Providence Resources
Annual Report 2012

Plain-text annual report

Providence Resources P.l.c. 2012 Annual Report P r o v i d e n c e R e s o u r c e s P. l . c . A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 2 Drilling Ahead... 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c. Annual Report 2012 Our Business Who We Are Providence’s oil and gas interests offshore Ireland and the United Kingdom includes a portfolio of appraisal and exploration oil and gas assets We operate to a number of broad corporate strategic guidelines that have led us to the development of our current portfolio. These guidelines may be summarised as follows: ❱ We are a front end E&P company, with a focus on early stage exploration and appraisal opportunities; ❱ We achieve a controlled and cost-effective expansion of our interests with a specific geographic focus on opportunities arising from our Irish and UK interests; ❱ We engage in strategic relationships/partnerships with third parties on a project-by-project basis with a view to controlling financial and project risk without compromising standards; and ❱ We establish ourselves, where appropriate, as operator and project leader, particularly at the early stages, with a view to being in a position to ensure the cost-effectiveness of projects and observance of best practice. Additional content + Information on Providence and its oil and gas portfolio is available at www.providenceresources.com or Scan the code below with your smartphone 22592.04 9 May 2013 12:37 AM Proof pfp 1 Operational Highlights Financial Highlights ❱ Celtic Sea Basin Barryroe Oil Discovery — Drilling and testing of 48/24-10z well with flow rates of 3,514 BOPD and 2.93 MMSCFGD (c. 4,000 BOEPD) — Competent Person’s Report (CPR) on Basal Wealden Sands issued by leading international audit firm Netherland Sewell & Associates Inc (NSAI) — Total on block audited figures — 2C STOIIP of 1.048 billion barrels — 2C Recoverable Resources of 311 MMBO — Excludes additional recoverable gas in solution of 207 BCF (or 34.5 MMBOE) — Additional 778 MMBO STOIIP (P50) identified in logged hydrocarbon bearing intervals within stacked Lower Wealden and Purbeckian sandstones — Phase 2 Development Engineering Study now complete — Farm out process has now commenced ❱ Share Placings — Placing of 13.149 million new ordinary shares at stg £4.80 per share to raise gross proceeds of US$100 million (stg £63 million) ❱ Convertible Bond Repayment — Repayment of the Convertible Bond ❱ Sale of Onshore UK Assets — Sale of UK onshore assets to IGas Energy Plc for a consideration of $66 million — Repayment of all corporate debt (c. $44 million) ❱ Financial Results – Year Ended 2012 — Operating loss of €5.432 million compared to a loss of €4.079 million in 2011 — The loss for the year attributable to equity holders (comprising both “continued operations” and “discontinued operations”) amounted to €24.183 million (€13.940 million in 2011) — Two year Licensing Option granted over adjacent c. 500 sq km — The loss per share from “continuing operations” was 13.51 cents area north and west of Barryroe ❱ South Porcupine Basin Dunquin Oil/Gas Prospect — Drilling operations underway ❱ Porcupine Basin Spanish Point Gas Condensate Field — Farm in by Cairn Energy in to FEL’s 2/04 and 4/08, and LO 11/2 — Revised Equity levels – Cairn 38%, Providence 32%, Chrysaor 26% and Sosina 4% — Farm in calls for up to 2 wells & 3D seismic — Cairn to become Operator — Appraisal well to be drilled (Q2 2014); 3D Seismic ❱ Rathlin Basin Polaris Prospect — Airborne Full Tensor Gradiometry survey completed — Exploration well to be drilled ❱ St George’s Channel Dragon Gas Filed — Awarded UK Licence P1930 over UK seaward block 103/1 — Appraisal well to be drilled ❱ Kish Bank Basin Kish Bank Prospects — Exploration well to be drilled ❱ Other Future Drilling Opportunities South Porcupine Basin - Drombeg Prospect — Announced significant resource potential (P50 872 MMBO REC), based on an oil-in-place volume of 2,970 BBO (November 2012) Goban Spur Basin - Newgrange Prospect — Repsol assumed role of Operator (March 2012) — Technical evaluation of future hydrocarbon potential currently ongoing (19.45 cents in 2011) — The total loss per share was 39.68 cents compared to a loss of 29.81 cents in 2011 — At 31 December 2012, cash and cash equivalents were €16.831 million — Proceeds from the sale of the UK onshore business to IGas of $66 million received in February 2013 Contents Our Business Highlights List Of Assets Chairman’s and Chief Executive’s Statement Operational Review – Ireland and United Kingdom Our Governance Board of Directors Directors’ Report Our Financials Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Company Financial Statements Notice of Annual General Meeting Corporate Information 01 02 04 07 12 14 20 21 22 23 24 25 26 52 53 59 IBC 22592.04 10 May 2013 11:22 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials2 List of Assets Licence Asset Operator Partners % Type CELTIC SEA BASIN SEL 1/11 Barryroe Providence Lansdowne SEL 2/07 Hook Head Providence Atlantic; Sosina SEL 2/07 Dunmore Providence Atlantic; Sosina 80.00 72.50 72.50 Oil discovery Oil and gas discovery Oil discovery SEL 2/07 Helvick Providence Atlantic; Sosina; Lansdowne 62.50 Oil and gas discovery SEL 2/07 Nemo Providence Atlantic; Sosina; Nautical 54.40 Oil and gas discovery KISH BANK BASIN SEL 2/11 Kish Bank Providence Petronas 50.00 Oil and gas exploration SLYNE BASIN LO 11/12 Kylemore Providence First Oil Expro LO 11/12 Shannon Providence First Oil Expro PORCUPINE BASIN FEL 2/04 Spanish Point FEL 2/04 Burren FEL 2/04 Wilde/Beehan Cairn Cairn Cairn Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina FEL 4/08 Cama (North & South) Cairn Chrysaor; Sosina 66.66 66.66 32.00 32.00 32.00 32.00 Gas exploration Gas exploration Oil and gas discovery Oil discovery Oil discovery Oil and gas exploration FEL 4/08 FEL 4/08 Rusheen (North & South) Costelloe (Main, North & South) FEL 4/08 Shaw FEL 4/08 Synge Cairn Chrysaor; Sosina 32.00 Oil and gas exploration Cairn Cairn Cairn Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina 32.00 32.00 32.00 32.00 Oil and gas exploration Oil and gas exploration Oil and gas exploration Oil and gas exploration LO 11/2 Spanish Point South Cairn Chrysaor; Sosina SOUTH PORCUPINE BASIN FEL 3/04 Dunquin ExxonMobil Eni; Repsol; Sosina 16.00 Oil and gas exploration FEL 1/99 Cuchulain ENI ExxonMobil; Sosina 3.20 Oil and gas exploration LO 11/9 Drombeg Providence Sosina 80.00 Oil and gas exploration GOBAN SPUR BASIN LO 11/11 Newgrange Providence Repsol; Sosina 40.00 Oil and gas exploration ST. GEORGE’S CHANNEL BASIN SEL 1/07 Pegasus SEL 1/07 Orpheus SEL 1/07 Dionysus SEL 1/07 Dragon P1930 Dragon RATHLIN BASIN Providence Providence Providence Providence Providence PL 5/10 Rathlin Island P1885 Rathlin Providence Providence 100.00 Oil and gas exploration 100.00 Oil and gas exploration 100.00 Oil and gas exploration 100.00 Gas discovery 100.00 Gas discovery 100.00 Oil and gas exploration 100.00 Oil and gas exploration 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Business 3 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials4 Chairman’s and Chief Executive’s Statement Turning the Drill Bit Opening Basins Dear Shareholder, We are pleased to present the 2012 Annual Report, which gives an update on another very eventful year for your Company. The year 2012 was a truly transformational year for Providence, with the most notable event being the successful drilling and successful testing of the Barryroe oil field in the North Celtic Sea Basin, the first well in our multi-basin drilling campaign offshore Ireland. The Barryroe testing results (issued in March 2012) came in far above all pre-drill expectations and the subsequent post-well analysis. The independent Netherland Sewell & Associates Inc. (NSAI) resource audit, published in April 2013, has helped to confirm Barryroe as a world class resource and this has enabled the Company to take a big step forward in advancing its plans to commercialise Ireland’s first oil field. Barryroe has not only opened up other opportunities in the Celtic Sea, but it has helped to redefine the industry view on the Irish offshore and its potential and as such, has had an extremely positive impact on both the asset portfolio and the financial well-being of the Company. The change in the financial area of the Company is best confirmed by the complete restructuring of the balance sheet over the past year. With the divestment of the UK onshore operations for $66 million (which closed in February 2013), the financial results now classify Singleton and the UK onshore activities as “discontinued operations” and accordingly, the comparator 2011 results are shown as re-presented. Financially, the 2012 financial results on core activities (or “continuing activities”) were an improvement on those recorded in 2011. For the year, the Company recorded an operating loss of €5.432 million versus €4.079 million in 2011 with the higher administration expenses related to a higher level of activity revolving around the multi-basin drilling campaign. The loss for the year from “continuing operations” was lower at €8.233 million compared to a loss of €9.096 million in 2011. The loss from “discontinued operations” amounted to €15.950 million compared to a loss of €4.844 million in 2011. The loss for the year attributable to equity holders (comprising both “continued operations” and “discontinued operations”) amounted to €24.183 million (€13.940 million in 2011). The loss per share from “continuing operations” was 13.51 cent (19.45 cent in 2011). When combined with the loss per share from “discontinued operations” of 26.17 cent (10.36 cent in 2011), a total loss per share was 39.68 cent compared to a loss of 29.81 cent in 2011. At 31 December 2012, cash and cash equivalents were €16.831 million, with this figure excluding the receipt of the proceeds from the sale of the UK onshore business to IGas Energy of $66 million, of which approximately $44 million was used to repay back the Deutsche Bank debt facility and the balance made available for general working capital purposes. In April 2012, the Company raised $100.0 million before expenses through a share placement to institutional shareholders of 13.1 million shares at a price of stg£4.80 per share. This placement to institutional shareholders, the majority of whom are UK based, was significantly oversubscribed and the shares were placed at a 5% premium to the then existing share price. The proceeds of this Placing were used to repay the outstanding principal of the convertible bond, to pay the increased costs of the Barryroe drilling programme (arising largely from the increase in equity from 50% to 80%) and to provide additional working capital for ongoing drilling activities across the Company’s portfolio. However, the restructuring of the balance sheet went beyond raising equity capital through a share placement. In May 2012, 1.4 million warrants (issued to Macquarie in 2006) were exercised, resulting in a net inflow of €6.9 million. In April, the final proceeds (€4.610 million) from the sale of AJE in Nigeria were received and this was applied to reduce a portion of the €42 million convertible bond. In July, following the share placement, as mentioned above, the repayment of the outstanding balance of the €42 million Convertible Bond was made. Finally, as first announced in September 2012, we sold our UK onshore business for $66 million thereby allowing us to repay all outstanding sums payable to Deutsche Bank. This transaction closed in February 2013. Taken all together, over the past 18 months, net debt levels were reduced by approximately €75 million and the Company is now debt free. Operationally, the main focus remained the multi-well drilling programme, covering both appraisal and exploration projects in six geological 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Business5 basins offshore Ireland. This is the largest, multi-basin, offshore drilling programme in the history of Ireland, representing an investment of up to $500 million by Providence and its partners. The first drilling result was announced in March 2012 with the successful flow testing of the Barryroe oil discovery. This flow testing, which delivered a commercial flow rate of 3,514 BOPD + 2.93 MMSCFGD (4,000 BOEPD) from the main Basal Wealden sandstone package, substantially exceeded the pre-drill expectations. A subsequent flow test of an upper gas interval was also above expectations. Since the announcement of these very positive results, and incorporating the newly acquired and processed 3D carried out over the field, extensive post-drilling evaluations have been carried out leading to new geological and recovery resources estimates, concept development studies and other pre-development planning and operational studies. In April 2013, the conclusion of these studies led to the publication of a new third party audit by NSAI on the Basal Wealden oil sands. Taken in conjunction with a previous audit carried out by RPS Energy on the Middle Wealden sands in 2011, the on block 2C audited resource figure for Barryroe now amounts to 1.048 billion barrels of oil in place, with estimated recoverable resources of 311 million barrels. In addition, the resource audit ascribed a further 207 BCF (or 34.5 MMBOE) of solution in gas from the Basal Wealden sands. Further incremental resource potential was also identified in logged hydrocarbon bearing intervals within stacked Lower Wealden and Purbeckian sandstones which we estimate contains P50 in place oil resources of 778 MMBO. Having established a major world class resource at Barryroe, and having defined the forward development path, we are now proceeding with a farm out campaign to attract a suitably qualified partner with both the technical and financial resources to allow us to take Barryroe to first oil, thereby delivering Ireland’s first commercial oil field development. This process, utilising the services of industry specialist advisors, is expected to take several months to complete. Separately, we and our partners continue with all the necessary preparatory works (equipment procurement, planning etc.) on the balance of our multi-basin drilling programme where a further five wells are planned. In April 2013, we announced the commencement of drilling operations at the ExxonMobil operated Dunquin prospect in the southern Porcupine Basin. This exploration well, which is one of the deepest wells ever drilled offshore Ireland, is testing a new play concept in the southern Porcupine Basin and will be keenly watched by the industry. Based on the forward plans, results from this well are expected later this summer. Looking further ahead, there are two other appraisal projects (Spanish Point and Dragon) to be drilled, one in the northern Porcupine Basin (the Spanish Point gas condensate discovery) and one in the St George’s Channel Basin (the Dragon gas discovery). These appraisal projects are similar to Barryroe in that they have previously flowed hydrocarbons and they are now being re-examined availing of today’s new technology. Importantly, both fields have had extensive 3D seismic acquired over them and this will be very important for their upcoming appraisal. We also have a further two exploration prospects to be drilled in the Rathlin Basin (Polaris) and offshore Dublin in the Kish Bank Basin. Earlier this year, due to a technical licensing matter, we voluntarily surrendered our foreshore licence over the Kish Bank Basin to allow for new legislation to be put in place. As soon as the new legislation is put in place, we will move forward with re-applying for a foreshore licence, which in conjunction with our Standard Exploration Licence, (which has been retained), will be required to allow us to carry out future exploration activities. We also continue to work up new exploration and appraisal opportunities for future drilling in other basins, such as Drombeg (in the southern Porcupine Basin), which has already generated significant industry interest, and Newgrange (in the Goban Spur Basin). Importantly, all of the planned wells in our drilling programme are what we term “pathfinder wells”: in other words, by testing any one target, we have the potential to prove up many adjacent prospects in each of the respective basins. To Providence, partnership has always been key, so importantly we carry out our drilling programmes with an array of notable co-venture companies, who not only bring financial assistance, but also technical capabilities to assist with this extensive programme of exploration and drilling activities offshore Ireland. These partners include ExxonMobil, ENI, PETRONAS, Repsol, Chrysaor, First Oil Expro, Sosina, Lansdowne and Atlantic Petroleum and we were pleased to recently welcome Cairn Energy Plc into our Spanish Point consortium, where they agreed to take a 38% equity stake and become Operator. Providence has always believed in the the material hydrocarbon prospectivity of offshore Ireland. Barryroe validates this with results that have exceeded all expectations, and we now look forward to advancing this large oil project towards development with our partner, Lansdowne, together with potential future farminee(s). However, as described above, Providence is much more than just Barryroe and accordingly, our focus in 2013 and beyond is to continue to drill ahead on our extensive portfolio of appraisal and exploration assets in Ireland and the United Kingdom. The aim is to advance proven discoveries to project sanction whilst proving up new exploration opportunities – both in terms of individual assets and entire new basins. As our recent drilling success has shown, advances in technology, infrastructure and commodity pricing have combined to present a truly unique opportunity to test the commercial potential of a number of these Irish assets. This is a view shared by others and it is very encouraging to see increased levels of activity offshore Ireland, with notable events in 2013 being the current drilling of Dunquin and the arrival of new entrants into the Irish offshore including Kosmos, PGS and Cairn. On behalf of our colleagues on the board, we wish to express our thanks to the management, staff and consultants who have worked so diligently over the past year. We look forward to updating shareholders further on our progress at our Annual General Meeting in June. The year under review was a very exciting year for Providence shareholders, and we firmly believe that 2013 promises to deliver even more. Dr. Brian Hillery Chairman Tony O’Reilly Chief Executive 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials 6 Providence in the media 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our BusinessAppraisal – Celtic Sea Basin SEL 1/11 – Barryroe The Barryroe oil field, which is located in SEL 1/11 (Providence 80.0%, Operator), was the subject of successful appraisal drilling in 2012. The field is situated in c.100 metres of water c.50 km off the south coast of Ireland. Previous operators had drilled 5 wells on the field, all of which logged hydrocarbon bearing intervals, with three being successfully flow tested. In 2011, having acquired a new 3D seismic survey over the field, Providence and 20% partner, Lansdowne, commenced the drilling of a sixth well on this areally extensive field. In March 2012, the partners announced the testing results from this well which far exceeded the pre-drill expectations with oil rates in excess of 3,500 BOPD. A post-well third party resource study (CPR) carried out recently by Netherland Sewell and Associates Inc., utilising the new 3D seismic data, has led to a substantial upgrade in the audited field size to over 1 billion barrels of oil in place, with in excess of 300 million barrels recoverable (2C). Table Total gross audited on-block Barryroe oil resources: Basal Wealden STOIIP (NSAI) Basal Wealden Recoverable (NSAI) Middle Wealden STOIIP (RPS) Middle Wealden Recoverable (RPS) TOTAL STOIIP TOTAL RECOVERABLE OIL RESOURCES 1C (MMBO) 338 85 31 4 369 2C (MMBO) 761 266 287 45 1,048 3C (MMBO) 1,135 511 706 113 1,841 89 311 624 Note: The table above excludes recoverable solution gas (i.e. 207 BCF or 34.5 MMBOE in the 2C case) 7 Further incremental resource potential has been identified in logged hydrocarbon bearing intervals within stacked Lower Wealden and Purbeckian sandstones, which Providence has previously estimated to contain total associated P90, P50 & P10 in place oil resources of 456 MMBO, 778 MMBO & 1,165 MMBO, respectively. With the Phase 2 Development Engineering Study now complete, the majority of post-well studies complete, Providence is now in a position to advance its farm-in discussions with potential co-venturers (farminees). Already, the Company has received significant amount of international industry interest in Barryroe with the farm in process expected to take several months. Other licences in the basin include SEL 2/07 which contain Hook Head, Dunmore, Helvick and Nemo oil discoveries. SEL 1/07 – Dragon SEL 1/07 was licensed by Providence in 2007 (100.0%), having been previously held as a Licensing Option. The Licence is situated on the Irish/UK median line in the St George’s Channel Basin. A gas discovery well, Dragon, was drilled by Marathon in 1994 on the UK side and it was estimated that approximately 25% of the field lay in SEL 1/07. In January 2012, following an out of round application, the UK portion of Dragon was awarded to a consortium comprising Providence (50%) and Star Energy (50%). Subsequent to the IGas Energy takeover of Star Energy, Providence assumed a 100% equity position over the UK portion of Dragon. The estimated recoverable resources of 200 BCF are based on new mapping following 3D seismic inversion by Ikon Science. As part of its multi-well programme, an appraisal well at Dragon is being planned. Picture: Barryroe testing, March 2012. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials 8 Appraisal – Porcupine Basin FEL 2/04 – Spanish Point FEL 2/04 was originally licensed by Providence in 2004. In 2008, Providence entered into a staged farm-in arrangement with Chrysaor taking an initial 30% equity stake in return for funding a 3D seismic programme, which was subsequently carried out in 2009. The resultant equity split was Providence (56.0%), Chrysaor (30.0%) and Sosina (14.0%). In 2011, the partnership moved to the next stage of the licence with a commitment to drill a well. Chrysaor subsequently moved to the next stage of the farm-in arrangement where they agreed to fund this well and in doing so, Providence’s cost exposure was capped at $20 million for up to two wells (well & contingent sidetrack). As a result, the equity stakes moved to Chrysaor 60.0%, Providence 32.0% and Sosina 8.0% with Chrysaor taking over as Operator. The estimated recoverable contingent resources at Spanish Point are 100 MMBOE (2C). Estimated recoverable resources from the nearby Burren oil discovery are up to 66 MMBOE (3C). FEL 4/08 – Galleon FEL 4/08 was originally licensed by Providence in 2008. In August 2008, Providence entered into a staged farm-in arrangement with Chrysaor (as per FEL 2/04) with the same terms of that farm out also applying to FEL 4/08. In July 2011, a 3D seismic survey was acquired over FEL 4/08. As a result, the equity levels in FEL 4/08 were Chrysaor 60.0%, Providence 32.0% and Sosina 8.0% with Chrysaor acting as Operator. Estimated recoverable prospective resources of up to 550 MMBOE are identified within FEL 4/08, as independently audited by Senergy. Seismic processing has now been completed and work is progressing on identifying suitable drilling targets for 2014 and beyond. LO 11/2 – Spanish Point South LO 11/2 was licenced to Chrysaor (60%), Providence (32%) and Sosina (8%) as part of the 2011 Irish Atlantic Margin Licensing Round. Farm-in by Cairn to FEL 2/04, FEL 4/08 and LO 11/2 In May 2013, it was announced that Chrysaor and Sosina had signed a farm-out agreement with a wholly owned subsidiary of Cairn Energy PLC. Under the terms of the farm in agreement, which is subject to approval by the Irish government and by Providence, Cairn will acquire the rights to obtain a 38.0% interest in FEL 2/04, FEL 4/08 and LO 11/2 from Chrysaor and Sosina and will assume the role of Operator in return for paying 63.33% of future exploration and appraisal costs of up to 2 wells, up to a specified well cap. Providence is not availing of this farm-out as it already has a promoted farm-in deal ($20million well cap) through its original farm in deal with Chrysaor in 2008. As a result of the Cairn farm in transaction, and subject to the necessary approvals, the revised equity interests in FEL 2/04, FEL 4/08 and LO 11/2 will be Cairn (38%), Providence (32%), Chrysaor (26%) and Sosina (4%). The targeted timing for the first appraisal well on Spanish Point is Q2 2014. The partners also currently expect to process a 3D seismic work programme on LO 11/2. A further well will be considered following the Spanish Point appraisal well. 22592.04 9 May 2013 12:37 AM Proof pfp Courtesy: RVL-Group. Providence Resources P.l.c.Annual Report 2012Our BusinessExploration – Southern Porcupine Basins 9 Goban Spur Basin LO 11/11 – Newgrange LO 11/11, located in the Goban Spur Basin, was awarded to a consortium comprising Providence (40.0%), Repsol (40.0%) and Sosina (20.0%) in October 2011 as part of the 2011 Irish Atlantic Margin Licensing Round. In March 2012, Repsol took over operatorship from Providence. Extensive 2D seismic had previously been acquired over this licence area which contains a similar geological play type to Dunquin, with estimated Pmean recoverable resources of 10 TCF. Seismic and well data evaluation are ongoing. Slyne Basin LO 11/12 – Kylemore & Shannon LO 11/12 in the Slyne Basin was awarded to Providence (66.6%) and First Oil Expro (33.3%) in October 2011 as part of the 2011 Irish Atlantic Margin Licensing Round. Previous operators have acquired 2D seismic over the area, which is adjacent to the Corrib field/infrastructure. The estimated recoverable prospective resources for Kylemore are 228 BSCF. Picture: Eirik Raude. FEL 3/04 – Dunquin FEL 3/04 was originally licensed by Providence in 2004 with an 80.0% equity stake and partner Sosina with 20.0%. In 2006, Providence agreed a farm-in with ExxonMobil who took a 80.0% stake in return for a pre- agreed investment programme. This reduced Providence’s stake to 16.0% and Sosina to 4.0%. In 2006, the partnership acquired 1,500 km of 2D seismic over Dunquin which Providence operated. In 2009, ENI farmed in for a 40.0% stake, resulting in a revised equity participation of Providence (16.0%), ExxonMobil (40.0%), ENI (40.0%) and Sosina (4.0%). Separately, ExxonMobil took over the Operatorship and moved the partnership to the next stage of the license, formally making a well commitment. In 2011, Repsol farmed in for a 25.0% stake, thereby re-aligning equity participation of ExxonMobil (27.5%), ENI (27.5%), Repsol (25.0%), Providence (16.0%) and Sosina (4.0%). Recoverable prospective resources are estimated at 1,716 MMBOE (P50). In April 2013, drilling operations commenced at Dunquin, operated by ExxonMobil, using the Eirik Raude deepwater drilling rig. FEL 1/99 – Cuchulain FEL 1/99 was licensed by ENI in 1999 at 100% equity stake. In 2009, as part of the ENI’s deal to farm in to Dunquin, the original Dunquin partnership took a combined 40% equity stake in FEL1/99 resulting in equity of ENI (60.0%), ExxonMobil (36.0%), Providence (3.2%) and Sosina (0.8%). It is planned to incorporate the results of the adjacent Dunquin well into the forward plan for this licence area. LO 11/9 – Drombeg LO 11/9 was awarded to Providence (80.0%) and its partner Sosina (20.0%) in October 2011 as part of the 2011 Irish Atlantic Margin Licensing Round. In 2012, Providence completed a major seismic inversion programme over the Lower Cretaceous Drombeg prospect, together with an assessment of its associated prospective resource potential. The analysis of the primary Drombeg seismic anomaly has indicated a recoverable P50 prospective resource potential of 872 MMBO, based on an oil in place volume of 2.970 BBO using analogue data from fields in the North Sea. Further similar Lower Cretaceous seismic anomalies have been identified both laterally offset to, as well as vertically stacked with, the Drombeg prospect providing further resource growth potential. Providence is currently engaged in farm in discussions and there has been significant international interest in the project. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials10 Exploration – Kish Bank and Rathlin Basins Picture: Kish Lighthouse. LO 08/2 – Kish Bank LO 08/2 in the Kish Bank Basin was originally licenced by Providence (50.0%) and Star Energy (PETRONAS, 50.0%) in 2008 with Providence assuming the operatorship. In August 2011, LO 08/2 was converted into an Standard Exploration Licence 2/11. A foreshore Licence application was subsequently made to carry out temporary seismic and exploration drilling works on the Kish Bank exploration prospect, located approximately 8 kilometres offshore. This licence was granted in October 2011. Unfortunately, due to the incorrect transposition of certain EU EIA directives into Irish law in 1999 by the Irish government, this licence was subsequently declared invalid. Providence elected to surrender the Foreshore Licence to allow the government time to rectify the appropriate legislations. The Company retains its exploration authorisation. Estimated recoverable prospective resources at the Kish Bank prospect are 250 MMBO and the prospect forms part of the Company’s multi-well programme. Due to the requirement to obtain a new Foreshore Licence, and noting the amendments being made to the legislation, it is proposed to re-apply for a Foreshore Licence to allow for future exploration drilling. PL 5/10 and P1885 – Polaris This onshore licence over Rathlin Island, which is located in the middle of the Rathlin Basin, was awarded in early 2011 with Providence taking a 100.0% equity interest. Providence also made application for the 6 surrounding offshore blocks under the UK 26th Licensing Round and these blocks were awarded in January 2012 to Providence (100.0%). In 2012, a Full Tensor Gradiometry Survey (FTG) was carried out which resulted in a number of anomalies being identified. Most notable was the Polaris prospect, with estimated 530 MMBO of recoverable prospective resources. This prospect is now being worked up for exploration drilling, subject to the receipt of the necessary permits and approvals. Picture: Raithlin Island, courtesy Bell Geospace. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our BusinessProvidence in the community 11 Photos by Brian Carlin, Finbarr O’Rourke and Jakub Czarcinski. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com Our BusinessOur GovernanceOur Financials12 Board of Directors Dr. Brian Hillery B. Comm., MBA, Ph.D Chairman Brian Hillery has served as Chairman of Providence since the incorporation of the Company. He is currently a member of the National Pensions Reserve Fund Commission. A former Professor at the Graduate School of Business, University College Dublin, he has also served as a member of the Irish Parliament as a TD and Senator (1977–1994). He was an Executive Director of the European Bank for Reconstruction and Development (EBRD) London (1994–1997) and was Non-Executive Chairman of both UniCredit Bank Ireland PLC (1999–2008) and Independent News and Media plc (2004–2011). Tony O’Reilly B.A. Chief Executive Tony O’Reilly has been Chief Executive of Providence Resources P.l.c. since 2005, having founded the Company in 1997 and he has served as a Director since its incorporation. He has previously worked in mergers and acquisitions at Dillon Read and in corporate finance at Coopers and Lybrand, advising natural resource companies. He served as Chairman of Arcon International Resources P.l.c. (having been Chief Executive from 1996 to 2000) until April 2005 when Arcon merged with Lundin Mining Corporation. John O’Sullivan M.Sc., MTM, FGS Technical Director John O’Sullivan is a geology graduate of University College, Cork and holds a Masters in Applied Geophysics from the National University of Ireland, Galway. He also holds a Masters in Technology Management from the Smurfit Graduate School of Business at University College, Dublin and is currently completing a dissertation leading to a Ph.D in Geology at Trinity College, Dublin. He is a Fellow of the Geological Society and a member of the Petroleum exploration Society of Great Britain. John is also a Director of PIPCO RSG Limited. Lex Gamble B.A., MBA Non-Executive Director Lex Gamble was appointed as a Non-Executive Director of the Company in August, 2005. Mr. Gamble holds a Bachelor of Arts Degree from the University of Washington, and a Masters Degree from Harvard Business School. He is a Director of Cardiac Insights Inc. and a former Director of Harris Private Bank NA, Northwestern Trust Co., Keystone Capital Corp., General Nutrition Corp. and Ashford Castle. He has been an investment banker for over 35 years serving as a Managing Director of Smith Barney, Morgan Grenfell and Kidder Peabody. He has provided strategic advice to more than 200 U.S. and international companies, including several in the FTSE 100 and Fortune 500. James S.D. McCarthy MBA Non-Executive Director James McCarthy was appointed as a Non-Executive Director of the Company in May 2005. Mr McCarthy holds a Bachelor Degree in Civil Law, an MBA from the University of Pittsburgh and is a qualified solicitor. He is Chief Executive of Nissan Ireland Ltd and a Director of Corporate Finance Ireland Limited, Windsor Motors Limited and Rockall Technologies Limited and a number of other companies. Mr McCarthy is a former Director of Arcon International Resources P.l.c. Dr. Philip Nolan B.Sc., Ph.D Non-Executive Director Philip Nolan became a Non-Executive Director of the Company in May 2004. Dr. Nolan was CEO of eircom Plc from 2002 to 2006. He is currently Chairman of J Laing PLC. He is also a Non-Executive Director of the Ulster Bank Group, EnQuest PLC, Chairman of Affinity Water and a former Director of De La Rue PLC. He is Chairman of the Irish Management Institute and is a member of the Board of the Ireland Fund. Dr. Nolan, graduated from Queen’s University in Belfast with a BSc and a Ph.D in geology and has an MBA from the London Business School. Philip O’Quigley B. Comm. FCA Non-Executive Director Philip O’Quigley was Finance Director of Providence Resources from June 2008 until his appointment as Chief Executive Officer of Falcon Oil & Gas in May 2012. Philip continues to serve the Company in his capacity as Non-Executive Director. Philip has over 20 years’ experience in finance positions in the oil and gas industry. His career spans a number of London and Dublin listed resources companies. Philip is a fellow of the Institute of Chartered Accountants in Ireland and qualified as a Chartered Accountant with Ernst & Young. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Governance13 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O Drilling Ahead... Photos by Finbarr O’Rourke, RVL-Group, Marine Institute, Ocean Rig. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 14 Directors’ Report The Directors submit their annual report together with the audited financial statements of Providence Resources P.l.c. (“the Company”) and its subsidiaries (“Providence” or the “Group”) for the year ended 31 December 2012. Principal Activities, Business Review and Future Developments Information with respect to the Group’s principal activities and the review of the business and future developments as required by the Companies (Amendment) Act, 1986 is contained in the Chairman’s and Chief Executive’s Statement and Operational Review on pages 4 to 10. During the period under review, the principal focus of management has been on the Group’s hydrocarbon interests offshore Ireland in the Celtic Sea, Porcupine Basin and Irish Sea. The sale of the Group’s producing interest in the onshore UK Singleton oil field was completed in February 2013. Results for the Year and State of Affairs at 31 December 2012 The consolidated Income Statement for the year ended 31 December 2012 and the consolidated Statement of Financial Position at that date are set out on pages 21 and 23. The loss for the year amounted to €24.183 million and net assets at 31 December 2012 were €68.098 million. No dividends or transfers to reserves are recommended by the Directors. Important Events since the Year End The Company completed the sale of its interest in the Singleton Oil Field, West Sussex to IGas Energy plc in February 2013. Directors Dr Philip Nolan and Mr James McCarthy both retire from the board by rotation and, being eligible, offer themselves for re-election. Tony O’Reilly, Chief Executive, has a service contract, effective from September 2011, with the Company in respect of services outside of the Republic of Ireland through a company beneficially owned by him, Kildare Consulting Limited. The above mentioned contract is of two years duration and is subject to one year’s notice period. The emoluments and fees payable under the above mentioned contracts amounted to €650,250 for 2012 (see Note 9 and Note 26 (Related Party Transactions)). Other than the above there have been no contracts or arrangements during the financial year in which a Director of the Company was materially interested and which was significant in relation to the Company’s business. Directors’ and Secretary’s Shareholdings and Other Interests The interests of the Directors, the Secretary and their spouses and minor children in the share capital of the Company, all of which were beneficially held, were as follows. Directors Dr. Brian Hillery Philip O’Quigley Tony O’Reilly Dr. Philip Nolan James S.D. McCarthy Lex Gamble John O’Sullivan Secretary Michael Graham Number of Ordinary Shares 31 Dec 2011 31 Dec 2012 14,060 5,000 112,470 30,000 10,000 100,000 10,110 14,060 5,000 112,470 30,000 10,000 100,000 10,110 7 May 2013 14,060 5,000 112,470 30,000 10,000 100,000 10,110 5,250 5,250 5,250 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Governance Details of the movement on outstanding options are as follows: At 31 December 2011 At 31 December 2012 Directors Dr. Brian Hillery Philip O’Quigley Tony O’Reilly Dr. Philip Nolan James S.D. McCarthy Lex Gamble John O’Sullivan Secretary Michael Graham 102,694 51,347 25,000 10,000 – 50,000 150,000 70,000 – 50,000 100,000 100,000 100,000 70,000 – 25,000 10,000 10,000 – 50,000 10,000 – 10,000 10,000 – 20,538 80,000 10,000 75,000 60,000 70,000 – 10,269 5,000 15,000 20,000 20,000 25,000 40,000 – 102,694 51,347 – 10,000 25,000 50,000 150,000 70,000 25,000 50,000 – 100,000 100,000 70,000 100,000 25,000 10,000 10,000 25,000 – 10,000 35,000 10,000 10,000 25,000 20,538 – 10,000 75,000 60,000 70,000 100,000 10,269 5,000 – 20,000 20,000 25,000 40,000 25,000 15 Price (Euro) 1.46 2.73 – 6.75 6.13 9.79 3.80 2.95 6.13 5.00 – 6.93 6.75 2.95 6.13 5.00 6.93 6.75 6.13 – 6.75 6.13 6.93 6.75 6.13 1.27 – 5.00 6.93 6.75 2.95 6.13 1.46 5.00 – 6.93 6.75 3.80 2.95 6.13 Expiry Date August 2013 November 2013 Lapsed July 2012 May 2014 July 2019 June 2015 June 2016 December 2017 July 2019 June 2014 Lapsed July 2012 May 2013 May 2014 December 2017 July 2019 June 2014 May 2013 May 2014 July 2019 Lapsed July 2012 May 2014 July 2019 May 2013 May 2014 July 2019 August 2013 Lapsed May 2012 June 2014 May 2013 May 2014 December 2017 July 2019 August 2013 June 2014 Lapsed July 2012 May 2013 May 2014 June 2016 December 2017 July 2019 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O Based on the closing share price on 31 December 2012, options over 698,848 of the above shares were capable of being exercised. Options over 360,000 shares included in the above options were granted during the year. The market price of the ordinary shares at 31 December 2012 was €7.90 and the range during the financial year was €2.40 to €8.85. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 16 Directors’ Report Subsidiary Companies The information required by Section 158(4) of the Companies Act 1963 on subsidiary companies is contained in the information provided in respect of these companies as set out in Note 4 to the Company financial statements. Special Business 1) Shareholders are being asked to grant authority to the Directors, to allot new ordinary shares having in aggregate a nominal value equal to the amount of the authorised but as yet unissued ordinary share capital of the Company. This authority will be for a period of five years from the date of the passing of the resolution (Resolution No. 5) and is a continuation of the previous authority given in 2008. The Directors have no present intention of exercising the authority granted pursuant to Resolution No. 5. 2) Shareholders are also being asked to grant authority to the Directors until the earlier of the next Annual General Meeting or 6 September 2014 to disapply statutory pre-emption rights in relation to the issue of securities (as defined by the Companies (Amendment) Act 1983) by way of rights issue, open offer or otherwise to shareholders and subject to such exclusions and other arrangements deemed necessary to deal with any legal or practical problems; pursuant to the Company’s Share option Schemes, and or for any other issue of equity securities for cash up to a maximum aggregate nominal value of €644,982 corresponding to 10% of the nominal value of the Company’s issued ordinary share capital at the date of passing of Resolution number 6. The Directors are of the opinion that the above proposals are in the best interest of shareholders and unanimously recommend to you to vote in favour of the resolutions, as they intend to do in respect of their own beneficial holdings. Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the consolidated and Company financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare consolidated and parent Company financial statements for each financial year. Under that law and in accordance with ESM rules the Directors are required to prepare the consolidated financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Company financial statements in accordance with generally accepted accounting practice in Ireland, comprising applicable law and the financial reporting standards issued by the Financing Reporting Council in the UK and promulgated by the Institute of Chartered Accountants in Ireland. The consolidated financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Group. The Companies Acts 1963 to 2012 provide, 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. The Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing each of the consolidated and Company financial statements, the Directors are required to: ❱ ❱ make judgements and estimates that are reasonable and prudent; ❱ select suitable accounting policies and then apply them consistently; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. Under applicable law, the Directors are also responsible for preparing a Directors’ Report. The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Acts 1963 to 2012. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors have decided to prepare, voluntarily, a Corporate Governance Statement as if the Company were required to prepare such a statement in accordance with the Listing Rules of the Irish Stock Exchange. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going Concern The Directors have considered carefully the financial position of the Group and, in that context, have reviewed cash flow forecasts for the period to 31 December 2014. The group’s cash on hand at 31 December 2012 of €16.8m was increased in February 2013 on the completion of the sale of PR Singleton to IGas Energy plc for $66m. The group then discharged its outstanding bank debt of $44m and is now debt free. The directors are satisfied that the group will have sufficient cash resources to enable it to discharge all its commitments as they fall due, funded in the short term from existing cash resources. As set out in more detail in the Chairman’s and Chief Executive’s review, the group looks forward to incurring significant capital expenditure in 2013 and 2014 on Dunquin and Spanish Point and, depending on the state of permitting, on three other planned wells (Dragon, Polaris and Kish) in 2014. The directors are satisfied that, while no arrangements have yet been entered into, the group will be in a position to fund this capital expenditure programme through planned farm out programmes. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Governance17 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O Corporate Governance The Company is committed to high standards of corporate governance. Although the Company, as an ESM and AIM quoted Company, is not required to comply with the Revised Combined Code (“The Code”) on Corporate Governance, the Directors support high standards of corporate governance and, in so far as is practical given the Company’s size, have implemented the following corporate governance provisions for the year ended 31 December 2012. The Board The Board is made up of two Executive and five Non-Executive Directors. Biographies of each of the Directors are set out on page 12. Each year one third of the Directors retire from the Board by rotation and every Director is subject to this rule. Effectively, therefore, each Director will retire by rotation within each three-year period. Board Committees The Board has implemented an effective committee structure to assist in the discharge of its responsibilities. The committees and their members are listed inside the back cover of this report. All committees of the Board have written terms of reference dealing with their authority and duties. Membership of the Audit and Remuneration Committees is comprised exclusively of non-executive Directors. The Company Secretary acts as secretary to each of these committees. All the Directors bring independent judgement to bear on issues affecting the Group and all have full and timely access to information necessary to enable them to discharge their duties. The Directors have a wide and varying array of experience in the industry. The Board agrees a schedule of regular meetings to be held in each calendar year and also meets on other occasions as necessary. Meetings are held at the head office in Dublin. The Board met formally on 17 occasions during 2012. An agenda and supporting documentation was circulated in advance of each meeting. Audit Committee The Audit Committee reviews the accounting principles, policies and practices adopted in the preparation of the interim and annual financial statements and discusses with the Group’s Auditors the results and scope of the audit. It also reviews the scope and performance of the Group’s internal finance function and the effectiveness and independence of the external Auditors. The external Auditors are invited to attend the Audit Committee meetings, and the Chief Financial Officer also attends. The external Auditors have the opportunity to meet with the members of the Audit Committee alone at least once a year. Mr. James McCarthy is Chairman of the Audit Committee. There is an agreed list of matters which the Board has formally reserved to itself for decision, such as approval of the Group’s commercial strategy, trading and capital budgets, financial statements, Board membership, acquisitions and disposals, major capital expenditure, risk management and treasury policies. Responsibility for certain matters is delegated to Board Committees. There is an agreed procedure for Directors to take independent legal advice. The Company Secretary is responsible for ensuring that Board procedures are followed, and all Directors have direct access to the Company Secretary. All Directors receive regular Group management financial statements and reports and full Board papers are sent to each Director in sufficient time before Board meetings, and any further supporting papers and information are readily available to all Directors on request. The Board papers include the minutes of all committees of the Board which have been held since the previous Board meeting, and, the Chairman of each committee is available to give a report on the committee’s proceedings at Board meetings if appropriate. The Board has a process whereby each year every Director will meet the Chairman to review the conduct of Board meetings and the general corporate governance of the Group. The role of the Chairman (Dr. Brian Hillery) is Non-Executive. The Non- Executive Directors are independent of management and other than share options held, have no material interest or other relationship with the Group. The Board has not deemed it necessary to appoint a senior Non-Executive Director. However, this is subject to ongoing review. Remuneration Committee The Remuneration Committee comprises five Non-Executive Directors chaired by Dr. Brian Hillery. Emoluments of Executive Directors and senior management are determined by the Remuneration Committee. In the course of each financial year the Remuneration Committee determines basic salaries as well as the parameters for any possible bonus payments. The Remuneration Committee applies the same philosophy in determining Executive Directors’ remuneration as is applied in respect of all employees. The underlying objective is to ensure that individuals are appropriately rewarded relative to their responsibility, experience and value to the Group. The Remuneration Committee is mindful of the need to ensure that, in a competitive environment, the Group can attract, retain and motivate Executives who can perform to the highest levels of expectation. Annual bonuses, if any, are determined by the Remuneration Committee on the basis of objective assessments based on the Group’s performance during the year in terms of key financial indicators, as well as a qualitative assessment of the individual’s performance. Share option schemes were introduced in August 1997 (expired August 2007), May 2005 and June 2009 from which new share options may be offered to employees, Directors and consultants. Options are recommended at a level to attract, retain and motivate participants in the competitive environment in which the Group operates. There have been no changes in this policy since the adoption of the first scheme in August 1997. The 1997 Scheme has now expired and no new options may be granted from that scheme. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 18 Directors’ Report The Remuneration Committee reviews and assesses proposals to grant share options to participants under the share option scheme. Participation is at the discretion of Directors for eligible participants. Details of Directors’ remuneration for the current period are set out in Note 9 to the financial statements. Nomination Committee At present the Board does not have a Nomination Committee and the authority to nominate new Directors for appointment therefore vests in the Board of Directors. Consideration to setting up a specific Nomination Committee is under continuous review. Shareholders There is regular dialogue with institutional shareholders and presentations are made at the time of the release of the annual and interim results. The Company encourages communication with private shareholders throughout the year and welcomes their participation at general meetings. The Company has a website which is www.providenceresources.com. This website is regularly updated. All Board members attend the Annual General Meeting and are available to answer questions. Separate resolutions are proposed on substantially different issues and the agenda of business to be conducted at the Annual General Meeting includes a resolution to receive and consider the Annual Report and Accounts. The Chairman of the Board’s committees will also be available at the Annual General Meeting. The Board regards the Annual General Meeting as a particularly important opportunity for shareholders, Directors and management to meet and exchange views. Notice of the Annual General Meeting together with the Annual Report and accounts is sent to shareholders in accordance with the Articles of Association of the Company and details of the proxy votes for and against each resolution are announced after the result of the hand votes. Internal Control The Directors have overall responsibility for the group’s system of internal control to safeguard shareholders’ investments and the group assets and have delegated responsibility for the implementation of this system to Executive management. This system includes financial controls which enable the Board to meet its responsibilities for the integrity and accuracy of the Group’s accounting records. Following the publication of the Turnbull Report, the Board established a process of compliance which involved an expansion of the Board’s responsibility to maintain, review and report on all internal controls, including financial, operational and compliance risk management. Among the processes applied in reviewing the effectiveness of the system of internal controls are the following: ❱ Budgets are prepared for approval by Executive management and inclusion in a Group budget approved by the Board. Expenditure and income are regularly compared to previously approved budgets. The Board establishes treasury and commodity risk policies as appropriate, for implementation by Executive management. ❱ ❱ ❱ ❱ ❱ ❱ ❱ All commitments for expenditure and payments are compared to previously approved budgets and are subject to approval by personnel designated by the Board of Directors or by the Board of subsidiary companies. Regular management meetings take place to review financial and operational activities. Cashflow forecasting is performed on an ongoing basis to ensure efficient use of cash resources. Regular financial results are submitted to and reviewed by the Board of Directors. The Directors, through the Audit Committee, review the effectiveness of the Group’s system of internal financial control. A review of the effectiveness of the system of internal control was carried out during the year 2009. The Directors considered that the procedures necessary to implement the Turnbull guidelines on the Combined Code have been properly established. The Board has considered the requirement for an internal audit function. Based on the scale of the Group’s operations and close involvement of the Board, the Directors have concluded that an internal audit function is not currently required. Risk Management Currency Risk Management The Board reviews its annual euro, sterling and US dollar requirements by reference to bank forecasts and prevailing exchange rates and management is authorised to achieve best available rates in respect of forecast Euro requirements. Commodity Risk Management In line with most oil and gas exploration companies the Group would hedge a certain proportion of any production at rates in excess of the current commodity market price. Consideration of further hedging instruments, when applicable, is kept under review. General Industry Risk Providence’s business may be affected by the general risks associated with all companies in the oil and gas industry. These risks (the list of which is not exhaustive) include: general economic activity, the world oil and gas prices, the marketability of the hydrocarbons produced, action taken by other oil-producing nations and the extent of governmental regulation and taxation. All drilling to establish productive hydrocarbon reserves is inherently speculative and, therefore, a considerable amount of professional judgement is involved in the selection of any prospect for drilling. In addition, even when drilling successfully encounters oil and gas and a well is completed as a producing oil or gas well, unforeseeable operating problems or climatic conditions may arise which render it uneconomical to produce such oil and natural gas. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Governance19 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O Estimates of potential reserves include a substantial proportion which are undeveloped. These reserves require further capital expenditure in order to bring them into production. No guarantee can be given as to the success of drilling programmes in which the Group has interests. The Group can operate in different political jurisdictions where there could be risks pertaining to local regulations, war or nationalisation of reserves. Substantial Shareholdings So far as the Board is aware, no person or company, other than those listed below, held 3% or more of the Ordinary share capital of the Company at 7 May 2013. Shareholder Sir Anthony O’Reilly BlackRock Investment Management (UK) Limited JP Morgan Asset Management UK Limited HSBC plc and subsidiary companies Henderson Global Investors Limited F & C Asset Management plc American Funds Insurance Global Small Capitalization Fund Number of Shares % 9,961,720 15.45 5,804,427 5,532,134 4,291,864 2,500,000 2,496,186 8.99 8.58 6.65 3.88 3.87 1,956,250 3.03 Political Donations There were no political donations during the year (2011: €Nil). Books and Accounting Records The Directors are responsible for ensuring proper books and accounting records, as outlined in Section 202 of the Companies Act 1990, are kept by the Company. The Directors through the use of appropriate procedures and systems and the employment of competent persons have ensured that measures are in place to secure compliance with these requirements. These books and accounting records are maintained at the Company’s business address, Airfield House, Airfield Park, Donnybrook, Dublin 4. Auditors KPMG have indicated their willingness to continue in office in accordance with Section 160 (2) of the Companies Act, 1963. Shareholders will be asked to authorise the Directors to fix their remuneration. On behalf of the Directors Dr. Brian Hillery Chairman 7 May 2013 Tony O’Reilly Chief Executive 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 20 Independent Auditor’s Report to the members of Providence Resources P.l.c. We have audited the Group and Company financial statements (‘‘financial statements’’) of Providence Resources P.l.c. for the year ended 31 December 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position and Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and, as regards the Company financial statements, is Irish law and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland). This report is made solely to the Company’s members, as a body, in accordance with section 193 of the Companies Act 1990. 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 an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 16, the Directors are responsible for the preparation of financial statements giving a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Ethical Standards for Auditors issued by the Auditing Practices Board. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: • the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’s affairs as at 31 December 2012 and of its loss for the year then ended; the Company balance sheet gives a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the Company’s affairs as at 31 December 2012; and the financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2012. • • Matters on which we are required to report by the Companies Acts 1963 to 2012 We have obtained all the information and explanations which we consider necessary for the purposes of our audit. The Company’s balance sheet is in agreement with the books of account and, in our opinion, proper books of account have been kept by the Company. In our opinion the information given in the Directors’ report is consistent with the financial statements. The net assets of the Company, as stated in the balance sheet, are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2012 a financial situation which under Section 40(1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company. Matters on which we are required to report by exception We have nothing to report in respect of the provisions in the Companies Acts 1963 to 2012 which require us to report to you if, in our opinion the disclosures of Directors’ remuneration and transactions specified by law are not made. David Meagher for and on behalf of Chartered Accountants, Statutory Audit Firm 1 Stokes Place St. Stephen’s Green Dublin 2 7 May 2013 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials Consolidated Income Statement for the year ended 31 December 2012 Revenue – continuing operations Administration expenses Pre-licence expenditure Impairment of exploration and evaluation assets Loss on disposal of asset Operating loss Finance income Finance expenses Loss before income tax Income tax expense Loss for year from continuing operations Discontinued operations Loss from discontinued operations (net of income tax) Loss for the financial year attributable to equity holders of the Company Loss per share (cent) – continuing operations Basic loss per share Diluted loss per share Loss per share (cent) – discontinued operations Basic loss per share Diluted loss per share Loss per share (cent) – total Basic loss per share Diluted loss per share The total loss for the year is entirely attributable to equity holders of the Company. 21 Note 2 4 12 10 5 6 7 3 11 11 3 3 2012 €’000 – (3,937) – (1,495) – (5,432) 494 (3,295) (8,233) – (8,233) 2011 €’000 (re-presented*) – (1,850) (117) (1,731) (381) (4,079) 134 (5,151) (9,096) – (9,096) (15,950) (24,183) (4,844) (13,940) (13.51) (13.51) (26.17) (26.17) (39.68) (39.68) (19.45) (19.45) (10.36) (10.36) (29.81) (29.81) * The comparative income statement has been re-presented as if the operations discontinued during the current year had been discontinued from the start of the comparative year. On behalf of the Board Dr. Brian Hillery Chairman Tony O’Reilly Chief Executive s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 22 Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 Loss for the financial year Continuing operations Foreign exchange translation differences Net change in fair value of cashflow hedges transferred to income statement Cashflow hedges – net fair value loss – related deferred tax Total income and expense recognised in other comprehensive income from continuing operations Total comprehensive expense for the year The total comprehensive expense for the year is entirely attributable to equity holders of the Company. On behalf of the board Dr. Brian Hillery Chairman Tony O’Reilly Chief Executive Note 6 6 6 21 2012 €’000 (24,183) (97) 2,305 – 3,407 2011 €’000 (13,940) (1,533) 1,342 (2,449) 2,057 5,615 (18,568) (583) (14,523) 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials Consolidated Statement of Financial Position as at 31 December 2012 23 Assets Exploration and evaluation assets Development and production assets Property, plant and equipment Derivative instruments Deferred tax Total non-current assets Trade and other receivables Derivative instruments Restricted cash Cash and cash equivalents Assets classified as held for sale Total current assets Total assets Equity Share capital Capital conversion reserve fund Share premium Singleton revaluation reserve Convertible bond – equity portion Foreign currency translation reserve Share based payment reserve Loan warrant reserve Cashflow hedge reserve Retained deficit Total equity attributable to equity holders of the Company Liabilities Loans and borrowings Decommissioning provision Deferred tax Total non-current liabilities Loans and borrowings Trade and other payables Liabilities classified as held for sale Total current liabilities Total liabilities Total equity and liabilities On behalf of the Board Dr. Brian Hillery Chairman Tony O’Reilly Chief Executive Note 2012 €’000 2011 €’000 12 13 14 21 15 16 16 3 17 17 19 20 21 19 22 3 67,076 – 42 – – 67,118 4,005 – – 16,831 43,852 64,688 131,806 18,136 623 209,975 2,471 – (3,752) 4,942 – – (164,297) 68,098 – 4,738 – 4,738 – 23,445 35,525 58,970 63,708 131,806 36,214 46,159 32 5,111 5,887 93,403 6,626 513 17,491 18,563 – 43,193 136,596 16,668 623 130,548 2,650 2,333 (3,655) 4,368 5,641 (2,305) (148,994) 7,877 30,033 5,165 24,091 59,289 41,779 27,651 – 69,430 128,719 136,596 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 24 Consolidated Statement of Changes in Equity for the year ended 31 December 2012 At 1 January 2011 Loss for financial year Currency translation Cashflow hedge Total comprehensive income Transactions with owners, recorded directly in equity Shares issued in year Share based payments Share options forfeited in year Transfer from Singleton revaluation reserve Bond redemption At 31 December 2011 At 1 January 2012 Loss for financial year Currency translation Cashflow hedge Total comprehensive income Transactions with owners, recorded directly in equity Shares issued in year Share based payments Share options exercised in year Share options forfeited in year Transfer from Singleton revaluation reserve Exercise of warrants (Note 23) Bond redemption (Note 19) At 31 December 2012 Capital conversion reserve fund €’000 623 – – – Share capital €’000 15,058 – – – Singleton revaluation reserve (Note18(a)) €’000 2,919 – – – Foreign currency translation reserve (Note 18(b)) €’000 (2,122) – (1,533) – Share based payment reserve (Note 18(c)) €’000 3,537 – – – Warrants (Note 18(d)) €’000 5,641 – – – Convertible bond – equity portion (Note 18(e)) €’000 2,944 – – – Cashflow hedge reserve (Note 18(f)) €’000 (3,255) – – 950 Share premium €’000 86,918 – – – Retained deficit €’000 (136,001) (13,940) – – Total €’000 (23,738) (13,940) (1,533) 950 15,058 623 86,918 2,919 (3,655) 3,537 5,641 2,944 (2,305) (149,941) (38,261) 1,610 – – – – 16,668 Share capital €’000 16,668 – – – – – – 43,630 – – – – – – – – – 898 (67) – – – – – – – – – – – 67 – – 623 – – 130,548 (269) – 2,650 – – (3,655) – – 4,368 – – 5,641 – (611) 2,333 – – (2,305) 269 611 (148,994) Capital conversion reserve fund €’000 623 – – – Share premium €’000 130,548 – – – Singleton revaluation reserve (Note18(a)) €’000 2,650 – – – Foreign currency translation reserve (Note 18(b)) €’000 (3,655) – (97) – Share based payment reserve (Note 18 (c)) €’000 4,368 – – – Warrants (Note 18(d)) €’000 5,641 – – – Convertible bond – equity portion (Note 18(e)) €’000 2,333 – – – Cashflow hedge reserve (Note 18(f)) €’000 Retained deficit €’000 (2,305) (148,994) (24,183) – – – – 2,305 45,240 898 – – – 7,877 Total €’000 7,877 (24,183) (97) 2,305 16,668 623 130,548 2,650 (3,752) 4,368 5,641 2,333 – (173,177) (14,098) 1,314 – 14 – – 140 – – – – – – 72,415 – 252 – – – – – – (179) 6,760 – – – – – – – – 1,301 (238) (489) – – – – – – – (5,641) – – – – – – – – – – – – – – 73,729 1,301 238 489 179 266 – – 5,641 6,900 – 18,136 – 623 – 209,975 – 2,471 – (3,752) – 4,942 – – (2,333) – 2,333 – – (164,297) – 68,098 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our FinancialsConsolidated Statement of Cash Flows for the year ended 31 December 2012 Cash flows from operating activities Loss before income tax for the year – continuing operations Loss before income tax for the year – discontinued operations Adjustments for: Depletion and depreciation Loss on disposal Abandonment provision Impairment of exploration and evaluation assets Impairment of development and production assets Finance income Finance expense Equity-settled share based payment charge Foreign exchange Change in trade and other receivables Change in restricted cash Change in trade and other payables Interest paid Hedge repayments Net cash inflow/(outflow) from operating activities Cash flows from investing activities: Interest received Acquisition of exploration and evaluation assets Acquisition of development and production assets Acquisition of property, plant and equipment Disposal of development and production assets – AJE Disposal of development and production assets – Triangle Net cash used in investing activities Cash flows from financing activities: Proceeds from issue of share capital Share capital issue costs Repayment of loans and borrowings Proceeds from drawdown of loans and borrowings Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash and cash equivalents Cash and cash equivalents at 31 December 25 2011 €’000 (9,096) (341) (9,437) 2,634 381 – 1,731 4,904 (134) 5,378 898 2,307 1,579 (14,971) 18,811 (6,798) (7,714) (431) 134 (27,576) (8,889) (38) 7,759 10,475 (18,135) 47,662 (2,422) (56,540) 39,033 27,733 9,167 9,171 225 18,563 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 2012 €’000 (8,233) (36,524) (44,757) 2,755 – 34 1,495 32,357 (494) 16,369 1,247 (507) (3,782) 16,581 (2,696) (6,712) (297) 11,593 494 (31,755) (27,202) (38) 4,610 – (53,891) 84,797 (3,902) (44,273) 4,077 40,699 (1,599) 18,563 (133) 16,831 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 26 Notes to the Consolidated Financial Statements for the year ended 31 December 2012 1 Statement of accounting policies Reporting entity Providence Resources P.l.c. (the “Company”) is a company domiciled in Ireland. The consolidated financial statements of the Company for the year ended 31 December 2012 are comprised of the financial statements of the Company and its subsidiaries, together referred to as the “Group”. Basis of preparation The consolidated financial statements are presented in euro, rounded to the nearest thousand (€’000) except where otherwise indicated. The euro is the functional currency of the parent Company. The consolidated financial statements are prepared under the historical cost basis except for share options and warrants, both of which are measured at grant date fair value, and derivative financial instruments and available for sale assets, which are measured at fair value at each reporting date. The preparation of financial statements requires management to use judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Details of critical judgements are disclosed in note 27 to the financial statements. New accounting standards applied during 2012 A number of new accounting standards and amendments to accounting standards became applicable to the group during the year. None had a material impact on the financial statements. The financial statements were authorised for issue by the Board of Directors on 7 May 2013. Going concern The Directors have considered carefully the financial position of the Group and, in that context, have reviewed cash flow forecasts for the period to 31 December 2014. The group’s cash on hand at 31 December 2012 of €16.8m was increased in February 2013 on the completion of the sale of PR Singleton to IGas Energy plc for $66m. The group then discharged its outstanding bank debt of $44m and is now debt free. The directors are satisfied that the group will have sufficient cash resources to enable it to discharge all its commitments as they fall due, funded in the short term from existing cash resources. As set out in more detail in the Chairman’s and Chief Executive’s review, the group looks forward to incurring significant capital expenditure in 2013 and 2014 on Dunquin and Spanish Point and, depending on the state of permitting, on three other planned wells (Dragon, Polaris and Kish) in 2014. The directors are satisfied that, while no arrangements have yet been entered into, the group will be in a position to fund this capital expenditure programme through planned farm out programmes. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. Statement of compliance The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU IFRS) including interpretations adopted by the International Accounting Standards Board (IASB), that are effective for accounting periods ending on or before the reporting date, 31 December 2012. Standards and interpretations in issue but not effective and not applied A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013 and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group except for IFRS 11 Joint Arrangements which becomes mandatory for the Group’s 2014 consolidated financial statements and IFRS 9 Financial Instruments which becomes mandatory for the Group’s 2015 consolidated financial statements. The Group does not intend to adopt these standards early and is currently considering the extent of the impact on its financial statements. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials27 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 1 Statement of accounting policies (continued) Basis of consolidation The consolidated financial statements include the financial statements of Providence Resources P.l.c. and its subsidiaries. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Business combinations The fair value of the consideration of a business combination is measured as the aggregate of the fair value at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued in exchange for control. Deferred expenditure arising on business combinations is determined through discounting the amounts payable to their present value at the date of exchange. The discount element is reflected as an interest charge in the income statement over the life of the deferred payment. In the case of a business combination the assets and liabilities are measured at their provisional fair values at the date of acquisition. Adjustments to the provisional fair values of assets and liabilities are made within twelve months of the acquisition date and reflected as a restatement of the acquisition balance sheet. Goodwill Goodwill written off to reserves under Irish GAAP prior to 1998 was not reinstated on transition to IFRS and will not be included in determining any subsequent profit or loss on disposal. Goodwill on acquisitions is initially measured as the fair value of consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the proportion of the cash-generating unit retained. Revenue recognition Revenue comprises the fair value of oil and gas supplied by the Group and excludes inter-company sales, trade discounts and value added tax. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, that it can be reliably measured, that the risk and rewards of product passes out of the ownership of the Group to external customers pursuant to enforceable sales contracts and that the significant risks and rewards of ownership of goods have passed to the buyer. Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays a fixed contribution into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contribution to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (ii) Share based payment transactions The Company’s “2005 scheme” and “2009 scheme” are equity-settled share based payment arrangements with non-market performance conditions which fall within the scope of and are accounted for under the provisions of IFRS 2 – Share Based Payment. Accordingly, the grant date fair value of the options granted under these schemes is recognised as a personnel expense with a corresponding increase in the “Share based payment reserve”, within equity, over the vesting period. The fair value of these options is measured using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to share prices not achieving the threshold for vesting. (iii) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 28 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 1 Statement of accounting policies (continued) Finance income and expenses Finance income comprises interest income on funds invested and gains on the disposal of available-for-sale financial assets. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest or finance expense on borrowings, unwinding of any discount on provisions, foreign currency losses and impairment losses recognised on financial assets. Borrowing costs are recognised in profit or loss using the effective interest method. Warrants granted under a former loan facility were fair valued using an appropriate option pricing model, taking into account the terms and conditions upon which the warrants have been granted. These costs form part of the effective interest rate charged on the facility and were recognised over the life of the facility. The liability component of convertible bonds issued during a prior year were measured at fair value. The difference between the fair value of the debt element at issue and the face value is amortised over the life of the bond as a notional interest charge through the income statement and forms part of finance expenses. Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period and such gains or losses are reported in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of available-for-sale equity instruments, which are not deemed to be impaired, or a financial liability designated as a hedge of the net investment in a foreign operation (see (ii) below). (ii) Foreign operations The assets and liabilities of foreign operations are translated to euro at exchange rates at the reporting date. The income and expenses of foreign operations are translated to euro at exchange rates at the dates of the transactions. Foreign currency differences associated with the retranslation of foreign operations are recognised directly in other comprehensive income. Since 1 January 2006, the Group’s date of transition to IFRS, such differences have been recognised in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of the relevant amount in the FCTR is transferred to the income statement. Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they are unlikely to reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 29 1 Statement of accounting policies (continued) Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities on a net basis or their tax assets and liabilities will be settled simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potentially dilutive ordinary shares, which comprise convertible debt, share warrants and share options granted to employees. Exploration and evaluation assets and development and production assets The Group has adopted IFRS 6 “Exploration for and Evaluation of Mineral Resources” in preparing these financial statements. (i) Exploration and evaluation assets Expenditure incurred prior to obtaining the legal rights to explore an area is written off to the income statement. Expenditures incurred on the acquisition of a licence interest are initially capitalised on a licence by licence basis considering the degree to which the expenditure can be associated with finding specific reserves. Exploration and evaluation expenditure incurred in the process of determining exploration targets within licensed areas is also capitalised. No value is attributed to exploration licenses granted. These expenditures are held undepleted within the exploration licence asset until such time as the exploration phase on the licence area is complete or commercial reserves have been discovered. Exploration and evaluation drilling costs are capitalised within each licence area until the success or otherwise of the well has been established. Unless further evaluation expenditures in the licence area have been planned and agreed or unless the drilling results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are commercial, drilling costs are written off. Internal costs are capitalised where it is evident that these costs are directly attributable to the evaluation or exploration of those assets. Interest is capitalised within exploration and evaluation assets if it is directly attributable to the evaluation or exploration of those assets. Exploration and evaluation assets are initially held at cost and are not revalued. (ii) Development and production oil and gas assets Following appraisal of successful exploration wells and the establishment of commercial reserves, the related capitalised exploration and evaluation expenditures are reclassified as development and production assets. Subsequent expenditure is capitalised only where it either enhances the economic benefits of the development and production assets or replaces part of the existing development and production assets. Any costs associated with the replacement of assets are expensed to the income statement. (iii) Depletion The Group depletes expenditure on development and production assets on a unit of production basis, based on proved and probable reserves on a licence by licence basis. Capitalised costs, together with anticipated future development costs calculated at price levels ruling at the reporting date, are amortised on a unit of production basis. Amortisation is calculated by reference to the proportion that production for the period bears to the total of the estimated remaining commercial reserves as at the beginning of the period. Changes in reserves quantities and cost estimates are recognised prospectively. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 30 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 1 Statement of accounting policies (continued) (iv) Cash calls The Group has shared interests in a number of licence areas. In cases where the Group acts as operator of these licence areas, requests for cash from other partners, known as cash calls, are made in accordance with agreed budgets. These cash call amounts are recognised as a credit to evaluation, exploration, development and production assets where appropriate to ensure that costs capitalised reflect the Group’s interest only. (v) Impairment Impairment reviews on development and production assets are carried out on each cash-generating unit identified in accordance with IAS 36 “Impairment of Assets”. The Group’s cash-generating units are those assets which generate largely independent cash flows and are normally, but not always, single development areas or fields. Where there has been a charge for impairment in an earlier period, that charge may be reversed in a later period where there has been a change in circumstances to the extent that the discounted future net cash flows are higher than the net book value at the time. In reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying value or the carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior periods. Exploration and evaluation assets are reviewed regularly for indicators of impairment and costs are written off where circumstances indicate that the carrying value might not be recoverable. In such circumstances, the exploration and evaluation asset is allocated to development and production assets within the same cash-generating unit and tested for impairment. Any such impairment arising is recognised in the income statement for the period. Where there are no development and production assets, the impaired costs of exploration and evaluation are charged immediately to the income statement. (vi) Decommissioning costs and provisions Provision is made for the decommissioning of oil and gas wells and other oilfield facilities. The cost of decommissioning is determined through discounting the amounts expected to be payable to their present value at the date the provision is recorded and this calculation is reassessed at each reporting date. This amount is included within development and production assets by licence area and the liability is included in provisions. Such cost is depleted over the life of the licence area on a unit of production basis and charged to the income statement. The unwinding of the discount is reflected as a finance cost in the income statement over the expected remaining life of the well. Property, plant and equipment Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Depreciation is recognised on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for the current and comparative periods are as follows: • furniture and equipment 3–10 years Leased assets Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 31 1 Statement of accounting policies (continued) Restricted cash Restricted cash comprises all cash balances that the Group does not have access to. These are classified as restricted cash balances within current assets. Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised and carried at original invoice amount less an allowance for any estimated shortfall in receipt. An estimate of any shortfall in receipt is made when there is objective evidence that a loss has been incurred. Bad debts are written off when identified. Trade and other payables Subsequent to initial recognition, trade and other payables are measured at amortised cost. Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not carried at fair value through the income statement, any directly attributable transaction costs, except as described below. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost. A financial instrument is recognised where the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. (ii) Compound financial instruments Compound financial instruments issued by the Group comprise convertible bonds that can be converted to share capital at the option of the holder, and where the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. (iii) Derivative financial instruments The Group held derivative financial instruments to hedge its oil and gas price risk exposures. Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss when incurred. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 32 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 1 Statement of accounting policies (continued) Embedded derivatives Changes in the fair value of separated embedded derivatives are recognised immediately in profit or loss. Cash flow hedges Changes in the fair value of derivative hedging instruments designated as cash flow hedges are recognised in other comprehensive income in a cash flow hedge reserve to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss deferred in the cash flow hedge reserve remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount deferred in the cash flow hedge reserve is transferred to profit or loss in the same period that the hedged item affects profit or loss. Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Non-current assets and liabilities held for sale Non-current assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets are remeasured in accordance with the Group’s accounting policies. Thereafter, the assets are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. 2 Operating segments Operating segment information is presented in the consolidated financial statements in respect of the Group’s geographical segments which represent the financial basis by which the Group manages its business. Information regarding the results of each reportable segment is included below. Performance is measured based on segment result and total asset value as included in the internal management reports that are reviewed by the Group’s Board of Directors, which management believe is the most relevant information when evaluating the results of certain segments relative to other entities that operate within that industry. There are no significant inter-segment transactions. The Group disposed of its UK onshore oil and gas portfolio of assets in February 2013 (see Note 3). Segment revenue All revenue is generated from assets in the UK, and is included in discontinued operations. Segment net loss for the year Republic of Ireland – exploration assets Africa – development and production assets Corporate expenses Operating loss 2012 €’000 (1,495) – (3,937) (5,432) 2011 €’000 (1,848) (422) (1,809) (4,079) 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 2 Operating segments (continued) Segment assets UK – producing assets – classified as held for sale UK – exploration assets Republic of Ireland – exploration assets Africa – development and production assets US assets Group assets Total assets Segment liabilities UK – producing assets – classified as held for sale Republic of Ireland – exploration assets US – liabilities Group liabilities Total liabilities Capital expenditure UK – producing assets – classified as held for sale – exploration assets Republic of Ireland – exploration assets, net of cash calls – property, plant and equipment Africa – development and production assets Total capital expenditure, net of cash calls Depletion and decommissioning charge UK – producing assets (discontinued operations) Republic of Ireland – exploration assets Impairment charge UK – development assets (discontinued operations) Republic of Ireland – exploration assets 33 2012 €’000 2011 €’000 43,852 933 69,129 – 155 17,737 131,806 2012 €’000 (35,525) (27,183) (252) (748) (63,708) 27,202 774 27,976 30,981 38 – 58,995 2,727 34 2,761 32,357 1,495 33,852 61,943 – 67,306 4,637 91 2,619 136,596 2011 €’000 (67,201) (23,747) (1,343) (36,428) (128,719) 7,927 – 7,927 27,539 38 245 35,749 2,505 – 2,505 4,904 1,731 6,635 The Group sells its entire oil production to one customer, and therefore significant credit concentration risk existed during the year. 22592.04 9 May 2013 12:37 AM Proof pfp s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O www.providenceresources.com 34 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 3 Discontinued operations On 28 September 2012, the Group announced the disposal of its UK producing operations to IGas Energy Plc for gross consideration of $66 million before the repayment of loans and borrowings held in the company being disposed of. The disposal has been treated as a discontinued operation and the assets and liabilities being disposed of have been shown as assets and liabilities held for sale in the consolidated statement of financial position. Held for sale assets and liabilities The assets and liabilities that will be disposed of are as follows: Assets Development and production assets Derivative instruments Trade and other receivables Cash and cash equivalents Liabilities Loans and borrowings Decommissioning provision Deferred tax Trade and other payables Results from discontinued operations – UK disposal Revenue Cost of sales Gross profit Administration expenses Impairment of assets Results from operating activities Finance expense Result from operating activities before tax Income tax credit/(charge) Results from operating activities after tax – UK disposal US disposal (see below) Total The total loss from discontinued operations is attributable entirely to the owners of the Company. Cashflows from discontinued operations Net cash from operating activities Net cash from investing activities Net cash from financing activities Net cash flows for the year €’000 38,986 2,163 1,793 910 43,852 31,725 869 1,421 1,510 35,525 2011 €’000 13,752 (4,055) 9,697 (683) (4,904) 4,110 (227) 3,883 (4,503) (620) (4,224) (4,844) 2011 €’000 794 (8,889) 35,113 27,018 2012 €’000 15,642 (5,454) 10,188 (1,281) (32,357) (23,450) (13,074) (36,524) 20,574 (15,950) – (15,950) 2012 €’000 9,726 (27,202) (5,931) (23,407) 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 35 3 Discontinued operations (continued) Discontinued operation in 2011 – disposal of US operations In the year ended 31 December 2011, a loss from discontinued activities, all of which was attributable to the holders of the Company arose in respect of the disposal of the Group’s US producing assets, as follows: Expenses, being loss from operating activities Loss on sale Related cashflows were: Net cash from operating activities Net cash from investing activities Earnings per share from discontinued operations Basic loss per share Diluted loss per share 4 Administration expenses Corporate, exploration and development expenses Foreign exchange differences Total administration expenses for the year Capitalised in Exploration and Evaluation assets (Note 12) Capitalised in Development and Production assets (Note 13) Total charged to the income statement Analysed as: Continuing operations Discontinued operations (Note 3) 5 Finance income Bank deposit interest income 6 Finance expenses Recognised in income statement: Interest expense on financial liabilities – measured at amortised cost Unwind of discount on decommissioning provision (Note 20) Total 2011 €’000 (2,421) (1,803) (4,224) 2011 €’000 279 16 295 2011 € cent (10.36) (10.36) 2011 €’000 5,522 (1,608) 3,914 (1,044) (337) (1,381) 2,533 1,850 683 2,533 2011 €’000 134 2011 €’000 4,781 370 5,151 2012 € cent (26.17) (26.17) 2012 €’000 7,822 (1,179) 6,643 (1,367) (58) (1,425) 5,218 3,937 1,281 5,218 2012 €’000 494 2012 €’000 3,021 274 3,295 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 36 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 6 Finance expenses (continued) Recognised directly in other comprehensive income: Foreign currency differences on foreign operations Effective portion of change in fair value of cash flow hedge Net change in fair value of cash flow hedge transferred to income statement Total finance expenses 7 Income tax (credit)/expense Current tax expense Current year Deferred tax (credit)/expense Origination and reversal of temporary differences Effect of change in tax rates Adjustment in respect of prior year Total income tax (credit)/expense for year Analysed as: Continuing operations Discontinued operations (Note 3) 2012 €’000 (97) – 2,305 2,208 2012 €’000 – (16,528) 135 (4,181) (20,574) – (20,574) 2011 €’000 (1,533) (2,449) 1,342 (2,640) 2011 €’000 – 2,054 2,449 – 4,503 – 4,503 A reconciliation of the expected tax benefit computed by applying the standard Irish tax rate to the loss before tax to the actual tax (credit)/expense is as follows: Loss before tax Irish standard tax rate Tax credit at the Irish standard rate Expenses not deductible for tax purposes Losses unutilised/(utilised) Other timing differences Effect of different tax rates in foreign jurisdictions Tax (credit)/expense for the year 8 Employee expenses and numbers Wages and salaries Social welfare costs Defined contribution pension costs Share-based payment expense (Note 23) In addition, the Group incurred technical and managerial consultancy costs during the year totalling €nil (2011: €351,000). The following expenses, which are included in the above amounts, were capitalised during the year: Wages and salaries Share-based payment expense 22592.04 9 May 2013 12:37 AM Proof pfp 2012 €’000 (44,757) 12.5% (5,595) 917 1,959 (940) (16,915) (20,574) 2012 €’000 2,314 249 175 1,301 4,039 2012 €’000 1,425 54 2011 €’000 (9,437) 12.5% (1,180) 144 (1,623) 3,667 3,495 4,503 2011 €’000 1,896 194 163 898 3,151 2011 €’000 1,381 303 Providence Resources P.l.c.Annual Report 2012Our Financials 8 Employee expenses and numbers (continued) The average number of persons employed during the year (including Executive Directors) by activity was as follows: Exploration, evaluation, production and development Corporate management and administration 37 2012 Number 11 11 22 2011 Number 9 9 18 The Group contributes to an externally funded defined contribution scheme to satisfy the pension arrangements in respect of certain management personnel. The total pension cost charged for the year was €175,000 (2011: €163,000). 9 Directors’ remuneration and transactions with key management personnel Directors’ emoluments are analysed as follows: Salaries & other emoluments 2012 €’000 494 271 – – – – 106 871 Salaries & other emoluments 2011 €’000 498 271 – – – – 337 1,106 Bonus 2012 €’000 247 108 – – – – – 355 Bonus 2011 €’000 – 25 – – – – – 25 Executive Tony O’Reilly John O’Sullivan Non-Executive Brian Hillery Lex Gamble James McCarthy Philip Nolan Philip O’Quigley Total Fees Share based payments Total 2012 €’000 2011 €’000 2012 €’000 2011 €’000 – – 80 45 45 45 30 245 – – 65 20 20 20 – 125 153 172 38 38 54 38 57 550 102 100 – – – – 105 307 2012 €’000 894 551 118 83 99 83 193 2,021 2011 €’000 600 396 65 20 20 20 442 1,563 (a) Directors’ remuneration is fixed by the Remuneration Committee of the Board which is comprised solely of Non-Executive Directors of the Company. (b) The share based payments cost represent the non-cash expense attributable to the relevant options held by each Director. (c) The emoluments of Mr. Tony O’Reilly include payments made to Kildare Consulting Limited under the terms of his employment contract (Note 26). (d) Included in salaries and other emoluments are pension contributions made to a pension scheme for Mr. Philip O’Quigley amounting to €14,417 (2011: €63,250). Mr. O’Quigley became a Non-Executive Director on 1 May 2012. (e) Directors’ remuneration includes bonus payments made to executive directors as part of the LTIP (Long Term Incentive Plan) which is agreed by the remuneration committee of the Board of Directors. The payment of bonuses is at the discretion of the directors and is based on a number of factors including the activities of the Group and its share price performance. In July 2012, payments totalling €354,750 were made to the executive directors covering the period 2008 through 2011. The last bonus (LTIP) payment made was in July 2008, covering the period 2005 through 2008. There were no loans outstanding to any Director at any time during the year. Details of the Directors’ interests in shares and share options are set out on page 14 and 15. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 38 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 9 Directors’ remuneration and transactions with key management personnel (continued) Transactions with key management personnel comprising Directors and other senior management Key management personnel compensation was as follows: Wages, salaries and fees: Executive Directors Non-Executive Directors Other key management salaries Social welfare costs Defined contribution pension costs Share-based payment expense 10 Statutory and other information Auditor’s remuneration – Audit of Company and Group accounts – Other assurance services, being audit of subsidiary entities – Taxation services Operating lease rentals on property Depreciation on development and production assets Depreciation on property, plant and equipment Impairment of evaluation and exploration assets Impairment of development and production assets Pre-licence exploration expenditure Loss on sale of AJE development asset Loss on sale of Triangle asset Directors’ emoluments – Fees – Salaries and other emoluments – Bonuses – Share-based payments 2012 €’000 1,241 245 458 1,944 109 96 729 2,878 2012 €’000 42 48 10 229 2,727 28 1,495 32,357 – – – 245 871 355 550 2011 €’000 1,068 125 288 1,481 91 94 521 2,187 2011 €’000 42 48 10 262 2,505 129 1,731 4,904 117 381 1,803 125 1,106 25 307 11 Earnings per share Earnings per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year as follows: Loss attributable to equity holders of the Company from continuing operations The weighted average number of ordinary shares in issue is calculated as follows: In issue at beginning of year (’000s) Adjustments for shares issued in year (’000s) Weighted average number of ordinary shares (’000s) Basic loss per share (cent) – continuing operations Diluted loss per share (cent) – continuing operations 2012 (8,233) 2011 (9,096) 2012 49,808 11,145 60,953 (13.51) (13.51) 2011 33,712 13,054 46,766 (19.45) (19.45) There is no difference between the loss per ordinary share and the diluted loss per ordinary share for the current year as all potentially dilutive ordinary shares outstanding are anti-dilutive. There were 2,666 (2011: 1,978) anti-dilutive share options, no (2011: 4.2 million) anti-dilutive convertible bonds and no (2011: 1,400) anti-dilutive share warrants in issue at 31 December 2012. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 12 Exploration and evaluation assets Cost and net book value At 1 January 2011 Additions Administration expenses Cash calls received in year Impairment charge Increase in abandonment costs Transfer to development and production assets (Note 13) At 31 December 2011 Additions Cash calls received in year Administration expenses Impairment charge Increase in abandonment costs At 31 December 2012 Republic of Ireland €’000 10,140 32,972 1,007 (6,440) (1,731) 266 – 36,214 35,344 (5,507) 1,144 (1,495) 602 66,302 UK €’000 Africa €’000 – – – – – – – – 551 – 223 – – 774 – – 37 – – – (37) – – – – – – – 39 Total €’000 10,140 32,972 1,044 (6,440) (1,731) 266 (37) 36,214 35,895 (5,507) 1,367 (1,495) 602 67,076 Full details of the Group’s interests in exploration and evaluation assets, together with key developments in 2012, are contained in the Review of Operations on pages 7 to 10. The Directors have assessed the current activities ongoing within exploration and evaluation assets and have determined that no impairment charge is required at 31 December 2012. The Directors recognise that the future realisation of these exploration and evaluation assets is dependent on future successful exploration and appraisal activities and the subsequent economic production of hydrocarbon reserves. They have reviewed current and prospective plans for each of the licence areas and are satisfied that future exploration and evaluation activities are appropriate in light of the carrying value of these assets. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 40 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 13 Development and production assets Cost At 1 January 2011 Additions in year Transfer from exploration and evaluation assets (Note 12) Administration expenses Disposal Exchange rate adjustment At 31 December 2011 Additions in year Administration expenses Transfer to held for sale assets (Note 3) Exchange rate adjustment At 31 December 2012 Depletion At 1 January 2011 Charge for the year Impairment charge Eliminated on disposal Exchange rate adjustment At 31 December 2011 Charge for the year Impairment of assets Transfer to held for sale assets (Note 3) Exchange rate adjustment At 31 December 2012 Net book value At 31 December 2012 At 31 December 2011 14 Property, plant and equipment Cost At 1 January 2011 Additions in year At 31 December 2011 Additions in year Transfer to assets held for sale At 31 December 2012 Depreciation At 1 January 2011 Charge for year At 31 December 2011 Charge for year Transfer to assets held for sale At 31 December 2012 Net book value At 31 December 2012 At 31 December 2011 UK €’000 52,995 7,590 – 337 – 911 61,833 27,144 58 (90,282) 1,247 – 8,024 2,505 4,904 – 241 15,674 2,727 32,357 (51,296) 538 – – 46,159 US €’000 26,806 – – – (26,806) – – – – – – – 26,806 – – (26,806) – – – – – – – – – Africa €’000 12,436 208 37 – (12,681) – – – – – – – – – – – – – – – – – – – – Total €’000 92,237 7,798 37 337 (39,487) 911 61,833 27,144 58 (90,282) 1,247 – 34,830 2,505 4,904 (26,806) 241 15,674 2,727 32,357 (51,296) 538 – – 46,159 Furniture & equipment €’000 640 38 678 38 (251) 465 517 129 646 28 (251) 423 42 32 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 15 Trade and other receivables Trade receivables VAT recoverable Prepayments and accrued income Other receivables Amounts due from joint venture partners Due from purchaser of AJE asset 16 Cash and cash equivalents Cash held in bank accounts Less: Restricted bank balances (a) Cash and cash equivalents 41 2011 €’000 1,303 358 240 88 – 4,637 6,626 2011 €’000 36,054 (17,491) 18,563 2012 €’000 – – 66 38 3,901 – 4,005 2012 €’000 17,741 (910) 16,831 (a) At year end, the restricted cash balance at year end relates to cash deposits required to comply with the terms of the Deutsche Bank prepaid swap agreement. The restricted cash balance of €0.91 million is classified in assets held for sale at 31 December 2012 (note 3). At 31 December 2011, the restricted cash balance on hand at year end relates to cash deposits required to comply with the conditions of the convertible bonds issued in 2008 (€2.5 million), to comply with the terms of letters of credit issued by the Group to certain of its suppliers (€14.1 million) and to comply with the terms of the Deutsche Bank prepaid swap agreement (€0.9 million). 17 Share capital and share premium Authorised Deferred shares of €0.011 each (a) Ordinary shares of €0.10 each Number ’000 1,062,442 123,131 €’000 11,687 12,313 (a) The deferred shares do not entitle the shareholder to receive a dividend or other distribution, do not entitle the shareholder to receive notice of or vote at any general meeting of the Company, and do not entitle the shareholder to any proceeds on a return of capital or winding up of the Company. Issued Deferred shares of €0.011 each Ordinary shares of €0.10 each At 1 January 2011 Ordinary shares issued in year Share issue costs At 31 December 2011 Ordinary shares issued in year (a) Share issue costs Share options exercised in year (Note 23) Warrants exercised in year (Note 23) At 31 December 2012 Total number ’000s 1,062,442 33,712 33,712 16,097 – 49,809 13,149 – 140 1,400 64,498 Share capital €’000 11,687 3,371 15,058 1,610 – 16,668 1,314 – 14 140 18,136 Share premium €’000 5,691 81,227 86,918 46,052 (2,422) 130,548 76,317 (3,902) 252 6,760 209,975 (a) In April 2012, 13.149 million new ordinary shares were placed at stg£4.80 (€5.90) per share resulting in gross proceeds of £63.1 million (€77.6 million) before expenses. The purpose of the share placing was to fund the Group’s drilling programme in Ireland. In addition, 0.14 million ordinary shares were issued during the year to employees on the exercise of share options. 22592.04 9 May 2013 12:37 AM Proof pfp s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O www.providenceresources.com 42 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 18 Reserves The statement of changes in equity outlines the movement in reserves during the year. The reserves included within that statement are further explained below: (a) The Singleton revaluation reserve arises as a result of the step-up revaluation of the Group’s original 20% holding of the Singleton asset recognised in 2007 on the acquisition of a further 79.125% of the asset. In the current year, the transfer to retained earnings represents a transfer of an amount equal to the depletion charge on the stepped up portion of the revaluation recognised in the income statement in 2012, net of deferred tax. (b) The currency translation reserve comprises all foreign exchange differences from 1 January 2006, arising from the translation of the net assets of the Group’s non-euro denominated operations, including translation of the profits of such operations from the average exchange rate to the rate at the reporting date. (c) The share based payment reserve comprises the fair value of all share options which have been charged over the vesting period, net of amounts relating to share options forfeited during the year, which are reclassified to retained earnings. (d) The loan warrant reserve comprises the fair value of all share warrants granted to the Group’s former bankers (Note 23). All of the warrants issued in prior years were exercised in 2012, resulting in the entire reserve being reclassified to retained earnings. (e) The equity portion of the convertible bond represents proceeds received from the issue of the convertible bonds less the fair value of the debt component of the instrument, which was classified within loans and borrowings (Note 19). During 2011, part repayment of the bond occurred and consequently an amount representing the conversion rights given up as part of this transaction was reclassified to retained earnings. In 2012, the bonds were fully repaid and the remaining balance in this reserve was reclassified to retained earnings. (f) The hedging reserve comprised the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that had not yet occurred. Cash flow hedge accounting ceased during the prior year upon the termination of the Group’s derivative instruments. The cash flow hedge reserve remaining at 31 December 2011 was being amortised to profit or loss in line with the occurrence of the oil sales that the derivatives were originally put in place to hedge. As a result of the sale of the Singleton assets in February 2013, these hedged oil sales are no longer highly probable at 31 December 2012, and the remaining balance on this reserve has been reclassified to the income statement. 19 Loans and borrowings At 1 January 2011 Drawn down in year Repaid during year Written off to income statement Foreign exchange differences At 31 December 2011 Written off to income statement Foreign exchange differences Drawn down in year Repaid during year Transferred to held for sale liabilities (Note 3) At 31 December 2012 Deutsche Bank loan facility (a) €’000 – 39,033 (3,112) – 3,230 39,151 – (825) 4,077 (10,008) (32,395) – Deutsche Bank loan fees €’000 – (808) – 54 (32) (786) 135 (19) – – 670 – Convertible bond (b) €’000 39,802 – (7,735) 1,380 – 33,447 818 – – (34,265) – – BNP revolving credit facility €’000 47,582 – (44,866) – (2,716) – – – – – – – BNP loan fees €’000 (1,597) – – 1,597 – – – – – – – – Total €’000 85,787 38,225 (55,713) 3,031 482 71,812 953 (844) 4,077 (44,273) (31,725) – (a) In 2011, the Group entered into a pre-paid swap transaction with Deutsche Bank which was structured to enable repayment of the loan drawn down from future sales of oil. Under the facility, the Group sold forward specified quantities of oil. The swap embedded in the transaction was separated from the host contract and was accounted for at fair value in the statement of financial position with any movements accounted for through profit or loss. Loans and borrowings will be sold as part of the disposal of the UK producing assets, and will subsequently be repaid by the acquirers. Accordingly these have been transferred to liabilities held for sale at 31 December 2012 (Note 3). (b) In July 2008, the Group placed convertible bonds with institutional investors to raise €42 million. The bonds were secured on the Group’s exploration asset located in Africa. In December 2011, the Group disposed of this asset and repaid €7.7 million to bond holders. The remaining balance was repaid during the year. During 2011 and 2012, as part repayments of the bond occurred, and amounts representing the conversion rights were given up, the equity portion of the debt was reclassified to retained deficit. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 20 Decommissioning provisions At beginning of year Charge for year Unwinding of discount – continuing operations (Note 6) Unwinding of discount – discontinued operations (Note 3) Utilised in year Created in year Liability assumed from partner Foreign exchange differences Transferred to held for sale liabilities (Note 3) At end of year 43 2012 €’000 5,165 34 274 61 (541) 602 – 12 (869) 4,738 2011 €’000 3,551 266 370 – (323) – 1,241 60 – 5,165 Decommissioning costs are expected to be incurred over the remaining lives of the fields, which are estimated to be between 2013 and 2022. The provision for decommissioning is reviewed annually. The provision has been calculated assuming industry established oilfield decommissioning techniques and technology at current prices and is discounted at 10% per annum, reflecting the associated risk profile. An additional provision was created in the year as a result of drilling activities undertaken at Barryroe. 21 Deferred taxation Movements on recognised deferred tax assets and liabilities during the year were as follows: Development & production assets Decommissioning provision Derivative financial instruments Tax value of loss carry forwards Development & production assets Decommissioning provision Derivative financial instruments Tax value of loss carry forwards At 1 January 2012 €’000 (24,091) 642 3,407 1,838 (18,204) Recognised in income statement €’000 4,404 (95) – 16,265 20,574 At 1 January 2011 €’000 (18,912) 571 1,252 1,585 (15,504) Recognised in OCI €’000 – – (3,407) – (3,407) Recognised in income statement €’000 (4,765) 54 – 208 (4,503) Translation adjustment €’000 (441) 14 – 43 (384) Recognised in OCI €’000 – – 2,057 – 2,057 Held for sale Assets and liabilities €’000 20,128 (561) – (18,146) 1,421 Translation adjustment €’000 (414) 17 98 45 (254) At 31 December 2012 €’000 – – – – – At 31 December 2011 €’000 (24,091) 642 3,407 1,838 (18,204) The Group is not recognising a deferred tax asset of approximately €24.4 million (2011: €35.2 million) which mainly relates to unutilised tax losses available for carry forward, all of which arose in Ireland, on the basis that it is not probable that the Group will have taxable profits available in future periods against which this asset could be utilised. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 44 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 21 Deferred taxation (continued) The gross amount of unused tax loss carry forwards, with their expiry dates, are as follows: One year Two years Three years Four years Five years More than five years Total 2012 €’000 231 988 505 1,977 376 157,778 161,855 2011 €’000 2,668 231 988 505 1,977 127,985 134,354 Unutilised losses may be carried forward for 25 years from the date of the origination of the losses, but may only be offset against taxable profits earned from the same trade. 22 Trade and other payables Capital expenditure payable Accruals Other payables Cash calls received in advance 23 Share schemes and warrants The Group has the following employee share schemes: 2012 €’000 22,145 1,099 201 – 23,445 2011 €’000 18,925 7,381 99 1,246 27,651 1997 Scheme Under the 1997 Scheme, which is now closed, the Directors, at their discretion, may grant options over ordinary shares to employees, consultants and Directors at the higher of par and market value on the date the option is granted. Options are normally exercisable 18 months after the date of grant but no later than 10 years from the date of grand. These options were granted prior to 7 November 2002 and, accordingly, do not fall within scope of IFRS 2 “Share- based payment” but are disclosed in the table below as required by the standard. At 31 December 2012 options over 317,484 shares remain outstanding at subscription prices ranging from €1.27 to €5. These options expire at varying dates up to June 2014. 2005 Scheme In May 2005, the Directors adopted a share option scheme which contains similar provisions to the 1997 Scheme except that under the 2005 Scheme there are share growth performance criteria to the exercise of the options and the option price is 90% of the market price immediately preceding the date of grant. The scheme operates as an equity-settled share option scheme. The options granted are subject to the following conditions: (i) 50% of total options granted are exercisable after one year from the date of grant provided that the market price of the Company’s shares has increased by a minimum of 50% and has maintained such increase over a period of three months prior to the exercise of any option. (ii) The remaining 50% of the total options granted are exercisable after a further year has elapsed provided the market price of the Company’s shares has increased by a minimum of 100% from date of grant and has maintained such increase over a period of three months prior to the exercise of any option. No options were granted during 2012 under this scheme (2011: nil). At 31 December 2012, options over 0.8 million (2011: 1.2 million) shares remained outstanding at subscription prices ranging from €4.05 to €9.79. These options expire at varying dates up to October 2015. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 45 23 Share schemes and warrants (continued) 2009 Scheme In 2009, the Directors adopted a share option scheme which also contains share growth performance criteria. The option price is the market price immediately preceding the date of grant. The “2009 scheme” operates as an equity-settled share option scheme and the options are granted subject to the following conditions: (i) 50% of total options granted are exercisable after one year from the date of grant provided that the market price of the Company’s shares has increased by a minimum of 25% and has maintained such increase over a period of three months prior to the exercise of any option. (ii) The remaining 50% of the total options granted are exercisable after a further year has elapsed provided the market price of the Company’s shares has increased by a minimum of 50% from date of grant and has maintained such increase over a period of three months prior to the exercise of any option. 755,000 options were granted during 2012 under this scheme (2011: Nil). At 31 December 2012, options over 1.55 million (2011: 0.91 million) shares remained outstanding at subscription prices ranging from €2.95 to €6.13. These options expire at varying dates up to July 2019. Warrants In 2006 and 2008, the Directors agreed a revolving credit facility and a bridging loan facility respectively with its former bankers. In accordance with these facilities, 1.0 million warrants to purchase new ordinary shares at a subscription price of €4.50 per share and 0.40 million warrants to purchase new ordinary shares at a subscription price of €6.00 were granted. All of the warrants were exercised in 2012, resulting in increases in share capital and share premium of €140,000 and €6,760,000 respectively and the transfer of the warrants reserve of €5.6 million to retained deficit. Details of the movements of these share options and warrants outstanding during the year are as follows: For the year ended 31 December 2012 1997 scheme 2005 scheme 2009 scheme Warrants No of share options ’000s 354 – – (36) 318 Weighted average exercise price € 2.93 – – 1.46 2.93 No of share options ’000s 1,177 – (375) – 802 Weighted average exercise price € 5.74 – 4.27 – 6.91 No of share options ’000s 910 755 (15) (104) 1,546 Weighted average exercise price € 3.33 6.13 6.13 3.35 4.68 No of warrants ’000s 1,400 – – (1,400) – Weighted average exercise € 6.64 – – 6.64 – 318 2.93 15 4.05 791 3.39 – – At 1 January Granted during year Forfeited during year Exercised during year * At 31 December Of which exercisable at year end * The average share price when these options and warrants were exercised was €7.32. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 46 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 23 Share schemes and warrants (continued) For the year ended 31 December 2011 1997 scheme 2005 scheme 2009 scheme Warrants No of share options ’000s 354 – 354 354 Weighted average exercise price € 2.93 – 2.93 No of share options ’000s 1,177 – 1,177 Weighted average exercise price € 5.74 – 5.74 No of share options ’000s 970 (60) 910 Weighted average exercise price € 3.35 3.70 3.33 No of warrants ’000s 1,400 – 1,400 Weighted average exercise € 6.64 – 6.64 2.93 – – – – 1,400 6.64 At 1 January Forfeited during year At 31 December Of which exercisable at year end The total number of options outstanding at 31 December 2012 was 2,666,234 (2011: 3,841,886). These had exercise prices ranging from €1.27 to €9.79. The fair values of these options and warrants were calculated using a Monte Carlo option pricing model. 755,000 options were granted in 2012 (2011: Nil). The assumptions used to arrive at the fair value of share options granted in 2012 at the grant date were as follows: Share price (cent) Exercise price (cent) Expected volatility (%) Expected life (years) Risk free rate (%) Expected dividend yield (%) Maximum option life (years) The resulting fair values were: Fair value (cent) 2009 scheme Weighted average 2012 6.13 6.13 74% 5 0.57 – 7 3.75 An exponentially weighted moving average model was used to calculate expected volatility based on an appropriate period’s prices. The charge in respect to the Group’s 2005 and 2009 share based schemes is recorded as follows: Administration expenses Capitalised within exploration and evaluation assets 2012 €’000 1,247 54 2011 €’000 595 303 The share based payment reserve comprises the fair value of all share options which have been charged over the vesting period, net of amounts relating to share options which have been forfeited, lapsed or exercised during the year, which are reclassified to retained earnings. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 47 24 Financial instruments Financial risk management objectives, policies and processes The Group has exposure to the following risks from its use of financial instruments: (a) Interest rate risk (b) Foreign currency risk (c) Liquidity risk (d) Credit risk In addition, up to the date of agreement to dispose of its UK producing assets (Note 3), it had exposure to commodity price risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and framework in relation to the risks faced. (a) Interest rate risk The Group currently finances its operations through a mixture of shareholders’ funds and bank deposits. Up to the repayment of its Deutsche Bank facility in February 2013, it also used bank debt to fund its operations. Short term cash funds are generally invested in short term interest bearing bank deposits. The Group did not enter into any hedging transactions with respect to interest rate risk; however, the requirement for such instruments is kept under ongoing review. The interest rate profile of these interest bearing financial instruments was as follows: Variable rate instruments Financial assets – cash and cash equivalents Financial assets – restricted cash Fixed rate instruments Financial liabilities – loans and borrowings 2012 €’000 16,831 910 2011 €’000 18,563 17,491 (31,725) (71,812) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points (‘bps’) in interest rates at 31 December 2012 and 31 December 2011 would have increased/(decreased) the reported loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 31 December 2012 Variable rate instruments 31 December 2011 Variable rate instruments Profit 100 bps increase €’000 100 bps decrease €’000 OCI 100 bps increase €’000 100 bps decrease €’000 448 507 (448) (507) – – – – s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 48 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 24 Financial instruments (continued) (b) Foreign currency risk The Group is exposed to currency risk on purchases and bank deposits that are denominated in a currency other than the functional currency of the entities of the Group. It is Group policy to ensure that foreign currency risk is managed wherever possible by matching foreign currency income and expenditure. During the years ended 31 December 2012 and 2011 the Group did not utilise either foreign currency forward contracts or derivatives to manage foreign currency risk on future net cash flows. The Group’s foreign currency risk exposure in respect of the principal foreign currencies in which the Group operates was as follows: Trade receivables VAT recoverable Other debtors Derivative asset/ (liability) (net) Cash and cash equivalents Restricted cash Loans & borrowings Trade and other payables Total exposure Euro €’000 – – – – 11 – – 31 December 2012 GBP €’000 – – – USD €’000 1,444 21 – Not at risk €’000 – – 4,333 Total €’000 1,444 21 4,333 – 2,163 – 2,163 9,880 – – 6,139 – (31,725) 801 910 – 16,831 910 (31,725) (154) (143) (12,744) (2,864) (9,156) (31,114) (2,901) 3,143 (24,955) (30,978) Euro €’000 – – – – 24 – – (7) 17 31 December 2011 USD €’000 1,303 – 4,637 Not at risk €’000 – 358 328 GBP €’000 – – – Total €’000 1,303 358 4,965 – 5,624 – 5,624 2,611 4,190 – 10,133 10,781 (38,365) 5,795 2,520 (33,447) 18,563 17,491 (71,812) (9,728) (2,927) (5,126) (11,013) (12,790) (37,236) (27,651) (51,159) The following are the significant exchange rates that applied to 1 euro during the year: 1 GBP 1 USD Average rate Spot rate 2012 0.8119 1.2932 2011 0.8718 1.4013 2012 0.8161 1.3194 2011 0.8353 1.2939 Sensitivity analysis A 10% strengthening and weakening of the euro against the following currencies, based on outstanding financial assets and liabilities at 31 December 2012 and 31 December 2011 would have increased/(decreased) the reported loss and equity by the amounts below as a consequence of the retranslation of foreign currency denominated financial assets and liabilities at those dates. It is assumed that all other variables, especially interest rates, remain constant in the analysis. 31 December 2012 GBP USD 31 December 2011 GBP USD Profit/(loss) Equity 10% increase €’000 10% decrease €’000 10% increase €’000 10% decrease €’000 286 3,131 293 2,267 (286) (3,131) (293) (2,267) – – – – – – – – 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 49 24 Financial instruments (continued) (c) Liquidity risk Liquidity is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by regularly monitoring cash flow projections and rolling forecasts of expected cash flows against actual cash flows. The nature of the Group’s exploration and appraisal activities can result in significant differences between expected and actual cash flows. Consequently a conservative approach to cash forecasting is taken and appropriate contingency planning is put in place to ensure that the Group can discharge its financial obligations as they fall due. Contractual maturities of financial liabilities as at 31 December 2012 were as follows: Item Bank loans Trade and other payables Total Carrying amount €’000 31,725 24,955 56,680 Contractual cash flows €’000 32,692 24,955 57,647 Contractual maturities of financial liabilities as at 31 December 2011 were as follows: Item Bank loans Convertible bond Trade and other payables Total Carrying amount €’000 38,365 33,447 27,651 99,463 Contractual cash flows €’000 45,220 35,967 27,651 108,838 6 months or less €’000 4,950 24,955 29,905 6 months or less €’000 6,119 – 27,651 33,770 6 – 12 months €’000 4,950 – 4,950 1 – 2 years €’000 7,180 – 7,180 2 – 5 years €’000 15,612 – 15,612 6 – 12 months €’000 5,602 35,967 – 41,569 1 – 2 years €’000 10,144 – – 10,144 2 – 5 years €’000 23,355 – – 23,355 (d) Credit risk Credit risk is the risk of financial loss to the Group if a cash deposit is not recovered. Group deposits are placed only with banks with appropriate credit ratings. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 December was: Cash and cash equivalents Restricted cash Trade receivables VAT recoverable Other receivables Derivative asset Maximum exposure to credit risk 2012 €’000 16,831 910 1,444 21 4,333 2,163 25,702 2011 €’000 18,563 17,491 1,303 358 4,745 5,624 48,084 s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 50 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2012 24 Financial instruments (continued) (e) Fair values versus carrying amounts Due to the short term nature of all of the Group’s financial assets and liabilities at 31 December 2012, the fair value equals the carrying amount in each case. (f) Capital management The Group has historically funded its activities through share rights issues and placings. It has also utilised industry specific financing through its bank borrowings and convertible bonds. While the bank borrowings will be disposed of in February 2013 following the disposal of the Group’s interest in the Singleton asset, the convertible bond was redeemed in the year ended 31 December 2012. The Group’s capital structure is kept under review by the Board and it is committed to capital discipline and continues to maintain flexibility for future growth, both organic and through acquisitions. The Board considers capital to comprise shareholders’ equity and long term borrowings and endeavours to ensure an appropriate mix of equity and debt is maintained. 25 Commitments (a) Exploration and evaluation activities The Group has capital commitments of approximately €15.4 million to contribute to its share of costs of exploration and, evaluation activities during 2013. (b) Operating leases Total commitments under non-cancellable operating lease rentals, all of which relate to property, are as follows: Payable: Within one year Between two and five years After five years Total operating lease commitments €’000 228 519 – 747 26 Related party transactions Mr Tony O’Reilly has, through Kildare Consulting Limited, a company beneficially owned by him, a contract for the provision of service to the Company outside the Republic of Ireland effective 1 September 2011. The amount paid under the contract in the year ended 31 December 2012 was €650,250. The contract is of two years duration and is subject to one year’s notice period. 27 Accounting estimates and judgements Preparation of financial statements pursuant to EU IFRS requires a significant number of judgemental assumptions and estimates to be made. These impact on the income and expenses recognised both within the income statement and the statement of comprehensive income together with the valuation of the assets and liabilities in the statement of financial position. Such estimates and judgements are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances and are subject to continual re-evaluation. It should be noted that the impact of valuation in some assumptions and estimates can have a material impact on the reported results. The following are key sources of estimation uncertainty and critical accounting judgements in applying the Group’s accounting policies. Exploration and evaluation assets The carrying value of exploration and evaluation assets was €67.1 million at 31 December 2012. The Directors carried out a review, in accordance with IFRS 6 “Exploration for and evaluation of mineral interests”, of the carrying value of these assets and are satisfied that these are recoverable, acknowledging however that their recoverability is dependent on future successful exploration efforts. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 51 27 Accounting estimates and judgements (continued) Decommissioning The decommissioning provision amounts to €4.7 million (2011: €5.2 million) and represents management’s best estimate of the costs involved in decommissioning the various exploration licence areas to return them to their original condition. These estimates include certain management assumptions with regard to future costs, inflation rates and discount rates. Share based payment reserve The share based payment reserve amounts to €4.9 million (2011: €4.4 million) at 31 December 2012. The fair value of share options granted after 7 November 2002 has been determined using appropriate option pricing valuation models. The significant inputs into the model include certain management assumptions with regard to the standard deviation of expected share price returns, expected option life and annual risk free rates. The assumptions for the valuations are set out in Note 23. Going concern The Directors have considered carefully the financial position of the Group and, in that context, have reviewed cash flow forecasts for the period to 31 December 2014. The group’s cash on hand at 31 December 2012 of €16.8m was increased in February 2013 on the completion of the sale of PR Singleton to IGas Energy plc for $66m. The group then discharged its outstanding bank debt of $44m and is now debt free. The directors are satisfied that the group will have sufficient cash resources to enable it to discharge all its commitments as they fall due, funded in the short term from existing cash resources. As set out in more detail in the Chairman’s and Chief Executive’s review, the group looks forward to incurring significant capital expenditure in 2013 and 2014 on Dunquin and Spanish Point and, depending on the state of permitting, on three other planned wells (Dragon, Polaris and Kish) in 2014. The directors are satisfied that, while no arrangements have yet been entered into, the group will be in a position to fund this capital expenditure programme through planned farm out programmes. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. 28 Approval of financial statements The financial statements were approved by the Directors on 7 May 2013. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 52 Company Balance Sheet as at 31 December 2012 Fixed assets Oil and gas interests Tangible assets Financial assets Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Provision for liabilities Net assets Capital and reserves Called up share capital Share premium Capital conversion reserve Share based payment reserve Loan warrant reserve Convertible bonds – equity portion Profit and loss account Shareholders’ funds – equity There are no recognised gains or losses other than those included in the profit and loss account. On behalf of the Board Dr. Brian Hillery Chairman Tony O’Reilly Chief Executive Note 2 3 4 5 6 7 8 8 9 9 9 9 9 2012 €’000 66,302 41 2 66,345 65,826 16,207 82,033 (25,972) 56,061 122,406 (4,391) 118,015 18,136 209,975 623 4,942 – – (115,661) 118,015 2011 €’000 36,214 22 2 36,238 71,604 34,792 106,396 (96,310) 10,086 46,324 (3,481) 42,843 16,668 130,548 623 4,368 5,641 2,333 (117,338) 42,843 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials53 Notes to the Company Financial Statements for the year ended 31 December 2012 1 Statement of accounting policies Basis of preparation The financial statements of the Company are prepared in accordance with Generally Accepted Accounting Practice in Ireland under the historical cost convention except for share options and warrants which are measured at grant date fair value, and comply with financial reporting standards of the Financial Reporting Council, as promulgated by the Institute of Chartered Accountants in Ireland. Going concern The Directors have considered carefully the financial position of the Group and, in that context, have reviewed cash flow forecasts for the period to 31 December 2014. The group’s cash on hand at 31 December 2012 of €16.8m was increased in February 2013 on the completion of the sale of PR Singleton to IGas plc for $66m. The group then discharged its outstanding bank debt of $44m and is now debt free. The directors are satisfied that the group will have sufficient cash resources to enable it to discharge all its commitments as they fall due, funded in the short term from existing cash resources. As set out in more detail in the Chairman’s and Chief Executive’s review, the group looks forward to incurring significant capital expenditure in 2013 and 2014 on Dunquin and Spanish Point and, depending on the state of permitting, on three other planned wells (Dragon, Polaris and Kish) in 2014. The directors are satisfied that, while no arrangements have yet been entered into, the group will be in a position to fund this capital expenditure programme through planned farm out programmes. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. Cash flow statement Under the provisions of FRS 1, “Cash Flow Statements”, a cash flow statement has not been prepared as the Company itself publishes consolidated financial statements that include a cash flow statement in the required format. Pension costs The Company provides for pensions for certain employees through defined contribution pension schemes. The amount charged to the profit and loss account in respect of the scheme is the contribution payable in that year. Any difference between amounts charged to the profit and loss account and contributions paid to the pension scheme is included in ‘Debtors’ or ‘Creditors’ in the balance sheet. Share based payment The Company’s “2005 Scheme” and “2009 Scheme” falls within the scope of and are accounted for under the provisions of FRS 20. Accordingly the fair value of the options granted under these schemes, after 7 November 2002 and those not yet vested as at 1 January 2007 (the effective date of FRS 20), are recognised as a personnel expense with a corresponding increase in the “Share based payment reserve” within equity. The fair value of these options are measured at grant date and spread over the period during which personnel become unconditionally entitled to the options – the vesting period. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forteiture is only due to share prices not achieving the threshold for vesting. Share warrants Warrants granted to lenders in return for funding facilities have been measured at fair value using an option pricing model, taking into account the terms and conditions upon which the warrants have been granted. These costs form part of the effective interest rate charged on the facility and are recognised over the life of the facility. Taxation Current tax is provided on taxable profits at amounts expected to be paid using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in taxable profits in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 54 Notes to the Company Financial Statements continued for the year ended 31 December 2012 1 Statement of accounting policies (continued) Oil and gas interests The Company accounts for oil and gas expenditure under the ‘full cost’ method of accounting. (i) Exploration, appraisal and development expenditure Exploration, appraisal and development expenditure is incurred either through consortium operations or directly on acquiring, exploring or testing exploration prospects. All lease, licence and property acquisition costs, geological and geophysical costs and other direct costs of exploration, appraisal and development are capitalised. The amount capitalised includes operating expenses directly related to these activities, interest expense and foreign exchange differences incurred on loans prior to the commencement of production. (ii) Cost pools Costs are capitalised within separate geographic cost pools, which comprise Ireland in one pool and the Rest of the World in the other pool. Costs relating to the exploration and appraisal of oil and gas interests which the Directors consider to be unevaluated are initially held outside the cost pools. Costs held outside cost pools are reassessed at each year end. When a decision to develop these interests has been taken, or there is evidence of impairment, the related costs are transferred to the relevant cost pools. (iii) Depreciation Expenditure within each cost pool is depreciated using the unit of production method based on commercial reserves. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the anticipated future costs of development of the undeveloped reserves at current year end unescalated prices. Changes in cost and reserve estimates are dealt with prospectively. (iv) Abandonment Provision is made for the anticipated costs of future restoration. Management estimate the future costs associated with removal of production facilities discounted to take account of risk and the time value of money. These costs have been determined with reference to current legal requirements and current technology. The present value of those future costs is recorded as a provision in the balance sheet. A corresponding abandonment asset is recorded in Oil and Gas Interests and is depreciated in accordance with the Company’s depreciation policy set out at (iii) above. Annually, the unwinding of the discount factor is recorded as an expense in the profit and loss account and disclosed under ‘Interest payable and similar charges’. Changes in estimates which result in a revision of the net present value of the provision are accounted for by adjusting the provision, with a corresponding entry to Oil and Gas Interests. (v) Impairment test An impairment test is carried out at each balance sheet date to assess whether the net book value of capitalised costs in each pool, together with the future costs of development of undeveloped reserves, is covered by the discounted future net revenues from the reserves within that pool, calculated at prices prevailing at the year end. Any deficiency arising is provided for to the extent that, in the opinion of the Directors, it is considered to represent a permanent diminution in the value of the related asset, and, where arising, is dealt with in the profit and loss account as additional depreciation. Tangible fixed assets Tangible fixed assets are stated at cost, net of accumulated depreciation and any provisions for impairment. Depreciation is provided on all tangible assets on a straight-line basis to write off the cost (net of estimated residual value) over the expected useful economic lives of these assets as follows: • Furniture and equipment 3–10 years Financial fixed assets Financial fixed assets consist of the Company’s investments in equity instruments and its subsidiaries and are stated at cost less, where considered necessary in the opinion of the Directors, provisions for impairment. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 55 1 Statement of accounting policies (continued) Leases Rentals under operating leases are charged on a straight-line basis over the lease terms. Foreign currency Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rates of exchange prevailing at the balance sheet date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the profit and loss account. Issue expenses and share premium account Issue expenses arising on the issue of equity securities are written off against the share premium account. Classification of financial instruments issued by the Company Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions: (i) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and (ii) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where a financial instrument that contains both equity and financial liability components, exists these components are seperated and accounted for individually under the above policy. 2 Oil and gas interests – exploration expenditure The movement on expenditures, pending further evaluation are analysed as follows: Full details of the Company’s interests in exploration and evaluation assets, together with key developments in 2012, are contained in the Review of Operations on pages 7 to 10. Cost At 1 January Exploration and appraisal expenditure Cash calls received in year Impairment charge Administration expenses Increase in abandonment costs At 31 December Ireland €’000 36,214 35,344 (5,507) (1,495) 1,144 602 66,302 The Directors have reviewed the carrying value of exploration and expenditure assets and are satisfied that there are no current indications of further impairment. They recognise, however, that the future realisation of these exploration and evaluation assets is dependent on future successful exploration and appraisal activities and the subsequent economic production of hydrocarbon reserves. They have reviewed current and prospective plans for each of the licence areas and are satisfied that future exploration and evaluation activities are appropriate. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 56 Notes to the Company Financial Statements continued for the year ended 31 December 2012 3 Tangible fixed assets Costs At 1 January 2012 Additions in year At 31 December 2012 Depreciation At 1 January 2012 Charge for year At 31 December 2012 Net book value At 31 December 2012 At 31 December 2011 4 Financial fixed assets Investments in subsidiaries at start and end of year At 31 December 2012, the Company had the following principal subsidiaries: Name Providence Resources UK Limited Providence Resources (NI) Limited Providence Resources (International) Limited Providence Resources (Nigeria Holdings) Limited Providence Exploration (GB) Limited P.R. Oil & Gas Indonesia Limited Providence Resources (US Holdings) Limited Providence Resources (GOM) LLC Providence Resources (Trading) Limited Island Gas (Singleton) Limited (formerly P.R. Singleton Limited) P.R. UK Holdings Limited Providence Resources (GOM No. 2) LLC Providence Resources (Holdings USA) LLC Providence Resources (Gulf) Limited Eirgas Limited Activity Holding company Registered Office/Country of Incorporation 5th Floor, 6 St. Andrews Street, London, EC4A 3AE, UK Oil and gas exploration and production Oil and gas exploration and production 13 Lombard Street, Belfast, Northern Ireland Holding company Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands 5 Jubilee Place, London SW3 3TD, UK Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands Corporation Trust Centre, 1209 Orange Street, Wilmington, Delaware, USA Corporation Trust Centre, 1209 Orange Street, Wilmington, Delaware, USA 7 Down Street, London W1J 7AJ, UK Oil and gas exploration and production Holding company Oil and gas exploration and production Holding company Holding company Holding company 5 Jubilee Place, London SW3 3TD, UK Corporation Trust Centre, 1209 Orange Street, Wilmington, Delaware, USA Corporation Trust Centre, 1209 Orange Street, Wilmington, Delaware, USA Airfield House, Airfield Park, Donnybrook, Dublin 4 Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands Holdings) Limited Holding company Oil and gas exploration and production 100% 100% Holding company Holding company Holding company 100% 100% 100% * Subsequent to the year end the Group disposed of its direct investment in Island Gas (Singleton) Limited (formerly P.R. Singleton Limited) on 28 February 2013. 22592.04 9 May 2013 12:37 AM Proof pfp Furniture & equipment €’000 388 31 419 366 12 378 41 22 2012 €’000 2 Interest in Ordinary Share Capital 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% * Providence Resources P.l.c.Annual Report 2012Our Financials 5 Debtors Trade debtors Other debtors VAT Prepayments and accrued income Amounts due from subsidiaries Amounts due from joint venture partners All of the above amounts fall due within one year. 6 Creditors: amounts falling due within one year Trade creditors Accruals Other creditors Amounts owed to subsidiaries Cash calls received in advance Convertible bond Amounts owed to subsidiaries are interest free and fall due on demand. 7 Provision for liabilities – Decommissioning At 1 January Unwinding of discount Charge in year Increase in provision in year Liability assumed from partner Balance 31 at December 57 2011 €’000 78 – 7 91 71,428 – 71,604 2011 €’000 16,284 4,416 2,368 38,549 1,246 33,447 96,310 2011 €’000 1,657 317 – 266 1,241 3,481 2012 €’000 – 38 – 66 61,821 3,901 65,826 2012 €’000 21,943 770 177 3,082 – – 25,972 2012 €’000 3,481 274 34 602 – 4,391 Decommissioning costs are expected to be incurred over the remaining lives of the fields, which are estimated to be between 2013 and 2022. The provision for decommissioning is reviewed annually. The provision has been calculated assuming industry established oilfield decommissioning techniques and technology at current prices and is discounted at 10% per annum, reflecting the associated risk profile. An additional provision was created in the year as a result of drilling activities undertaken at Barryroe. 8 Share capital and share premium See Note 17 to the Group financial statements. 22592.04 9 May 2013 12:37 AM Proof pfp s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O www.providenceresources.com 58 Notes to the Company Financial Statements continued for the year ended 31 December 2012 9 Movement on reserves At 1 January 2012 Loss for financial year Share based payments Share options exercised in year Exercise of warrants Forfeiture of share options Bond redemption At 31 December 2012 Capital conversion fund €’000 623 – – – – – – 623 Share based payment reserve €’000 4,368 – 1,301 (238) – (489) – 4,942 Warrants €’000 5,641 – – – (5,641) – – – Convertible bond-equity portion €’000 2,333 – – – – – (2,333) – Profit & loss account €’000 (117,338) (7,024) 238 5,641 489 2,333 (115,661) See note 23 to the Group financial statements for further details of the Company’s share option schemes. 10 Commitments and contingencies (a) Exploration and evaluation activities The Company has capital commitments of approximately €15.4 million to contribute to its share of costs of exploration and evaluation activities during 2013. (b) Operating leases Annual commitments exist under non-cancellable property leases expiring as follows: Within one year Between two and five years Total 2012 €’000 1 163 164 2011 €’000 163 7 170 11 Statutory information Under the provisions of Section 148(8) of the Companies Act, 1963, the Company has not presented its own profit and loss account. A loss of €7,024,000 (2011: €12,011,000) for the financial year ended 31 December 2012 has been dealt with in the separate profit and loss account of the Company. Auditor’s remuneration 2012 €’000 42 2011 €’000 42 During the year the Company employed 18 people (2011: 16 people) and incurred payroll costs of €2 million (2011: €1.7 million). The Group contributes to an externally administered defined contribution pension scheme to satisfy the pension arrangements in respect of certain management personnel. The pension cost charged for the year was €175,000 (2011: €163,000). 12 Related party transactions Mr Tony O’Reilly, has through Kildare Consulting Limited, a company beneficially owned by him, a contract for the provision of service to the Company outside the Republic of Ireland effective 1 September 2011. The amount paid under the contract for the year ended 31 December 2012 was €650,250. The contract is of two year’s duration and is subject to one year’s notice period. 13 Approval of financial statements The financial statements were approved by the Directors on 7 May 2013. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our Financials 59 Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Providence Resources P.l.c. will be held in The Hilton Hotel, Charlemont Place, Dublin 2 on Thursday 6 June 2012 at 11.00 am for the purpose of transacting the following ordinary business: (1) To receive and consider the Directors’ Report and Financial Statements for the year ended 31 December, 2012. (2) (a) To re-elect Dr. Philip Nolan as a Director. (b) To re-elect Mr. James McCarthy as a Director. (3) To authorise the Directors to fix the remuneration of the Auditors. (4) To transact any further ordinary business. As special business to consider and, if thought fit, to pass the following resolutions. (5) As an Ordinary Resolution That the Directors be and they are hereby generally and conditionally authorised to exercise all the powers of the Company to allot and issue relevant securities (within the meaning of Section 20 of the Companies (Amendment) Act 1983 (the “1983 Act”) and the maximum amount of relevant securities as aforesaid which can be allotted under this authority shall be the authorised but as yet unissued share capital of the Company at the close of business on the date of the passing of this Resolution provided that: (i) (ii) this authority shall, subject to Section 20(3) of the 1983 Act, expire at the close of business on the date five years from the date of the passing of this Resolution unless previously renewed, varied or revoked by the Company in general meeting; and the Company may, pursuant to this authority, make an offer or agreement before the expiry of this authority or any renewal or variation thereof which would or might require relevant securities to be allotted or issued after expiry of such authority and the Directors may allot and issue relevant securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired. As a Special Resolution: (6) That, the Directors be and they are hereby empowered pursuant to Section 24 of the Companies (Amendment) Act 1983 (the “1983 Act”) to allot equity securities (within the meaning of Section 23 of the said Act) for cash pursuant to the authority conferred on them by resolution of the shareholders passed on 6 June 2013 as if the restrictions in sub-section (1) of Section 23 did not apply to any such allotment, provided however that the power hereby conferred shall be limited to: (i) the allotment of equity securities in connection with or pursuant to any offer of equity securities open for a period fixed by the Directors, by way of rights issue, open offer or otherwise (an “Offering”) to the holders of ordinary shares and/or any other persons entitled to participate therein (including without limitation any holders of options under the Company’s share option scheme(s) for the time being) in proportion (as nearly as may be) to their respective holdings of ordinary shares (or, as appropriate, the number of ordinary shares which such other persons are for the purposes of such Offering deemed to hold) on a record date fixed by the Directors (whether before or after the date of this meeting) and subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with any legal or practical problems under the laws of any territory or the requirements of any regulatory body or any stock exchange in any territory or in relation to fractional entitlements or otherwise howsoever; (ii) pursuant to the terms of any scheme for Directors and/or employees etc. of the Company and/or its subsidiaries; and (iii) otherwise than pursuant to sub-paragraphs (i) and (ii) above, having, in the case of relevant shares (as defined in Section 23 of the 1983 Act), a nominal amount or, in the case of any other equity securities, giving the right to subscribe for or convert into relevant shares, having a nominal amount, not exceeding in aggregate €644,982 (corresponding to 10%) of the issued Ordinary Share Capital of the Company provided in each case the power shall, unless revoked or renewed in accordance with the provision of Section 24 of the 1983 Act, expire on the earlier of fifteen months from the date of passing this Resolution and the conclusion of the next Annual General Meeting of the Company unless previously renewed, varied or revoked by the Company in general meeting, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted or issued after such expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not. Dated 7 May 2013 By order of the Board M. Graham, Secretary, Airfield House, Airfield Park, Dublin 4. s s e n i s u B r u O e c n a n r e v o G r u O s l a i c n a n i F r u O 22592.04 9 May 2013 12:37 AM Proof pfp www.providenceresources.com 60 Notice of Annual General Meeting continued Notes 1. A member entitled to attend and vote at the above General Meeting is entitled to appoint a proxy to attend, speak and vote in his/her stead. A proxy need not be a member of the Company. The appointment of a proxy does not preclude a member from attending and voting at the meeting should he/she so wish. 2. In accordance with the requirements of The Stock Exchange, copies of the Directors’ service contracts, if any, will be available for inspection by members at the registered office of the Company during normal business hours from the date of this notice and at the place of the Annual General Meeting for a period of fifteen minutes prior to the said meeting until the conclusion of the meeting. 3. A Form of Proxy for use at the AGM is enclosed. To be effective, the Form of Proxy, together with any Power of Attorney or other authority under which it is executed, or a notarially certified copy thereof, must be completed and reach the Company’s Registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18 not less than forty-eight hours before the time for the holding of the meeting. 4. The Form of Proxy must (i) in the case of an individual member be signed by the member or his/her attorney duly authorised in writing; or (ii) in the case of a body corporate be given either under its common seal or signed on its behalf by its duly authorised officer or attorney. 5. In the case of joint holders, the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding. 6. Only those shareholders on the register of members of the Company as at 6:00 pm on 4 June 2013, will be entitled to attend and vote at the Annual General Meeting and may also only vote in respect of the number of shares registered in their name at that time. 22592.04 9 May 2013 12:37 AM Proof pfp Providence Resources P.l.c.Annual Report 2012Our FinancialsCorporate Information Board of Directors Dr Brian Hillery (Chairman), appointed 1997 1,2,3 Dr Philip Nolan (Non-executive Director), appointed 2004 1,2,3 James S.D. McCarthy (Non-executive Director), appointed 2005 1,2,3 Lex Gamble (Non-executive Director), appointed 2005 1,2,3 Tony O’Reilly Chief Executive, appointed 1997 (Non-executive), appointed 2005 (Executive Director) Philip O’Quigley (Non-executive Director 2012), appointed 2008 1,3 John O’Sullivan (Technical Director), appointed 2010 1 Non-executive 2 Member Audit Committee 3 Member Remuneration Committee Secretary and Registered Office Michael Graham Providence Resources P.l.c. Airfield House Airfield Park Dublin 4 Ireland www.providenceresources.com T +353 1 219 4074 F +353 1 219 4006 UK Representative Office Providence Resources UK Ltd. 5 Jubilee Place London SW3 3TD United Kingdom T +44 207 349 5284 F +44 207 349 5281 Registrar Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland Nominated Adviser Cenkos Securities Limited 6-7-8 Tokenhouse Yard London EC2R 7AS United Kingdom Irish Stockbrokers J&E Davy Davy House 49 Dawson Street Dublin 2 Ireland UK Stockbrokers Cenkos Securities Limited 6-7-8 Tokenhouse Yard London EC2R 7AS United Kingdom Liberum Capital Level 12 25 Ropemaker Street London EC2Y 9LY Principal Bankers Allied Irish Banks P.l.c. Bank of Ireland DnB NOR HSBC plc Auditor KPMG Chartered Accountants and Registered Auditors 1 Stokes Place St. Stephen’s Green Dublin 2 Ireland Financial PR Murray Consultants Dublin Powerscourt Media London 22592.04 9 May 2013 12:37 AM Proof pfp P r o v i d e n c e R e s o u r c e s P. l . c . A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 2 Providence Resources P.l.c. Airfield House Airfield Park Donnybrook Dublin 4 Ireland T: +353 1 2194074 F: +353 1 2194006 info@providenceresources.com 5 Jubilee Place London SW3 3TD United Kingdom T: +44 207 3495284 www.providenceresources.com 22592.04 9 May 2013 12:37 AM Proof pfp 

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