REGISTERED NUMBER: 03896382 (England and Wales)
Strategic Report, Report of the Directors and
Financial Statements for the Year Ended 31 December 2020
for
Prospex Energy Plc
Prospex Energy Plc
Contents of the Financial Statements
for the year ended 31 December 2020
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
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Prospex Energy Plc
Company Information
for the year ended 31 December 2020
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 Energy Plc
Chairman's Report
for the year ended 31 December 2020
Despite the disruption caused by the global pandemic, the year under review, and beyond, has still seen major progress
towards building Prospex into a European focused gas and power business, one that can play a part in the ongoing global
energy transition. In Spain, we completed the acquisition of a 49.9% interest in the El Romeral Integrated gas and power
project, which adds an interest in three producing gas wells and an operational power plant to Prospex’s portfolio. In
Italy, regulatory milestones were passed in the permitting process required to bring the 17%-owned Selva gas field in
Italy into production, which is set to transform Prospex’s financial profile in the medium to long term. Elsewhere, the
divestment of a 50% interest in the Suceava gas asset in Romania enables us to focus on our flagship Italian and Spanish
projects.
A gas and power business and the energy transition may appear odd bedfellows, but the two are arguably inter-
dependant. Moving from a fossil-fuelled world to a decarbonised one requires a substantial scaling up of the contribution
to the global energy mix made by renewable technologies. Considerable progress has been made to date but, despite
this, renewables are still having to grow from a relatively low base. Much more needs to be done, a fact implicit in
governments around the world setting carbon neutral targets that often lie one or more decades out into the future.
Such is the scale of the work that has to be undertaken, it is widely accepted that the world will have to rely on
hydrocarbons for a large portion of its energy needs for years to come. This does not mean that hydrocarbon focused
energy companies have a licence to carry on as normal. They too can make their own positive contributions towards
the goal of global decarbonisation.
It is set against this context that Prospex’s focus on natural gas production and power generation via its core Podere
Gallina Permit in Italy and El Romeral integrated gas and power project in Spain ought to be seen. For natural gas is by
far the cleanest hydrocarbon in terms of carbon emissions when combusted. As I have reported previously, the EIA has
estimated that in terms of CO2 emitted per unit of energy output, natural gas emits 117 pounds of CO2 per million
British thermal units ('Btu') of energy compared to 228.6 pounds from coal, 161.3 pounds from diesel fuel and heating
oil, and 157.2 pounds from gasoline. The benefits to the environment from displacing oil and coal with natural gas for
power generation are clear.
As well as the environmental benefits, there is also a business case behind Prospex’s focus on gas. Thanks to gas being
typically sold at prices agreed via long-term contracts, producers largely avoid the volatility associated with spot markets,
which in turn provides significant visibility to earnings. We believe shareholders will soon see for themselves the business
case for gas once production commences at the Podere Maiar well on the Selva gas field in Italy in 2022. We estimate
Podere Maiar, along with the three existing gas wells supplying a project-owned power plant at El Romeral in Spain, have
the potential to produce over 7,800,000 scm net to Prospex over the course of a year. At today’s prices, this level of
gas production would generate a material revenue stream that would support the monetisation of low-risk follow-up
opportunities across our Italian and Spanish projects to grow the asset base and revenues further.
Thanks to our existing assets, we have a roadmap to generate considerable value for investors and at the same to play
our part in the global fight against climate change:
Internally generated revenues + multiple follow-up opportunities + natural gas focus = roadmap to an ESG
focused, highly cash flow generative gas and power investment company
Podere Gallina, Po Valley onshore Italy
All the ingredients in the above formula can be found in the Podere Gallina permit in Italy in which Prospex holds a 17%
interest. Once the Selva gas field comes on stream in 2022 at an initial daily rate of up to 150,000 cubic metres (5.3
mmscf/d), Prospex will have a material stream of internally generated revenues. In addition to the 13.3 Bcf (2P) Selva
field, Podere Gallina holds multiple follow-up opportunities including the two historic gas producing North Flank and
South Flank reservoirs at Selva, which geophysical services consultancy CGG Services (UK) Limited has estimated have
a 60% - 70% chance of holding gross contingent resources ('2C') of 14.1 Bcf. The permit also holds the East Selva,
Fondo Perino, Cembalina, and Riccardina prospects, which are estimated to hold aggregate gross prospective resources
(best estimate) of 91.5 Bcf. All the targets identified at Podere Gallina are focused on cleaner natural gas.
For now, the priority at Podere Gallina is to bring Selva on stream. The field development plan is centred around the
installation of a fully automated gas plant at the site of the Podere Maiar 1dir well site, which successfully tested the field
in 2018. The gas plant will be connected to the Italian National Grid by a one-kilometre-long pipeline. In all, the
development will have a footprint of less than half a hectare, while it has been designed in such a way to prevent any
emissions from gas production at the site. The net cost to Prospex to bring Selva into production is estimated at
€580,000, of which €400,000 relates to civil works and hardware with the remainder made up of ancillary expenses.
Bringing Selva online is therefore low cost and, thanks to the field’s gross reserves of 13.3bcf, we can pursue non-equity
funding to cover our share of the development costs. We are in discussions with potential providers and will update as
and when appropriate.
2
Prospex Energy Plc
Chairman's Report
for the year ended 31 December 2020
In the meantime, major milestones have been achieved with the permitting process, despite the disruption caused by
the global pandemic. A preliminary gas Production Concession (80.68km²) was granted by the Italian Ministry for
Economic Development in early 2019 and during the year under review, formal technical environmental approval for the
development of Selva was received from the Italian Environment Ministry. This was followed post period end in April
2021 with full environmental approval from the Italian Government, which paves the way for the grant of a full production
licence from Italy's Economic Development Ministry. Targeting first production in mid-2022, preliminary development
work has now commenced at the site.
El Romeral, onshore Spain
As with Selva, El Romeral has the potential to become a significant internal revenue generator, holds multiple follow-up
opportunities and is focused on cleaner natural gas. We announced the conditional acquisition of up to a 49.9% indirect
stake in the integrated gas production and power station project in southern Spain in December 2019. The onset of the
pandemic just months later resulted in a delay in the approval process for the acquisition and the transfer of the asset
to our Spanish affiliate, Tarba Energia (‘Tarba'), both of which took place post period end in Q1 2021. Completion may
have taken longer than we had anticipated but we firmly believe the wait will prove to have been well worth it, especially
as the acquisition adds power generation to our portfolio.
El Romeral currently comprises three producing wells which supply gas to a 100% project-owned 8.1MW power station.
These three wells are late life, and the maximum gas productivity of the wells currently limits the power plant to operating
at c. 22% capacity. Thanks to the presence of multiple low risk targets, including two development locations with gross
contingent resources of 5 Bcf and 11 prospects with gross prospective gas resources of 90 Bcf, there is considerable
scope to increase gas production at the project. We estimate one new well being brought online will be sufficient to
achieve 100% capacity utilisation at the plant.
At full capacity, El Romeral will become a second material revenue generator for Prospex: producing electricity at the
power plant’s name plate rate of c. 60,000 MWh gross per annum and selling at Spain’s historic average electricity price
of €70 per MWh (including subsidy) has the potential to deliver indicative project level annual revenues and profit before
tax of €4.2 million and €2.4 million respectively (€1.8 million profit after tax). This level of revenues and profits would
put El Romeral on a par with Selva.
Post period end, Tarba has submitted early stage environmental documents as part of the application process for the
drilling of multiple wells at El Romeral, potentially commencing in 2022.
Other projects
In addition to Podere Gallina and El Romeral, Prospex holds a 15% interest along with an option to increase this to 49.9%
in Tesorillo, a large gas project in southern Spain where historic discoveries, notably the 1957 Almarchal-1 discovery
well, have been made. Following the onset of COVID, in March 2020, a work programme focused on identifying and de-
risking a prospect inventory was paused.
In October 2020, we announced the divestment of the Company's wholly owned subsidiary, PXOG Massey Limited
('Massey'), the sole asset of which is a 50% interest in the economic rights of the EIV-1 Suceava Concession, onshore
Romania. Under the terms of the sale, Prospex will receive up to £215,000 in cash in respect of historical debt owed to
the Company by Massey and nominal consideration for shares in Massey. The divestment follows the completion of a
strategic review of Prospex's portfolio following the acquisition of a 49.9% interest in El Romeral.
Financial Review
For the period ended 31 December 2020, the Company is reporting Total Assets of £5,748,211 (31 Dec 2019:
£6,341,890), the value of which is largely comprised of the Company's investment in PXOG Marshall Ltd, the vehicle for
the Company's Italian assets. This movement includes revaluations of the Company's investments ('the Investments')
and movements (repayments and advances) on loans receivable from those investments. Unrealised losses arising on
revaluation of Investments at fair value amounted to £377,498 (2019: unrealised loss - £270,220). This resulted from
the revaluation of PXOG Marshall Ltd, which included an update to forward gas price assumptions that had been used in
a previous CPR. The time frame for this exercise coincided in a weakening in Italian gas prices in response to the
pandemic and associated lockdowns. Since the revaluation was carried out, Italian gas prices have risen as vaccination
programmes and economic activity have picked up.
The fluctuation in Total Assets is primarily due to the write down of loans of £744,317 (2019: £203,705) triggered by
the sale of PXOG Massey Ltd.
Aside from the nominal cost of equity being included in the Company’s Investments, the bulk of the carrying value of
the Company's Spanish investments is represented within loans made by the Company to the investment vehicle for the
Spanish assets and other receivables.
3
Prospex Energy Plc
Chairman's Report
for the year ended 31 December 2020
As at 31 December 2020, the fair value of the Company's investments stood at £3,620,890 (2019: £3,998,388), with a
further £1,762,990 (2019: £2,218,326) of loans to investee companies expected to be repaid in due course. The latter
is after a provision of £nil (2019: £203,705). The combined value of these equity investments and current and non-
current loans is £5,383,880 (2019: £6,216,714). The Company continues to have significant asset backing relative to
its market capitalisation.
Administrative expenses for the full year totalled £972,193, an 11% reduction on 2019’s £1,091,871, as management
took steps to reduce the Company's cost base further in response to the impact of the pandemic on economic activity.
During the period, the Company received a loan of approximately £50,000 from its bank under the Government’s COVID-
19 Bounce Back Loan Scheme.
The Company is reporting a net loss after taxation from continuing operations of £1,806,492 (2019: loss - £1,300,669).
Unrealised losses arising from the revaluation at fair value of financial assets including PXOG Marshall Ltd and the write-
off of the loans to PXOG Massey Ltd totalled £1,121,815 (2019: loss - £473,925).
In February 2020, the Company raised £720,000 gross via an oversubscribed placing of 600,000,000 new ordinary
shares to help fund the Company's acquisition of a 49.9% indirect stake in El Romeral. Certain Directors of the Company
took part in the Placing, acquiring new shares in the Company with an aggregate value of £140,000.
As at 31 December 2020, the Company held cash and cash equivalents of £220,618 (2019: £69,387). Post period end
in March 2021, the Company raised £750,000 gross via a placing of 50,000,000 new ordinary shares to fund planned
programmes in Spain and Italy and also to fund the evaluation of new business opportunities.
In June 2020, the Company completed a share re-organisation effecting a one new ordinary share for 25 existing ordinary
shares.
Outlook
The world is a very different place to what it was 12 months ago. While vaccination programmes are being rolled out
across the world to curb the spread of COVID-19, the effects of the pandemic will continue to be felt for years to come.
One potential lasting consequence of the coronavirus is that it could well lead to a sustained acceleration in the ongoing
movement to decarbonise the global economy. We are already seeing this in the continued development of
environmental legislation across Europe.
Individual European countries may be moving at their own pace, but all are looking to cut emissions within EU and global
frameworks. In Italy, after a two-year moratorium on exploration was introduced in 2019, it appears exploration will
restart in 2021, but in a more restrictive manner. In Spain, post year end, the country passed its Climate Change and
Energy Transition Law. As part of a broad range of measures, Spain has decided not to issue any new exploration
licences and has further tightened up and made further restrictions on certain types of exploitation permit. Our interests
in exploitation permits at this time seem largely unaffected, whether any further changes to the right to explore are
made remains to be seen. Legislative pragmatists do recognise the need for transition, and we hope that, once countries
set their road maps to carbon neutrality, we will be able to explore and exploit as per the permitting framework. The
Company therefore believes its current producing / development assets can run all if not the vast majority of their
economic life. As a result, we believe Prospex is well placed to play its part in the energy transition.
Our flagship projects in Italy and Spain are focused on gas, widely viewed as a key transitional fuel on account of it being
significantly cleaner than oil and coal. Both projects are either already or soon to be producing. Both hold multiple and
significant low risk follow-up exploration / development opportunities. The building blocks are in place to transform
Prospex into a highly cash generative gas and power producer that is fit for purpose for the energy transition. With
Selva expected to commence production in mid-2022 and with the application process now commenced for a multi-well
drilling programme at El Romeral, potentially in 2022, the year ahead promises to see major progress made and I look
forward to providing further updates in the year ahead.
Finally, I would like to take this opportunity to thank the Board and management team for their continued hard work,
commitment, and support during what has been an unprecedented period for all.
Bill Smith
Non-executive Chairman
24 June 2021
4
Prospex Energy Plc
Corporate governance
for the year ended 31 December 2020
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 against which to gauge action, the Company
has adopted the QCA Corporate Governance Code which is widely recognized. 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 evolving as your company recognizes opportunities in the energy sector, with a focus on natural
gas as a transition fuel away from more concentrated greenhouse gas emission from other fuels used to generate
electricity. The strategy of building a sizable natural gas and electricity generating investment portfolio focuses on high
impact onshore, and shallow offshore European opportunities located in working hydrocarbon systems with offtake
markets primarily in electricity generation. Other energy opportunities are of interest as the company aligns with
government and regularly goals of GHG reduction while supporting industry and consumers. Building a portfolio presents
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 navigated.
Principle 2 - Seek to understand and meet shareholder needs and expectations.
The primary communication tool is the Company's website. This frames the shareholder expectation as an investment in
a small, but growing, energy investment company. New information is released via the regulatory news service (RNS)
and the website is update accordingly. 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 operates. 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 Prospex or the Joint Venture
Operator maintain good relations with all regulatory authorities. Corporate Social Responsibility opportunities are sought
and enabled, formally through community projects and informally through employment of local residents and contractors.
As a small but growing company, it is very important to attract and retain highly skilled and dedicated employees and
contractors with a combination of a hard working but pleasant workplace and appropriate levels of compensation and
emoluments. The directors' collective experiences in oil and gas businesses, including past experience with deep water
drilling and production, have embedded a safety-oriented culture.
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the
organisation.
Risk is inherent in all aspects of natural gas exploration and development 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 and
economic assessment including financial modelling, to post activity review for the purpose of formalizing learnings from
success and opportunities for improvement. No significant expenditure is authorized 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 and electricity generation, additional risks will be identified and individuals with the skills and
experience required will be engaged.
5
Prospex Energy Plc
Corporate governance
for the year ended 31 December 2020
Principle 5 - Maintain the Board as a well-functioning, balanced team led by the chair.
Non-executive directors with diverse back grounds 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"). Audit committee and remuneration committee functions are reserved for
the NEDs. All of the Non-Executive Directors are considered independent 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
collectively have international oil and gas experience in more than 10 countries and executive or director 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 albeit that no formal review process was followed, keeping
in mind that each of the directors is or has been NED of other businesses and thus has maturity and experience in such
reviews. At the same time, and 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.
With a small staff, everyday interactions are sufficient to communicate throughout the organization 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 geological 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. With the adoption
of the QCA Code, future Annual Reports will include a summary 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 consisting of the non-executive directors, chaired by Richard Mays, 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.
Audit Committee
The Audit Committee consisting of the non-executive directors chaired by Bill Smith, 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.
6
Prospex Energy Plc
Strategic Report
for the year ended 31 December 2020
The directors present their strategic report for the year ended 31 December 2020.
PRINCIPAL ACTIVITY
The principal activity of the Company is that of an Investing Company.
STRATEGY
Prospex is building an Energy investment portfolio, focusing on high impact, onshore and shallow, offshore European
opportunities located in working hydrocarbon systems.
Utilising the team’s proven track record and global experience, the Company is looking to invest in low capex
opportunities in Europe’s Energy sector with a particular preference for late stage, drill-ready exploration; reworking of
existing fields; or failed exploration targets where new ideas and the latest technology can be applied. Once identified
and acquired, the Company will seek to create tangible value across its core projects within a 12-month period in order
to maximise the impact of its capital and balance its risk-reward profile.
Investment criteria
- Regions with working petroleum systems
- Favourable fiscal regimes with low political risk
- Resource materiality - scale for acquirers and returns for shareholders
- Scope for technology to unlock latent value
- Line of sight catalysts for value re-rating
- Clear monetisation opportunity after value creation
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 for continuing operations for the year declined to £972,193 (2019: £1,091,871) after bad
debt provision against subsidiary undertakings of £nil (2019: £14,539)
- operating loss for the year was £725,050 (2019: £893,343)
- unrealised losses arising on financial assets at fair value through profit or loss was £1,121,815 (2019: £473,925)
- net loss after taxation from continuing operations was £1,806,492 (2019: £1,300,669)
- as at 31 December 2020, the Company had cash and cash equivalents of £220,618 (2019: £69,387)
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.
SECTION 172 STATEMENT
Each Director is required by the Companies Act 2006 to act in the way considered, in good faith, would be most likely to
promote success of the Company for the benefit of its members as a whole and in doing so are required to have regard
for the following:
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the likely long-term consequences of any decision;
the interests of the Company’s employees;
the need to foster the Company’s business relationships with suppliers, customers and others;
the impact of the Company’s operations on the community and the environment;
the desirability of the Company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between shareholders of the Company.
Certain companies are required to report on the matters enumerated in s. 172 while others are doing so voluntarily. As
a matter of good governance in full support of complete and transparent disclosure, your Company is pleased to make
this annual s. 172 Statement.
In 2018, the Company adopted the Corporate Governance Code for Small and Mid-Sized Quoted Companies from The
Quoted Companies Alliance (the “QCA Code”). The QCA Code is an appropriate code of conduct for the Company’s size
and stage of development. In the Corporate Governance Report, below are comments regarding the application of the
ten principles of the QCA Code. Some s.172 considerations are addressed in more detail in the Corporate Governance
Report.
The Chairman’s Report describes the Company’s activities, strategy and future prospects, and some s. 172 considerations
are also addressed in the Chairman’s Report, including the considerations for long term decision making.
7
Prospex Energy Plc
Strategic Report
for the year ended 31 December 2020
The Board considers the Company’s major stakeholders to include employees, suppliers, partners, loan note holders and
shareholders. When making decisions, consideration is given to the interest of each stakeholder group individually and
collectively. Certain decisions require more weight attached to some stakeholders than others and while generally seeing
the long term interest of the shareholders as of primary importance, the directors consider those interests are best
served by having regard to the interests of the other key stakeholder groups and, in fact, to all the s. 172 considerations.
Given the size of the Company and the nature of its business, there are only a few employees however, the Board
considers the Company’s employees essential to the success of the Company. As is stated in the Corporate Governance
Report Principle 3, “it is very important to attract and retain highly skilled and dedicated employees and contractors with
a combination of a hard working but pleasant workplace and appropriate levels of compensation and emoluments”.
Obviously, pandemic restrictions, furloughs, and work from home requirements have presented exceptional challenges
to the employees and the Company in 2020 and early 2021 however, we are pleased to report that the Company has
retained the services of all of its employees.
The Board ensures that the Company endeavours to maintain good relationships with its suppliers through contracting
on standard business terms and paying promptly, within reasonable commercial terms.
The Company does not deal directly with customers or suppliers in relation to the natural gas interests held by its
subsidiaries, save for its relationship with its joint venture partners which operate the relevant fields. There is direct
communication on a regular basis between the Executive Director and the Company’s partners, and some of the non-
executive directors have the opportunity to interact with the joint venture operators to foster business relationships and
to re-enforce shared values. The Company invests in interests in licences where it has some influence over the manner
in which the operations are conducted and communicate to the operators the need for appropriate relationships with
suppliers, to support local contracting if possible and implement other measures to enhance communities in which
operations are conducted.
As is stated in the Corporate Governance Report Principle 3, “Environmental protection is a key element in all
development decisions and extensive consultation with residents and regulators is undertaken prior to any work.” As
suggested in the Corporate Governance Report Principle 1, the Board spends considerable time each year discussing the
impacts of the Company’s operations on the environment to mitigate adverse impacts and to promote natural gas as a
transitional fuel for electricity generation with lower emissions than other fuels.
As is stated in the Corporate Governance Report Principle 8, “integrity is a cornerstone of the Company and no unethical
behaviour will be tolerated” by employees, consultants or operators. The Board recognizes its responsibility for setting
and maintaining a high standard of behaviour and business conduct. There is no special treatment for any group of
shareholders and all material information is disseminated through appropriate channels and available to all though the
Company’s corporate presentations, news releases, and website as is described in more detail in the Corporate
Governance Report Principle 2.
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 Energy 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 downturns
should they arise
8
Prospex Energy Plc
Strategic Report
for the year ended 31 December 2020
PRINCIPAL RISKS AND UNCERTAINTIES
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
potential funding partners.
Management maintains regular dialogue with a variety of
Investments: Investments may not go to plan, leading to damage, pollution, cost overruns and poor outcomes.
Risk
Individual investments may not deliver recoverable
Energy 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
Pandemics may prevent people working in a traditional
manner that would historically be considered safe
The industry is used to working in dangerous environments
and accommodating risk where it can. Widen risk assessment
and re-evaluate safe working, adopting new best practices as
they are developed
The competition for qualified personnel in the Energy
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. Energy price hedging
contracts may be utilised where viable.
The Group does not see Brexit having any significant
impact on its business model
Brexit
ON BEHALF OF THE BOARD:
E R Dawson
Director
Date: 24 June 2021
9
Prospex Energy Plc
Report of the Directors
for the year ended 31 December 2020
The directors present their report and financial statements for the year ended 31 December 2020.
CHANGE OF NAME
On 30 June 2020 Prospex Oil and Gas Plc changed its name to Prospex Energy Plc.
DIVIDENDS
No dividends will be distributed for the year ended 31 December 2020.
The results for the year are set out on page 17.
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 2020 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
2020
No. of shares
2,210,743
112,400
1,698,733
1,733,200
2019
No. of shares*
210,916
112,458
365,573
400,000
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 23 to the financial statements.
Share options
Edward Dawson
Richard Mays
William Smith
James Smith
Share warrants
Edward Dawson
Richard Mays
William Smith
James Smith
2020
No. of shares
1,348,379
832,388
832,388
810,719
2019
No. of shares*
704,829
437,476
437,476
415,807
3,823,874
1,995,578
2020
No. of shares
-
595,705
1,195,705
964,519
2019
No. of shares*
-
110,000
110,000
55,000
2,755,929
275,000
*The comparative number of shares for 2019 have been adjusted to take into account the share reorganisation that was
effected during the year whereby 1 new ordinary share of 0.1p each was issued for 25 existing ordinary shares of 0.1p
each (note 16).
FINANCIAL INSTRUMENTS
The company's financial risk management objectives and policies are set out in note 19 to the financial statements.
10
Prospex Energy Plc
Report of the Directors
for the year ended 31 December 2020
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. Further information is set out in note 2 to the financial statements.
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 18 June 2021:
Simon Chanter
Aidan O’Hara
Ryan Mee
Timothy and Alison Adams
No. of ordinary
shares
9,586,600
12,500,000
7,408,783
7,175,151
% of issued
share capital
6.92%
9.02%
5.35%
5.18%
The market value of the Company's shares at 31 December 2020 was 2.20p and the high and low share prices during
the period were 3.88p and 1.50p 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: 24 June 2021
11
Prospex Energy Plc
Statement of Directors' Responsibilities
for the year ended 31 December 2020
The Directors are responsible for preparing the Strategic Report, Directors' Report, Corporate Governance Statement
and the Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Company financial statements for each financial year. The Directors are
required by the AIM Rules of the London Stock Exchange to prepare financial statements in accordance with International
Accounting Standards ("IAS") in conformity with the requirements of the Companies Act.
The financial statements are required by law and IAS 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 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 they have been prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act, subject to any material departures disclosed and explained in the financial
statements; and
- 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.
Website publication
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.
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.
12
Report of the Independent Auditors to the Members of
Prospex Energy Plc
Opinion
We have audited the financial statements of Prospex Energy Plc (the 'company') for the year ended 31 December 2020
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 Accounting Standards in conformity with the
requirements of the Companies Act 2006.
In our opinion the financial statements:
- give a true and fair view of the state of the company's affairs as at 31 December 2020 and of its loss for the year
then ended;
- have been properly prepared in accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006; 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.
Material uncertainty relating to going concern
We draw your attention to the policy on Going Concern within note 2 to the financial statements, which indicates that
the accounts have been prepared on the going concern basis. The Board has referred to the fact that the company is
reliant on future fund raisings to continue its activities as budgeted. Should future fund raisings be unsuccessful, this
may cast significant doubt on the group and company’s ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional 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 access to potential 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 £220,618 at 31 December 2020. In March 2021, the Company raised a
further £750,000 before expenses following the issue of new ordinary shares.
The board of directors have also reviewed and assessed the impact of the current COVID-19 pandemic and the impact
to the business, its activities and cash flow, including the ability to raise additional finance.
Management produces a cash flow forecast based on the board’s 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.
13
Report of the Independent Auditors to the Members of
Prospex Energy Plc
Going concern - continued
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.
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 Energy has 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 loss of £377,498 was
recognised on this investment for the year ended 31 December 2020.
Management utilised an NPV model to calculate the decrease in value of this investment as of the year ended 31
December 2020.
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 decrease 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’
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 2020, a sale and purchase agreement (‘SPA’) was entered into with H2Oil Limited (‘H2Oil’) regarding the sale
of the entire issued share capital of PXOG Massey Limited (‘Massey’). As at the balance sheet date, the conditions of the
SPA had not been met and Massey remains a subsidiary of the company. Management used the value of the SPA as the
basis of the valuation of Massey in the financial statements.
How our audit addressed the area of focus
We have reviewed the SPA agreement and gained an understanding of the conditions of the SPA. We assessed the
conditions necessary to recognise the point of sale and considered managements judgements and estimations in the
likelihood of these conditions being met. We reviewed the value of the sale proceeds included within the SPA in
comparison to the carrying value of the investment.
We considered the recognition of Massey as a subsidiary of the Company, at the carrying value included, to be reasonable.
Area of focus – Fair Value of PXOG Muirhill Limited
The fair value of investments that are not traded on the active market is determined using the valuation techniques such
as NPV analysis. During the year, Prospex Energy had an interest in two assets (Tesorillo and El Romeral) through shares
in Tarba Energia SRL (‘Tarba’). Management have retained the value of the investment at cost due to the stagnant year
in 2020 in respect of Tesorillo and the work required to unlock the full potential of El Romeral.
How our audit addressed the area of focus
We obtained a copy of Tarba’s results for the period and gained an understanding of managements’ key assumptions
and judgements in calculating the valuation of the investment. We assessed the appropriateness of the methodology
applied and reviewed the underlying assumptions and financial results.
We considered the basis of the valuation of the investment in the financial statements of the Company to be
reasonable.
Our application of materiality
Materiality for the company was £60,200 (2019: £63,400) based on 1% of gross assets.
Other information
The directors are responsible for the other information. The other information comprises the information in the Strategic
Report and the Report of the Directors 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 we do not express any form of assurance
conclusion thereon.
14
Report of the Independent Auditors to the Members of
Prospex Energy Plc
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, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the Strategic Report and the 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 by the Company, 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 14, 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
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-
compliance with laws and regulations, we have:
- considered the nature of the industry and sectors, control environment and business performance including the design
of the Group's remuneration policies, key drivers for director's remuneration, bonus levels and performance targets;
- made enquires of management about their own identification and assessment of the risk of irregularities; performed
audit work over the risk of management override of controls, including testing of journal entries and other adjustments
for appropriateness and reviewing accounting estimates for bias;
- reviewed minutes of meetings of those charged with governance;
- undertaken appropriate sample-based testing of bank transactions;
- assessed whether judgements made in making accounting estimates are indicative of potential bias;
- identified and evaluated compliance with relevant laws and regulations and made enquiries of any instances of non-
compliance;
- discussed matters among the audit engagement team regarding how and where fraud might occur in the financial
statements and potential indicators of fraud.
Due to the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more
that compliance with a law or regulation is removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding
irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion,
omission or misrepresentation.
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.
15
Report of the Independent Auditors to the Members of
Prospex Energy Plc
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.
Alexander Chrysaphiades FCA (Senior Statutory Auditor)
for and on behalf of Adler Shine LLP
Chartered Accountants & Statutory Auditor
Aston House
Cornwall Avenue
London
N3 1LF
Date: 24 June 2021
16
Prospex Energy Plc
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2020
CONTINUING OPERATIONS
Other operating income
Administrative expenses
OPERATING LOSS
Loss on revaluation of investments
Profit on disposal of investment
Finance income
Finance costs
LOSS BEFORE INCOME TAX
Income tax
LOSS AFTER INCOME TAX
Notes
2020
£
2019
£
5
247,143
198,528
(972,193)
(1,091,871)
(725,050)
12, 13
(1,121,815)
(893,343)
(473,925)
-
40,462
(1,846,865)
(1,326,806)
91,362
76,612
(50,989)
(50,475)
(1,806,492)
(1,300,669)
-
-
(1,806,492)
(1,300,669)
7
7
8
9
OTHER COMPREHENSIVE INCOME
-
-
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
(1,806,492)
(1,300,669)
LOSS PER SHARE - BASIC AND DILUTED
10
(2.10p)
(2.12p)
17
Prospex Energy Plc (Registered number: 03896382)
Statement of Financial Position
31 December 2020
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
Notes
2020
£
2019
£
11
12
13
14
14
15
-
3,620,890
-
989,645
-
3,998,388
1,048,978
808,360
4,610,535
5,855,726
917,058
416,777
220,618
69,387
1,137,676
486,164
5,748,211
6,341,890
16
7,035,589
10,185,819
2,416,667
6,435,587
10,095,358
2,416,667
43,333
43,333
(14,965,030)
(13,260,713)
4,716,378
5,730,232
- Interest bearing loans and borrowings
18
579,998
386,523
CURRENT LIABILITIES
Trade and other payables
Financial liabilities - borrowings
17
164,262
96,294
- Interest bearing loans and borrowings
18
287,573
128,841
TOTAL LIABILITIES
451,835
225,135
1,031,833
611,658
TOTAL EQUITY AND LIABILITIES
5,748,211
6,341,890
The financial statements were approved by the Board of Directors and authorised for issue on 24 June 2021 and were
signed on its behalf by:
E R Dawson
Director
18
Prospex Energy Plc
Statement of Changes in Equity
for the year ended 31 December 2020
Share capital
£
Share
premium
£
Merger
reserve
£
Capital
redemption
reserve
£
Retained
earnings
£
Total
£
Balance at 1 January 2019
6,035,587
9,756,759
2,416,667
43,333
(11,955,212)
6,297,134
Changes in equity
Profit for the year
Issue of shares
Costs of shares issued
Lapse of share options
-
-
-
-
(1,300,669)
(1,300,669)
400,000
400,000
-
-
-
800,000
-
(66,233)
-
-
-
(66,233)
10,142
-
-
(10,142)
-
Equity-settled share-based payments
(5,310)
-
-
5,310
-
Balance at 31 December 2019
6,435,587
10,095,358
2,416,667
43,333
(13,260,713)
5,730,232
Changes in equity
Loss for the year
Issue of shares
Costs of shares issued
Lapse of share options
-
-
-
-
(1,806,492)
(1,806,492)
600,002
119,998
-
-
-
720,000
-
(29,537)
-
-
-
(29,537)
-
-
-
-
-
-
Equity-settled share-based payments
-
-
-
-
102,175
102,175
Balance at 31 December 2020
7,035,589
10,185,819
2,416,667
43,333
(14,965,030)
4,716,378
Share capital – The nominal value of the issued share capital
Share premium account – Amounts received in excess of the nominal value of the issued share capital less costs associated with the issue of shares
Merger reserve – The difference between the nominal value of the shar capital issued by the Company and the fair value of the subsidiary at the date of acquisition
Capital redemption reserve – The amounts transferred following the redemption or purchase of the Company’s own shares
Retained earnings – Accumulated comprehensive income for the year and prior periods
19
Prospex Energy Plc
Statement of Cash Flows
for the year ended 31 December 2020
Cash outflow from operations
1
(1,106,861)
(776,978)
Notes
2020
£
2019
£
Cash flows from investing activities
Proceeds from sale of investments
Interest paid
Net cash outflow from investing activities
Cash flows from financing activities
New loan notes
Bank loan
Loan repayment/(payments)
Share issue
Costs of shares issued
Net cash inflow from financing activities
-
119,014
(51,664)
-
(51,664)
119,014
265,000
-
49,632
304,661
(239,554)
720,000
800,000
(29,537)
(66,233)
1,309,756
494,213
Increase/(decrease) in cash and cash equivalents
151,231
(163,751)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2
2
69,387
233,138
220,618
69,387
20
Prospex Energy Plc
Notes to the Statement of Cash Flows
for the year ended 31 December 2020
1.
RECONCILIATION OF LOSS BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS
Cash flows from operations
Loss before income tax
Loss on revaluation of fixed asset investments
Profit on sale of investments
Provision against loan to subsidiary undertaking
Finance income
Finance costs
Operating loss
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Equity settled share-based payments
Issue of loan note to settle liabilities
Net cash outflow from operations
2020
£
2019
£
(1,806,492)
(1,300,669)
377,498
270,220
-
744,317
(40,462)
203,705
(91,362)
(76,612)
50,989
50,475
(725,050)
(893,343)
(590,204)
105,929
67,968
10,436
102,175
-
38,250
-
(1,106,861)
(776,978)
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 2020
Cash and cash equivalents
Year ended 31 December 2019
Cash and cash equivalents
31.12.20
01.01.20
£
£
220,618
69,387
31.12.19
01.01.19
£
£
69,387
233,138
21
Prospex Energy Plc
Notes to the Financial Statements
for the year ended 31 December 2020
1.
STATUTORY INFORMATION
Prospex Energy Plc is a public limited company, 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’s financial statements have been prepared in accordance with International Accounting Standards
in conformity with the requirements of the Companies Act 2006 as they apply to the financial statements of the
Company for the year ended 31 December 2020 and as applied in accordance with the provisions of the
Companies Act 2006.
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 £725,050. These losses are expected to continue in the current accounting year to 31 December 2021.
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 24, since the year end, the Company has
raised £750,000 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, or, if available on suitable terms, debt finance.
Furthermore, the directors have evaluated the impact to the company in respect of the COVID-19 (Coronavirus)
pandemic ongoing at the time of approving these financial statements. The company's investment activities
through its subsidiary undertakings take place in countries that have been impacted by the virus. Beyond a short-
term energy price drop, mid to long term prices remain only marginally affected. The business has been affected
but has been able to transfer office-based activities to a "working from home" in host countries in lock down.
Fields activities so far have not been affected but are minimal anyway. The industry by its nature does, and is
required to, interface with its regulators; to date regulators in host countries are still engaging, via email. Whilst
it remains hard to assess the impact on timelines, the fact that civil servants remain engaged is taken as a
positive in a negative environment. Financial markets remain volatile but have settled down from the extremes
seen during 2020. Whilst market conditions, largely attributed to COVID-19, are currently tough the directors
believe the quality and long-term nature of the underlying assets in the subsidiary undertakings will enable further
financing as required. As a result, the directors do not consider there to be a material uncertainty to the company's
ability to continue as a going concern as a result of COVID-19.
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 first quarter of 2022. 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.
22
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
2.
ACCOUNTING POLICIES - continued
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
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.
23
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
2.
ACCOUNTING POLICIES - continued
Leases
Leases are recognised as finance leases. The lease liability is initially recognised at the present value of the lease
payments which have not yet been made and subsequently measured under the amortised cost method. The
initial cost of the right-of-use asset comprises the amount of the initial measurement of the lease liability, lease
payments made prior to the lease commencement date, initial direct costs and the estimated costs of removing
or dismantling the underlying asset per the conditions of the contract.
Where ownership of the right-of-use asset transfers to the lessee at the end of the lease term, the right-of-use
asset is depreciated over the asset’s remaining useful life. If ownership of the right-of-use asset does not transfer
to the lessee at the end of the lease term, depreciation is charged over the shorter of the useful life of the right-
of-use asset and the lease term.
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.
Foreign currency translation
Items included in the Financial Statements are measured using the currency of the primary economic environment
in which the Company operates (the functional currency) which is UK sterling (£). The Financial Statements are
accordingly presented in UK sterling.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions or at an average rate for a period if the rates do not fluctuate significantly. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at year-
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
Statement of Profit or Loss. Non-monetary items that are measured in terms of historical cost in a foreign currency
are not retranslated.
Finance income and finance costs
Finance income is recognised when it is probable that the economic benefits will flow to the company and the
amount of income can be measured reliably. It is accrued on a time basis by reference to the principal outstanding
and at the effective interest rate applicable.
Borrowing costs are recognised as an expense in the period in which they are incurred.
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.
Government grants
Grants that compensate the Company for expenses incurred are recognised in profit or loss on a systematic
basis in the periods in which the expenses are recognised.
24
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
2.
ACCOUNTING POLICIES - continued
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 9, IAS 39, IFRS
7, IFRS 4, IFRS 16
Amendments - Interest Rate Benchmark Reform - Phase 2
01/01/2021
IFRS 1
IFRS 9
IFRS 16
IAS 41
IAS 16
IFRS 3
IAS 37
IFRS 17
IFRS 4
IAS 1
Amendments - First-Time Adoption of International Financial
Reporting Standards - Subsidiary as a first-time adopter
Amendment - Financial Instruments - Fees in the ‘10 per cent’ test
for derecognition of financial liabilities
Leases - Lease incentives
Agriculture - Taxation in fair value measurements.
Amendments - Property, Plant and Equipment - Proceeds before
Intended Use
Amendments - Reference to the Conceptual Framework
Onerous Contracts - Cost of Fulfilling a Contract
Insurance contracts
Amendments - Applying IFRS 9 'Financial Instruments' with IFRS 4
'Insurance Contracts'
01/01/2022
01/01/2022
01/01/2022
01/01/2022
01/01/2022
01/01/2022
01/01/2022
01/01/2023
01/01/2023
Amendment - Correction of Liabilities as Current and Non-Current
01/01/2023
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.
Revenue recognition
Revenue is measured at the fair value of consideration receivable, net of any discounts and VAT. It is recognised
to the extent that the transfer of promised services to a customer has been satisfied and the revenue can be
reliably measured.
Revenue from the rendering of services to the customer is considered to have been satisfied when the service
has been undertaken.
Revenue which is not related to the principal activity of the company is recognised in the Statement of Profit or
Loss as other operating income. Such income includes consultancy fees and rent receivable.
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.
25
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
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 Energy 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 Energy 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 2020. 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.
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 2020 as shown on the
Statement of Financial Position all relate to the Investment activity.
26
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
5.
OTHER OPERATING INCOME
Consultancy fees
Government grants
6.
EMPLOYEES AND DIRECTORS
Wages and salaries
Social security costs
Other pension costs
Share-based payments
The average number of employees during the year was as follows:
Directors
Staff
2020
£
2019
£
128,275
198,528
118,868
-
247,143
198,528
2020
£
2019
£
397,150
427,683
42,693
44,360
22,711
20,240
102,175
-
564,729
492,283
2020
2019
Number
Number
4
4
4
3
8
7
Under the Pensions Act 2008, every 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 (2019: £nil).
Details of Directors' remuneration can be found in note 23.
7.
NET FINANCE COSTS
Finance income
Interest receivable on group loan
Finance costs
Loan interest payable
Interest on overdue tax
2020
£
2019
£
91,362
76,612
50,969
50,475
20
-
50,989
50,475
Net finance income
40,373
26,137
8.
LOSS BEFORE INCOME TAX
The loss before income tax is stated after charging:
Other operating leases
Auditors remuneration
Foreign exchange differences
27
2020
£
2019
£
93,913
24,060
287
101,427
27,030
36,434
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
9.
INCOME TAX
Analysis of tax expense
No liability to UK corporation tax arose for the year ended 31 December 2020 nor for the year ended
31 December 2019.
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is
explained below:
Factors affecting the tax charge for the year:
Loss before income tax
2020
£
2019
£
(1,806,492)
(1,300,669)
Loss before income tax multiplied by effective rate of UK corporation tax of
19.00% (2019: 19.00%)
(343,233)
(247,127)
Effects of
Non-deductible expenses
Losses used for group relief
Tax losses not utilised
Unrealised chargeable losses
Profit on sale of investments
19,289
-
110,799
5,710
35,512
123,547
213,145
-
343,233
90,046
(7,688)
247,127
Current tax charge
-
-
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 £1.3m (2019: £1.2m) arising from the
accumulated tax losses of approximately £6.9m (2019: £6.4m) carried forward has not been recognised but may
become recoverable against future trading profits.
10.
LOSS PER SHARE
The loss and number of shares used in the calculation of earnings per ordinary share are set out below:
Basic:
Loss for the financial period
Weighted average number of shares*
Loss per share
2020
£
2019
£
(1,806,492)
(1,300,669)
85,855,239
61,475,232
(2.10p)
(2.12p)
The loss and the weighted average number of shares used for calculating the diluted loss per share are identical
to those for the basic loss per share. The outstanding share options and share warrants (note 22) would have
the effect of reducing the loss per share and would therefore not be dilutive under IAS 33 'Earnings per Share'.
*The comparative weighted average number of shares for 2019 has been adjusted to account for the share
reorganisation which was effected during the year whereby 1 new ordinary share of 0.1p each was issued in
exchange for 25 existing ordinary shares of 0.1p each (note 16).
28
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
11.
PROPERTY, PLANT AND EQUIPMENT
COST
At 1 January 2019 and 2020
At 31 December 2019 and 2020
DEPRECIATION
At 1 January 2019 and 2020
At 31 December 2019 and 2020
NET BOOK VALUE
At 31 December 2020
At 31 December 2019
12.
INVESTMENTS
Computer
equipment
£
1,699
1,699
1,699
1,699
-
-
Shares in
group
undertakings
Listed
investments
Unlisted
investments
£
£
£
Total
£
COST
At 1 January 2019
4,154,065
78,552
75,000
4,307,617
Additions
Disposals
Revaluations
At 31 December 2019
Revaluations
39,543
-
(245,220)
3,948,388
(377,498)
At 31 December 2020
3,570,890
-
(78,552)
-
-
-
-
-
-
(25,000)
39,543
(78,552)
(270,220)
50,000
3,998,388
-
50,000
(377,498)
3,620,890
During the year, the company’s wholly owned subsidiary undertaking, PXOG County Limited was struck off the
register at Companies House.
The company's investments at the Statement of Financial Position date in the share capital of companies include
the following:
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
%
holding
100.00
2020
£
722,784
926,489
2019
£
(203,705)
(788,799)
In August 2020, Prospex signed a sale and purchase agreement ('SPA') with H2Oil Limited ('H2Oil') regarding the
sale of the entire issued share capital of PXOG Massey Limited ('Massey'). Under the terms of the SPA, the Company
will receive up to £215,000 in cash in respect of historical debt owed to the Company by Massey and nominal
consideration for shares in Massey of which 85% of the funds (£182,650) had been received by Prospex by 31
December 2020. As at the balance sheet date, the conditions of the SPA had not been met.
29
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
12.
INVESTMENTS - continued
PXOG Marshall Limited
Registered office: England & Wales
Nature of business: Investment entity
Class of shares:
Ordinary
Aggregate capital and reserves
(Loss)/profit for the year
PXOG Muirhill Limited
Registered office: England & Wales
Nature of business: Investment company
Class of shares:
Ordinary
Aggregate capital and reserves
Profit/(loss) for the year
%
holding
100.00
%
holding
100.00
2020
£
3,570,790
(377,497)
2019
£
3,948,287
340,073
2020
£
30,237
47,988
2019
£
(17,751)
(17,338)
The registered office of the Company’s subsidiaries incorporated in the UK is Stonebridge House, Chelmsford
Road, Hatfield Heath, Essex CM22 7BD.
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.
30
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
13.
LOANS AND OTHER FINANCIAL ASSETS
At 1 January 2019
New in year
Impairment
At 31 December 2019
Repayment
Impairment
At 31 December 2020
Loans to
group
undertakings
£
1,013,129
239,554
(203,705)
1,048,978
(304,661)
(744,317)
-
In August 2020, Prospex signed a sale and purchase agreement ('SPA') with H2Oil Limited ('H2Oil') regarding
the sale of the entire issued share capital of PXOG Massey Limited ('Massey'). Under the terms of the SPA, the
Company will receive up to £215,000 in cash in respect of historical debt owed to the Company by Massey and
nominal consideration for shares in Massey of which 85% of the funds (£182,650) had been received by Prospex
by 31 December 2020. As a consequence, the loan balance has been fully impaired.
14.
TRADE AND OTHER RECEIVABLES
Current:
Trade debtors
Amounts owed by group undertakings
Other debtors
Rent deposit
VAT
Prepayments and accrued income
Non-current:
2020
£
2019
£
6,425
2,173
773,345
360,988
113,448
27,151
10,736
10,736
11,787
7,604
1,317
8,125
917,058
416,777
Amounts owed by group undertakings
989,645
808,360
Aggregate amounts
1,906,703
1,225,137
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
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 12).
15.
CASH AND CASH EQUIVALENTS
Bank accounts
2020
£
2019
£
220,618
69,387
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.
31
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
16.
CALLED UP SHARE CAPITAL
2020
Number
2019
Number
2020
£
2020
£
Allotted, called up and fully paid
Ordinary shares of 0.1p each - new
Ordinary shares of 0.1p each - existing
Deferred shares of 0.1p each
Deferred shares of £24 each
Deferred shares of 0.9p each
Deferred shares of £4.80 each
88,543,800
-
942,462,000
54,477
285,785,836
442,719
-
1,613,593,136
942,462,000
54,477
285,785,836
-
-
88,544
- 1,613,593
942,462
942,462
1,307,459
1,307,459
2,572,073
2,572,073
2,125,051
7,035,589 6,435,587
-
Share issue
In January 2020, the Company raised £720,000 before expenses by way of a placing of 600,000,000 new ordinary
shares of £0.001 each in the Company at a price of 0.12 pence per share (the "Placing"). The net proceeds of the
Placing were primarily used to fund the Company's acquisition of a 49.9% indirect stake in El Romeral, an integrated
gas production and power station operation located in the Guadalquivir basin in southern Spain.
Capital reorganisation
In June 2020, a Share Capital Reorganisation was effected:
- 5,000 Existing Ordinary Shares were consolidated into one Consolidation Share.
- Immediately following the Consolidation, each Consolidation Share was subdivided into 200 Ordinary Shares of
0.1p each and 1 New C Deferred Share of £4.80 each.
The effective share consolidation ratio was 1 New Ordinary Share and 1 New C Deferred Share for every 25 Existing
Ordinary Shares held.
Deferred shares rights
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.
17.
TRADE AND OTHER PAYABLES
Current:
Trade creditors
Social security and other taxes
Accruals and deferred income
2020
£
2019
£
25,420
22,603
87,891
14,740
50,951
58,951
164,262
96,294
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
32
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
18.
FINANCIAL LIABILITIES - BORROWINGS
Current:
Bank loan
Unsecured loan notes
Non-current:
Bank loan
Unsecured loan notes
2020
£
2019
£
5,473
282,100
287,573
-
128,841
128,841
2020
£
2019
£
44,159
-
535,839
386,523
579.998
386,523
Terms and debt repayment schedule:
1 year or
less
1-2 years
2-5 years
More than
5 years
£
£
£
£
Total
£
Bank loan
5,473
9,576
30,206
4,377
49,632
Unsecured loan notes
282,100
535,839
-
-
817,939
287,573
545,415
30,206
4,377
867,571
Bounce-back bank loan
The Company borrowed £49,632 from its bank under the Government Bounce Back Loan Scheme, created to assist
businesses during the Covid-19 Pandemic. The Company does not have to pay interest in relation to the first 12
months from the date on which the loan is drawn. After the 12-month initial period the Company will repay the loan
in 60 equal instalments and interest will be charged at 2.5% per annum.
2018 Loan note
During 2018, the Company raised £480,000 via the issue of unsecured Loan Notes ('2018 Notes') to new and
existing investors ('the Subscribers'). In addition, the Subscribers were issued warrants which lapsed during 2020
(note 23).
The 2018 Notes pay 10% interest biannually. Repayments of capital was started in December 2020 with final
repayment on 30 June 2022 (four equal payments). See below for details of capital rolled into 2020 Loan note.
2020 Loan note
In December 2020, the Company raised £265,000 via the issue of unsecured convertible loan notes ('2020 Notes”),
with denomination of £1, the net proceeds of which will be used for general working capital purposes.
The 2020 Notes pay 10% interest per annum with the first six monthly payment due in June 2021.The term of the
2020 Notes is 18 months with capital repayment of unconverted amounts due on 30 June 2022. The 2020 Notes
grant the subscribers the right but not the obligation to convert the loan, on notice, into new ordinary shares in the
Company each at 2.05 pence per share. The Company can elect at any time to repay the 2020 Notes early in cash.
In addition, certain holders of the Company's 2018 Notes agreed to rollover the partial capital repayment due in
December 2020 into the 2020 Notes. Under the 2018 Notes instrument, holders are entitled to 25% of the
outstanding capital returned in December 2020. Holders of £112,588 of the 2018 Notes elected to roll into the 2020
Notes.
A further £38,250 of the 2020 Notes have been issued to certain Directors and staff in settlement of deferred
stipends and salaries as a result of the COVID-19 pandemic.
A total of £415,838 of the 2020 Notes has therefore been issued to the subscribers, each of whom were also issued
with 44.4444 warrants ('the Warrants') for each £1 of the 2020 Note subscribed. A total of 18,481,694 Warrants
have been issued to the subscribers. Each Warrant confers to the subscriber the right to acquire one Ordinary Share
of 0.1p each at 2.25p, Save for certain events triggering an earlier expiry, including 5 consecutive days of the
ordinary shares closing above 3.375p the Warrants will expire in December 2022.
33
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
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 measured at amortised costs:
Trade and other receivables
Cash and cash equivalents
Amounts owing from group undertakings
Financial liabilities measured at amortised costs:
Bank loans
Unsecured loan notes
Trade and other payables
Total financial liabilities
2020
£
2019
£
143,713
55,789
220,618
69,387
1,762,990
2,218,326
2,127,321
2,343,502
2020
£
2019
£
49,632
-
817,939
515,364
164,262
96,294
1,031,833
611,658
Financial assets at fair value through profit or loss
Financial instruments that are measured at fair value are classified using a fair value hierarchy that reflects the
source of inputs used in deriving the fair value. The three classification levels are:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
– Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable market
inputs).
The following table presents the Company’s assets carried at fair value by valuation method:
Fair value measurement
Level 1
Level 2
Level 3
£
£
£
At 31 December 2020
-
-
3,620,890
At 31 December 2019
-
-
3,998,388
The financial assets at fair value through profit and loss are the Company's holdings in subsidiary undertakings
and one unquoted security and within Level 3 of the fair value hierarchy.
The fair value is determined to be equal to the cost of the investment and is reviewed periodically based on
information available about the performance of the underlying business. Where cost is deemed to be
inappropriate, the following table shows the valuation technique used in measuring Level 3 fair values for financial
instruments measured at fair value in the statement of financial position, as well as the significant unobservable
inputs used. The only method used is that of NPV.
34
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
19.
FINANCIAL INSTRUMENTS - continued
Valuation technique
NPV
- The valuation model
considers the present value of
expected
discounted
receipts,
using a risk-adjusted discount rate.
The expected receipt is determined
by
possible
scenarios of forecast revenue and
gas prices, the amount to be
received under each scenario and
the probability of each scenario.
considering
the
Significant unobservable inputs Inter-relationship
between
significant unobservable inputs
and fair value measurement
Forecast annual revenue growth
rate
The estimated fair value would
increase (decrease) if:
Forecast gas prices
Risk-adjusted discount rate
– the annual revenue growth rate
were higher (lower);
– the gas prices were higher
(lower); or
– the risk-adjusted discount rate
were lower (higher).
Generally, a change in the any of
the above variables would be
accompanied by a directionally
similar change in revenue receipts
and a consequential change in the
valuation of the investment
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.
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 2020, the Company’s monetary assets and liabilities are denominated in GBP Sterling, the
functional currency of the Company, other than €995 (£850) 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 £94 gain or £78 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.
35
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
20.
RELATED PARTY DISCLOSURES
Included in loans to group undertakings is an amount of £948,022 (2019: £1,252,683) due from PXOG Massey
Limited, the company's wholly owned subsidiary. Included in trade and other payables is an amount of £nil (2019:
£4,500) due to PXOG Massey Limited. At the year end, a provision of £948,022 (2019: £203,705) was made
against this balance (note 12).
Included in trade and other receivables is an amount of £987,023 (2019: £808,360) due from PXOG Marshall
Limited, the company's wholly owned subsidiary. Interest receivable of £91,362 (2019: £76,612) has been
accounted for in the Statement of Profit or Loss.
Included in trade and other receivables is an amount of £773,345 (2019: £360,988) due from PXOG Muirhill
Limited, the company's wholly owned subsidiary.
During the year, there were consultancy fees of £(11,250) (2019: £15,000) and £2,150 (2019: £10,800) charged
by Sallork Limited and Sallork Legal and Commercial Consulting Limited ("Sallork") respectively. Included in trade
payables at the year-end is £nil (2019: £1,606) owing to Sallork Limited. Richard Mays is a director and
shareholder of both these companies.
Included in trade and other payables are the following balances due to Directors as at 31 December 2020.
Edward Dawson
William Smith
2020
£
2019
£
9,184
-
-
9,019
At the balance sheet date, the Directors had the following interests in the unsecured loan notes (note 18):
Richard Mays
William Smith
James Smith
21.
ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, there is no ultimate controlling party.
22.
SHARE-BASED PAYMENT TRANSACTIONS
2020
£
2019
£
53,613
50,000
67,113
50,000
41,807
25,000
The number of shares and the share prices shown in this note take account of the share capital reorganisation
that was effected in 2020 (note 16). As a consequence, the comparative figures for 2019 have been adjusted on
the basis of 1 new ordinary share of 0.1p each being issued for 25 existing ordinary shares of 0.1p each.
Share options
At 31 December 2019 and 31 December 2020 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:
2020
Brought forward
Granted during the year
Lapsed during the year
Carried forward
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(pence)
Number of
shares
2,964,530
1.04
17.11
5,705,060
(2,849,046)
4.00
(13.00)
5,820,544
2.46
6.27
36
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
22.
SHARE-BASED PAYMENT TRANSACTIONS - continued
2019
Brought forward
Lapsed during the year
Carried forward
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise price
(pence)
Number of
shares
3,793,668
1.76
18.57
(829,138)
(23.77)
2,964,530
1.04
17.11
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 1 June 2020
Number Expiry date
Exercise
price
Fair value
at grant
date
1,600
30/04/2022
3,125.00p
1,183.40p
113,884
15/04/2025
5,705,060
01/06/2023
76.25p
4.00p
1.94p
1.79p
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
(years)
Risk-free
interest
rate
1 Granted 30 April 2012
4,375.00p
3,125.00p
32.00%
3.50
2 Granted 16 April 2015
3 Granted 1 June 2020
100.00p
2.75p
76.25p
4.00p
71.50%
3.00
163.60%
3.00
The fair value has been calculated assuming that there will be no dividend yield.
0.24%-
0.43%
0.71%
0.64%
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.
All of the share options are equity settled and the charge for the year is £102,175 (2019: £nil).
37
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
22.
SHARE-BASED PAYMENT TRANSACTIONS - continued
Warrants
At 31 December 2019 and 31 December 2020, 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.
2020
Brought forward
Granted during the year
Lapsed during the year
Carried forward
2019
Brought forward
Granted during the year
Lapsed during the year
Carried forward
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(pence)
Number of
shares
1,381,000
1.12
13.82
18,481,694
2.00
2.25
(1,056,000)
(15.00)
18,806,694
1.97
2.38
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise price
(pence)
Number of
shares
1,396,000
1.39
18.96
325,000
3.00
10.00
(340,000)
(31.25)
1,381,000
1.12
13.82
All warrants were exercisable at the year end.
The following warrants were in existence at the year end.
Warrants
1 Granted 18 March 2019
2 Granted 24 December 2020
Number Expiry date
325,000
18/03/2022
18,481,694
24/12/2022
Exercise
price
10.00p
2.25p
Fair value
at grant
date
1.63p
N/A
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:
The warrants granted on 24 December 2020 fall outside the scope of IFRS and as such no charge is made.
38
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
23.
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.
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payment
2020
£
2019
£
182,700
185,200
16,900
14,300
67,222
-
266,822
199,500
Salaries and
fees
Benefits in
kind
Pension
contributions
Share-
based
payment
£
£
£
£
2020
£
2019
£
Edward Dawson
130,000 4,200
16,900
23,662
174,762
148,500
Richard Mays
15,000 - - 14,520
29,520
15,000
William Smith
18,000 - - 14,520
32,520
18,000
James Smith
15,500 - - 14,520
30,020
18,000
178,500 4,200
16,900
67,222
266,822
199,500
The number of directors for whom retirement benefits are accruing under money purchase pension schemes
amounted to 1 (2019: 1).
The Directors interests in share options as at 31 December 2020 are as follows:
Director
Number of
shares
Exercise
price Date of grant
First date of
exercise
Final date of
exercise
Edward Dawson
27,208
76.25p
14/04/2015
14/04/2015
14/04/2025
Edward Dawson
1,321,171
4.00p
01/06/2020
01/06/2020
01/06/2023
Richard Mays
Richard Mays
William Smith
William Smith
1,348,379
21,669
810,719
832,388
21,669
810,719
832,388
76.25p
14/04/2015
14/04/2015
14/04/2025
4.00p
01/06/2020
01/06/2020
01/06/2023
76.25p
14/04/2015
14/04/2015
14/04/2025
4.00p
01/06/2020
01/06/2020
01/06/2023
James Smith
810,719
4.00p
01/06/2020
01/06/2020
01/06/2023
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 2020 are as follows:
Director
Number of
share
Exercise
price Date of grant
First date of
exercise
Final date of
exercise
Richard Mays
595,705
William Smith
1,195,705
James Smith
964,519
2.25p
2.25p
2.25p
24/12/2020
24/12/2020
24/12/2023
24/12/2020
24/12/2020
24/12/2023
24/12/2020
24/12/2020
24/12/2023
39
Prospex Energy Plc
Notes to the Financial Statements - continued
for the year ended 31 December 2020
24.
EVENTS AFTER THE REPORTING PERIOD
In March 2021, the Company raised £750,000 before expenses by way of a placing of 50,000,000 new ordinary
shares of £0.001 each in the Company at a price of 1.50 pence per share. Warrants were also be issued to Placing
subscribers, on the basis of one warrant per two Placing Shares subscribed for, with an exercise price of 3p, and
a term of two years from Admission.
The net proceeds of the placing will primarily be used to fund planned programmes at the El Romeral integrated
gas production and power station operation in southern Spain ('El Romeral'), and the Podere Gallina licence
onshore Italy where first gas at the Selva field is expected to commence in 2022, subject to the granting of a
production concession. The balance of the net proceeds will be used for general working capital purposes,
including the evaluation of new business opportunities.
40