Providence Resources
Annual Report 2013

Plain-text annual report

Diversity. Experience. Expertise. Growth. Providence Resources Plc Annual Report for the year ended 31 December 2013 Stock Code: PVR 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 f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 3 23250.02 25 June 2014 1:12 PM Proof 7 Welcome to Providence Plc Annual Report 2013 Oil and gas exploration and development Who we are Providence Resources Plc is an Irish based company with a portfolio of appraisal and exploration assets offshore Ireland and the U.K. Operating offshore Ireland for over 30 years, the Company has a well-established background in the oil and gas business, having worked closely with many major international companies who currently include ExxonMobil, Repsol, ENI, Petronas and Cairn Energy. The Company is continuing to carry out a c. $500 million multi-year drilling programme on a number of exploration/development prospects over six (of its eight) basins offshore Ireland, representing the largest concerted drilling campaign ever carried out offshore Ireland. Business Model Providence operates to a number of broad corporate strategic guidelines which have led to the development of its current portfolio. These guidelines may be summarised as follows: • A front end E&P company, with a focus on early stage exploration and appraisal opportunities; • Controlled and cost-effective expansion of our portfolio with a specific geographic focus on opportunities offshore Ireland and the UK; • 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 • Where appropriate, act 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. The Company also favours engaging in strategic relationships/partnerships with third parties on a project-by-project basis. Strategy With experience of operating offshore Ireland, Providence’s extensive geological database has given it a unique basis to establish an unrivalled diversified portfolio offshore Ireland. Operating in 8 distinct geological basins, Providence’s portfolio includes seven appraisal and development projects, and 19 exploration prospects. With a core team of geoscientists, Providence has been able to generate multiple opportunities for both appraisal validation and exploration success. In carrying out its multi-basin programme, Providence aims to take a respective project or prospect forward towards commercialisation. In the case of appraisal, it is to establish the commercial viability whereas with exploration, it is to prove a geological model and therefore open that basin or area for further exploration or appraisal activities. Partnership is a key part of the Company’s strategy, bringing in world class partners who have both the technical and financial capabilities to help progress the portfolio towards commercialisation. This is normally achieved through farming down a proportion of the equity, though M&A opportunities are also considered. Ultimately, the objective is to retain an appropriate amount of equity in each project/prospect as it moves towards production for the benefit of shareholders. Information on Providence and its oil and gas portfolio is available at www.providenceresources.com Or scan the code with your smartphone  23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Operational Highlights Appraisal assets Barryroe Oil Project, North Celtic Sea • Publication of NSAI Competent Person’s Report • Farm-out process ongoing • Increase in area of SEL 1/11 Helvick/Dunmore Oil Discoveries, North Celtic Sea Basin • Application made for Lease Undertakings • Farm out (on staged basis) to ABT Oil Cuchulain Oil Prospects, Southern Porcupine Basin • Increase in field equity to 5% Newgrange Oil Prospect, Goban Spur Basin • Conversion of Licensing Option 11/11 into FEL 6/14 Spanish Point South, Oil & Gas Prospects, Northern Porcupine Basin • Conversion of Licensing Option 11/2 into and Gas FEL 1/14 Hook Head Oil Discovery, North Celtic Sea Basin • Application made for a Lease Undertaking Spanish Point Gas/Oil Project, Northern Porcupine Basin • Farm in by Cairn Energy Plc, who assumed an • 3D seismic programme to be carried out Silverback Oil Prospect, South Celtic Sea Basin • Award of new Licensing Option 13/4 Polaris Oil Prospect, Rathlin Basin • Full Tensor Gradiometry (FTG) programme operated 38% equity interest acquired • Planned drilling of Spanish Point appraisal well Dragon Gas Project, St George’s Channel • Discussions commenced with UK/Irish government regulators on potential phased field development • Electro-magnetic survey acquired on Rathlin Island Kish Bank Oil Prospect, Kish Bank Basin • Continual work with regulators on consent process for the drilling of Kish Bank oil prospect Contents OUR BUSINESS Business Review Highlights Chairman and Chief Executive’s Statement List of Providence Assets and Map of Interests Business Review OUR GOVERNANCE Board of Directors Providence in the community Directors’ Report OUR FINANCIAlS 1 2 4 6 13 14 15 20 21 Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of 21 Comprehensive Income 22 Consolidated Statement of Financial Position 23 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows 24 Notes to the Consolidated Financial Statements 25 49 Company Balance Sheet 50 Notes to the Company Financial Statements 56 Notice of Annual General Meeting IBC Corporate Information Financial Highlights • US $24 million Financing Facility put in place • Loss for year €2.797 million • Loss per share €0.0433 See further information online at www.providenceresources.com Read further information within this report Exploration assets Dunquin Oil Prospect, Southern Porcupine Basin • Completion of drilling of Dunquin North well • 2nd phase of Frontier Exploration Licence extended by 12 months to November 2014 Drombeg Oil Prospect, Southern Porcupine Basin • Conversion of Licensing Option 11/9 into FEL 2/14 • 3D Multi-client seismic programme to be carried out 23250.02 25 June 2014 1:12 PM Proof 7 1 www.providenceresources.com Stock Code: PVR OuR buSineSS Business Review — Chairman’s and Chief Executive’s Statement Portfolio Management in the Irish Offshore Sector Whilst the results from the Dunquin North well are still the subject of extensive post well studies, we are very encouraged by the data that we have seen so far. As this was the first well to be drilled in the southern Porcupine Basin, an area the size of the northern North Sea, we believe that the confirmation of a residual oil column in a high porosity massive carbonate reservoir system has acted as both a significant play and basin opener. This has major implications for the other carbonate build up contained within Frontier Exploration Licence 3/04, Dunquin South, and further work is being carried out to better evaluate this very large prospect. Importantly, the confirmation of a working oil-prone petroleum system in the Porcupine Basin has vindicated our licensing strategy, where we were the first mover when we secured acreage back in 2004. Kosmos Energy, a recent entrant to Ireland, has completed a major 3D survey in the Southern Porcupine Basin and see the potential for large fan play systems, similar to the Drombeg prospect operated by Providence. In addition, the giant Statoil-operated Bay du Nord oil discovery in the Flemish Pass Basin, offshore Canada, which is considered to have been geologically on-trend with the southern Porcupine Basin, adds further impetus for future exploration in the area. As the largest acreage holder in the southern Porcupine Basin, with interests in Dunquin, Cuchulain, Newgrange and Drombeg, we are exceptionally well placed to capitalise on this growing industry interest at one end of what is now being termed the ‘North Atlantic Jurassic oil source-rock superhighway’. Tony O’Reilly Chief Executive Dr Brian Hillery Chairman Dear Shareholder, We are pleased to present the 2013 Annual Report, which gives an update on another very eventful year for your Company. The year 2013 has been a very active year for the Company. Following the Company’s drilling success at Barryroe in 2012, the Company’s major focus has been on completing a farm-out, where we are working to affiliate with an appropriate strategic partner to take the field through detailed appraisal and, ultimately, into production. Overall, the farm out and merger and acquisitions (“M&A”) market in the oil and gas sector remains challenging. The majority of world-wide oil and gas investment/M&A deals have been concluded either in the North American shale gas/oil sector or in the East Africa region with very few deals being completed in the North-West European sector over the past year. This regional sectoral decline, combined with the uncertainty surrounding Scotland’s upcoming referendum on independence and a substantial increase in capital costs, is having a negative impact on investment decisions in North-West Europe. This will, if not addressed, ultimately lead to a decline in production rates from this region, with the ensuing impact on pricing. Noting this marked reduction in capital expenditure programmes by major industry players in North-West Europe, the Company, earlier this year, revised its field development plans, with an initial focus on a smaller staged development programme for Barryroe, building up to full field development (with projected ultimate production rates of up to 100,000 BOPD). This phased development programme is targeting an initial peak production rate of 30,000 BOPD, with substantially reduced initial capital expenditure and an accelerated timeline to get to first oil. This phased approach has been very well received and the Company is in advanced discussions with a select number of international E&P companies on specific terms. The Company is encouraged by these negotiations, but until a deal is concluded, there can be no certainty on timing for a mutually acceptable agreement or that an agreement will be reached. In addition to work on Barryroe, activity continued on the necessary preparatory work for the remaining four wells in our multi-basin drilling programme. The next drilling activity will be the Spanish Point appraisal well, operated by Cairn, which is targeting up to 200 MMBOE REC. This is to be followed by a gas appraisal/development well at Dragon, and then oil exploration wells at Polaris and Kish Bank. 2 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 As part of its strategy to open up new basins, the Company expanded its acreage portfolio with the award of a Licensing Option in the South Celtic Sea Basin, containing the Silverback oil prospect, a very large mid-basinal Mesozoic anticlinal closure. Standard Exploration Licence 1/11, which contains the Barryroe discovery, was increased in size by an additional c. 160 km2 to cater for the potential increase in the size of the field. The Company also converted its Spanish Point South, Drombeg and Newgrange Licensing Options into Frontier Exploration Licences and is now planning the acquisition of new seismic data over these areas. Finally, during 2013, the Company concluded a staged farm out covering the Helvick and Dunmore oil discoveries to ABT Oil and Gas, which will see these marginal oil accumulations progressed towards development using newly emerging/innovative low cost production technologies. The securing of a new interim financing facility of US$24 million was another important development for Providence as it provides the Company with the additional working capital for its operations, without having to access the equity markets. This is important as the current values for oil and gas equities (as listed on London’s AIM) are at historically low values based on NAV metrics. Hopefully, this specific market decline, which has seen many oil and gas companies trade at their lowest levels in years, will reverse as investors begin to appreciate that the value in erosion is overdone. As the most active company offshore Ireland, partnership has always been a key part of our strategy. Today, we partner with an array of world class companies - including ExxonMobil, ENI, PETRONAS, Repsol - and this year, we were pleased to welcome Cairn Energy Plc into our Spanish Point consortium and ABT Oil and Gas into Helvick and Dunmore. These partners bring both technical capabilities and financial support, which allow us to move forward with our extensive programme. We fully expect to add new companies to our family of international partners. More generally in 2013, the emergence of other companies, such as Woodside and Kosmos, offshore Ireland adds further positive developments for the industry, which we hope will lead to more drilling activity. Ireland’s offshore oil and gas sector is growing at the fastest pace in years. Providence’s leadership position, combined with the increasing number of new industry players, means that Ireland can now look to develop a meaningful upstream oil and gas sector. It is notable that 2013/14 has seen the highest level of licence activity offshore Ireland and this obviously bodes well for the upcoming Atlantic Margin Licensing Round, which was announced on June 18. Providence plans to be a major player in this upcoming licensing round. Looking ahead, we are optimistic on the prospects for the Irish oil and gas sector. Providence fully intends to carry on leading the way in identifying and realising the significant potential that exists in the region. Central to all of this is the Barryroe farm out, which remains the highest priority for the Company and the continuation of our multi-basin drilling. 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 also wish to express our thanks to our shareholders, who have continued to support us during what can only be described as a tough year from a share price perspective. We look forward to updating shareholders further on our progress at our Annual General Meeting in August. Dr Brian Hillery Chairman Tony O’Reilly Chief Executive See further information online at www.providenceresources.com 23250.02 25 June 2014 1:12 PM Proof 7 3 www.providenceresources.com Stock Code: PVR OuR buSineSSBusiness Review — list of Providence Assets Ref licence Issued Asset Operator Partners % Type 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 4 CElTIC SEA BASIN SEL 1/11 2011 Barryroe SEL 2/07 SEL 2/07 SEL 2/07 2007 Dunmore 2007 Helvick 2007 Hook Head ST GEORGE’S CHANNEl BASIN SEL 1/07 2007 Dragon PL 1930 SEL 1/07 SEL 1/07 SEL 1/07 2011 Dragon 2007 Pegasus 2007 Orpheus 2007 Dionysus Providence Lansdowne Providence Atlantic; Sosina 80.00% Oil discovery 72.50% Oil discovery Providence Atlantic; Sosina; Lansdowne 62.50% Oil and gas discovery Providence Atlantic; Sosina 72.50% Oil and gas discovery Providence Providence Providence Providence Providence 100.00% Gas discovery 100.00% Gas discovery 100.00% Oil and gas exploration 100.00% Oil and gas exploration 100.00% Oil and gas exploration Kish Bank Providence Petronas 50.00% Oil and gas exploration KISH BANK BASIN 2011 SEL 2/11 RATHlIN BASIN P 1885 2012 Polaris PL 5/10 2011 Rathlin Island PORCUPINE BASIN 2004 FEL 2/04 Spanish Point FEL 2/04 FEL 2/04 FEL 2/04 FEL 4/08 FEL 4/08 FEL 4/08 FEL 4/08 FEL 4/08 FEL 1/14 2004 Burren 2004 Wilde 2004 Beehan 2008 Cama (North & South) 2008 Rusheen (Nth & Sth) 2008 Costelloe (Main, Nth & Sth) Cairn 2008 2008 2013 Shaw Synge Spanish Point South Cairn Cairn Cairn Providence Providence Cairn Cairn Cairn Cairn Cairn Cairn Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina Chrysaor; Sosina 100.00% Oil and gas exploration 100.00% Oil and gas exploration 32.00% Gas condensate discovery 32.00% Oil discovery 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration 32.00% Oil and gas exploration SOUTHERN PORCUPINE BASIN FEL 3/04 2004 Dunquin FEL 1/99 FEL 2/14 1999 Cuchulain 2014 Drombeg GOBAN SPUR BASIN FEL 6/14 2014 Newgrange SOUTH CElTIC SEA BASIN LO 4/13 2013 Silverback ExxonMobil Repsol; Eni; Sosina; Atlantic 16.00% Oil and gas exploration ENI Providence Sosina Sosina 5.00% Oil and gas exploration 80.00% Oil and gas exploration Providence Sosina 80.00% Oil and gas exploration Providence 100.00% Oil and gas exploration 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Areas of interest 23250.02 25 June 2014 1:12 PM Proof 7 5 www.providenceresources.com Stock Code: PVR OuR buSineSSBusiness Review Appraisal: Celtic Sea Basin SEl 1/11 – Barryroe Providence holds an 80.0% equity stake in Standard Exploration Licence (SEL) 1/11 which contains the Barryroe oil field. The licence is located in the North Celtic Sea Basin, offshore southern Ireland and is adjacent to the giant PETRONAS operated Kinsale Head gas field. Providence acts as Operator of the licence, with Lansdowne Oil & Gas Plc holding the remaining 20.0%. In the past, under different operators, five oil wells were successfully drilled on Barryroe. All of these wells successfully logged hydrocarbons with three wells having flowed oil to surface. In 2011, having acquired a new 3D seismic survey over the field, Providence and Lansdowne drilled a sixth well on this areally extensive field. In March 2012, the Barryroe partners announced the tested flow rates from this well — results which far exceeded pre-drill expectations with oil rates in excess of 3,500 BOPD from a 7-metre vertical section of reservoir. Post-well analysis, in conjunction with the new 3D seismic data set, led to a substantial upgrade in the field size to over 1 billion barrels in place (2C) for the main basal Wealden reservoir oil zone. Subsequent work on multiple development concepts together with detailed engineering studies on recovery factors has led to estimated 2C recoverable resources of over 300 million barrels. In April 2013, a Competent Persons Report (“CPR”) was issued by Netherland Sewell & Associates Inc (NSAI) confirming the previously published updated figures on the main basal sandstone reservoir. In conjunction with a previous audit carried out by RPS Energy on the overlying secondary Middle Wealden reservoir, these third party studies have led to a substantial upgrade in resources at Barryroe (as shown below). 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 2C (MMBO) 761 3C (MMBO) 1,135 85 31 4 369 89 266 287 45 1,048 311 511 706 113 1,841 624 Note: The table above excludes recoverable solution gas (i.e. 207 BCF or 34.5 MMBOE in the 2C case) Further incremental resource potential has been identified in logged hydrocarbon bearing intervals within stacked Lower Wealden and Purbeckian sandstones, which Providence has previously estimated contains total associated P90, P50 & P10 in place oil resources of 456 MMBO, 778 MMBO and 1,165 MMBO respectively. With the Phase 2 Development Engineering Study and all post-well studies completed, together with the new data from the NSAI CPR, Providence commenced a farm out campaign in the summer of 2013 to bring in a potential co-venturer (farminee). Noting general market conditions for capital expenditure, the Company revised its field development plans, with an initial focus on a smaller staged development programme for Barryroe, building up to full field development (with projected ultimate production rates of up to 100,000 BOPD). This phased development programme is targeting an initial peak production rate file of 30,000 BOPD, with substantially reduced initial capital expenditure and an accelerated timeline to get to first oil. In February 2014, the Company announced that the Irish government had agreed to increase the area of SEL 1/11 to provide c. 160 km2 for a possible extension of the Barryroe oil field beyond the area previously licensed. SEl 2/07 – Hook Head, Helvick and Dunmore SEL 2/07 was awarded to Providence and its partners in 2007. The licence is located in the North Celtic Sea Basin approximately mid-way between the Dragon gas discovery in the St George’s Channel Basin and the giant PETRONAS operated Kinsale Head gas field. Over the past 30 years, some thirteen wells (exploration and appraisal) have been drilled on various assets with oil and gas having been successfully discovered. There are currently three named appraisal projects within SEL 2/07 – namely Hook Head, 6 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Helvick and Dunmore. The equity stakes in Hook Head and Dunmore are Providence (72.5%), Atlantic Petroleum (18.3%) and Sosina (9.2%) with Providence acting as the Operator. The current equity stakes in Helvick are Providence (62.5%), Atlantic Petroleum (18.3%), Lansdowne (10.0%) and Sosina (9.2%), with ABT Oil & Gas having the right to earn equity under its phased farm-in (see below). Hook Head has had four wells which have all logged pay and has estimated recoverable resources of c. 35 MMBO in the central panel. The estimated total oil in place for the whole structure is c. 190 MMBO with the basal sand, which flowed successfully at Barryroe, also present here. The recoverable resource estimate for Helvick is c. 3 MMBO based on oil in place of c. 5 MMBO whilst the latest work indicates a STOIIP resource estimate for Dunmore of up to c. 17 MMBO. In November 2013, the Company announced that it had agreed a phased farm in on Helvick and Dunmore (the ‘Discoveries’) by ABT Oil and Gas (“ABTOG”), a UK based company who has proprietary technology for the deployment of low cost development solutions for marginal fields. As part of the farm-in, which is subject to the receipt of a Lease Undertaking from the Irish Government, ABTOG will assist the joint venture partners in the carrying out of a phased detailed work programme. The first phase of this work programme will be to determine whether the Discoveries can be developed commercially, through the use of ABTOG’s innovative low cost development technologies. If the joint venture partners determine that the Discoveries can be developed commercially, ABTOG will carry out the necessary work required to prepare and submit, to the Minister, an outline plan of development and an application for a Petroleum Lease in respect of each discovery. Subject to the award of a Petroleum Lease by the Minister, the third phase of the work programme would be carried out. This third phase would entail the preparation and submission of a formal plan of development to the Minister. Subject to Ministerial approval of the plan of development, ABTOG will earn a 50% interest in the Discoveries. Separately, a Lease Undertaking was also applied for Hook Head and the partners are looking at innovative methods to commercialise this field, including potential farm in discussions. See further information online at www.providenceresources.com 23250.02 25 June 2014 1:12 PM Proof 7 7 www.providenceresources.com Stock Code: PVR OuR buSineSSBusiness Review continued Appraisal: St George’s Channel Basin SEl 1/07 – Dragon SEL 1/07 was awarded to Providence in 2007 at 100.0% equity level, having been previously held under a previous Licensing Option authorisation. The licence is situated on the Irish/UK median line in the St George’s Channel Basin, offshore SE Ireland. A gas discovery called Dragon was made by Marathon Oil in 1994 in the UK sector, which flowed at a rate of c. 21 MMSCFGD from one of two Jurassic hydrocarbon-bearing sandstone intervals. Subsequent mapping has confirmed that the Dragon accumulation is transnational spanning both sides of the UK/Ireland median line. In January 2012, following an ‘Out of Round’ licence application, the UK Department of the Energy and Climate Change (DECC) awarded the UK portion of the Dragon field to a consortium comprising Providence (50%) and Star Energy (50%). Following the IGas Energy takeover of Star Energy, Providence assumed 100% equity over the UK portion of Dragon and therefore controls the field in both the UK and Irish jurisdictions. Estimated recoverable resources of c. 200 BCF are based on updated mapping following a 3D seismic inversion project which was carried out by Ikon Science. An appraisal well at Dragon is planned as part of the Company’s multi-well programme. See further information online at www.providenceresources.com 8 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Exploration: Kish Bank Basin and Rathlin Basin SEl 2/11 – Dalkey Island Licensing Option (LO) 08/2 was originally awarded to Providence (50.0%) and Star PETRONAS (50.0%) in 2008 with Providence as Operator. The area is located in the Kish Bank Basin, offshore Dublin, which is a Mesozoic basin bearing many geological similarities with the prolific East Irish Sea Basin, offshore UK. In December 2011, LO 08/2 was converted into SEL 2/11. In January 2012, a Foreshore Licence application was made to carry out temporary seismic and exploration drilling works on the Dalkey Island exploration prospect, located approximately 8 kilometres offshore which was granted in October 2011. Due to the incorrect transposition of certain EU EIA directives into Irish law by the Irish Government in 1999, the Foreshore Licence was subsequently declared to be invalid. Providence elected to surrender the Foreshore Licence to allow the Government to rectify the appropriate legislations. The Company has retained its exploration authorisation and associated rights over the area. The Dalkey Island prospect forms part of the Company’s multi-well programme with estimated recoverable prospective resources of up to c. 250 MMBO. 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 exploration drilling in 2015. Pl 5/10 and P 1885 – Polaris Onshore licence PL 5/10 over Rathlin Island, which lies in the middle of the Rathlin Basin, was awarded in early 2011 with Providence taking 100.0% equity. The Rathlin Basin is a Mesozoic basin which lies both onshore and offshore County Antrim, Northern Ireland. Providence (100%) also made application for the surrounding six offshore licence blocks under the UK 26th Seaward Licensing Round and subsequently P 1885 was awarded in January 2012 to Providence. In 2012, a Full Tensor Gradiometry Survey (FTG) was acquired which detected five significant anomalies within the licensed area. Most notable was the Polaris prospect, which has an estimated 530 MMBO of oil in place. The prospect lies structurally on-trend with the Ballinlea-1 exploration well, which was drilled onshore in 2008 and from which the Operator reported recovered good quality oil from Carboniferous aged sandstone reservoir. Polaris forms part of the Company’s multi-well programme which is now being worked up for exploration drilling in 2015, subject to the receipt of the necessary permits and approvals. See further information online at www.providenceresources.com 23250.02 25 June 2014 1:12 PM Proof 7 9 www.providenceresources.com Stock Code: PVR OuR buSineSSBusiness Review continued Appraisal and Exploration: Northern Porcupine Basin FEl 2/04 – Spanish Point Frontier Exploration Licence (FEL) 2/04 was originally awarded to Providence in 2004. The licence is located in the northern Porcupine Basin c. 170 km off the west coast of Ireland. The licence is situated in c. 400 metre water depth and contains the Spanish Point and Burren oil and gas discoveries. In 2008, Providence entered into a staged farm-in arrangement with Chrysaor who assumed an initial 30% equity stake in return for carrying the costs of a 3D seismic programme, which was subsequently acquired in 2009. Following this initial entry, the 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. Providence’s cost exposure was capped at $20 million for up to two wells (well and potential side-track). In May 2013, Chrysaor announced that it had agreed a farm in by Cairn Energy plc with the agreement to drill an appraisal/exploration well on Spanish Point. As a result, with Cairn assuming operatorship, the equity stakes are now Cairn 38%, Providence 32%, Chrysaor 26% and Sosina 4%. This well forms part of the Company’s multi-well programme and in July 2013, Cairn announced that it had secured the Blackford Dolphin semi-submersible rig to carry out appraisal drilling at Spanish Point. The audited estimate of recoverable resources at Spanish Point is up to 200 MMBOE with estimated recoverable resources for Burren being up to 66 MMBOE. FEl 4/08 – Spanish Point North FEL 4/08 lies adjacent and to the north of FEL 2/04 and was originally awarded to 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. In May 2013, via the Cairn farm in, Cairn assumed operatorship with the current equity stakes being Cairn 38%, Providence 32%, Chrysaor 26% and Sosina 4%. Estimated recoverable prospective resources of up to 550 MMBOE are identified within FEL 4/08, as independently audited by Senergy. These prospects include targets within the Upper Jurassic which are of a similar age to the Spanish Point field but located in separate structures identified from previous 2D seismic data. Further potential has been highlighted in a possible stratigraphically controlled Spanish Point field extension to the north together with an overlying Lower Cretaceous pinch-out play of the sands which successfully tested oil in the nearby Burren well. FEl 2/14 – Spanish Point South LO 11/2 was awarded to Chrysaor, Providence and Sosina in October 2011 as part of the 2011 Irish Atlantic Margin Round and lies adjacent and south of FEL 2/04. In May 2013, Cairn farmed into the Licensing Option as part of its overall farm in deal to FEL 2/04 and FEL 2/08 (above), and assumed the operatorship. Current equity stakes are Cairn 38%, Providence 32%, Chrysaor 26% and Sosina 4%. In January 2014, LO 11/2 was converted into FEL 1/14 and plans are progressing to acquire a 3D seismic programme over this area in summer 2014. 10 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Exploration: Southern Porcupine Basin FEl 3/04 – Dunquin FEL 3/04 was originally awarded to Providence (80%, Operator) in 2004 and partner Sosina (20.0%). The licence lies in the southern Porcupine Basin c. 200 km off the south-west coast and in c. 1,500 metre water depth. In 2006, Providence agreed a farm-in with ExxonMobil whereby they assumed an 80.0% stake in return for a pre-agreed investment programme. This transaction reduced Providence’s equity stake to 16.0% and that of Sosina to 4.0%. In 2006, the partnership acquired 1,500 line km of 2D seismic data over Dunquin which confirmed c. 1.7 BNBOE REC (P50) prospective resources potential in the two interpreted carbonate prospects. 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 licence, 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%. Finally, in 2013, Atlantic Petroleum farmed in to the licence resulting in final equity stakes of ExxonMobil 25.5%, Eni 27.5%, Repsol 25%, Providence 16.0%, Atlantic 4.0% and Sosina 2.0%. Drilling operations on the Dunquin North exploration well, situated on the northern flank of a c. 700 km2 intra-basinal ridge system, were completed in July 2013 having reached a final total depth of c. 16,400 feet MDBRT. The primary Lower Cretaceous Dunquin North target was encountered within the pre-drill depth prognosis and comprised a thick overpressured carbonate reservoir system. The well was terminated having drilled a total thickness of c. 800 feet of massive porous carbonate reservoir. Preliminary well analysis indicates the reservoir to be water bearing, however, petrophysical log interpretation, elevated gas levels, together with oil shows in sidewall cores over the upper 144 feet section of the reservoir, suggest the presence of a residual oil column. In accordance with pre-drill plans, and following a comprehensive data acquisition programme, the well was plugged and abandoned and the rig demobilised out of Irish waters. Post-well studies are continuing in order to ascertain what the remaining exploration potential exists on the licence, in particular in relation to the undrilled Dunquin South prospect. FEl 1/99 – Cuchulain FEL 1/99 was awarded to ENI in 1999 at 100% equity stake. In 2009, as part of the ENI’s deal to farm into Dunquin, Providence took equity in FEL 1/99. The equity stakes in FEL 1/00 are ENI (93.75%), Providence (5.0%) and Sosina (1.25%). FEl 2/14 – Drombeg LO 11/9 which is located in the southern Porcupine Basin off the south- west coast of Ireland was awarded to Providence (80.0%) and its partner Sosina in October 2011 as part of the 2011 Irish Atlantic Margin 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 a STOIIP volume of 2,970 MMBO. Further stacked prospectivity has been identified within the Cenozoic and Jurassic section at Drombeg providing further resource growth potential. Providence is currently engaged in farm out discussions. In February 2014, Providence announced that it had converted LO 11/9 into FEL 2/14 and that it had entered into an agreement with Polarcus to acquire a multi-client 3D seismic survey over Drombeg in summer 2014. About 1,160km2 3D seismic are planned to be acquired over FEL 2/14 which should provide significant insight into the future hydrocarbon potential of the acreage. 11 23250.02 25 June 2014 1:12 PM Proof 7 www.providenceresources.com Stock Code: PVR OuR buSineSSBusiness Review continued Exploration: Goban Spur Basin and South Celtic Sea Basin FEl 6/14 – Newgrange LO 11/11 was awarded to a consortium comprising Providence (40.0%), Repsol (40.0%) and Sosina (20.0%) as part of the 2011 Irish Atlantic Margin Round. In April 2014, LO 11/11 was converted into FEL 6/14 with Providence retaining 80% equity and operatorship with Sosina as partner (20%). The partners have agreed to carry out a 1,000 line km 2D seismic programme. The Newgrange prospect is a similar carbonate play-type to Dunquin, with estimated recoverable resources of 14 TCF. Subsurface studies carried out during the licensing option period highlighted clastic and carbonate exploration prospectivity within the Jurassic and Cretaceous intervals respectively. Seismic interpretation of 2D reflection profile data have revealed the presence of two large stacked four-way structural closures at both Base Cenozoic (Top Cretaceous) and Base Cretaceous levels covering a c. 1000 km2 area. The previously drilled 62/7-1, which is located c. 30 km from the Newgrange prospect and was drilled down-structure, encountered hydrocarbon shows in sands of Lower Jurassic age. lO 4/13 – Silverback In December 2013, Providence (100%) was offered a new Licensing Option in the South Celtic Sea Basin. This 18-month option is situated in c. 100 metres of water and is c. 130 km off the south coast of Ireland and covers nine offshore blocks totalling a c. 1,530 km2 area. Initial seismic interpretation and mapping of existing vintage 2D data has identified a number of structures including a significant mid-basinal Mesozoic anticlinal closure (‘Silverback’). Petroleum systems analyses suggest that this structure may be prospective for the stacked entrapment of hydrocarbons in possible Lower Triassic, Lower Jurassic and Lower Cretaceous reservoir intervals. The primary source rocks in the basin are considered to be Lower Jurassic oil prone marine shales which have been previously proven by exploration drilling in the north-eastern part of the basin and which are oil generative in the adjacent North Celtic Sea and Fastnet Basins. Providence has committed to carry out a work programme involving the reprocessing and interpretation of the existing 2D seismic data together with the integration of existing well control from adjacent basins in order to assess the potential within the area. 12 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 Plc 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 Plc (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 Plc 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 non-executive chairman of J Laing PLC, the Ulster Bank Group and Affinity Water. He is a non-executive director of EnQuest PLC. 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. He is the chairperson of the Onshore Petroleum Association of South Africa. Philip is a fellow of the Institute of Chartered Accountants in Ireland and qualified as a Chartered Accountant with Ernst & Young. 23250.02 25 June 2014 1:12 PM Proof 7 13 Our gOvernancewww.providenceresources.com Stock Code: PVR OuR buSineSSOur gOvernanceProvidence in the community Pictured: Providence Team Ireland in action. 14 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Directors’ Report The Directors submit their annual report together with the audited financial statements of Providence Resources Plc (“the Company”) and its subsidiaries (“Providence” or the “Group”) for the year ended 31 December 2013. 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 the Business Review on pages 2 to 12. 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 2013 The Consolidated Income Statement for the year ended 31 December 2013 and the consolidated Statement of Financial Position at that date are set out on pages 21 and 22. The loss for the year amounted to €2.797 million and net assets at 31 December 2013 were €70.822 million. No dividends or transfers to reserves are recommended by the Directors. Important Events since the Year End In June 2014, the Company entered into a financing facility with Melody Business Finance LLC, a US based financial institution for the provision of a $24 million debt facility, the proceeds of which will be used for general working capital purposes. This financing facility, which runs until 1 June 2015 is secured by way of a floating charge and carries a 10% headline interest rate. Directors Mr. John O’Sullivan and Mr. Tony O’Reilly 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 2013, 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 €448,500 for 2013 (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 31 December 2012 14,060 5,000 112,470 30,000 10,000 100,000 10,110 Number of Ordinary Shares 31 December 2013 46,584 5,000 112,470 30,000 10,000 100,000 30,648 20 June 2014 46,584 5,000 112,470 30,000 10,000 100,000 30,648 5,250 15,519 15,519 23250.02 25 June 2014 1:12 PM Proof 7 15 Our gOvernancewww.providenceresources.com Stock Code: PVR OuR buSineSSOur gOvernanceDirectors’ Report continued Details of the movement on outstanding options, and those exercised during the year are as follows: Directors Dr. Brian Hillery Philip O’Quigley Tony O’Reilly Dr. Philip Nolan James SD McCarthy Lex Gamble John O’Sullivan Secretary Michael Graham At 31 December 2012 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 Exercised Exercised Exercised At 31 December 2013 – 51,347 10,000 25,000 50,000 150,000 70,000 25,000 50,000 – 100,000 70,000 100,000 25,000 – 10,000 25,000 10,000 35,000 – 10,000 25,000 – 10,000 – 60,000 70,000 100,000 – 5,000 – 20,000 25,000 40,000 25,000 Price (Euro) Expiry Date 2.73 6.75 6.13 9.79 3.80 2.95 6.13 5.00 6.75 2.95 6.13 5.00 6.75 6.13 6.75 6.13 6.75 6.13 5.00 6.75 2.95 6.13 July 2014 May 2014 July 2019 June 2015 June 2016 December 2017 July 2019 June 2014 Lapsed May 2013 May 2014 December 2017 July 2019 June 2014 Lapsed May 2013 May 2014 July 2019 May 2014 July 2019 Lapsed May 2013 May 2014 July 2019 June 2014 Lapsed May 2013 May 2014 December 2017 July 2019 5.00 6.75 3.80 2.95 6.13 June 2014 Lapsed May 2013 May 2014 June 2016 December 2017 July 2019 Based on the closing share price on 31 December 2013, options over 141,347 of the above shares were capable of being exercised. There were no options over shares granted during the year 2013. The closing market price of the ordinary shares at 31 December 2013 was €2.689 and the range during the financial year was €2.60 to €8.40. 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 also being asked to grant authority to the Directors until the earlier of the next Annual General Meeting or 26 November 2015 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 €646,494 corresponding to 10% of the nominal value of the Company’s issued ordinary share capital at the date of passing of Resolution number 5. 16 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 Irish 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 Financial 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 2013 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: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • 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 2013. 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 reviewed budgets, projected cashflows, the current status of arrangements with the Group’s bankers and other relevant information, and on the basis of this review, are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future. Consequently the Directors consider it appropriate to prepare the financial statements on a going concern basis. 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 2013. 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 13. 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 12 occasions during 2013. An agenda and supporting documentation was circulated in advance of each meeting. 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 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. Each year one third of the Directors retires 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. 23250.02 25 June 2014 1:12 PM Proof 7 17 Our gOvernancewww.providenceresources.com Stock Code: PVR OuR buSineSSOur gOvernanceDirectors’ Report continued 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. 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. 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. 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’s website 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 chairmen 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. 18 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 A review of the effectiveness of the system of internal control was carried out during the year 2003. The Directors considered that the procedures necessary to implement the Turnbull guidelines on the Combined Code have been properly established. Substantial Shareholdings So far as the Board is aware, no person or company, other than those mentioned below, held 3% or more of the Ordinary share capital of the Company at 20 June 2014. 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 production at rates in excess of the current commodity market price. Consideration of further hedging instruments 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. 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. Number of shares Shareholder 9,961,720 Sir Anthony O’Reilly JP Morgan Asset Management UK Limited 3,688,306 Henderson Global Investors Limited 3,730,952 BlackRock Investment Management (UK) Limited HSBC plc and subsidiary companies American Funds Insurance Global Small Capitalization Fund 3,188,789 3,219,817 1,956,250 % 15.45% 5.71% 5.77% 4.93% 4.98% 3.03% Political Donations There were no political donations during the year (2012 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 26 June 2014 Tony O’Reilly Director 23250.02 25 June 2014 1:12 PM Proof 7 19 Our gOvernancewww.providenceresources.com Stock Code: PVR OuR buSineSSOur gOvernanceIndependent Auditor’s Report to the members of Providence Resources Plc We have audited the Group and Company financial statements (“financial statements”) of Providence Resources Plc for the year ended 31 December 2013 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 17, 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 Financial Reporting Council’s Ethical Standards for Auditors. 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 2013 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 2013; and • the financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2013. Matters on which we are required to report by the Companies Acts 1963 to 2013 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 2013 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 2013 which require us to report to you if, in our opinion the disclosures of Directors’ remuneration and transactions specified by law are not made. Conall O’Halloran for and on behalf of KPMG Chartered Accountants, Statutory Audit Firm 1 Stokes Place St. Stephen’s Green Dublin 2 26 June 2014 20 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Consolidated Income Statement for the year ended 31 December 2013 Continuing operations Revenue Administration expenses Pre-licence expenditure Impairment of exploration and evaluation assets Operating loss Finance income Finance expenses Loss before income tax Income tax expense Loss for year from continuing operations Discontinued operations Profit/(loss) from discontinued operations (net of income tax) Loss for the financial year Loss per share (cent) – continuing operations Basic and diluted loss per share Earnings/(loss) per share (cent) – discontinued operations Basic and diluted earnings/(loss) per share Loss per share (cent) – total Basic and diluted loss per share The total loss 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 2 4 12 10 5 6 7 3 2013 €’000 – (6,484) (68) (678) (7,230) 180 (713) (7,763) (5) (7,768) 4,971 (2,797) 2012 €’000 – (3,937) – (1,495) (5,432) 494 (3,295) (8,233) – (8,233) (15,950) (24,183) 11 (12.03) (13.51) 3,11 7.70 (26.17) (4.33) (39.68) Consolidated Statement of Comprehensive Income for the year ended 31 December 2013 Loss for the financial year Continuing operations OCI items that can be reclassified into profit or loss Foreign exchange translation differences Net change in fair value of cashflow hedges transferred to income statement Cashflow hedges related deferred tax Total income 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 21 2013 €’000 2012 €’000 (2,797) (24,183) 1,426 – (97) 2,305 – 3,407 1,426 (1,371) 5,615 (18,568) 23250.02 25 June 2014 1:12 PM Proof 7 21 our financialsour financialswww.providenceresources.com stock code: PVr Consolidated Statement of Financial Position as at 31 December 2013 Assets Exploration and evaluation assets Development and production assets Property, plant and equipment Deferred tax Total non-current assets Trade and other receivables 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 12 13 14 21 15 16 16 3 17 17 18 19 20 21 19 22 3 2013 €’000 80,089 – 35 – 80,124 2,891 – 8,998 – 11,889 92,013 18,151 623 210,230 – – 2,386 5,382 – – (165,950) 70,822 – 5,105 – 5,105 – 16,086 – 16,086 21,191 92,013 2012 €’000 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 22 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Consolidated Statement of Changes in Equity for the year ended 31 December 2013 At 1 January 2012 Total comprehensive income 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 (Note 17) 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 Share capital €’000 Share premium €’000 Singleton revaluation reserve (Note 18(a)) €’000 Foreign currency translation reserve (Note 18(b)) €’000 Share based payment reserve (Note 18(c)) €’000 Convertible bond – equity portion (Note 18(e)) €’000 Cashflow hedge reserve (Note 18(f)) €’000 Warrants (Note 18(d)) €’000 Retained deficit €’000 Total €’000 16,668 623 130,548 2,650 (3,655) 4,368 5,641 2,333 (2,305) (148,994) 7,877 – – – – 1,314 – 14 – – 140 – 18,136 – – – – – – – – – – – – 72,415 – 252 – – – – – – – – – – (97) – (97) – – – – – – – – 6,760 – 623 209,975 (179) – – 2,471 – – – (3,752) – – – – – 1,301 (238) (489) – – – 4,942 – – – – – – – – – – – – – – – – – (5,641) – – – – (2,333) – – – 2,305 2,305 (24,183) – – (24,183) (24,183) (97) 2,305 (21,975) – – – – – – 238 489 73,729 1,301 266 – 179 5,641 2,333 – – 6,900 – – – – (164,297) 68,098 Capital conversion reserve fund €’000 Share capital €’000 Share premium €’000 Singleton revaluation reserve (Note 18(a)) €’000 Foreign currency translation reserve (Note 18(b)) €’000 Share based payment reserve (Note 18(c)) €’000 Convertible bond – equity portion (Note 18(e)) €’000 Cashflow hedge reserve (Note 18(f)) €’000 Warrants (Note 18(d)) €’000 Retained deficit €’000 Total €’000 At 1 January 2013 Total comprehensive income 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 (Note 17) Share options lapsed in year Share options forfeited in year Reclassified to gain on disposal (Note 3) At 31 December 2013 18,136 623 209,975 2,471 (3,752) 4,942 – – – – – – – – – – – – – – – – – – 15 – – – 18,151 – – – – – – – – 255 – – – 623 210,230 – – – – – (2,471) – – 1,426 – 1,426 – – – – – 4,712 2,386 – – – – – 1,584 – (927) (217) – 5,382 – – – – – – – – – – – – – – – – – – – – – – – – – (164,297) 68,098 – – – – (2,797) – – (2,797) (2,797) 1,426 – (1,371) – – – 1,584 – – 270 – – – 927 – – 217 – – 2,241 – – (165,950) 70,822 23250.02 25 June 2014 1:12 PM Proof 7 23 our financialsour financialswww.providenceresources.com stock code: PVr Consolidated Statement of Cash Flows for the year ended 31 December 2013 Cash flows from operating activities Loss before tax for the year – continuing operations Profit/(loss) before income tax for the year – discontinued operations Adjustments for: Depletion and depreciation Gain on sale of discontinued operations 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 trade and other payables Interest paid Hedge repayments Net cash 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 Change in restricted cash Disposal of development and production assets – Singleton 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 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 2013 €’000 (7,763) 4,971 (2,792) 272 (6,096) (379) 678 – (180) 3,455 1,584 101 2,907 (8,869) (363) (33) (9,715) 180 (13,691) – (14) – 910 16,235 3,620 270 – (1,565) – (1,295) (7,390) 16,831 (443) 8,998 2012 €’000 (8,233) (36,524) (44,757) 2,755 – 34 1,495 32,357 (494) 16,369 1,247 (507) (3,782) (2,696) (6,712) (297) (4,988) 494 (31,755) (27,202) (38) 4,610 16,581 – (37,310) 84,797 (3,902) (44,273) 4,077 40,699 (1,599) 18,563 (133) 16,831 24 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Notes to the Consolidated Financial Statements for the year ended 31 December 2013 1 Statement of accounting policies Reporting entity Providence Resources Plc (the “Company”) is a company domiciled in Ireland. The consolidated financial statements of the Company for the year ended 31 December 2013 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 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. The financial statements were authorised for issue by the Board of Directors on 26 June 2014. Going concern The Directors have considered carefully the financial position of the Group and, in that context, have prepared and reviewed cash flow forecasts for the period to 31 December 2015. The Group’s cash on hand at 31 December 2013 of €9 million was increased in June 2014 when the Group secured a working capital facility from for an amount of $24 million. 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 expects to incur significant capital expenditure in 2014 and 2015. The Directors are satisfied that, as a result of the available working capital facility, the proceeds that are expected to be received from the farm out of Barryroe, which is due to be completed later in 2014, and the expected timing of other capital expenditure programs which are planned, the Group will be in a position to fund this capital expenditure programme. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern. Statement of compliance The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU IFRS). New accounting standards applied during 2013 A number of new accounting standards and amendments to accounting standards became applicable to the Group during the year as set out below. None had a material impact on the financial statements. These included: • • IAS 19 Employee Benefits (2011) – IAS 19 Employee Benefits (2011) changes the basis for determining the income or expense related to defined benefit pension plans. As the group has no defined benefit plan, this revised standard had no material impact on the financial statements. IFRS 13 Fair Value Measurement – IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. It defines fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. IFRS 13 also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures. The change had no significant impact on the measurements of the Group’s assets and liabilities. • Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) – These amendments to IFRS 7 apply new disclosure to help financial statement users to better assess the effect or potential effect of offsetting arrangements on a group’s financial position, thus providing better information on how a group mitigates credit risk related to offsetting. As the Group has no offsetting arrangements, this revised standard had no material impact on the financial statements. • Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) – As a result of the amendments to IAS 1, the Group has modified the presentation of items of other comprehensive income in its consolidated statement of comprehensive income, to present separately items that may be reclassified to profit or loss in the future from those that would never be reclassified. Tax impacts have also been so allocated. Comparative information has been re-presented accordingly. The adoption of the Amendment to IAS 1 has no impact on the recognised assets, liabilities and comprehensive income of the Group. 23250.02 25 June 2014 1:12 PM Proof 7 25 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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 on or after 1 January 2014, and have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of EU endorsement. The Group is still reviewing the impact of the upcoming standards to determine their impact. • IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements (2011), which supersedes IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures (2011), which supersedes IAS 28 (2008). IFRS 10 establishes a new control-based model for consolidation that replaces the existing requirements of both IAS 27 and SIC-12 Consolidation – Special Purpose Entities. Under the new requirements an investor controls an investee when (i) it has exposure to variable returns from that investee (ii) it has the power over relevant activities of the investee that affect those returns and (iii) there is a link between that power and those variable returns. The standard includes specific guidance on the question of whether an entity is acting as an agent or principal in its involvement with an investee. Also it is worth noting that the assessment of control is based on all facts and circumstances and is reassessed if there is an indication that there are changes in those facts and circumstances. IFRS 11 replaces IAS 31 Interests in joint ventures and SIC-13 Jointly-controlled entities – non-monetary contributions by venturers. IFRS 11 classifies joint arrangements as either joint operations or joint ventures and focuses on the nature of the rights and obligations of the arrangement. The predecessor standard, IAS 31, focused to a greater extent on the legal form to determine the presence of ‘jointly controlled entities’ (JCEs) which would then have been equity accounted or proportionately consolidated. IFRS 11 may result in some of these JCEs instead being seen as joint operations which will be subject to (as at present) line-by-line accounting of the underlying assets and liabilities, when additional factors (other than legal form) are taken into account. All investee entities determined under the new criteria to be ‘joint ventures’ will be equity accounted for, with the option for the investor to proportionally consolidate being removed from the new standard. IFRS 12 sets out more comprehensive disclosures relating to the nature, risks and financial effects of interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity or operation. IAS 27 carries forward the existing accounting and disclosure requirements for separate financial statements; the requirements of IAS 28 and IAS 31 for separate financial statements have been incorporated into IAS 27. IAS 28 previously discussed how to apply equity accounting to associates in consolidated financial statements. The revised IAS 28 continues to include that guidance but it is now extended to also apply that accounting to entities that qualify as joint ventures under IFRS 11. • Offsetting Financial Assets and Financial Liabilities (Amendment to IAS 32) – These amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. The Group does not expect these clarifications to have a material impact on the financial statements. • Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) – Where a parent entity meets the definition of an investment entity as set out in the IFRS 10 Amendment, that parent must now carry its investment in certain of its subsidiaries at fair value through profit or loss; it is no longer allowed to consolidate them. The Amendment sets out various detailed criteria that need to be considered to determine if a parent falls into scope of this Amendment. The Group does not expect these clarifications to have a material impact on the financial statements. Basis of consolidation The consolidated financial statements include the financial statements of Providence Resources Plc 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. Jointly controlled operations Jointly controlled operations are those activities over which the Group exercises joint control with other participants, established by contractual agreement. The Group recognises, in respect of its interests in joint operations, the assets that it controls, the liabilities that it incurs, the expenses that it incurs and the share of the income that it earns from the sale of goods or services by the joint operation. 26 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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 contributions 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 expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. Finance income and expenses Finance income comprises interest income on funds invested. 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, 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. 23250.02 25 June 2014 1:12 PM Proof 7 27 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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. Foreign currency gains or losses are generally recognised 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 in other comprehensive income and accumulated 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. 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. 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 licences 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. 28 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 1 Statement of accounting policies (continued) (i) Exploration and evaluation assets (continued) 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. Expenditure on exploration and evaluation assets is 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 recognised, subject to any impairment losses recognised. This is in accordance with IFRS 6, ‘Exploration for and Evaluation of Mineral Resources’. (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. (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. Impairment (v) 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 (CGU’s) 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. Changes in the decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to the related asset. The decommissioning provision is reviewed annually. 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 23250.02 25 June 2014 1:12 PM Proof 7 29 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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 with original maturities of less than 90 days. 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. 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 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. 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. 30 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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. The Group has four principal reportable segments as follows: • UK producing assets: oil and gas producing assets in the UK • UK exploration assets: oil and gas exploration assets in the UK • Republic of Ireland exploration assets: oil and gas exploration assets in the Republic of Ireland • US: assets and liabilities held in the United States of America Group assets and liabilities include cash resources held by the Group, and corporate expenses include interest income earned and other operational expenditure incurred by the Group. These areas are not within the definition of an operating segment. 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 Corporate expenses Operating loss Segment assets Republic of Ireland – exploration assets Group assets UK – exploration assets US assets UK – producing assets – discontinued operations Total assets 2013 €’000 (678) (6,552) (7,230) 2013 €’000 78,948 11,735 1,141 189 – 92,013 2012 €’000 (1,495) (3,937) (5,432) 2012 €’000 69,129 17,737 933 155 43,852 131,806 23250.02 25 June 2014 1:12 PM Proof 7 31 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 2 Operating segments (continued) Segment liabilities Republic of Ireland – exploration assets UK – exploration assets Group liabilities US – liabilities UK – producing assets – discontinued operations Total liabilities Capital expenditure UK – producing assets – discontinued operations – exploration assets Republic of Ireland – exploration assets, net of cash calls – property, plant and equipment 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 2013 €’000 2012 €’000 (21,047) (74) (63) (7) – (21,191) – 367 367 13,324 14 13,705 – – – – 678 678 (27,183) – (748) (252) (35,525) (63,708) 27,202 774 27,976 30,981 38 58,995 2,727 34 2,761 32,357 1,495 33,852 Prior to the sale of Singleton, the Group sold its entire oil production to one customer, and therefore significant credit concentration risk existed during the first two months of the year and in the prior year. 3 Discontinued operations On 28 February 2013, the Group disposed of its UK producing operations to IGas Energy Plc for gross consideration of $66.0 million (€50 million). The loans and borrowings held in the Company being disposed of were repaid by the purchaser from this gross amount, and the Group received a net consideration of $21.4 million, realising a gain on disposal of €6.1 million. The disposal was treated as a discontinued operation in the 31 December 2012 financial statements, and the assets and liabilities were classified as held for sale. The disposal group comprised the following assets and liabilities at 28 February 2013, and 31 December 2012 respectively. 3 (a) Assets and liabilities 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 2013 €’000 39,637 1,411 1,779 1,425 44,252 31,918 822 1,733 1,881 36,354 2012 €’000 38,986 2,163 1,793 910 43,852 31,725 869 1,421 1,510 35,525 32 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 3 Discontinued operations (continued) 3 (b) Gain on sale of discontinued operations – UK disposal The gain on sale of discontinued operations is calculated as follows: Net proceeds received Disposal costs Net assets disposed of Transfer from revaluation reserve Transfer from FCTR Gain on sale of discontinued operation 3 (c) Results from discontinued operations – UK disposal Revenue Cost of sales Gross profit Administration expenses Impairment of assets Result from operating activities Finance expense Result from operating activities before tax Income tax credit Result from operating activities after tax Gain on sale of discontinued operation Tax on gain on sale of discontinued operation Profit/(loss) for the year The profit/(loss) from discontinued operations is attributable entirely to the owners of the Company. The results for 2013 represent two months of activity. 3 (d) Cashflows from discontinued operations Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net cash flows for the year 3 (e) Earnings/(loss) per share from discontinued operations Basic earnings/(loss) per share (Note 11) Diluted earnings/(loss) per share (Note 11) 23250.02 25 June 2014 1:12 PM Proof 7 2013 €’000 2,411 (615) 1,796 (179) – 1,617 (2,742) (1,125) – (1,125) 6,096 – 4,971 2013 €’000 1,772 – (1,565) 207 2013 € cent 7.70 7.70 €’000 17,028 (793) 16,235 7,898 (2,471) 4,712 10,139 6,096 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) 2012 € cent (26.17) (26.17) 33 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 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 Recognised in other comprehensive income: Foreign currency differences on foreign operations Reclassified to gain on disposal (Note 3) 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 expense/(credit) Current tax expense Current year Adjustment for prior years Deferred tax charge/(credit) Origination and reversal of temporary differences Effect of change in tax rates Adjustment in respect of prior year Total income tax charge/(credit) for year Analysed as: Continuing operations Discontinued operations (Note 3) 34 23250.02 25 June 2014 1:12 PM Proof 7 2013 €’000 8,028 392 8,420 (1,757) – (1,757) 6,663 6,484 179 6,663 2013 €’000 180 2013 €’000 – 713 713 2013 €’000 6,138 (4,712) – – 1,426 2013 €’000 – 5 5 – – – 5 5 – 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 2012 €’000 (97) – – 2,305 2,208 2012 €’000 – – – (16,528) 135 (4,181) (20,574) – (20,574) Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 7 Income tax expense/(credit) (continued) A reconciliation of the expected tax benefit computed by applying the standard Irish tax rate to the loss before tax to the actual tax expense/ (credit) 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 Other timing differences Effect of different tax rates in foreign jurisdictions Adjustment in respect of prior periods Tax expense/(credit) for the year 8 Employee expenses and numbers Wages and salaries Social welfare costs Defined contribution pension costs Share-based payment expense (Note 23) The following expenses, which are included in the above amounts, were capitalised during the year: Wages and salaries Share-based payment expense 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 2013 €’000 (2,792) 12.5% (349) 204 213 27 (95) 5 5 2013 €’000 1,753 183 136 1,584 3,656 2013 €’000 666 – 2013 Number 9 8 17 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 €’000 526 54 2012 Number 11 11 22 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 €136,000 (2012: €175,000). 23250.02 25 June 2014 1:12 PM Proof 7 35 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 9 Directors’ remuneration and transactions with key management personnel Directors’ emoluments are analysed as follows: Salaries & other emoluments Fees Total Executive Tony O’Reilly John O’Sullivan Sub-total Non-Executive Brian Hillery Lex Gamble James McCarthy Philip Nolan Philip O’Quigley Sub-total Share based payments Total Executive Tony O’Reilly John O’Sullivan Sub-total Non-Executive Brian Hillery Lex Gamble James McCarthy Philip Nolan Philip O’Quigley Sub-total Total 2013 €’000 494 296 790 – – – – – - 2012 €’000 741 379 1,120 – – – – 106 106 790 1,226 2013 €’000 – – - 80 45 45 45 45 260 260 2012 €’000 – – - 80 45 45 45 30 245 245 2013 €’000 494 296 790 80 45 45 45 45 260 699 1,749 2012 €’000 741 379 1,120 80 45 45 45 136 351 550 2,021 Share based payments 2013 €’000 209 209 418 52 52 73 52 52 281 699 2012 €’000 153 172 325 38 38 54 38 57 225 550 (a) Directors’ remuneration is fixed by the Remuneration Committee of the Board which is comprised solely of Non-Executive Directors of the Company. (b) 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 2013, payments totalling €Nil were made to the executive directors. In July 2012 payments totalling €354,750 were made to the Executive Directors, covering the period 2008 through 2011. (c) The share based payments cost represent the non-cash expense attributable to the relevant options held by each director. Other than the share option schemes (Note 23), the Group does not have any long term incentive scheme in place for Directors. No options were granted in 2013. The calculation of share based payments (which are non cash items) are calculated by reference to the Monte Carlo model related to options granted in prior years (see Note 23). (d) The emoluments of Mr. Tony O’Reilly include payments made to Kildare Consulting Limited under the terms of his employment contract (Note 26). (e) Included in salaries and other emoluments are pension contributions made to a pension scheme for Mr. Philip O’Quigley amounting to €Nil (2012: €14,417). Mr. O’Quigley became a non executive director on 1 May 2012. 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 15 and 16. 36 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 Auditors’ remuneration – Audit – 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 Gains on sale of discontinued operations (UK assets) Directors’ emoluments – Fees – Salaries and other emoluments – Share-based payments 2013 €’000 779 260 433 1,472 82 65 900 2,519 2013 €’000 42 48 10 195 – 21 678 – 68 6,096 260 790 699 2012 €’000 1,211 245 458 1,914 109 96 729 2,848 2012 €’000 42 48 10 229 2,727 28 1,495 32,357 – – 245 1,226 550 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. (Loss)/profit attributable to equity holders of the Company Continuing operations €’000 2013 Discontinued operations €’000 Total €’000 Continuing operations €’000 2012 Discontinued operations €’000 Total €’000 (7,768) 4,971 (2,797) (8,233) (15,950) (24,183) 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 (‘000’s) Weighted average number of ordinary shares (‘000s) Continuing operations €cent 2013 Discontinued operations €cent Total €cent Continuing operations €cent 2013 €’000 64,498 64 64,562 2012 Discontinued operations €cent 2012 €’000 49,808 11,145 60,953 Total €cent Basic and diluted (loss)/profit per share (cent) (12.03) 7.70 (4.33) (13.51) (26.17) (39.68) There is no difference between the basic 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 in relation to continuing operations. There were 1,996 (2012: 2,666) anti-dilutive share options, no (2012: nil) anti-dilutive convertible bonds and no (2012: nil) anti-dilutive share warrants in issue at 31 December 2013. 23250.02 25 June 2014 1:12 PM Proof 7 37 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 12 Exploration and evaluation assets Cost and net book value At 1 January 2012 Additions Administration expenses Cash calls received in year Impairment charge Increase in abandonment costs At 31 December 2012 Additions Cash calls received in year Administration expenses Impairment charge At 31 December 2013 Republic of Ireland €’000 36,214 35,344 1,144 (5,507) (1,495) 602 66,302 13,006 (1,199) 1,517 (678) 78,948 UK €’000 – 551 223 – – – 774 127 – 240 – 1,141 Total €’000 36,214 35,895 1,367 (5,507) (1,495) 602 67,076 13,133 (1,199) 1,757 (678) 80,089 The exploration and evaluation asset balance at 31 December 2013 primarily relates to the Barryroe (€58.3 million), Dunquin (€12.8 million), Spanish Point (€4.3 million), Dragon (€3.2 million) and Rathlin (€0.9 million) licence areas. The remaining €0.6 million relates to other licence areas held by the Group in the Republic of Ireland and the UK. Net spend on exploration and evaluation assets during the year amounted to €13.7 million, with the majority of spend relating to the Dunquin licence area FEL 3/04 (€11.3 million) and the Spanish Point licence areas FEL 2/04 and FEL 4/08 in the Porcupine Basin (€1 million). The Directors have assessed the current activities ongoing within exploration and evaluation assets and have determined that no additional impairment charge is required at 31 December 2013. 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. 38 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 13 Development and production assets Cost At 1 January 2012 Additions in year Administration expenses Transfer to held for sale assets (Note 3) Exchange rate adjustment At 31 December 2012 Additions in year Administration expenses Transfer to held for sale assets (Note 3) Exchange rate adjustment At 31 December 2013 Depletion At 1 January 2012 Charge for the year Impairment charge Transfer to held for sale assets (Note 3) Exchange rate adjustment At 31 December 2012 Charge for the year Impairment of assets Exchange rate adjustment At 31 December 2013 Net book value At 31 December 2013 At 31 December 2012 14 Property, plant and equipment Cost At 1 January 2012 Additions in year Transfer to assets held for sale At 31 December 2012 Additions in year At 31 December 2013 Depreciation At 1 January 2012 Charge for year Transfer to assets held for sale At 31 December 2012 Charge for year At 31 December 2013 Net book value At 31 December 2013 At 31 December 2012 23250.02 25 June 2014 1:12 PM Proof 7 UK €’000 Total €’000 61,833 27,144 58 (90,282) 1,247 – – – – – – 15,674 2,727 32,357 (51,296) 538 – – – – – – – 61,833 27,144 58 (90,282) 1,247 – – – – – – 15,674 2,727 32,357 (51,296) 538 – – – – – – – Furniture & equipment €’000 678 38 (251) 465 14 479 646 28 (251) 423 21 444 35 42 39 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 15 Trade and other receivables VAT recoverable Prepayments and accrued income Other receivables Amounts due from joint operation partners 16 Cash and cash equivalents Cash held in bank accounts (a) Less: Restricted bank balances (b) Cash and cash equivalents 2013 €’000 41 90 – 2,760 2,891 2013 €’000 8,998 – 8,998 2012 €’000 – 66 38 3,901 4,005 2012 €’000 17,741 (910) 16,831 (a) Included in the cash and cash equivalents balance are amounts totalling €0.6 million (2012: €0.6 million) held on behalf of partners in jointly controlled operations. (b) At 31 December 2012, the restricted cash balance related to cash deposits required to comply with the terms of the Deutsche Bank prepaid swap agreement. The restricted cash balance of €0.91 million was classified in assets held for sale at 31 December 2012 (Note 3). 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 2012 Ordinary shares issued in year Share issue costs Share options exercised in year (Note 23) Warrants exercised in year (Note 23) At 31 December 2012 Ordinary shares issued in year Share issue costs Share options exercised in year (Note 23) (a) Warrants exercised in year (Note 23) At 31 December 2013 Total number 000’s 1,062,442 49,809 49,809 13,149 – 140 1,400 64,498 – – 151 – 64,649 Share capital €’000 11,687 16,668 16,668 1,314 – 14 140 18,136 – – 15 – 18,151 Share premium €’000 5,691 130,548 130,548 76,317 (3,902) 252 6,760 209,975 – – 255 – 210,230 (a) During the year, 0.15 million ordinary shares were issued to employees on the exercise of share options for a consideration of €0.27 million. 40 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 remaining balance in this reserve was included in the gain on sale of Singleton reported in the profit from discontinued operations. (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, exercised or lapsed 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). 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. As a result of the sale of the Singleton assets in February 2013, these hedged oil sales were no longer highly probable at 31 December 2012, and the remaining balance on this reserve was reclassified to the income statement. 19 loans and borrowings At 1 January 2012 Drawn down in year Repaid during year Written off to income statement Foreign exchange differences Transferred to held for sale liabilities (Note 3) At 31 December 2012 Foreign exchange differences Drawn down in year Repaid during year At 31 December 2013 Deutsche Bank loan facility (a) €’000 Deutsche Bank loan fees €’000 39,151 4,077 (10,008) – (825) (32,395) – – – – – (786) – – 135 (19) 670 – – – – – Convertible bond (b) €’000 33,447 – (34,265) 818 – – – – – – – Total €’000 71,812 4,077 (44,273) 953 (844) (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 were sold as part of the disposal of the UK producing assets, and will subsequently be repaid by the acquirers. Accordingly these were 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. The bonds were fully repaid in 2012 following the sale of the Africa asset. 23250.02 25 June 2014 1:12 PM Proof 7 41 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 20 Decommissioning provisions At beginning of year (Credit)/charge for year Unwind of discount – continuing operations (Note 6) Unwind of discount – discontinued operations (Note 3) Utilised in year Created in year Foreign exchange differences Transferred to held for sale liabilities (Note 3) At end of year 2013 €’000 4,738 (379) 713 – – – 33 – 5,105 2012 €’000 5,165 34 274 61 (541) 602 12 (869) 4,738 Decommissioning costs are expected to be incurred over the remaining lives of the fields, which are estimated to be between 2015 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. 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 2013 €’000 Recognised in income statement €’000 Recognised in OCI €’000 Translation adjustment €’000 Transfer to held for sale assets and liabilities €’000 At 31 December 2013 €’000 – – – – – 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 – – – – – Recognised in OCI €’000 – – (3,407) – (3,407) – – – – – Translation adjustment €’000 (441) 14 – 43 (384) – – – – – Transfer to held for sale assets and liabilities €’000 20,128 (561) – (18,146) 1,421 – – – – – At 31 December 2012 €’000 – – – – – The Group is not recognising a deferred tax asset of approximately €25.5 million (2012: €24.4 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. 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 2013 €’000 988 505 1,977 376 193 168,871 172,910 2012 €’000 231 988 505 1,977 376 157,778 161,855 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. 42 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 22 Trade and other payables Capital expenditure payable Accruals Other payables 23 Share schemes and warrants The Group has the following employee share schemes: 2013 €’000 13,829 1,219 1,038 16,086 2012 €’000 22,145 1,099 201 23,445 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 ten years from that date. All options granted under this scheme expire at varying dates up to June 2014. 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 2013 options over 0.14 million (2012: 0.32 million) shares remained outstanding at subscription prices ranging from €2.73 to €5. 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 2013 under this scheme (2012: nil). At 31 December 2013, options over 0.4 million (2012: 0.8 million) shares remained outstanding at subscription prices ranging from €4.05 to €9.79. These options expire at varying dates up to October 2015. 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. No options were granted during 2013 under this scheme (2012: 755,000). At 31 December 2013, options over 1.48 million (2012: 1.55 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. 23250.02 25 June 2014 1:12 PM Proof 7 43 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 23 Share schemes and warrants (continued) Details of the movements of these share options and warrants outstanding during the year are as follows: For the year ended 31 December 2013 At 1 January 2013 Granted during year Expired during year Exercised during year * At 31 December 2013 Of which exercisable at year end 1997 scheme 2005 scheme 2009 scheme Warrants No of share options 000’s 318 – (25) (151) 142 142 Weighted average exercise price € 2.93 – 5.00 1.79 4.18 4.18 No of share options 000’s 802 – (430) – 372 – Weighted average exercise price € 6.91 – 6.82 – 7.01 – No of share options 000’s 1,546 – (63) – 1,483 – Weighted average exercise price € 4.68 – 5.66 – 4.62 – Weighted average exercise price € – – – – – – No of warranty 000’s – – – – – – * The weighted average share price when these options and warrants were exercised was €4.95. For the year ended 31 December 2012 At 1 January 2012 Granted during the year Forfeited during the year Exercised during the year At 31 December 2012 Of which exercisable at year end 1997 scheme 2005 scheme 2009 scheme Warrants No of share options 000’s 354 – – (36) 318 318 Weighted average exercise price € 2.93 – – 1.46 2.93 2.93 No of share options 000’s 1,177 – (375) – 802 15 Weighted average exercise price € 5.74 – 4.27 – 6.91 4.05 No of share options 000’s 910 755 (15) (104) 1,546 791 Weighted average exercise price € 3.33 6.13 6.13 3.35 4.68 3.39 No of warranty 000’s 1,400 – – (1,400) – – Weighted average exercise price € 6.64 – – 6.64 – – The total number of options outstanding at 31 December 2013 was 1,997,597 (2012: 2,666,234). 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 models. No options were granted in 2013 (2012: 755,000). The assumptions used to arrive at the fair value of share options granted in 2012 at the grant date were as follows: Share price (€) Exercise price (€) Expected volatility (%) Expected life (years) Risk free rate (%) Expected dividend yield (%) Maximum option life (years) The resulting fair values were: Fair value (€) The charge in respect of the Group’s 2005 and 2009 share based schemes is recorded as follows: Administration expenses Capitalised within exploration and evaluation assets 2009 scheme Weighted average 2012 6.13 6.13 74% 5 0.57 – 7 3.75 2012 €’000 1,247 54 2013 €’000 1,584 – 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. 44 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 the disposal 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. Interest rate risk (a) 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 2013 €’000 8,998 – 2012 €’000 16,831 910 – (31,725) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points (‘bps’) in interest rates at 31 December 2013 and 31 December 2012 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 2013 Variable rate instruments 31 December 2012 Variable rate instruments Profit OCI 100 bps increase €’000 85 448 100 bps decrease €’000 (57) (448) 100 bps increase €’000 100 bps decrease €’000 – – – – (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 2013 and 2012 the Group did not utilise either foreign currency forward contracts or derivatives to manage foreign currency risk on future net cash flows. 23250.02 25 June 2014 1:12 PM Proof 7 45 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 24 Financial instruments (continued) (b) Foreign currency risk (continued) 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 31 December 2013 31 December 2012 Euro €’000 – – – – 42 – – – 42 GBP €’000 – – – – 907 – – (1,606) (699) USD €’000 Not at risk €’000 Total €’000 – – – – 6,963 – – (11,808) (4,845) – 41 2,850 – 1,086 – – (2,672) 1,305 – 41 2,850 – 8,998 – – (16,086) (4,197) Euro €’000 – – – – 11 – – (154) (143) GBP €’000 – – – – 9,880 – – (12,744) (2,864) USD €’000 1,444 21 – 2,163 6,139 – (31,725) (9,156) (31,114) Not at risk €’000 – – 4,333 – 801 910 – (2,901) 3,143 Total €’000 1,444 21 4,333 2,163 16,831 910 (31,725) (24,955) (30,978) The following are the significant exchange rates that applied to 1 euro during the year: 1 GBP 1 USD Average rate Spot rate 2013 0.8501 1.3308 2012 0.8119 1.2932 2013 0.8337 1.3791 2012 0.8161 1.3194 Sensitivity analysis A 10% strengthening and weakening of the euro against the following currencies, based on outstanding financial assets and liabilities at 31 December 2013 and 31 December 2012 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 2013 GBP USD 31 December 2012 GBP USD Profit/(loss) Equity 10% increase €’000 70 484 286 3,131 10% decrease €’000 (70) (484) (286) (3,131) 10% increase €’000 10% decrease €’000 – – – – – – – – (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. 46 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 24 Financial instruments (continued) Contractual maturities of financial liabilities as at 31 December 2013 were as follows: Item Trade and other payables Total Carrying amount €’000 16,086 16,086 Contractual cash flows €’000 16,086 16,086 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 6 months or less €’000 16,086 16,086 6 months or less €’000 4,950 24,955 29,905 6–12 months €’000 1–2 years €’000 2–5 years €’000 – – – – – – 6–12 months €’000 4,950 – 4,950 1–2 years €’000 7,180 – 7,180 2–5 years €’000 15,612 – 15,612 (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 2013 €’000 8,998 – – 41 2,850 – 11,889 2012 €’000 16,831 910 1,444 21 4,333 2,163 25,702 (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 2013, 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. The bank borrowings were disposed of in February 2013 following the disposal of the Group’s interest in the Singleton asset, and 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. 23250.02 25 June 2014 1:12 PM Proof 7 47 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013 25 Commitments and contingencies (a) Exploration and evaluation activities The Group has capital commitments of approximately €27.7 million to contribute to its share of costs of exploration and, evaluation activities during 2014, €16 million of this relates to the drilling of Spanish Point. (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 €’000 218 298 – 516 (c) Contingencies From time to time, the Group is involved in other claims and legal actions which arise in the normal course of business. Based on information currently available to the Group, and legal advice, the Directors believe such litigation will not, individually or in aggregate, have a material adverse effect on the financial statements and that the Group is adequately positioned to deal with the outcome of any such litigation. 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 2013. The amount paid under the contract in the year ended 31 December 2013 was €448,500. 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 €80.1 million at 31 December 2013. 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. Decommissioning The decommissioning provision amounts to €5.1 million (2012: €4.7 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 €5.4 million (2012: €4.9 million) at 31 December 2013. 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 prepared and reviewed cash flow forecasts for the period to 31 December 2015. The Group’s cash on hand at 31 December 2013 of €9 million was increased in June 2014 when the Group secured a working capital facility from for an amount of $24 million. 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 expects to incur significant capital expenditure in 2014 and 2015. The Directors are satisfied that, as a result of the available working capital facility, the proceeds that are expected to be received from the farm out of Barryroe, which is due to be completed later in 2014, and the expected timing of other capital expenditure programs which are planned, the Group will be in a position to fund this capital expenditure programme. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the group was unable to continue as a going concern. 28 Approval of financial statements The financial statements were approved by the Directors on 26 June 2014. 48 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 Company Balance Sheet at 31 December 2013 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 2013 €’000 78,948 35 2 78,985 46,528 8,684 55,212 (17,779) 37,433 116,418 (5,105) 111,313 18,151 210,230 623 5,382 – – (123,073) 111,313 2012 €’000 66,302 41 2 66,345 65,826 16,208 82,034 (25,972) 56,062 122,407 (4,392) 118,015 18,136 209,975 623 4,942 – – (115,661) 118,015 23250.02 25 June 2014 1:12 PM Proof 7 49 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Company Financial Statements for the year ended 31 December 2013 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 prepared and reviewed cash flow forecasts for the period to 31 December 2015. The Group’s cash on hand at 31 December 2013 of €9 million was increased in June 2014 when the Group secured a working capital facility from for an amount of $24 million. 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 expects to incur significant capital expenditure in 2014 and 2015. The Directors are satisfied that, as a result of the available working capital facility, the proceeds that are expected to be received from the farm out of Barryroe, which is due to be completed later in 2014, and the expected timing of other capital expenditure programs which are planned, the Group will be in a position to fund this capital expenditure programme. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern. 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. 50 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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. Impairment test (v) 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. 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. 23250.02 25 June 2014 1:12 PM Proof 7 51 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Company Financial Statements continued for the year ended 31 December 2013 1 Statement of accounting policies (continued) 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: Cost At 1 January Exploration and appraisal expenditure Cash call received in year Impairment charge Administration expenses Increase in abandonment costs At 31 December Ireland €’000 66,302 13,006 (1,199) (678) 1,517 – 78,948 The exploration and evaluation asset balance at 31 December 2013 primarily relates to the Barryroe (€58.3 million), Dunquin (€12.8 million), and Spanish Point (€4.3 million) and Dragon (€3.0 million) licence areas. The remaining €0.5 million relates to other licence areas held by the Group in the Republic of Ireland. Net spend on exploration and evaluation assets during the year amounted to €13.3 million, with the majority of spend relating to the Dunquin licence area FEL 3/04 (€11.3 million) and the Spanish Point licence areas FEL 2/04 and FEL 4/08 in the Porcupine basin (€1 million). The Directors have assessed the current activities ongoing within exploration and evaluation assets and have determined that no additional impairment charge is required at 31 December 2013. 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. 3 Tangible fixed assets Cost At 1 January 2013 Additions in year At 31 December 2013 Depreciation At 1 January 2013 Charge for year At 31 December 2013 Net book value At 31 December 2013 At 31 December 2012 52 23250.02 25 June 2014 1:12 PM Proof 7 Furniture & equipment €’000 419 15 434 378 21 399 35 41 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 4 Financial fixed assets Investments in subsidiaries at start and end of year At 31 December 2013, the Company had the following principal subsidiaries, all of which are wholly owned: 2013 €’000 2 Registered Office/Country of Incorporation 5th Floor, 6 St. Andrews Street, London, EC4A 3AE, UK Activity Oil and gas exploration and production 100% Interest in Ordinary Share Capital 13 Lombard Street, Belfast, Northern Ireland Oil and gas exploration and production 100% Name Providence Resources UK Limited Providence Resources (NI) Limited Providence Resources (International) Limited Providence Resources (US Holdings) Limited Providence Resources (GOM) LLC Providence Resources (Trading) Limited P.R. UK Holdings Limited Providence Resources (GOM No. 2) LLC Providence Resources (Holdings USA) LLC Providence Resources (Gulf) Limited Eirgas Limited 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 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 5 Debtors VAT Other debtors Prepayments and accrued income Amounts due from subsidiaries Amounts due from joint operation 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 Amounts owed to subsidiaries are interest free and fall due to demand. 23250.02 25 June 2014 1:12 PM Proof 7 Holding company Holding company Holding company Holding company 100% 100% 100% 100% Holding company 100% Oil and gas exploration and production 100% Holding company Holding company Holding company 2013 €’000 39 – 90 43,639 2,760 46,528 2013 €’000 13,724 1,203 1,013 1,839 17,779 100% 100% 100% 2012 €’000 – 38 66 61,821 3,901 65,826 2012 €’000 21,943 770 177 3,082 25,972 53 our financialsour financialswww.providenceresources.com stock code: PVr Notes to the Company Financial Statements continued for the year ended 31 December 2013 7 Provision for liabilities – Decommissioning At 1 January Unwind of discount Charge in year Increase in provision in year Balance at 31 December 2013 €’000 4,392 713 – – 5,105 2012 €’000 3,482 274 34 602 4,392 Decommissioning costs are expected to be incurred over the remaining lives of the fields, which are estimated to be between 2015 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. 8 Share capital and share premium See note 17 to the Group financial statements. 9 Movement on reserves At 1 January 2013 Loss for financial year Share based payments Share options exercised in year Share options forfeited in year Share options lapsed in year Bond redemption At 31 December 2013 Capital conversion fund €’000 Share based payment reserve €’000 Warrants €’000 Convertible bond-equity portion €’000 623 – – – – – – 623 4,942 – 1,584 – (217) (927) – 5,382 – – – – – – – – – – – – – – – – Profit & loss account €’000 (115,661) (8,556) – – 217 927 – (123,073) 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 €27 million to contribute to its share of costs of exploration and evaluation activities during 2014, €16 million of this relates to the drilling of Spanish Point. (b) Operating leases Annual commitments exist under non-cancellable property leases expiring as follows: Within one year Between two and five years Total 2013 €’000 1 163 164 2012 €’000 1 163 164 (c) Contingencies From time to time, the Company is involved in other claims and legal actions which arise in the normal course of business. Based on information currently available to the Company, and legal advice, the Directors believe such litigation will not, individually or in aggregate, have a material adverse effect on the financial statements and that the Company is adequately positioned to deal with the outcome of any such litigation. 54 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 €8,556,000 (2012: €7,024,000) for the financial year ended 31 December 2013 has been dealt with in the separate profit and loss account of the Company. Auditors’ remuneration 2013 €’000 42 2012 €’000 42 During the year the Company employed 15 people (2012: 18 people) and incurred payroll costs of €1.9 million (2012: €2.0 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 €136,000 (2012: €175,000). 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 2013. The amount paid under the contract in the year ended 31 December 2013 was €448,500. The contract is of two years duration and is subject to one year’s notice period. 13 Approval of financial statements The financial statements were approved by the Directors on 26 June 2014. 23250.02 25 June 2014 1:12 PM Proof 7 55 our financialsour financialswww.providenceresources.com stock code: PVr Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Providence Resources Plc will be held in The Hilton Hotel, Charlemont Place, Dublin 2 on Tuesday 26 August 2014 at 11.00am 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 2013. (2) (a) To re-elect Mr. John O’Sullivan as a Director. (b) To re-elect Mr. Tony O’Reilly 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 resolution. As a Special Resolution: (5) 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 €646,494 (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 15 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 expired. Dated 30 June 2014 By order of the Board M. Graham, Secretary, Airfield House, Airfield Park, Dublin 4. Note 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. Note 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 15 minutes prior to the said meeting until the conclusion of the meeting. Note 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 48 hours before the time for the holding of the meeting. Note 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. Note 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. Note 6: Only those shareholders on the register of members of the Company as at 6:00pm on 22 August 2014 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. 56 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013 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 Plc 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 Plc Bank of Ireland DnB NOR HSBC plc Auditors KPMG Chartered Accountants and Registered Auditors 1 Stokes Place St. Stephen’s Green Dublin 2 Financial PR Murray Consultants Dublin Powerscourt Media London 23250.02 25 June 2014 1:12 PM Proof 7 Providence Resources Plc 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 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 f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 3 23250.02 25 June 2014 1:12 PM Proof 7 

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