors have concluded that the Company has sufficient cash resources and cash inflows to continue its
activities for not less than twelve months from the date of approval of these financial statements and have therefore
prepared these financial statements on a going concern basis.
The Company has cash and cash equivalents of £233,138 at 31 December 2018 having raised £1,618,938 through the
issue of loan notes and ordinary shares. In March 2019, the Company has raised a further £800,000 before expenses
following the issue of new ordinary shares.
Management produces a cash flow forecast based on the board plans.
The key judgment within the cash flow forecast that we particularly focused on are:
• The continued availability of funding.
• Flexibility of development programme.
• Cash outflows expected from investing activities.
How our audit addressed the area of focus
We assessed the reasonableness and support for the judgments underpinning management's forecast, as well as
the sensitivity of projections to these judgements.
We reviewed managements financing plans.
We considered the reasonableness of the assumptions within management's proposed plan.
Our conclusion on management's use of the going concern basis of accounting is included in the going concern section
of the report.
13
Report of the Independent Auditors to the Members of
Prospex Oil And Gas Plc
Valuation of Investments
Area of focus - Fair Value of PXOG Marshall Limited
The fair value of the investments that are not traded on the active market is determined using the valuation
techniques such as NPV analysis. During the year Prospex Oil and Gas had, and continues to have, a 17% working
interest in the Podere Gallina Exploration Permit in the Po Valley region of Italy, a proven play in a prolific
hydrocarbon region. A total gain of £1,179,784 was recognised on this investment for the year ended 31 December
2018.
Management utilised an NPV model to calculate the increase in value of this investment as of the year ended 31
December 2018.
How our audit addressed the area of focus
We obtained a copy of the NPV model used and a copy of CPR report to calculate the increase in valuation of
investment.
We reviewed the CPR report in respect of the investment made. We gained an understanding of the key assumptions
and judgements underlying the model. We reviewed the NPV calculations provided considering the various
scenario’s modelled. We assessed the appropriateness of the methodology applied and tested the mathematical
accuracy of the models.
We considered the increase in the valuation of investment in the financial statements of the Company to be
reasonable.
Area of focus - Fair Value of PXOG Massey Limited
In August 2017, 50% working interest was acquired in the exploration area of the Suceava license from Raffles
Energy, who are the block operator. During the year the license started to generate gas sales which have been
recognised in the Company’s subsidiary. The directors have also prepared an NPV calculation which resulted in a
gain in valuation of £584,994 being recognised in the financial statements.
How our audit addressed the area of focus
We have reviewed the NPV calculations provided. We have gained an understanding of the key assumptions and
judgements made underlying the model. We assessed the appropriateness of the methodology applied and tested
the mathematical accuracy of the models.
We considered the increase in the valuation of investment in the financial statements of the Company to be
reasonable.
Our application of materiality
Materiality for the Company was £82,450 (2017: £72,000) based on an average of 5% of adjusted profit before
tax and 2% of net assets (2016: based on 5% of adjusted loss before tax and 2% on net assets).
Profit before tax is the key metric, we believe, as it is most commonly used by the shareholders as a body in
assessing the Company’s performance. In the case of the Company, the value of its investments and assets are
also key, as the Company is still in the development stage. We therefore considered that materiality weighted on
the profit for the year, but which also considered the net assets of the Company to be reasonable.
Other information
The directors are responsible for the other information. The other information comprises the information in the Annual
Report but does not include the financial statements and our Report of the Auditors thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard.
14
Report of the Independent Auditors to the Members of
Prospex Oil And Gas Plc
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the Strategic Report and the Report of the Directors for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
- the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Report of the Directors.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to
you if, in our opinion:
- adequate accounting records have not been kept, or returns adequate for our audit have not been received from
branches not visited by us; or
- the financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of directors' remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Statement of Directors' Responsibilities set out on page 12, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to
do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue a Report of the Auditors that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those
matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the opinions we have formed.
Darsh K Shah (Senior Statutory Auditor)
for and on behalf of Adler Shine LLP
Chartered Accountants & Statutory Auditor
Aston House
Cornwall Avenue
London
N3 1LF
Date: 11 June 2019
15
Prospex Oil And Gas Plc
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2018
CONTINUING OPERATIONS
Revenue
Other operating income
Administrative expenses
OPERATING LOSS
Notes
4
5
2018
£
-
60,601
(1,064,151)
2017
£
-
-
(2,547,518)
(1,003,550)
(2,547,518)
Gain/(loss) on revaluation of investments
12
1,710,418
(613,723)
Loss on disposal of investment
Finance costs
Finance income
PROFIT/(LOSS) BEFORE INCOME TAX
Income tax
PROFIT/(LOSS) FOR THE YEAR
OTHER COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE
INCOME/(LOSS) FOR THE YEAR
Earnings per share expressed
in pence per share:
Basic
7
7
8
9
10
(8,407)
698,461
(10,840)
92,283
779,904
-
779,904
-
-
(3,161,241)
-
-
(3,161,241)
-
(3,161,241)
-
779,904
(3,161,241)
0.065p
(0.580)p
16
Prospex Oil And Gas Plc (Registered number: 03896382)
Statement of Financial Position
31 December 2018
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Investments
Loans and other financial assets
Trade and other receivables
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital
Share premium
Merger reserve
Capital redemption reserve
Retained earnings
TOTAL EQUITY
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities - borrowings
Interest bearing loans and borrowings
CURRENT LIABILITIES
Trade and other payables
Financial liabilities - borrowings
Interest bearing loans and borrowings
TOTAL LIABILITIES
Notes
11
12
13
14
14
15
16
18
17
18
2018
£
-
4,307,617
1,013,129
897,371
6,218,117
396,626
233,138
629,764
2017
£
429
2,426,789
1,062,587
-
3,489,805
149,231
850,060
999,291
6,847,881
4,489,096
6,035,587
9,756,759
2,416,667
43,333
(11,955,212)
5,835,587
8,862,779
2,416,667
43,333
(12,735,116)
6,297,134
4,423,250
360,000
70,747
120,000
190,747
550,747
-
65,846
-
65,846
65,846
TOTAL EQUITY AND LIABILITIES
6,847,881
4,489,096
The financial statements were approved by the Board of Directors on 11 June 2019 and were signed on its behalf by:
E R Dawson - Director
17
Prospex Oil And Gas Plc
Statement of Changes in Equity
for the year ended 31 December 2018
Note
Share capital
£
Share
premium
£
Merger
reserve
£
Capital
redemption
reserve
£
Retained
earnings
£
Total
£
Balance at 1 January 2017
5,107,779
6,740,144
2,416,667
43,333
(9,754,371)
4,553,552
Changes in equity
Loss for the year
Issue of shares
Costs of shares issued
Equity-settled share-based payments
-
727,808
-
-
-
2,372,193
(239,416)
(10,142)
-
-
-
-
-
-
-
-
(3,161,241)
-
-
180,496
(3,161,241)
3,100,001
(239,416)
170,354
Balance at 31 December 2017
5,835,587
8,862,779
2,416,667
43,333
(12,735,116)
4,423,250
Changes in equity
Profit for the year
Issue of shares
Costs of shares issued
Equity-settled share-based payments
-
-
16
200,000
-
-
1,000,000
(106,020)
-
-
-
-
-
-
-
-
-
779,904
-
-
-
779,904
1,200,000
(106,020)
-
Balance at 31 December 2018
6,035,587
9,756,759
2,416,667 43,333 (11,955,212)
6,297,134
Share capital
Represents the nominal value of the issued share capital.
Share premium account
Represents amounts received in excess of the nominal value on the issue of share capital less any costs associated with the issue of shares.
Merger reserve
Represents the difference between the nominal value of the share capital issued by the Company and the fair value of the subsidiary at the date of
acquisition.
Capital redemption reserve
A reserve into which amounts are transferred following the redemption or purchase of the company’s own shares.
Retained earnings
Represents accumulated comprehensive income for the year and prior periods.
18
Prospex Oil And Gas Plc
Statement of Cash Flows
for the year ended 31 December 2018
Notes
Cash flows from operating activities
Cash generated from operations
1
Net cash used in operating activities
Cash flows from investing activities
Purchase of fixed asset investments
Sale of fixed asset investments
Interest received
Dividends received
Net cash used in investing activities
Cash flows from financing activities
New loans in year
Loan repayments in year
Share issue
Costs of shares issued
Net cash from financing activities
2018
£
(2,062,306)
(2,062,306)
(246,040)
67,223
2
5,261
(173,554)
480,000
44,958
1,200,000
(106,020)
1,618,938
2017
£
(972,151)
(972,151)
(1,504,787)
-
-
-
(1,504,787)
-
-
3,100,001
(239,416)
2,860,585
(Decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at beginning of
year
Cash and cash equivalents at end of year
2
2
(616,922)
383,647
850,060
466,413
233,138
850,060
19
Prospex Oil And Gas Plc
Notes to the Statement of Cash Flows
for the year ended 31 December 2018
1.
RECONCILIATION OF PROFIT/(LOSS) BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
Profit/(loss) before income tax
Depreciation charges
Loss on disposal of fixed assets
(Gain)/loss on revaluation of fixed assets
Equity-settled share-based payments
Bad debt provision
Finance costs
Finance income
Increase in trade and other receivables
Decrease in trade and other payables
2018
£
779,904
429
8,407
(1,797,438)
-
-
10,840
(5,263)
2017
£
(3,161,241)
420
-
613,723
170,354
1,543,888
-
-
(1,003,121)
(1,057,746)
(1,439)
(832,856)
(117,465)
(21,830)
Cash generated from operations
(2,062,306)
(972,151)
2.
CASH AND CASH EQUIVALENTS
The amounts disclosed on the Statement of Cash Flows in respect of cash and cash equivalents are in respect of
these Statement of Financial Position amounts:
Year ended 31 December 2018
Cash and cash equivalents
Year ended 31 December 2017
Cash and cash equivalents
31.12.18
£
233,138
1.1.18
£
850,060
31.12.17
£
850,060
1.1.17
£
466,413
20
Prospex Oil And Gas Plc
Notes to the Financial Statements
for the year ended 31 December 2018
1.
STATUTORY INFORMATION
Prospex Oil and Gas Plc is registered in England and Wales and is quoted on the AIM Market of the London Stock
Exchange Plc. The Company's registered number and registered office address can be found on the Company
Information page.
The presentation currency of the financial statements is the Pound Sterling (£).
2.
ACCOUNTING POLICIES
Basis of preparation
The Company financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union, (IFRSs) and International Financial Reporting Interpretations
Committee ('IFRIC') interpretations issued by the International Accounting Standards Board (IASB) as adopted
by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under
IFRS.
The Company financial statements have been prepared under the historical cost convention or fair value where
appropriate.
Preparation of consolidated financial statements
Subsidiaries include all entities over which the Company has the power to govern financial and operating policies.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered
when assessing whether the Company controls another entity. Subsidiaries are consolidated from the date on
which control commences until the date that control ceases. Intra-group balances and any unrealised gains and
losses on income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated
financial statements.
The Company is an investment entity and, as such, does not consolidate the investment entities it controls. The
Company's interests in subsidiaries are recognised at fair value through profit and loss.
Going concern
The current economic environment is challenging, and the Company has reported an operating loss for the year
of £1,003,550. These operating losses are expected to continue in the current accounting year to 31 December
2019.
The Company regularly carries out fund-raising exercises in order that it can provide the necessary working
capital and investment funds for the Company. As detailed in note 21, since the year end, the Company has
raised £800,000 before expenses, through the issue of new ordinary shares. The board expects to continue to
raise additional funding as and when required to cover the Group's development, primarily from the issue of
further shares.
The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date
of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions
based upon their view of the current and future economic conditions that are expected to prevail over the forecast
period. The Directors estimate that the cash held by the Company together with known receivables will be
sufficient to support the current level of activities into the second quarter of 2020. The Directors are continuing
to explore sources of finance available to the Company and based upon initial discussions with a number of
existing and potential investors they have a reasonable expectation that they will be able to secure sufficient
cash inflows for the Company to continue its activities for not less than 12 months from the date of approval of
these financial statements; they have therefore prepared the financial statements on a going concern basis.
Property, plant and equipment
Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value
of each asset over its estimated useful life.
Computer equipment
- 25% per annum on reducing balance
21
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
2.
ACCOUNTING POLICIES - continued
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when the Company becomes a party
to the contractual provisions of the instrument.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. The principal financial assets of the company are loans and receivables, which arise principally
through the provision of goods and services to customers (e.g. trade receivables) but also incorporate other types
of contractual monetary asset. They are included in current assets, except for maturities greater than 12 months
after the balance sheet date. These are classified as non-current assets.
The Company's loans and receivables are recognised and carried at the lower of their original amount less an
allowance for any doubtful amounts. An allowance is made when collection of the full amount is no longer
considered possible.
The Company's loans and receivables comprise trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets
of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar
debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented
as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the
profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding
liability.
Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability
then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited
direct to equity.
Equity comprises the following:
- Share capital represents the nominal value of equity shares;
- Share premium represents the excess over nominal value of the fair value of consideration received for equity
shares, net of expenses of the share issue;
- Profit and loss reserve represents retained deficit;
- Other reserve represents the capital redemption reserve arising on redemption of shares in previous years and
own share reserve.
Taxation
Current taxes are based on the results shown in the financial statements and are calculated according to local
tax rules, using tax rates enacted or substantially enacted by the statement of financial position date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is determined
using tax rates that have been enacted or substantially enacted at the balance sheet date and are expected to
apply when the related deferred income tax asset is realised, or the deferred tax liability is settled. Deferred tax
is charged or credited in the income statement, except when it relates to items charged or credited to equity, in
which case the deferred tax is also dealt with in equity. Deferred tax assets are only recognised to the extent
that it is probable that future taxable profit will be available against which the asset can be utilised.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and short-term deposits with an original maturity of
three months or less.
Trade and other payables
Trade and other payables are initially measured at fair value and subsequently measured at amortised cost using
the effective interest rate method.
22
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
2.
ACCOUNTING POLICIES - continued
Hire purchase and leasing commitments
Rentals paid under operating leases are charged to the statement of comprehensive income on a straight-line
basis over the period of the lease.
Employee benefit costs
The company operates a defined contribution pension scheme. Contributions payable to the company's pension
scheme are charged to the income statement in the period to which they relate.
Equity-settled share-based payment
The Company makes equity-settled share-based payments. The fair value of options granted is recognised as an
expense, with a corresponding increase in equity. The fair value is measured at grant date and spread over the
vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. The fair
value of the options granted is measured based on the Black-Scholes framework, taking into account the terms
and conditions upon which the instruments were granted. At each balance sheet date, the Company revises its
estimate of the number of options that are expected to become exercisable. It recognises the impact of the
revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
Accounting standards issued but not yet effective and/or adopted
As at the date of approval of these financial statements, the following standards were in issue but not yet
effective. These standards have not been adopted early by the company as they are not expected to have a
material impact on the company's financial statements.
Effective date
(period beginning
on or after)
IFRS 3, IFRS 11,
Amendments resulting from Annual Improvements 2015-2017 Cycle
IAS12, IAS 23
Amendments - Definition of a Business
IFRS 3
Amendment - Prepayment features with negative compensation
IFRS 9
Leases - recognition, measurement, presentation and disclosure
IFRS 16
Insurance contracts
IFRS 17
IAS 1 and IAS 8 Amendments - Definition of Material
IAS 19
IAS 28
Amendment - Plan Amendment, Curtailment or Settlement
Amendment - Long term interests in Associates and Joint Ventures
01/01/2019
01/01/2020
01/01/2019
01/01/2019
01/01/2021
01/01/2020
01/01/2019
01/01/2019
The International Financial Reporting Interpretations Committee has also issued interpretations which the
company does not consider will have a significant impact on the financial statements.
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of the financial information in conformity with IFRS requires the use of certain critical accounting
estimates that affect the reported amounts of assets and liabilities at the date of the financial information and
the reported amounts of revenue and expenses during the reporting period. Although these estimates are based
on management's best knowledge of the amounts, events or actions, actual results ultimately may differ from
these estimates. The estimates and underlying assumptions are as follows:
Investment entities
The judgements, assumptions and estimates involved in the Company's accounting policies that are considered
by the Board to be the most important to the portrayal of its financial condition are the fair valuation of the
investment and the assessment regarding investment entities. The investment portfolio is held at fair value. The
Directors review the valuations policies, process and application to individual investments.
Entities that meet the definition of an investment entity within IFRS 10 are required to account for most
investments in controlled entities, as well as investments in associates and joint ventures, at fair value through
profit and loss. The Board has concluded that the Company continues to meet the definition of an investment
entity as its strategic objective of investing in portfolio investments for the purpose of generating returns in the
form of investment income and capital appreciation remains unchanged.
23
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY –
continued
Fair value is the underlying principle and is defined as "the price that would be received to sell an asset in an
orderly transaction between market participants at the measurement date". Fair value is therefore an estimate
and, as such, determining fair value requires the use of judgement. The quoted assets in our portfolio are valued
at their closing bid price at the balance sheet date. The largest investment in the portfolio, however, is
represented by an unquoted investment.
Impairment of assets
The Company's principal investments are in wholly owned unquoted subsidiaries which each have a minority
interest in overseas entities with oil and gas assets.
The Company is required to test, on an annual basis, whether its non-current assets have suffered any
impairment. Determining whether these assets are impaired requires an estimation of the value in use of the
cash-generating units to which the assets have been allocated. The value in use calculation requires the Directors
to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate to
calculate the present value. Subsequent changes to the cash generating unit allocation or to the timing of cash
flows could impact on the carrying value of the respective assets.
The calculation of value-in-use for oil and gas assets under development or in production is most sensitive to the
following assumptions:
- Commercial reserves
- production volumes;
- commodity prices;
- fixed and variable operating costs;
- capital expenditure; and
- discount rates.
A potential change in any of the above assumptions may cause the estimated recoverable value to be lower than
the carrying value, resulting in an impairment loss. The assumptions which would have the greatest impact on
the recoverable amounts of the fields are production volumes and commodity prices
Recoverability of other financial assets
The majority of the Company's financial assets represent loans provided to its subsidiaries, which are associated
with funding of mineral exploration and development projects. The recoverability of such loans is dependent upon
the discovery of economically recoverable reserves, the ability of the Company to maintain necessary financing
to complete the development of the reserves and future profitable production or proceeds from the disposition
thereof.
Share based payments
The estimates of share-based payments requires that management selects an appropriate valuation model and
make decisions on various inputs into the model including the volatility of its own share price, the probable life
of the options before exercise, and behavioural consideration of employees.
Deferred tax assets
Deferred taxation is provided for using the liability method. Deferred tax assets are recognised in respect of tax
losses where the Directors believe that it is probable that future profits will be relieved by the benefit of tax losses
brought forward. The Board considers the likely utilisation of such losses by reviewing budgets and medium-term
plans for the Company. The Directors have decided that no deferred tax asset should be recognised at 31
December 2018. If the actual profits earned by the Company differs from the budgets and forecasts used then
the value of such deferred tax assets may differ from that shown in these financial statements.
24
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
4.
REVENUE
Segmental reporting
The Company is an Investing Company. The results for this continuing operation, all of which were carried out in
the UK, are disclosed in the Income Statement. The net assets as at 31 December 2018 as shown on the
Statement of Financial Position all relate to the Investment activity.
5.
OTHER OPERATING INCOME
Sundry receipts
6.
EMPLOYEES AND DIRECTORS
Wages and salaries
Social security costs
Other pension costs
2018
£
60,601
2017
£
-
2018
£
406,603
42,293
20,892
2017
£
283,879
30,088
13,500
469,788
327,467
Under the Pensions Act 2008, every UK employer must put certain staff into a pension scheme and contribute to
it. The Company auto-enrolled its eligible employees in a defined contribution scheme. The charge to the
Statement of Profit or Loss represents the amounts paid to the scheme. At the year end, the amount due to the
pension scheme was £nil (2017: £nil)
The average number of employees during the year was as follows:
Directors
Staff
Directors’ remuneration
Directors’ pension contributions
Details of Directors’ remuneration can be found in note 24.
7.
NET FINANCE INCOME
Finance income:
Dividend received
Interest receivable on group loan
Deposit account interest
Finance costs:
Loan interest payable
Net finance income
25
2018
2017
4
3
7
4
-
4
2018
£
183,400
13,083
2017
£
147,333
12,350
196,483
159,683
2018
£
5,261
87,020
2
92,283
10,840
81,443
2017
£
-
-
-
-
-
-
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
8.
PROFIT/(LOSS) BEFORE INCOME TAX
The profit before income tax (2017 - loss before income tax) is stated after charging/(crediting):
Other operating leases
Depreciation - owned assets
Auditors' remuneration
Foreign exchange differences
Bad debt provision against amounts due from subsidiaries
9.
INCOME TAX
2018
£
42,841
429
20,000
(4,315)
-
2017
£
31,927
420
16,250
(10,752)
1,543,888
Analysis of tax expense
No liability to UK corporation tax arose for the year ended 31 December 2018 nor for the year ended
31 December 2017.
Factors affecting the tax expense
The tax assessed for the year is lower (2017 - higher) than the standard rate of corporation tax in the UK. The
difference is explained below:
Profit/(loss) before income tax
2018
£
779,904
2017
£
(3,161,241)
Profit/(loss) multiplied by the standard rate of corporation tax in the UK of
19.00% (2017 - 19.25%)
148,182
(608,539)
Effects of:
Non-deductible expenses
Depreciation add back
Losses used for group relief
Tax losses not utilised
Unrealised chargeable (losses)/gains
Loss on sale of investments
Other tax adjustments
Tax expense
2,222
82
5,124
168,772
(324,979)
1,597
(1,000)
330,280
81
-
164,720
113,458
-
-
-
-
There is no provision for UK Corporation Tax due to adjusted losses for tax purposes, subject to agreement with
HM Revenue and Customs. The deferred asset of approximately £0.98m (2017: £0.93m) arising from the
accumulated tax losses of approximately £5.7m (2017: £4.8m) carried forward has not been recognised but may
become recoverable against future trading profits.
Changes in the applicable tax rates
The main rate of UK corporation tax is 19% effective from 1 April 2017. The main rate will reduce from 19% to
17% from 1 April 2020.
10.
EARNINGS PER SHARE
The loss and number of shares used in the calculation of earnings per ordinary share are set out below:
Basic
Profit/loss) for the financial period
2018
£
2017
£
779,904
(3,161,241)
Weighted average of ordinary shares
1,202,086,287
544.580,539
The loss and the weighted average number of shares used for calculating the diluted loss per share are identical
to those for the basic profit/loss per share. The outstanding share options and share warrants (note 23) exercise
prices are above the average market price of the shares and would therefore not be dilutive under IAS 33
'Earnings per Share'.
26
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
11.
PROPERTY, PLANT AND EQUIPMENT
COST
At 1 January 2018
and 31 December 2018
DEPRECIATION
At 1 January 2018
Charge for year
At 31 December 2018
NET BOOK VALUE
At 31 December 2018
At 31 December 2017
12.
INVESTMENTS
COST OR VALUATION
At 1 January 2017
Additions
Revaluations
At 1 January 2018
Additions (note 14)
Disposals
Revaluations
Computer
equipment
£
1,699
1,270
429
1,699
-
429
Totals
£
2,540,312
500,200
(613,723)
2,426,789
246,040
(75,630)
1,710,418
Shares in
group
Listed
undertakings investments investments
£
Unlisted
£
£
2,308,600
500,200
(665,553)
2,143,247
246,040
-
1,764,778
131,712
-
51,830
183,542
-
(75,630)
(29,360)
100,000
-
-
100,000
-
-
(25,000)
At 31 December 2018
4,154,065
78,552
75,000
4,307,617
NET BOOK VALUE
At 31 December 2018
4,154,065
78,552
75,000
4,307,617
At 31 December 2017
2,143,247
183,542
100,000
2,426,789
The company's investments at the Statement of Financial Position date in the share capital of companies include
the following:
PXOG County Limited
Registered office: England & Wales
Nature of business: Investment entity
Class of shares:
Ordinary
Aggregate capital and reserves
Loss for the year
%
holding
100.00
2018
£
2017
£
(26)
(13)
(13)
(3,852,501)
27
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
12.
INVESTMENTS - continued
PXOG Massey Limited
Registered office: England & Wales
Nature of business: Investment entity
Class of shares:
Ordinary
Aggregate capital and reserves
Profit/(loss) for the year
PXOG Marshall Limited
Registered office: England & Wales
Nature of business: Investment entity
Class of shares:
Ordinary
Aggregate capital and reserves
Profit for the year
PXOG Muirhill Limited
Registered office: England & Wales
Nature of business: Investment company
Class of shares:
Ordinary
Aggregate capital and reserves
Loss for the year
%
holding
100.00
%
holding
100.00
%
holding
100.00
2018
£
585,094
633,417
2017
£
(48,323)
(48,423)
2018
£
3,568,671
1,179,684
2017
£
2,142,947
1,642,947
2018
£
(413)
(513)
2017
£
100
-
Investments are recognised and de-recognised on the date when their purchase or sale is subject to a relevant
contract and the associated risks and rewards have been transferred. The Company manages its investments
with a view to profiting from the receipt of investment income and capital appreciation from changes in the fair
value of investments.
All investments are initially recognised at the fair value of the consideration given and are subsequently measured
at fair value through profit and loss.
Unquoted investments, including both equity and loans are designated at fair value through profit and loss and
are subsequently carried in the statement of financial position at fair value. Fair value is determined in line with
the fair value guidelines under IFRS.
In accordance with IFRS 10, the proportion of the investment portfolio held by the Company's unconsolidated
subsidiaries is presented as part of the fair value of investment entity subsidiaries, along with the fair value of
their other assets and liabilities.
The holding period of the Company's investment portfolio is on average greater than one year. For this reason,
the portfolio is classified as non-current. It is not possible to identify with certainty investments that will be sold
within one year.
Investments in investment entity subsidiaries are accounted for as financial instruments at fair value through
profit and loss and are not consolidated in accordance with IFRS10.
These entities hold the Company's interests in investments in portfolio companies. The fair value can increase or
reduce from either cash flows to/from the investment entities or valuation movements in line with the Company's
valuation policy. The fair value of these entities is their net asset values.
The Directors determine that in the ordinary course of business, the net asset values of an investment entity
subsidiary are considered to be the most appropriate to determine fair value. At each reporting period, they
consider whether any additional fair value adjustments need to be made to the net asset values of the investment
entity subsidiaries. These adjustments may be required to reflect market participants' considerations about fair
value that may include, but are not limited to, liquidity and the portfolio effect of holding multiple investments
within the investment entity subsidiary.
28
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
13.
LOANS AND OTHER FINANCIAL ASSETS
At 1 January 2018
New in year
At 31 December 2018
14.
TRADE AND OTHER RECEIVABLES
Current:
Amounts owed by group undertakings
Other debtors
Rent deposit
VAT
Prepayments and accrued income
Non-current:
Amounts owed by group undertakings
Aggregate amounts
Loans to
group
undertakings
£
1,062,587
(49,458)
1,013,129
2018
£
338,398
36,035
10,242
9,121
2,830
2017
£
113,364
-
2,026
28,408
5,433
396,626
149,231
897,373
-
1,293,999
149,231
The Company provided an interest-free loan to PXOG Marshall Limited, a wholly-owned subsidiary. The fair value
of the financial element of the loan has been calculated by discounting the future cash flow of the loan,
£1,056,391, at the market rate of 10%. The difference between the total loan and the fair value of the loan i.e.
the non-financial element of the loan, has been accounted for as an addition to shares in group undertakings
(note 13).
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
15.
CASH AND CASH EQUIVALENTS
Bank accounts
2018
£
233,138
2017
£
850,060
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
All of the Company's cash and cash equivalents are at floating rates of interest.
16.
CALLED UP SHARE CAPITAL
Allotted, issued and fully paid
Ordinary shares of 0.1p each
Deferred shares of 0.1p each
Deferred shares of £24 each
Deferred shares of 0.9p each
2018
Number
2017
Number
2018
£
2017
£
1,213,593,136 1,013,593,136
942,462,000
54,477
285,785,836
942,462,000
54,477
285,785,836
1,213,593
942,462
1,307,459
2,572,073
1,013,593
942,462
1,307,459
2,572,073
6,035,587
5,835,587
On 22 January 2018, the Company raised £1,200,000 gross via a placing of 200,000,000 ordinary shares of
£0.001 each at a price of 0.6 pence per ordinary share. The net proceeds of the Placing ensured that the Company
was fully funded for its 2018 work programmes across its portfolio of investments in late stage European onshore
oil and gas projects.
The deferred shares have no rights to vote, attend or speak at general meetings of the Company or to receive
any dividend or other distribution and have limited rights to participate in any return of capital on a winding-up
or liquidation of the Company.
29
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
17.
TRADE AND OTHER PAYABLES
Current:
Trade creditors
Amounts owed to group undertakings
Social security and other taxes
Accruals and deferred income
2018
£
20,513
-
15,394
34,840
2017
£
28,681
3
11,362
25,800
70,747
65,846
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
18.
FINANCIAL LIABILITIES - BORROWINGS
Current:
Unsecured loan notes
Non-current:
Unsecured loan notes
Terms and debt repayment schedule
Unsecured loan notes
2018
£
120,000
360,000
2017
£
-
-
1 year or
less
£
120,000
1-2 years
£
360,000
Totals
£
480,000
The Company raised £480,000 via the issue of unsecured Loan Notes ('the Loan Notes') to new and existing
investors ('the Subscribers'). In addition, the Subscribers have been issued with 55 warrants ('the Warrants')
for each £1 of Loan Note subscribed. Each Warrant confers to the Subscriber the right to acquire one Ordinary
Share at 0.6p (note 23).
The proceeds of the Loan Notes will be used to fund the Company's share of the budgeted early stage
development costs (including environmental monitoring) at the Selva gas discovery ('Selva') on the Podere
Gallina Permit in Italy ('Podere Gallina') in 2019 and cover the Company's general expenditure in 2019. The
Company anticipates being able to fund the full development of the gas discovery and further exploration in the
proposed production concession from this and further non-equity funding as the project progresses.
The Loan Notes will pay 10% interest per annum, every six months, capitalised to 30 June 2019, with the first
cash payment to be made on 31 December 2019. Repayments start in December 2020 with final repayment on
30 June 2022 (four equal payments) and fit conservatively with expected first production at Selva in mid-2020.
30
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
19.
FINANCIAL INSTRUMENTS
The principal financial instruments used by the Company, from which financial instrument risk arises are as
follows:
- Trade and other receivables
- Cash and cash equivalents
- Trade and other payables
A summary of the financial instruments held by category is provided below:
Financial assets
Loans and receivables:
Trade and other receivables
Cash and cash equivalents
Other assets at amortised costs:
Amounts owed to group undertakings
Financial liabilities
Trade and other payables
2018
£
2017
£
58,225
233,622
5,433
850,060
291,847
855,493
2,253,420
1,175,951
70,747
65,846
Financial assets at fair value through profit or loss
At 31 December 2018
Fair value measurement
Level 1
£
78,552
Level 2
£
Level 3
£
-
4,229,065
At 31 December 2017
183,542
-
2,243,247
The financial assets at fair value through profit and loss are the Company's holdings in subsidiary undertakings,
quoted securities and one unquoted security. The quoted security falls within Level 1 of the fair value hierarchy
as defined by IFRS 13 whereas the investments in subsidiary undertakings and unquoted security fall within Level
3.
Financial risk management
The Company's activities expose it to a variety of risks including market risk (foreign currency risk and interest
rate risk), credit risk and liquidity risk. The Company manages these risks through an effective risk management
programme and through this programme, the Board seeks to minimise potential adverse effects on the
Company's financial performance.
The Board provides written objectives, policies and procedures with regards to managing currency and interest
risk exposures, liquidity and credit risk including guidance on the use of certain derivative and non-derivative
financial instruments
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails
to meet its contractual obligations. The Company's credit risk is primarily attributable to its receivables and its
cash deposits. It is Company policy to assess the credit risk of new customers before entering contracts. The
credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by
international credit-rating agencies.
31
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
19.
FINANCIAL INSTRUMENTS - continued
Liquidity risk and interest rate risk
Liquidity risk arises from the Company's management of working capital. It is the risk that the Company will
encounter difficulty in meeting its financial obligations as they fall due. The Board regularly receives cash flow
projections for a minimum period of 12 months, together with information regarding cash balances monthly.
The Company is principally funded by equity and invests in short-term deposits, having access to these funds at
short notice. The Company's policy throughout the period has been to minimise interest rate risk by placing funds
in risk free cash deposits but also to maximise the return on funds placed on deposit.
All cash deposits attract a floating rate of interest. The benchmark rate for determining interest receivable and
floating rate assets is linked to the UK base rate.
Foreign currency exposure
At 31 December 2018, the Company’s monetary assets and liabilities are denominated in GBP Sterling, the
functional currency of the Company, other than €76,034 (£68,015) of cash at bank. This exposure gives rise to
net currency gains and losses recognised in the Statement of Comprehensive Income. A 10% fluctuation in the
GBP sterling rate compared to the Euro would give rise to a £6,802 gain or loss in the Company’s Statement of
Comprehensive Income.
Although the Company has a Euro bank account it has no formal policies in place to hedge the Company's
activities to the exposure to currency risk. It is the Company's policy to ensure that it enters into transactions its
functional currency wherever possible.
Management regularly monitor the currency profile and obtain informal advice to ensure that the cash balances
are held in currencies which minimise the impact on the results and position of the Company from foreign
exchange movements.
32
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
20.
RELATED PARTY DISCLOSURES
Included in loans to group undertakings is an amount of £1,543,888 (2017: £1,543,888) due from PXOG County
Limited, the company's wholly owned subsidiary. At the year end, a provision of £1,543,888 (2017: £1,543,888)
was made against this balance. Included in trade and other receivables is an amount of £14,526 (2017: £13)
due from PXOG County Limited.
Included in loans to group undertakings is an amount of £1,013,129 (2017: £1,062,587) due from PXOG Massey
Limited, the company's wholly owned subsidiary. Included in trade and other payables is an amount of £4,500
(2017: £nil) due to PXOG Massey Limited.
Included in trade and other receivables – non-current - is an amount of £897,371 (2017: current - £113,350)
due from PXOG Marshall Limited, the company's wholly owned subsidiary. Interest receivable of £87,020 (2017:
£nil) has been accounted for through the Statement of Profit or Loss.
Included in trade and other receivables is an amount of £ 323,872 (2017: payable - £3) due from PXOG Muirhill
Limited, the company's wholly owned subsidiary.
During the year, there were consultancy fees of £15,000 (2017: £12,000) and £7,800 (2017: £16,000) charged
by Sallork Limited and Sallork Legal and Commercial Consulting Limited ("Sallork") respectively. Included in trade
payables at the year end is £1,500 (2017: £6,674) and £800 (2017: £nil) owing to Sallork Limited and Sallork
Legal and Commercial Consulting Limited respectively. Richard Mays is a director and shareholder of of both
these companies.
Included in trade and other payables are the following balances due to Directors as at 31 December 2018.
William Smith
The following Directors subscribed to the unsecured loan notes (note 18):
Richard Mays
William Smith
James Smith
21.
EVENTS AFTER THE REPORTING PERIOD
2018
£
7,745
2018
£
50,000
50,000
25,000
2017
£
-
2017
£
-
-
-
In March 2019, the Company raised £800,000 before expenses by way of a placing of 400,000,000 new ordinary
shares of £0.001 each in the Company at a price of 0.2 pence per share (the "Placing Price") (the "Placing"). The
Placing was undertaken with new and existing investors.
The net proceeds of the Placing should ensure Prospex is fully funded for its basic 2019 work programmes across
its portfolio of investments in late stage European onshore oil and gas projects.
The Placing was completed by Novum Securities Limited ("Novum"), which was issued with 8,125,000 warrants
to subscribe for, in aggregate, 8,125,000 new Ordinary Shares at an exercise price of 0.4 pence per new Ordinary
Share for a period of 3 years from Admission.
22.
ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, there is no ultimate controlling party
33
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
23.
SHARE-BASED PAYMENT TRANSACTIONS
Share options
At 31 December 2017 and 31 December 2018 outstanding awards to subscribe for ordinary shares of 1p each in
the Company, granted in accordance with the rules of the share option scheme, were as follows:
31 December 2018
Brought forward
Granted
Lapsed
Carried forward
31 December 2017
Brought forward
Granted
Lapsed
Carried forward
Weighted
average
remaining
contractual
life (years)
2.80
Weighted
average
exercise price
(pence)
0.78
-
(3.05)
Shares under
options
95,653,810
-
(812,000)
94,841,810
1.76
0.76
Weighted
average
remaining
contractual life
(years)
3.59
3.00
Shares under
options
24,632,061
71,226,149
(204,400)
Weighted
average
exercise price
(pence)
2.74
0.52
95,653,810
2.80
0.78
All options were exercisable at the year end. No options were exercised during the year.
The following share-based payment arrangements were in existence at the year-end.
Options
1. Granted 30 April 2012
2. Granted 16 April 2015
3. Granted 22 September 2016
4. Granted 22 September 2016
5. Granted 22 September 2016
6. Granted 23 December 2016
7. Granted 13 November 2017
Number
40,000
2,847,116
1,434,209
13,694,336
4,164,000
1,436,000
71,226,149
Expiry date
30/04/2022
15/04/2025
22/09/2019
22/09/2019
22/09/2019
23/12/2019
13/11/2020
Exercise price Fair value at
grant date
47.5p
1.94p
0.53p
0.31p
0.29p
0.53p
0.29p
125.0p
3.05p
1.00p
1.00p
1.10p
1.10p
0.52p
The fair value of remaining share options has been calculated using the Black Scholes model. The assumptions
used in the calculation of the fair value of the share options outstanding during the year are as follows:
Options
Grant date
share price
Exercise
price
Expected
volatility
Expected
option life
Risk-free
interest rate
0.24% - 0.43%
1. Granted 30 April 2012
2. Granted 16 April 2015
3. Granted 22 September 2016
4. Granted 22 September 2016 *
5. Granted 22 September 2016 *
6. Granted 23 December 2016 *
7. Granted 13 November 2017
175.0p
4.0p
1.7p
1.7p
1.7p
2.5p
0.51p
125.0p
3.05p
1.00p
1.00p
1.10p
1.10p
0.52p
32%
71.5%
71.0%
71.0%
71.0%
79.0%
96.8%
3.5 years
3 years
3 years
3 years
3 years
3 years
3 years
0.71%
0.10%
0.10%
0.10%
0.28%
0.56%
* These options vest once the share price of the Company has closed at 5p or higher for 5 consecutive trading
days.
The fair value has been calculated assuming that there will be no dividend yield.
34
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
23.
SHARE-BASED PAYMENT TRANSACTIONS – continued
Volatility was determined by reference to the standard deviation of expected share price returns based on a
statistical analysis of daily share prices over a 3 year period to grant date. All of the above options are equity
settled and the charge for the year is £nil (2017: £170,354).
Warrants
At 31 December 2018, outstanding warrants to subscribe for ordinary shares of 0.1p each in the Company,
granted in accordance with the warrant instruments issued by Prospex, were as follows. There are no
comparatives as no warrants were in existence prior to this year. Following the year end, the company which was
granted these warrants entered Administration, at which point the warrants lapsed.
31 December 2018
Brought forward
Granted
Lapsed
Carried forward
31 December 2017
Brought forward
Granted
Lapsed
Carried forward
All warrants were exercisable at the year end.
The following warrants were in existence at the year end.
Warrants
1. Granted 20 February 2017
2. Granted 12 October 2018
Number
8,500,000
26,400,000
Weighted
average
remaining
contractual
life (years)
1.14
2.00
-
Weighted
average
exercise price
(pence)
1.25
0.60
-
8,500,000
26,400,000
-
34,900,000
1.38
0.76
Weighted
average
remaining
contractual life
(years)
Weighted
average
exercise price
(pence)
2.00
1.25
-
8,500,000
-
8,500,000
1.14
1.25
Expiry date
21/02/2019
12/10/2021
Exercise price Fair value at
grant date
0.22p
N/A
1.25p
0.60p
The fair value of the remaining warrants has been calculated using the Black-Scholes model. The assumptions
used in the calculation of the fair value of the share options outstanding during the year are as follows:
Warrants
1. Granted 20 February 2017
2. Granted 12 October 2018
Grant date
share price
0.52p
0.32p
Exercise
price
1.25p
0.60p
Expected
volatility
98.0%
N/A
Expected
option life
2 years
N/A
Risk-free
interest rate
0.13%
N/A
The warrants granted on 12 October 2018 fall outside the scope of IFRS and as such no charge is made.
The fair value has been calculated assuming that there will be no dividend yield.
Volatility was determined by reference to the standard deviation of expected share price returns based on a
statistical analysis of daily share prices over a 3-year period to grant date.
All of the warrants are equity settled and the charge for the year is £nil (2017: £10,142). As the warrants relating
to the charge for 2017 were all in consideration of shares issued during that year, it was taken directly to equity
and charged against the share premium as costs in respect of the issue of shares.
35
Prospex Oil And Gas Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2018
24.
DIRECTORS' EMOLUMENTS
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling activities of the Company, including all directors of the Company.
Directors' emoluments
Benefit in kind
Pension contributions
Edward Dawson
William Smith
Richard Mays
James Smith
Salaries and
fees
Benefit in kind
Pension
contributions
£
130,000
18,000
15,000
20,400
£
4,200
-
-
-
£
13,083
-
-
-
2018
£
183,400
4,200
13,083
2017
£
147,333
4,200
12,350
200,683
163,883
2018
£
147,283
18,000
15,000
20,400
2017
£
127,883
12,000
12,000
12,000
183,400
4,200
13,083
200,683
163,883
The number of directors for whom retirement benefits are accruing under money purchase pension schemes
amounted to 1 (2017: 1).
The Directors interests in share options as at 31 December 2018 are as follows:
Director
Edward Dawson
Edward Dawson
Edward Dawson *
Edward Dawson *
Edward Dawson
Richard Mays
Richard Mays
Richard Mays *
Richard Mays *
Richard Mays
William Smith
William Smith
William Smith *
William Smith *
William Smith
James Smith *
James Smith
Options at 31
December
2018
680,212
971,663
4,438,000
1,292,000
16,940,273
541,726
20,196
2,327,418
1,436,000
10,395,168
541,726
20,196
2,327,418
1,436,000
10,395,168
1,436,000
10,395,168
Exercise price
Date of grant
3.05p
1.00p
1.00p
1.10p
0.52p
3.05p
1.00p
1.00p
1.10p
0.52p
3.05p
1.00p
1.00p
1.10p
0.52p
1.10p
0.52p
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
23/12/2016
13/11/2017
First date of
exercise
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
14/04/2015
22/09/2016
22/09/2016
22/09/2016
13/11/2017
23/12/2106
13/11/2017
Final date of
exercise
14/04/2025
22/09/2019
22/09/2019
22/09/2019
13/11/2020
14/04/2025
22/09/2019
22/09/2019
22/09/2019
13/11/2020
14/04/2025
22/09/2019
22/09/2019
22/09/2019
13/11/2020
23/12/2019
13/11/2020
* These options vest once the share price of the Company has closed at 5p or higher for 5 consecutive trading
days.
The options awarded to Richard Mays are held in the name of Sallork Limited, a company he owns and controls.
The Directors interests in share warrants as at 31 December 2018 are as follows:
Director
Richard Mays
William Smith
James Smith
Warrants at 31
December 2018
2,750,000
2,750,000
1,375,000
Exercise
price
0.60p
0.60p
0.60p
Date
granted
22/10/2018
03/10/2018
12/10/2018
Final date of
exercise
22/10/2020
03/10/2020
12/10/2020
36
37