Diversity.
Experience.
Expertise.
Growth.
Providence Resources Plc
Annual Report for the
year ended 31 December 2013
Stock Code: PVR
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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
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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
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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
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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
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Providence Resources PlcAnnual Report and Accounts for the year ended 31 December 2013
Areas of interest
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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
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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
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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
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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
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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
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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.
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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
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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
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23250.02 25 June 2014 1:12 PM Proof 7