10166359 (England and Wales)

PENNPETRO ENERGY PLC

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2021



PENNPETRO ENERGY PLC

Annual Report & Financial Statements

For the year ended 31 December 2021

CONTENTS

Page

COMPANY INFORMATION

Directors

Olof Nils Rapp (Senior Non-Executive Director)

Thomas Evans (Executive Director)

Secretary

David Middleburgh (MA Law Trinity Hall Cambridge)

FHF Corporate Finance Limited

Registered Office

20b Wilton Row

London, SW1 7NS

Legal Advisors

UK Legal Advisers

US Legal Advisers

Birketts LLP

Walne Law, PLLC

22 Station Road

4900 Woodway

Suite 975

Houston, Texas

Cambridge

TX 77056

CB1 2JD

Fladgate LLP

Porter Hedges LLP

16 Great Queen Street

1000 Main Street, 36

Fl.

London

Houston, Texas

WC2B 5DG

TX 77002

CMS Cameron McKenna

Nabarro Olswang LLP

Cannon Place

78 Cannon Street

London

EC4N 6AF

Corporate broker

Peterhouse Capital Limited

Floor

80 Cheapside

London

EC2V 6EE

Independent Auditor

Crowe U.K. LLP

55 Ludgate Hill

London

EC4M 7JW

Registrars

Computershare Investor Services plc

The Pavilions

Bridgewater Road

Bristol

BS13 8AE

Communications

Instinctif Partners

65 Gresham Street

London

EC2V 7QN

Registered Number

10166359

PENNPETRO ENERGY PLC

EXECUTIVE DIRECTOR’S STATEMENT

Annual Report & Financial Statements

For the year ended 31 December 2021

Pennpetro's intention is to become an active independent North American development production

company with the ability to expand operationally internationally.

The key elements of Pennpetro's strategy for achieving this goal are:

x The creation of value through production development success and operational strengths,

commencing with the Group's City of Gonzales Lease ("COGLA") assets.

x Focusing on commercialisation and monetisation of oil and gas discoveries, and potentially

utilising cash flows from initial projects to fund the acquisition or development of future

projects.

x Active asset portfolio management.

x Positioning the Company as a competent partner of choice to maximise opportunities and

value throughout the E&P lifecycle.

x Asset acquisitions of producing hydrocarbons and suitable green energy technologies.

Our focus during the latter part of 2021 was to continue to develop our proven reserve base at our

licences in Gonzales, which had been previously curtailed by Covid-19 and the ensuing pandemic

conditions imposed across all of the United States.

According to the Group's Competent Person's Report ("CPR"), prepared in December 2017,

Pennpetro had a Working Interest in 2,000 Mbbl of oil and 1,000 MMcf of gas across its Gonzales

leases. On 6 August 2019, Nobel has increased its working interest in the portfolio of petroleum

interests from 75% to 100%, thereby its Working Interest is now over 4,000 MBBL of oil and 2,000

MMcf of gas resulting in a substantive uplift in our valuation metric.

The low oil price environment since mid-2014 presented the opportunity to acquire leases in our

core areas of focus, most notably the prolific Austin Chalk and Eagleford Shale in South Texas.

We have been able to add additional reserves from the Buda Formation from the drilling of an initial

horizontal well, which as prior reported we have now completed with the operator having advised

the Texas Railroad Commission, the local authority, that the well is designated as a discovery and

commercial unit. Commercial quantities of test hydrocarbons have been sold from this well

As previously reported, as water from prior extensive flooding in the Buda oil formation would need

to be pumped out in order to regain pressure and recommence hydrocarbon deliverability from the

reservoir, it was decided that as the Buda operations had now achieved the important positive

result of confirming that this reservoir was now drill confirmed to be oil active over the acreage and

a confirmed secondary recovery reserve, the company's focus would revert to cleaning out and re-

entering the Austin Chalk formation which we had drilled out to 3,300 feet horizontally and which

had tested positive for both oil and gas recovery. The Austin Chalk formation was drilled out at

approximately 7,200 feet sub- surface, whereas the Buda was intersected at 8,500 feet sub-

surface.

PENNPETRO ENERGY PLC

EXECUTIVE DIRECTOR’S STATEMENT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

This process would require that we case-off the lower Buda formation until needed to deplete in

the future and initiate a work-over rig operation to re-enter and clean out the horizontally drilled

formation leg to initiate hydrocarbon recovery from this proven oil interval. However, during the

pandemic we continually reviewed our strategic opportunities and decided in line with the results

delivered by some of our close petroleum drilling neighbours to benefit from their operational

experiences and excellent results to move our focus to the drilling of our second horizontal well

(COG#2-H) by way of a Pad (Production Platform). This would also allow us to drill out additional

horizontal legs by way of extension into the differing Austin Chalk pathways at a much condensed

expense. The same methodology would be utilised for our third horizontal well (COG#3-H).

As this operational technique was not available to us at the time for our initial well, COG#1-H, it is

now timely to implement this enhanced drilling arrangement and then return to COG#1-H to

recomplete the well into the prior drill proved production horizon, assessing the economics of the

straight cleanout as currently envisaged, or amplify by utilising the Pad experiences for extending

the lateral out to 5,000 foot as allowable under the initial RRC drilling authority and capture an

additional 3 to 4 fractures which will impact the EUR.

The wells we have drilled and plan to drill are economic at oil prices sub US$30/bbl; record

production rates have been reported as the horizontal laterals are extended and the amount of pay

in each well has increased; drilling and completion costs have been significantly reduced; and initial

decline rates during the first 12-18 months of production are lower than those in other US plays.

Over the last two years, we have taken advantage of depressed market conditions to increase our

exposure to these areas.

West Texas Intermediate ("WTI") averaged US$67.99/bbl during 2021, $28.83 per barrel higher

than in 2020. The value of WTI as at 23 June 2022 was US$105.32/bbl. (source: Bloomberg

Markets).

The attached chart shows WTI pricing from January 2021 through to 23 June 2022.

(source: www.tradingeconomics.com)

source: tradingeconomics.com

Crude Oil WT I

(UTC+1)

1JulOct2022Apr

100

110

120

130

PENNPETRO ENERGY PLC

EXECUTIVE DIRECTOR’S STATEMENT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Operations

In terms of our operations, prior to the onset of the pandemic restrictions, our focus had been on

completing our initial horizontal well and organizing the permitting of our second targeted horizontal

well (COG#2-H) situated to the north of COG#1-H. Our operator has filed formal completion

certificates with the Texas Railroad Commission confirming that the COG#1-H well was being

completed as a producer. As explained, our emphasis has now moved to the development and

drilling of COG#2-H, and our prior stated activity pertaining to the COG#1-H Austin Chalk oil

operations, will be held pending post the drilling of COG#2-H well into production. Once the process

of water removal from the lower reservoirs of COG#1-H is completed - an operation which we have

decided to complete with the lower formation being cased-off and to re-enter and take hydrocarbon

production from the upper Austin Chalk, from which we initially took oil.

Financially, the Company used 2021 to further lay the foundations for future revenue generation.

Reduced economic activity related to the COVID-19 pandemic caused changes in energy demand

and supply patterns in 2020 which aggressively changed late 2021 and will continue to affect these

patterns in the future

During early 2020 the oil price was severally antagonised by the emergence of the Covid-19

world-wide pandemic, leading to the most unsettled oil environment for many years. However,

during 2021 due to both the US shale industry being severally impacted by the oil price and re-

emergence of a combined consensus at OPEC, there was been not only a re-emergence of

price stability, but a very significant uplift in the oil price to - with many commentators predicting

that this pricing trend will not only stabilise over the coming year, but further increase yet again

to potentially challenge what we call $100+ oil. To this bullish scenario, it needs to be further

understood that the Company's oil deliveries benefit from an approximately $5-$7 pricing

premium for local refiners as they need our slightly heavier oil to blend out with lighter oil for

domestic delivery. With the advent of the Russian invasion of Ukraine in February 2022, the

energy markets have been placed under extreme pressures with the price of both Brent and

West Texas being constantly in the $120 zone.

In this stabilised oil price environment, Pennpetro has emerged from the oil vicissitudes as a low-

cost, primarily asset-backed US onshore oil and gas business, with exciting international interests.

Subject to oil prices, market conditions and sentiment, I remain confident that we can deliver our

strategy by not only acquiring leases in active and producing US onshore plays and proving up the

reserves by drilling new wells, but also by our new strategic acquisition focus on producing assets

and directive into green energy initiatives.

To this we add our broad approach to engagement within the international sector by initially

farming-into Tunisian assets which hold great promise in the wake of the ongoing energy

deficiencies being experienced within the European energy environment and which seem destined

to remain as such for the future. This arrangement is conditional upon certain approvals and

extension of the license area being approved by the Tunisian authorities.

This platform is one that has, at its core, the active management of all types of risk associated with

the oil and gas industry. Broadly speaking development risk is managed by focusing on proven

formations; execution risk is managed by participating in drilling activities with solid experienced

industry personnel, which we have in Houston who have an extensive history in South Texas

petroleum activities, as well as our operations offsetting those of major industry players; individual

well risk is managed by building a diversified portfolio of leases and wells; meanwhile oil price risk

is managed by focusing on areas that require relatively low oil prices to breakeven and ensuring

our cost base, capital commitments and financing costs remain low, manageable and flexible.

PENNPETRO ENERGY PLC

EXECUTIVE DIRECTOR’S STATEMENT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Our domestic US asset acquisition strategies generally only targets producing assets and applying

proven horizontal technologies to conventional reserves from a firm productive foundation. This

initiative is being driven through our Houston technical office with a number of asset opportunities

having been investigated, and now with the new era post Covid-19 upon us, we expect further new

opportunities.

Pennpetro's Board currently comprises two Directors, who collectively have extensive international

experience and a proven track record in investment, corporate finance and business acquisition,

operation and development and are well placed to implement the Company's business objectives

and strategy highly active plays. The appointment of Andy Clifford in April 2020, a highly seasoned

and experienced oil professional as the President of the Company's operational subsidiary Nobel

Petroleum USA, Inc., emphasises the Company's dedication to its forward development profile.

We believe the Company's Board and US management team is strong in terms of having the right

mix of industry expertise covering all key areas of the business, including lease acquisition,

geology, engineering, and finance.

During June 2021 the Company also concluded a three-year £20 Million shares subscription facility

with the GEM Group, New York (a US$3.4 billion alternative investment group), through their

affiliates. The Company also agreed to issue 12,000,000 warrants exercisable at 40 pence each

as part of this transaction.

Outlook

In line with our strategy, all our operations are in highly active plays where the economics of drilling

and producing remain attractive at sub-US$30 oil prices. This highlights the success we have had

in taking advantage of the prior industry downturn to accelerate the positioning of our South Texas

leasehold position in favour of the Austin Chalk and Eagleford Shale. With a strategic foothold in

these prolific, low-cost plays established and a proven management team in place, we will look to

further expand our position in this US onshore sweet spot, as and when management considers it

most advantageous to do so.

For 2021, our main objectives were to exit the prior pandemic issues and to build upon the initiative

that commenced with the completion of our initial well, COG#1-H, and to further acquire additional

land leases and to progress the permitting and horizontal development of our second objective

well. As explained, during the pandemic we reassessed our strategic drivers with the notion of how

we were going to deliver our second and third horizontal wells with a greater technical focus. I look

forward to providing updates on our progress in the year ahead.

Finally, I would like to thank the Board, management team and all our advisers for their hard work

over the last twelve months and also to our shareholders for their continued support.

Thomas Evans

Executive Director

12 July 2022

PENNPETRO ENERGY PLC

OPERATIONS REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

Operations Report

Summary

Nobel Petroleum USA, Inc., has operational teams on the ground working from its offices in the

City of Gonzales. During the period, one new horizontal well in which the Group has an interest

commenced completion activity. The Group was planning to initiate an encompassing 3D seismic

survey in 2020 with Dawson Geophysical Company to complement its comprehensive well logs

geological analysis, together with an enhanced programme of additional new petroleum leasing

contiguous to the area, with proposed planning to provide a further number of permitted drilling

locations by year end. However, the onset of COVID-19 curtailed these plans. Planning is now

initiated for the drilling of the Company's second horizontal well, COG#2-H, for reasons as

explained in detail herein, with the side-track/re-entry to the oil-bearing Lower Austin Chalk

formation in the Company's initial production well, COG #1-H, reserved for that operation post

completion of COG#2-H.

In addition, the Company's recently formed corporate entity, Pennpetro USA Corp, Inc., through its

highly regarded Houston based technical teams, has continued to examine a number of asset

opportunities encompassing producing hydrocarbons with offsetting strategic leasehold interests

capable of both additional infill and expansionary drilling locations, which has been amplified by

the new era deigned by the global Covid-19 virus pandemic.

SOUTH TEXAS

The Company, through its indirect wholly owned subsidiary, Nobel Petroleum USA, Inc., holds

interests in acreage within active oil and gas plays within the County of Gonzales, State of Texas:

The Austin Chalk, and Eagleford Shale horizontal development and vertical development of the

Buda formation. Nobel Petroleum USA, Inc. has observed an increase in the value of its interests

within its project acreage, due in part to uplifting its active equity interests and increased

consolidation of its acreage positions, and the continued worldwide oil price escalations due to

prevailing international concerns.

Of interest is the recent drilling being undertaken to the southern edge of the Nobel operational

area by the Millennium Group, who have averaged over 400 bpd of oil.

Austin Chalk

The play covers an extensive area with over a million acres yet to be developed and runs all the

way from the Pearsale Field south of Gonzales to the giant Giddings Oil Field, the largest oilfield

found in Texas in the past 50 years to the north of Gonzales, and further north onto the North

Rayou Jack Field. Recently, this play has extended into western Louisiana with a number of major

players including EOR Resources and Marathon acquiring strong acreage positions. The Austin

Chalk overlays the oil rich Eagleford Shale, with both formations capable of interacting with each

other, and is a low permeability fractured reservoir that has been the target for horizontal drilling

since the mid-1980s and consists of interbedded chalks, volcanic ash, and marls. It is located at

drill depths from 7,000 to 8,000 feet. It can be a liquids-rich play, yielding high volumes of oil and

condensate. Initial production rates can range over 1,000 bopd with ultimate reserves exceeding

500 MBO per well.

Eagleford Shale

The Eagle Ford continues to prove itself as a world-class crude oil formation having produced in

excess of 2.9 billion barrels of crude oil and condensate. This play is classified as a petroleum

system in that it is a self-sourced reservoir with seals. Migration of Eagleford hydrocarbons was

primarily along bedding planes during the expulsion phase. Absent of traps, hydrocarbons migrated

up-dip or north where vertical natural fractures were encountered. These natural fractures were

associated with the regional fault trends. Here, the hydrocarbons migrated into the extensively

fractured Austin Chalk. Initial production rates with laterals can exceed 1,000 bopd.

PENNPETRO ENERGY PLC

OPERATIONS REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Buda Formation

The Buda is a biomicritic limestone lying below the Eagleford Shale and above the Del Rio Shale.

There has been an increase in the focus on, and the development of, the Buda formation by a

number of US operators in South Texas, with a number of horizontal wells having been completed.

It is a development we are following closely.

As previously identified, while the Buda has always been acknowledged as a resource play in

South Texas, it sits at the bottom of our drilling prognosis, as it can be drilled as a separate vertical

completion and added to our overall horizontal programme. Furthermore, its unit spacing can be

brought significantly down to 40 acres, thereby fulfilling a separate in-fill operation alongside our

horizontal drilling focus.

Thomas Evans

Executive Director

12 July 2022

PENNPETRO ENERGY PLC

FINANCIAL REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The financial results for the group for the year ended 31 December 2021 are presented below:

The financial results for the year ended 31 December 2021 show a loss after tax of $1,311,707

(2020: loss $1,046,512).

The majority of the cost contributing to the Group’s loss for the year included legal and professional

fees, loan arrangement fees, directors’ emoluments and interest charges, which were in line with

the Board’s expectations.

The Group’s borrowings at 31 December 2021 were $4,256,262 (2020: $3,727,995). In addition,

as reported in the prior year, the repayment date for the loan facility with Petroquest Energy Limited

wasa extended a further year to 31 December 2023.

The Group had cash balances at 31 December 2021 of $1,828 (2020: $1,329) and short-term

investments of $34,914

(2020: $49,152). The year on year movement in cash and short-term

investments was primarily a result of cash used in operating activities and development

expenditure.

As at 31 December 2021, the Group had $878,000 (2020 $1.1m) still available to draw under its

loan facility of $5m with Petroquest Energy Limited.

In addition, the Group had a receivables balance at 31 December 2021 of $309,456 (2020:

$308,943).

Additions of $617 were capitalised in property, plant and equipment during 2021 on the Petroleum

mineral leases. As at 31 December 2021, total property, plant and equipment held by the Group

was $1,384,931 (2020: $1,384,314).

No expenditure was capitalised during the year, and therefore the cumulative drilling-related

expenditure capitalised in intangible assets remained at $4,233,890 at 31 December 2021 (2020:

$4,233,890).

Thomas Evans

Executive Director

12 July 2022

PENNPETRO ENERGY PLC

STRATEGIC REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The Directors present their strategic report on the group for the year ended 31 December 2021.

Principal Activities

The principal activity of the Group is onshore oil and gas exploration and production in the United

States of America. Pennpetro Energy Plc acts as a holding company and provides direction and

other services to its subsidiaries.

Pennpetro USA Corp., holds 100% of the US operational subsidiary Nobel Petroleum USA, Inc.

(“Nobel USA”), an independent oil and gas production company based in the City of Gonzales,

Gonzales County, Texas, USA. Nobel USA took over the activities of Nobel Petroleum LLC, the

Company’s other subsidiary entity in December 2017 pursuant to a seamless internal

reorganisation of operational activities and taxation advice. Nobel USA’s core area of business is

in the Austin Chalk and Eagleford Shale oil and gas horizontal formations together with the lower

oil and gas reservoir, the Buda Formation in South Texas, United States.

The review of business and future developments is included in the Executive Directors’ Statement

and the Operations Report. A review of the financial performance and position is included in the

Financial Report.

A summary of the operations conducted by the Group is detailed in both the Executive Directors’

Statement and the Operations Report.

Strategic Approach

The Board’s strategic intent is to maximise shareholder value through the continuing investment

into new wells and leases in proven US onshore formations and participating alongside established

operators in multiple wells, while further reducing costs, where applicable.

The Company provides shareholders with exposure to the high growth associated with the

producing oil and gas sector. This is achieved with a low overhead base.

Key Performance Indicators

The Board monitors the overall performance of the Group by reference to certain key milestones.

The Group considers its financial KPI’s to include:

Key performance indicators

2021

2020

Net cash flows from operating activities

(251,740)

72,400

Cash and short-term investments

36,742

50,481

Headroom on loan facilities

878,000

1.1mil

Due to the Covid-19 pandemic, we closed our operations in Gonzales from March 2020 to October

2021.

PENNPETRO ENERGY PLC

STRATEGIC REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Participation in well drilling programmes are monitored on an individual project basis in terms of

revenue and cost per barrel of oil or Mcf (one thousand cubic feet) of gas, together with the

anticipated payback period on each project.

Board diversity

Although the Board consisted of two male Directors, the Board supports diversity in the boardroom.

Aside from the Directors, there are no employees in the Company. The Board will pursue an equal

opportunity policy and seek to employ those persons most suitable to delivering value for the

Company.

Corporate responsibility

The Group operates a management system that embodies Environmental, Health, Safety and

Social Responsibility principles.

A number of objectives have been set by the Board to address these principles and the Executive

director is responsible for demonstrating to the Board that these principles are adhered to in its US

Oil and Gas operation.

The policy of the Board of Pennpetro is to be fully accountable for the necessary practices,

procedures and means being in place so as to ensure that each objective is demonstrated and that

continuous improvement practices are operating to ensure that the required practices, procedures

and means are being monitored, refined and optimised as necessary.

The objectives of the Environment, Health, Safety and Social Responsibility Policy include:

x The Group shall manage all operations in a manner that protects the environment and the

health and safety of employees, third parties and the community.

x Risk identification, assessment and prioritisation can reduce risk and mitigate hazards to

employees, third parties, the community and the environment. Management of risk is a

continuous process.

x The use of internationally recognised standards, procedures and specifications for design,

construction and commissioning activities are essential for achieving operational excellence.

x The minimisation of environmental risks and liabilities are integral parts of the Group’s

operations.

x Third parties who provide materials and services or operate facilities on the Group’s behalf

have an impact on Environmental, Health and Safety and Social Responsibility excellence.

It is essential that third-party services are provided in a manner consistent with the Group’s

Policy.

x Preparedness and planning for emergencies are essential to ensuring that all necessary

actions are taken if an incident occurs, to protect employees, third parties, the public, the

environment, the assets and brand of Pennpetro.

x Open and honest communication with the communities, authorities and stakeholders with

which the Group operates builds confidence and trust in the integrity of Pennpetro.

PENNPETRO ENERGY PLC

STRATEGIC REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Corporate responsibility (continued)

x The Group has determined that the greenhouse gas emissions from the operations of the

Company and its subsidiaries are sufficiently low that it does not have responsibility to

produce the disclosures required under the Companies Act 2006 (Strategic Report and

Directors’ Reports) Regulations 2013. The reason for this is that there was only limited

activity from its US based operating subsidiary during 2021 and notably the Covid-19

pandemic caused the operations in Gonzales to be put on hold from March 2020 to the latter

half of 2021.

During 2021, the Group closely monitored the limited drilling, completion and production operations

of its COG#1-H well and there have been no breaches of any applicable Acts recorded against the

Group during the reporting period.

Section 172 statement

Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests

of stakeholders and other matters in their decision making. The Directors continue to have regard

to the interests of the Company’s employees and other stakeholders, the impact of its activities on

the community, the environment and the Company’s reputation for good business conduct, when

making decisions. In this context, acting in good faith and fairly, the Directors consider what is most

likely to promote the success of the Company for its members in the long term. We explain in this

annual report, and referenced herein, how the Board engages with stakeholders.

Promotion of the Company for the benefit of the members as a whole

The Director’s believe they have acted in the way most likely to promote the success of the

Company for the benefit of its members as a whole, as required by s172 of the Companies Act

2006.

The requirements of s172 are for the Directors to:

· Consider the likely consequences of any decision in the long term,

· Act fairly between the members of the Company,

· Maintain a reputation for high standards of business conduct,

· Consider the interests of the Company’s employees,

· Foster the Company’s relationships with suppliers, customers and others, and

· Consider the impact of the Company’s operations on the community and the environment.

The Company is quoted on the London Stock Exchange and its members will be fully aware,

through detailed announcements, shareholder meetings and financial communications, of the

Board’s broad and specific intentions and the rationale for its decisions.

When selecting investments, issues such as the impact on the community and the environment

have actively been taken into consideration.

The Company pays its employees and creditors promptly and keeps its costs to a minimum to

protect shareholders funds.

PENNPETRO ENERGY PLC

STRATEGIC REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Promotion of the Company for the benefit of the members as a whole (continued)

The application of the s172 requirements can be demonstrated in relation to the some of the key

decisions made during 2021:

The Board took the opportunity during 2019 to increase the Group’s interest in its principal asset

in Gonzales Texas, taking its Working interest in a portfolio of mineral leases to 100%. The most

recent CPR prepared in December 2017, estimated that the Group’s then 50% Working Interest

basis undiscounted Net Revenue Interest in the Gonzales petroleum leases amounted to $62

million; with the increase to a 100% Working interest and further undiscounted Net Revenue

Interest, this has now increased to over $120 million.

The Company recognising the global impact of environmental concerns, instigated due diligence

with regard to expanding its experiences and core competencies within the fossil environment and

petroleum drilling to specific green energy initiatives securitised with US intellectual property filings

to be expanded internationally.

Risks and Uncertainties

The Group’s activities expose it to a variety of risks and uncertainties.

Market risk

The Group operates in an international market for hydrocarbons and is exposed to risk arising from

variations in the demand for and price of the hydrocarbons. Oil and gas prices historically have

fluctuated widely and are affected by numerous factors over which the Group does not have any

control, including world production levels, international economic trends, currency exchange

fluctuations, inflation, speculative activity, consumption patterns and global or regional political

events. The Group will consider hedging against the risks of fluctuating oil prices and currency

exchange once the initial well is in commercial production.

Environmental risk

The Group’s operations are subject to environmental regulation in all the jurisdictions in which it

operates. The Group is unable to predict the effect of additional environmental laws and regulations

which may be adopted in the future, including whether any such laws or regulations would

adversely affect the Group’s operations. There can be no assurance that such new environmental

legislation once implemented will not oblige the Group to incur significant expenses and undertake

significant investments. The Group identifies, assesses and prioritises environmental risks on an

ongoing basis, as part of its management system.

PENNPETRO ENERGY PLC

DIRECTORS’ REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The Directors present their Annual Report and the audited Financial Statements for the year ended

31 December 2021.

The Company’s ordinary shares are listed on the London Stock Exchange, on the Official List

pursuant to Chapter 14 of the Listing Rules, which sets out the requirements for Standard Listings.

Organisation Review

The Board is responsible for providing strategic direction for the Group. This incorporates setting

out objectives, management policies and performance criteria. The Board assesses its

performance against these on a monthly basis.

Composition of the Board at 31 December 2021 was one Executive Director and one Non-

Executive Director. During the year, on 15 April 2021, Keith Edelman, a Non-Executive Director,

resigned and on 8 June 2021 Philip Nash, a Non-Executive Director, also resigned from the Board.

The Board believes that the present composition provides an appropriate mix to conduct the

Group’s affairs.

The Board is responsible for monitoring risks and uncertainties faced by the Group. These risks

and uncertainties are detailed in the Strategic Report and note 3 to the financial statements.

The corporate governance arrangement of the Group is disclosed in the Corporate Governance

Report.

Directors and Directors’ interests

The Directors who held office during the year to the date of approval of these financial statements,

together with their beneficial interests in the ordinary shares of the Company, are shown below.

31 December 2021

31 December 2020

Ordinary

(number)

options

(number)

Ordinary

(number)

options

(number)

Olof Rapp

2,000,000

425,000

Thomas Evans

(1)

5,000,000

425,000

Keith Edelman (resigned on 15 April 2021)

1,000,000

425,000

Philip Nash (resigned on 8 June 2021)

425,000

(1)

Thomas Martin Evans shares are held by FHF Securities (A’Asia) Limited.

The Directors who held office at 31 December 2021 are summarised as follows:

Name of Director Position

Thomas Evans Executive Director

Olof Rapp Senior Non-Executive Director

Directors’ Remuneration

The Remuneration Committee assesses the appropriateness of the nature and amount of

emoluments of the Directors on a periodic basis by reference to relevant employment market

conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of

a high-quality Board and senior executive team.

The Directors’ remuneration and policies for appointment or replacement of directors are disclosed

in the Directors’ Remuneration Report.

PENNPETRO ENERGY PLC

DIRECTORS’ REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

Dividends

The Directors do not recommend the payment of a dividend (2020: $Nil).

Share capital and major shareholdings

The issued share capital of the Company as at 31 December 2021 comprised 76,452,106 1p

ordinary shares (2020: 76,452,106).

The Company has only one class of share capital formed of ordinary shares. All shares forming

part of the ordinary share capital have the same rights and each carry one vote.

As at 22 June 2022 the Company had been notified of the following interests in the Company’s

ordinary share capital:

Number of shares

Percentage (%)

York Energy Group Limited

14,000,000

16.78

International Immobiliare Ltd

10,000,000

11.98

International Immobiliare Ltd

6,300,000

7.55

FHF Securities (A’Asia) Limited

5,000,000

5.99

York Energy Group Limited

5,000,000

5.99

JIM Nominees Limited

4,223,197

5.06

RB Nominees Limited

4,118,404

4.94

Nobel Petroleum Ireland Limited

3,400,000

4.07

Griffin Asset Management Limited

3,255,500

3.90

Invictorium Limited

3,200,000

3.83

Mrs. B. Shaw

3,200,000

3.83

FHF Corporate Finance Limited

3,184,560

3.82

Mrs. P. Evans

3,100,000

3.71

To the best of the Directors’ knowledge, no shareholder directly or indirectly, exercises or could

exercise control over the Company.

Going Concern

The Group’s business activities, together with the factors likely to affect its future development and

performance are set out in the Executive Director’s Statement. In addition, notes 3 and 24 to the

financial statements disclose the Group’s and Company’s objectives, policies and processes for

managing financial risks and capital.

On 2 June 2021, the Company announced the execution of a three-year £20,000,000 Share

Subscription Facility Agreement ("Facility") with GEM Global Yield LLC SCS, Luxembourg, and

GEM Yield Bahamas Limited (GEM Global). This new surce of funds will enable the group to re-

establish its operations in Texas and fund the Group’s ongoing cashflow needs.

PENNPETRO ENERGY PLC

DIRECTORS’ INFORMATION

Annual Report & Financial Statements

For the year ended 31 December 2021

As at the date of this report, the following directors held office in the Company:

Thomas Martin Evans, Executive Officer

Thomas Evans started his career as a financial executive with Extel Financial Ltd, moving to equity

sales at Barclays de Zoete Wedd Ltd and RBC Dominion Securities Limited, director CIBC World

Markets Limited prior to founding Bishopsgate Capital Management Ltd in 2000 dealing in

institutional fund management which was merged with Athanor Capital Partners Ltd assuming the

role of Chief Investment Officer, expanding all the combined entities FSA regulated permitted

businesses. Established TME Consulting creating UCITS compliant umbrella structure to be

marketed to both retail and wholesale clients. CEO and founder of the Caplain group created to

acquiring stockbroking and wealth management entities and Aerarius PCC Ltd (Guernsey) fund

structure for European investment strategies.

Financial Services Authority (UK) Ltd previously approved for the following control functions – CF1

Director, CF3 Chief Executive, CF8 Appointment & Oversight, CF27 Investment Management.

Olof Nils Anders Rapp, Non-Executive Chairman

Olof Rapp has vast international experience in the aerospace and automotive sector and has held

leading managerial positions with Rolls- Royce International, Volvo Truck Corporation and VistaJet

International in South America, Middle East and Asia. His last position at Rolls Royce was as

Regional Director, Malaysia, with overall responsibility for Rolls-Royce Plc’s business in Malaysia

and Brunei (Aviation, Marine, Nuclear and Oil & Gas) and represented the company at the highest

level. His last position at Volvo was Managing Director of Volvo Malaysia, where he led a successful

restructuring of the company. Olof serves as a Board Director in Quest Green Energy limited,

Resources Bonds 11 limited, Serunai Commerce Sdn Bhd and is a Senior Advisor to Partners in

Performance Pty Ltd. He is also Vice President of the Malaysian Swedish Business Association.

He was born in Gothenburg, Sweden, and studied International Business at IHM Business School.

PENNPETRO ENERGY PLC

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Annual Report & Financial Statements

For the year ended 31 December 2021

The Directors are responsible for preparing the Annual Report and the Financial Statements in

accordance with applicable law and regulations. Company law requires the Directors to prepare

financial statements for each financial year. Under that law the Directors have elected to prepare

the Group and Parent Company Financial Statements in accordance with the UK adopted

International Accounting Standards.

Under Company law the Directors must not approve the Financial Statements unless they are

satisfied that they give a true and fair view of the state of affairs of the Company and Group as at

the end of the financial year and of the profit or loss of the Group for that period. In preparing these

Financial Statements, the Directors are required to:

x select suitable accounting policies and then apply them consistently;

x make judgments and accounting estimates that are reasonable and prudent;

x state whether the applicable UK adopted international accounting standards has been

followed subject to any material departures disclosed and explained in the Financial

Statements; and

x prepare the Financial Statements on a going concern basis unless it is inappropriate to

presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show

and explain the Company’s transactions and disclose with reasonable accuracy at any time the

financial position of the Company and the Group and enable them to ensure that the Financial

Statements comply with the Companies Act 2006. They are also responsible for safeguarding the

assets of the Company and Group and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The maintenance and integrity of the website is the responsibility of the Directors. Legislation in

the United Kingdom governing the preparation and dissemination of the Financial Statements and

other information included in annual reports may differ from legislation in other jurisdictions.

The Company is compliant with the London Stock Exchange regarding the Company’s website.

PENNPETRO ENERGY PLC

CORPORATE GOVERNANCE REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The Company recognises the importance of, and is committed to, high standards of corporate

governance.

Corporate Governance Practices

Pennpetro Energy plc has a standard listing on the London Stock Exchange and is thus not

required to comply with the requirements of the U.K. Corporate Governance Code (“the Code”) as

issued by the Financial Reporting Council. The disclosures below are required by the UKLA’s

Disclosure and Transparency Rule 7.

The Board is committed to ensuring the highest standards of corporate governance, and voluntarily

complies with, subject to a small number of exceptions listed below, the supporting principles and

provisions set out in the Code.

The following describes the ways in which the Company does not comply with the detailed

provisions of the Code and the Board’s rationale thereon:

• given the size of the Board and the Company’s current limited operational status, certain

provisions of the Corporate Governance Code (in particular the provisions relating to the

composition of the Board and the division of responsibilities between the Chairman and chief

executive and executive compensation), are not being complied with by the Company as the Board

does not consider these provisions to be appropriate for the Company;

• the Board as a whole will review auditand risk matters, on the basis of adopted terms of reference

governing the matters to be reviewed and the frequency with which such matters are considered.

The Board as a whole will also take responsibility for the appointment of auditors and payment of

their audit fee, monitor and review the integrity of the Company’s financial statements and take

responsibility for any formal announcements on the Company’s financial performance;

• the Board as a whole will be responsible for the appointment of executive and non-executive

Directors. The Company does not currently believe it is necessary to have a separate nominations

committee at this time. The requirement for a nominations committee will be considered on an

ongoing basis;

• the Board believes in the benefits of diversity, including the need for diversity in order to effectively

represent shareholders’ interests. This diversity is not restricted to gender but also includes

geographic location, nationality, skills, age, educational and professional background. The board’s

policy remains that selection should be based on the best person for the role;

• the Board as a whole will consider the Board’s size, structure and composition and the scale and

structure of the Directors’ fees, taking into account the interests of Shareholders and the

performance of the Company;

• the Board does not comply with the provision of the Corporate Governance Code that at least

half of the Board, excluding the Chairman, should comprise non-executive directors determined by

the Board to be sufficiently independent;

• the Company has in place procedures ensuring compliance with the new Market Abuse

Regulation and the Board will be responsible for taking all proper and reasonable steps to ensure

compliance with the Market Abuse Regulation by the Directors; and

• the Company will not seek Shareholder approval at a general meeting in respect of any further

acquisitions it may make, unless it is required to do so for the purposes of facilitating the financing

arrangements or for other legal or regulatory reasons.

PENNPETRO ENERGY PLC

DIRECTORS’ REMUNERATION REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The Company’s Remuneration Committee comprises one Non-Executive Director, Olof Rapp.

Pennpetro’s Remuneration Committee operates within the terms of reference approved by the

Board. In the year to 31 December 2021, the Remuneration Committee documented one review.

The items included in this report are unaudited unless otherwise stated.

Committee’s main responsibilities

x The Remuneration Committee considers the remuneration policy, employment terms and

remuneration of the Executive Director;

x The Remuneration Committee’s role is advisory in nature and it makes recommendations

to the Board on the overall remuneration package for the Executive Director in order to

attract, retain and motivate high quality executives capable of achieving the Company’s

objectives;

x The Remuneration Committee also reviews proposals for any share option plans and other

incentive plans, makes recommendations for the grant of awards under such plans as well

as approving the terms of any performance-related pay schemes;

x The Board’s policy is to remunerate the Company’s executives fairly and in such a manner

as to facilitate the recruitment, retention and motivation of suitably qualified personnel; and

x The Remuneration Committee, when considering the remuneration packages of the

Company’s executives, will review the policies of comparable companies in the industry.

Directors’ remuneration (audited)

Fees and benefits of $340,922 were payable to Directors who held office during the year ended 31

December 2021 (2020: $530,672).

Director Thomas Evans has received a loan of £10,000 which was outstanding as at 31 December

2021. The loan is repayable within 12 months.

Salary

Valuation of

options

Taxable

benefits

Other

receipts

received

Pension

benefits

2021

Total

Keith Edelman

13,528

27,601

41,129

Olof Rapp

40,306

79,913

120,219

Philip Nash

17,558

41,797

59,355

Thomas Evans

40,306

79,913

120,219

111,698

229,224

340,922

Salary

Valuation of

options

Taxable

benefits

Other

receipts

received

Pension

benefits

2020

Total

Keith Edelman

47,026

90,682

137,708

Olof Rapp

40,306

90,682

130,988

Philip Nash

40,306

90,682

130,988

Thomas Evans

40,306

90,682

130,988

167,944

362,728

530,672

PENNPETRO ENERGY PLC

DIRECTORS’ REMUNERATION REPORT (continued)

Annual Report & Financial Statements

For the year ended 31 December 2021

The Director's remuneration is disclosed in full in the above table and is not linked to performance.

All Directors’ service contracts are kept available for inspection at the Company’s registered office.

All shares and interests held by the Directors are disclosed in the Directors’ report.

The share options expired on 2 November 2021. No options were exercised.

Details of the share-based payments are included in note 19.

Total pension entitlements (audited)

The Company currently does not have any pension plans for any of the Directors and does not pay

pension amounts in relation to their remuneration.

The Company has not paid out any excess retirement benefits to any Directors or past Directors.

Payments to past directors (audited)

The Company has not paid any compensation to past Directors.

Payments for loss of office (audited)

No payments were made for loss of office during the year.

Directors interests in share warrants (audited)

None of the Directors had interests in share warrants.

Directors’ and Officers’ indemnity insurance

The Company has made qualifying third-party indemnity provisions for the benefit of its Directors

and Officers. These were made during the previous period and remain in force at the date of this

report.

Consideration of shareholder views

The Remuneration Committee considers shareholder feedback received and guidance from

shareholder bodies. This feedback, plus any additional feedback received from time to time, is

considered as part of the Company’s periodic reviews of its policy on remuneration.

Statement of policy on Directors’ remuneration

The Company’s policy is to maintain levels of remuneration so as to attract, motivate, and retain

Directors and Senior Executives of the highest calibre who can contribute their experience to

deliver industry leading performance with the Company’s operations. Currently Director’s

remuneration is not subject to specific performance targets.

In future periods, the Company may implement a remuneration policy so that a meaningful

proportion of Executive remuneration is structured so as to link rewards to corporate and individual

performance, align their interests with those of shareholders and to incentivise them to perform at

the highest levels. The Remuneration Committee considers remuneration policy and the

employment terms and remuneration of the Directors and makes recommendations to the Board

of Directors on the overall remuneration packages for Directors. No Director takes part in any

decision directly affecting their own remuneration.

PENNPETRO ENERGY PLC

AUDIT COMMITTEE REPORT

Annual Report & Financial Statements

For the year ended 31 December 2021

The Audit Committee comprises two Directors, Olof Rapp and Tom Evans. It oversees the

Company’s financial reporting and internal controls and provides a formal reporting link with the

external auditors. The ultimate responsibility for reviewing and approving the annual report and

accounts and the half-yearly report remains with the Board.

Main Responsibilities

The Audit Committee acts as a preparatory body for discharging the Board’s responsibilities in a

wide range of financial matters by:

x monitoring the integrity of the financial statements and formal announcements relating to

the Company’s financial performance;

x reviewing significant financial reporting issues, accounting policies and disclosures in

financial reports, which are considered to be in accordance with the key audit matters

identified by the external auditors;

x overseeing that an effective system of internal control and risk management systems are

maintained;

x ensuring that an effective whistle-blowing, anti-fraud and bribery procedures are in place;

x overseeing the Board’s relationship with the external auditor and, where appropriate, the

selection of new external auditors;

x approving non-audit services provided by accounting firms; and

x ensuring compliance with legal requirements, accounting standards and the Listing Rules

and the Disclosure and Transparency Rules.

Governance

The Code requires that at least one member of the Audit Committee has recent and relevant

financial experience. Both directors have served in financial executive and managing director roles.

As a result, the Board is satisfied that the Audit Committee has recent and relevant financial

experience.

Members of the Audit Committee are appointed by the Board and whilst shareholders, the

Company believes they are considered to be independent in both character and judgement.

The Company’s external auditor, Crowe U.K. LLP, did not provide any non-audit services in the

period.

The Audit Committee believes that the Company does not require an internal audit function due to

the current size of the organisation and its operations.

Meetings

In the year to 31 December 2021 the two members of the Audit Committee have met twice.

The key work undertaken by the Audit Committee is as follows;

x interview of external auditors and recommendation to the Board;

x review of audit planning and update on relevant accounting developments;

x consideration and approval of the risk management framework, appropriateness of key

performance indicators;

x consideration and review of full-year results;

x review of the effectiveness of the Audit Committee; and

x review of internal controls.

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF PENNPETRO ENERGY PLC

Opinion

We have audited the financial statements of Pennpetro Energy Plc (the “company”) and its

subsidiaries (the ‘group’) for the year ended 31 December 2021 which comprise the consolidated

statement of comprehensive income, the consolidated and parent company statements of financial

position, the consolidated and parent company statements of changes in equity, the consolidated

and parent company statements of cash flows and notes to the financial statements, including

significant accounting policies. The financial reporting framework that has been applied in their

preparation is applicable law and UK adopted international accounting standards.

In our opinion the financial statements:

x give a true and fair view of the state of the group’s and of the company’s affairs as at 31

December 2021 and of the Group’s loss for the year then ended;

x have been properly prepared in accordance with UK adopted international accounting

standards; and

x have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK))

and applicable law. Our responsibilities under those standards are further described in the Auditor’s

responsibilities for the audit of the financial statements section of our report. We are independent

of the company in accordance with the ethical requirements that are relevant to our audit of the

financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public

interest entities, and we have fulfilled our other ethical responsibilities in accordance with these

requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern

basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of

the directors’ assessment of the group and parent company’s ability to continue to adopt the going

concern basis of accounting included obtaining management’s assessment of going concern for

the period to 31 December 2023 and evidence of the facilities available to the Group and Company

to enable it to have access to cash to be able to continue as a going concern. As part of our

assessment we considered the impact of two events after year end where the Company issued

new ordinary shares and Petroquest Energy Limited extended the repayment date by one year on

the loan owing by Nobel Petroleum LLC. We noted that there was sufficient headroom available in

other facilities to enable the Petroquest loan to be repaid at its revised maturity date of 31

December 2023 also considering the planned expenditure of the Group.

Based on the work we have performed, we have not identified any material uncertainties relating

to events or conditions that, individually or collectively, may cast significant doubt on the group’s

or the company's ability to continue as a going concern for a period of at least twelve months from

when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are

described in the relevant sections of this report.

Overview of our audit approach

Materiality

In planning and performing our audit we applied the concept of materiality. An item is considered

material if it could reasonably be expected to change the economic decisions of a user of the

financial statements. We used the concept of materiality to both focus our testing and to evaluate

the impact of misstatements identified.

Based on our professional judgement, we determined overall materiality for the financial

statements as a whole to be $120,000, based on 2% of total assets (2020: $120,000). The

materiality applied for the parent company was $79,000.

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF PENNPETRO ENERGY PLC (continued)

Overview of our audit approach (continued)

We use a different level of materiality (‘performance materiality’) to determine the extent of our

testing for the audit of the financial statements. Performance materiality is set based on the audit

materiality as adjusted for the judgements made as to the entity risk and our evaluation of the

specific risk of each audit area having regard to the internal control environment. The performance

materiality for the group was $84,000 and $55,000 for the parent company.

Where considered appropriate performance materiality may be reduced to a lower level, such as,

for related party transactions and directors’ remuneration.

We agreed with the Audit Committee to report to it all identified errors in excess of $3,600 (2020:

$3,600). Errors below that threshold would also be reported to it if, in our opinion as auditor,

disclosure was required on qualitative grounds.

Overview of the scope of our audit

The Company and Group finance function is based in the United Kingdom and a full scope audit

was carried out thereon from our office, and with discussions with management as required and

information being requested from the US where appropriate. This provided us with sufficient

evidence for our opinion on the Group and Company financial statements.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance

in our audit of the financial statements of the current period and include the most significant

assessed risks of material misstatement (whether or not due to fraud) that we identified. These

matters included those which had the greatest effect on: the overall audit strategy, the allocation

of resources in the audit; and directing the efforts of the engagement team. These matters were

addressed in the context of our audit of the financial statements as a whole, and in forming our

opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the conclusion related to going concern section, we have

determined the matters described below to be the key audit matters to be communicated in our

audit report. This is not a complete list of all risks identified by our audit.

Key

audit matter

How

our scope addressed the key audit matter

Valuation

of producing properties

and

capitalised

drilling costs and

equipment

– see note 4.2

The

group’s primary focus is

onshore

oil

and gas exploration and

production

in Texas, USA. As at

December

2021 assets totalling

$5.6m

were recognised comprising

Petroleum

Leases within property,

plant

and equipment of $1.4m

(held

under

IAS 36) and Drilling Costs

within

intangible assets of $4.2m

(held

under IFRS 6).

considered the risk that these

assets

are impaired.

reviewed management’s assessment which

concluded

that

there are no facts or circumstances that suggest

the

recoverable

amount of the asset does not exceed the

carrying

amount.

considering this assessment we reviewed the

following

sources

of evidence:

x The primary lease agreements in place

supporting

the company’s right of extraction;

x The competent persons report that formed

the

basis of the valuation;

x Discussing plans and intentions with

management,

reviewing supporting budgets and

evidencing

planning work undertaken; and

x Assessing oil price assumptions used

when

assessing the commercial potential and

likely

recoverable amount

are satisfied that there are no indicators of

impairment

respect of the drilling costs and that the estimated

recoverable

amount in respect of the petroleum leases

excess of the carrying value.

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF PENNPETRO ENERGY PLC (continued)

Key

audit matter

How our scope addressed the key audit matter

Carrying

value of investments on

the

parent

company Statement of

Financial

Position – see note 4.2

Included

in the parent company

Statement

of Financial Position is

investments

in subsidiaries with a

value

of $7.0m. As part of our

audit

considered the risk that the

investments

were impaired.

We considered whether there was any evidence of

impairment.

This included considering:

x Whether the current market capitalisation

was

below the carrying value of the investments.

Management’s

plans for the subsidiaries and how they

would

generate cash in the future to provide a return on

the

investment, this included management’s plans and

intentions

for the oil and gas assets held within the

subsidiaries as disclosed in the key audit matter above.

Our audit procedures in relation to these matters were designed in the context of our audit opinion

as a whole. They were not designed to enable us to express an opinion on these matters

individually and we express no such opinion.

Other information

The other information comprises the information included in the annual report other than the

financial statements and our auditor’s report thereon. The directors are responsible for the other

information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the

extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion

thereon. Our responsibility is to read the other information and, in doing so, consider whether the

other information is materially inconsistent with the financial statements or our knowledge obtained

in the course of the audit, or otherwise appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements, we are required to determine whether

this gives rise to a material misstatement in the financial statements themselves. If, based on the

work we have performed, we conclude that there is a material misstatement of this other

information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly

prepared in accordance with the Companies Act 2006.

In our opinion based on the work undertaken in the course of our audit

x the information given in the strategic report and the directors' report for the financial year for

which the financial statements are prepared is consistent with the financial statements; and

x the strategic report and the directors’ report have been prepared in accordance with

applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the company and its

environment obtained in the course of the audit, we have not identified material misstatements in

the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies

Act 2006 requires us to report to you if, in our opinion:

x adequate accounting records have not been kept by the company, or returns adequate for

our audit have not been received from branches not visited by us; or

x the company financial statements and the part of the directors’ remuneration report to be

audited are not in agreement with the accounting records and returns; or

x certain disclosures of directors’ remuneration specified by law are not made; or

x we have not received all the information and explanations we require for our audit.

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF PENNPETRO ENERGY PLC

(continued)

Responsibilities of the directors for the financial statements

As explained more fully in the directors’ responsibilities statement page 19, the directors are

responsible for the preparation of the financial statements and for being satisfied that they give a

true and fair view, and for such internal control as the directors determine is necessary to enable

the preparation of financial statements that are free from material misstatement, whether due to

fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and

the parent company’s ability to continue as a going concern, disclosing, as applicable, matters

related to going concern and using the going concern basis of accounting unless the directors

either intend to liquidate the group or the parent company or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a

whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s

report that includes our opinion. Reasonable assurance is a high level of assurance but is not a

guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could reasonably be expected to influence the

economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was consider capable of detecting irregularities,

including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We

design procedures in line with our responsibilities, outlined above, to detect material misstatements

in respect of irregularities, including fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud is detailed below however the primary responsibility for the

prevention and detection of fraud lies with management and those charged with governance of the

Company.

x We gained an understanding of the legal and regulatory framework applicable to the Group

and Company and considered the risk of acts by the Group which were contrary to

applicable laws and regulations, including fraud. The most significant identified was

compliance with relevant regulations for oil and gas companies in the state of Texas, where

the Group has the majority of its operations, and compliance with the UK Companies Act.

Our work included enquiry of management, review of legal invoices and publicly available

information on violations and inspections from the relevant authority in Texas.

x We designed audit procedures to respond to the risk, recognising that the risk of not

detecting a material misstatement due to fraud is higher than the risk of not detecting one

resulting from error, as fraud may involve deliberate concealment. We considered the risk

was greater in areas that involve significant management estimate or judgement and we

designed our procedures accordingly to focus on such areas. Such procedures included

testing journal transactions.

Owing to the inherent limitations of an audit, there is an unavoidable risk that some material

misstatements of the financial statements may not be detected, even though the audit is properly

planned and performed in accordance with the ISAs (UK). The potential effects of inherent

limitations are particularly significant in the case of misstatement resulting from fraud because fraud

may involve sophisticated and carefully organised schemes designed to conceal it, including

deliberate failure to record transactions, collusion or intentional misrepresentations being made to

us.

A further description of our responsibilities for the audit of the financial statements is located on the

Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description

forms part of our auditor’s report.

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF PENNPETRO ENERGY PLC

(continued)

Other matters which we are required to address

We were first appointed by the Board on 25 March 2019. Our total uninterrupted period of

engagement is four years, covering the periods ending 31 December 2018 to 2021.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or

the company and we remain independent of the group’s and the company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of

Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to

the company's members those matters we are required to state to them in 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.

Matthew Stallabrass

Senior Statutory Auditor

For and on behalf of

Crowe U.K. LLP

Statutory Auditor

London

1 July 2022

PENNPETRO ENERGY PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

		Year ended	Year ended
	Note	31 December	31 December
		2021	2020
		$	$
Continuing Operations
Revenue		-	66,798
Administrative expenses	6	(1,0 21,046)	(1,378, 164)
Operating Loss		(1,0 21,046)	(1,311, 366)
Finance income	9	-	2,058
Finance costs	9	(290,66 1)	262,79 6
Loss before Tax		(1,3 11,707)	(1,046, 512)
Income tax	10	-	-
Loss for the year attributable to owners of the parent		( 1,311, 707)	(1,046, 512)
Other Comprehensive Income:
Items that may be reclassified subsequently
to profit or loss
Currency translation differences		(6,838)	79,008
Other Comprehensive Income for the Year		(6,838)	79,008
Total Comprehensive Income for the Year		(1,318, 545)	(967,50 4)
attributable to the owners of the parent
Loss per share attributable to the owners of the parent during the year
Basic (cents per share)	11	(1. 72)	(1.39)
Diluted (cents per share)		(1. 72)	(1.39)

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2021

	Note	31 December	31 December
		2021	2020
		$	$
ASSETS
Non–Current Assets
Property, plant and equipment	12	1,384, 931	1,384, 314
Intangible assets	13	4,233, 890	4,233, 890
Total Non-Current Assets		5,618, 821	5,618, 204
Current Assets
Trade and other receivables	15	309,45 6	308,94 3
Short term investments	16	34,914	49,152
Cash and cash equivalents	17	1,828	1,329
Total Current Assets		346,19 8	359,42 4
TOTAL ASSETS		5,965, 019	5,977, 628
EQUITY AND LIABILITIES
Equity Attributable to Owners of Parent
Share capital	18	979,42 7	979,42 7
Share premium	18	4,121, 700	4,121, 700
Convertible reserve		6,021, 575	6,021, 575
Reorganisation reserve		(6,578, 229)	(6,5 78,2 29)
Foreign exchange reserve		133,61 9	140,45 7
Share based payment reserve	19	-	838,90 9
Retained losses		(4,013, 864)	(3,7 70,2 90)
Total Equity		664,22 8	1,753, 549
Current Liabilities
Borrowings	20	4,256, 262	3,727, 995
Trade and other payables	21	1,044, 529	496,08 4
Total Current Liabilities		5,300, 791	4,224, 079
TOTAL EQUITY AND LIABILITIES		5,965, 019	5,977, 628

These financial statements were approved by the Board of Directors on 12 July 2022 and signed

on its behalf by:

Thomas Evans

Executive Director

Company registration number: 10166359

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

COMPANY STATEMENT OF FINANCIAL POSITION

As at 31 December 2021

Note

31 December

2021

31 December

2020

ASSETS

Non–Current Assets

Investments in subsidiaries

7,038,631

7,104,824

Property, plant and equipment

Total Non–Current Assets

7,038,631

7,104,824

Current Assets

Trade and other receivables

3,093,418

3,062,112

Short term investments

34,914

49,152

Cash and cash equivalents

Total Current Assets

3,128,332

3,111,264

TOTAL ASSETS

10,166,963

10,216,088

EQUITY AND LIABILITIES

Equity Attributable to Shareholders

Share capital

979,427

Share premium

4,121,700

Convertible reserve

6,021,575

Foreign exchange reserve

575,249

648,279

Share based payment reserve

838,909

Retained losses

(2,866,030)

(2,942,712)

Total Equity

8,831,921

9,667,178

Current Liabilities

Trade and other payables

1,335,042

548,910

Total Current Liabilities

1,335,042

548,910

TOTAL EQUITY AND LIABILITIES

10,166,963

10,216,088

The Company has elected to take the exemption under Section 408 of the Companies Act 2006

from presenting the parent company Statement of Comprehensive Income. The loss for the parent

company for the year was $991,451 (2020: $639,524).

These financial statements were approved by the Board of Directors on 12 July 2022 and were

signed on its behalf by:

Thomas Evans

Executive Director

Company registration number: 10166359

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

Attributable to the owners of the parent

	Share	Share	Convertible	Reorganisation	Foreign	Share Based	Retained	Total
Group	Capital	Premium	Reserve	Reserve	Exchange	Payments	L osses	E quity
					Reserve	Reserve
	$	$	$	$	$	$	$	$
Balance at 1 January 2020	926,711	1,538,636	6,021,575	(6,578,229)	61,449	438,641	(2,723,778)	( 314,995)
Loss for the year	-	-	-	-	-	-	(1,046,512)	(1,046,512)
Foreign currency translation	-	-	-	-	79,008	-	-	79,008
differences
Total comprehensive loss for the year	-	-	-	-	79,008	-	( 1,046,512)	(967,504)
Shares issued	52,716	2,583,064	-	-	-	-	-	2,635,780
Share based payments	-	-	-	-	-	400,268	-	400,268
Balance at 31 December 2020	979,427	4,121,700	6,021,575	(6,578,229)	140,457	838,909	(3,770,290)	1,753,549
Loss for the year	-	-	-	-	-	-	(1,311,707)	(1,311,707)
Foreign currency translation	-	-	-	-	( 6,838)	-	-	( 6,838)
differences
Total comprehensive loss for the year	-	-	-	-	( 6,838)	-	( 1,311,707)	( 1,318,545)
Share based payments	-	-	-	-	-	229,224	-	229,224
Lapse of share options	-	-	-	-	-	(1,068,133)	1,068,133	-
Balance at 31 December 2021	979,427	4,121,700	6,021,575	(6,578,229)	133,619	-	( 4,013,864)	644,228

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

Company

Capital

Premium

Convertible

Reserve

Share Based

Payments

Reserve

Foreign

Exchange

Reserve

Retained

Losses

Total

Equity

Balance

at 1 January 2020

926,711

1,538,636

6,021,575

438,641

319,749

(2,303,188)

6,942,124

Loss for the year

(639,524)

Other Comprehensive Income

328,530

Total comprehensive loss for the

Year

328,530

(

639,524)

(310,994)

Shares issued

52,716

2,583,064

2,635,780

Share based payments

400,268

Balance

at 31 December 2020

979,427

4,121,700

6,021,575

838,909

648,279

(2,942,712)

9,667,178

Loss for the year

(991,451)

Other Comprehensive Income

(73,030)

Total comprehensive loss for the

Year

(

73,030)

(991,451)

(

1,064,481)

Share based payments

229,224

Lapse of share options

(1,068,133)

1,068,133

Balance

at 31 December 2021

979,427

4,121,700

6,021,575

75,249

(2,

866,030)

8,831,921

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2021

		Year ended	Year ended
	31	December	31 December
		2021	2020
		$	$
Cash Flows from Operating Activities
Loss before tax		(1,311, 707)	(1,046, 512)
Depreciation		-	1,536
Amortisation		-	75,094
Foreign exchange		(8, 078)	1,068, 243
Write off		-	(130,74 6)
Finance income		-	(2,058)
Finance costs		290,66 1	(262,79 6)
Share base payment charge		229,22 4	362,73 0
Changes to working capital		(799,90 0)	(65,491)
(Increase)/decrease in trade and other receivables		(511)	47,985
Increase in trade and other payables		548,67 1	230,11 3
Cash (used)/ generated in operations		(251,740)	343,58 9
Interest paid		-	(271,18 9)
Net Cash used in Operating Activities		( 251,74 0)	72,400
Cash Flows from Investing Activities
Increase in Development expenditure		-	(67,153)
Purchases of property, plant and equipment		(617)	(23,151)
Disposal of short-term investments		14,238	10,849
Net Cash (used in)/ generated from Investing		13,621	(79,455)
Activities
Cash Flows from Financing Activities
Loan repaid		(65,938)	-
Advances received from borrowings		304,55 6	-
Net Cash generated from/ (used in) Financing		238,61 8	-
Activities
Net Increase/(Decrease) in Cash and Cash		499	(7,055)
Equivalents
Cash and cash equivalents at the beginning of the year		1,329	8,384
Net increase/ (decrease) in cash and cash		499	(7,055)
equivalents
Cash and Cash Equivalents at the End of the Year		1,828	1,329

The notes on pages 40 to 67 form part of these financial statements.

PENNPETRO ENERGY PLC

COMPANY STATEMENT OF CASH FLOWS

For the year ended 31 December 2021

Year ended

December

2021

Year ended

31 December

2020

Cash Flows from Operating Activities

Loss before tax

(991,451)

(639,524)

Depreciation

959

Share based payments

229,224

362,730

Unrealised foreign exchange

(6,838)

160,386

(769,065)

(115,449)

Changes to working capital

Increase in trade and other receivables

(31,306)

(196,597)

Increase in trade and other payables

786,133

301,197

Cash used in operations

(14,238)

(10,849)

Net cash used in Operating Activities

(14,238)

(10,849)

Cash Flows from Investing Activities

Disposal of short-term investments

14,238

10,849

Net Cash used in Investing Activities

14,238

10,849

Cash Flows from Financing Activities

Proceeds from issue of ordinary shares

Issue costs

Net Cash generated from Financing Activities

Net movement in Cash and Cash Equivalents

Cash and cash equivalents at the beginning of the

year

Exchange gain on cash and cash equivalents

Net Decrease in cash and cash equivalents

Cash and Cash Equivalents at the End of the

Year

The notes on pages 40 to 67 form part of these financial statements

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2021

1. GENERAL INFORMATION

Pennpetro Energy plc (the “Company”) is a public limited company which is listed on the

standard market of the London Stock Exchange and incorporated and domiciled in England

and Wales. Its registered office address is 20b Wilton Row, London, SW1X 7NS.

The consolidated financial statements of the Company consist of the following companies

(together “the Group”):

Pennpetro Energy plc	UK registered company
Pennpetro USA Corp	US registered company
Nobel Petroleum USA Inc	US registered company
Nobel Petroleum LLC	US registered company
Nobel Petroleum UK Limited	UK registered company
Pennpetro Greentec Limited	Cyprus registered company
Pennpetro Greentec UK Limited	UK registered company
Pennpetro Green Energy Limited	UK registered company

The Group is an oil and gas developer with assets in Texas, United States. The Company’s

US-based subsidiaries own a portfolio of leasehold petroleum mineral interests centred on the

City of Gonzales, in southeast Texas, comprising the undeveloped central portion of the

Gonzales Oil Field.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial

statements are set out below.

These policies have been consistently applied to all the years presented, unless otherwise

stated.

2.1 Basis of preparation

These consolidated financial statements have been prepared and approved by the Directors in

accordance with the UK adopted International Accounting Standards.

The financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with the international financial reporting

standards requires the use of certain critical accounting estimates. It also requires management

to exercise its judgement in the process of applying the Group’s accounting policies. The areas

involving a higher degree of judgement or complexity, or areas where assumptions and

estimates are significant to the consolidated financial statements are disclosed in note 4.

2.2 Basis of consolidation

The Group financial statements consolidate the financial statements of the Company and all its

subsidiaries (the “Group”).

Subsidiaries include all entities over which the Group is exposed, or has rights, to variable

returns from its involvement with the investee and has the ability to affect those returns through

its power over the investee. The existence and effect of potential voting rights that are currently

exercisable or convertible are considered when assessing whether the Group controls another

entity. Subsidiaries are consolidated from the date on which control commences until the date

that control ceases. Intra-group balances and any unrealised gains and losses on income or

expenses arising from intra-group transactions, are eliminated in preparing the consolidated

financial statements.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2 Basis of consolidation (continued)

Acquisition

On 17 May 2017 Pennpetro Energy plc (“Pennpetro”) acquired 100% of the issued capital of

Nobel Petroleum UK Limited (“Nobel UK”) in a share for share exchange with the shareholders

of Nobel UK’s parent company at that time, Nobel Petroleum Ireland Limited (“Nobel Ireland”).

Due to the relative size of the companies, Nobel Ireland’s shareholders became the majority

shareholders in the enlarged share capital. Pennpetro’s shares were later listed on the London

Stock Exchange in December 2017.

The transaction fell outside the scope of IFRS 3 (“Business Combinations”) and as such has

been treated as a reverse merger and accounted for as a share-based payment transaction

which should be accounted for in accordance with IFRS 2. On the basis of the guidance in

paragraph B21 of IFRS 3, the reverse merger has been treated as a continuation of the Nobel

Group into the Pennpetro Group. The consideration included the issue of new share capital

and the issue of a convertible bond.

Pennpetro was incorporated with the intention of obtaining a listing on the LSE shortly after

completing a reverse merger with Nobel UK by way of a share swap with Nobel UK’s parent

company Nobel Ireland. Nobel Ireland’s shareholders retained a majority interest in the listed

Pennpetro after the transaction.

2.3 Business combinations

The acquisition of the other subsidiaries is accounted for using the acquisition method of

accounting. The acquisition method of accounting is used to account for business

combinations. The cost of an acquisition is measured as the fair value of the assets given,

equity instruments issued, and liabilities incurred or assumed at the date of exchange, and the

equity interests issued. Identifiable assets acquired, and liabilities and contingent liabilities

assumed in a business combination are measured initially at their fair value at the acquisition

date. Acquisition related costs are expensed as incurred. Where necessary, amounts reported

by subsidiaries have been adjusted to conform with the Group’s accounting policies.

2.4 Going concern

The Group’s business activities, together with the factors likely to affect its future development

and performance are set out in the Executive Director’s Statement. In addition, notes 3 and 24

to the financial statements disclose the Group’s and Company’s objectives, policies and

processes for managing financial risks and capital.

On 2 June 2021, the Company announced the execution of a three-year £20,000,000 Share

Subscription Facility Agreement ("Facility") with GEM Global Yield LLC SCS, Luxembourg, and

GEM Yield Bahamas Limited (GEM Global). This new surce of funds will enable the group to

re-establish its operations in Texas and fund the Group’s ongoing cashflow needs.

On 16 March 2022, the Company raised £350,000 gross proceeds through the issue of

1,166,667 new ordinary shares at a price of 30p per share.

On 29 June 2022, Petroquest Energy Limited extended the repayment date by one year on the

loan owing by Nobel Petroleum LLC. The revised maturity date on the loan is 31 December

2023.

The Group has prepared cashflow forecasts to 31 December 2023. The Directors have

considered these forecasts and have a reasonable expectation that the Company and Group

has adequate resources to continue in operational existence through to 31 December 2023 as

projected.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.4 Going concern (continued)

This is subject to material adverse unforeseen events that may occur, including but not limited

to oil and gas prices and further hinderances to operations as a result of the Covid-19

pandemic.

The Directors continue to consider it appropriate to prepare the Group and Company financial

statements on a going concern basis.

2.5 New standards, amendments and interpretations adopted by the Group and

Company

The following IFRS or IFRIC interpretations were effective for the first time for the financial year

beginning 1 January 2021. Their adoption has not had any material impact on the disclosures

or on the amounts reported in these financial statements:

Standards /interpretations	Application
IFRS 16	Amendments to provide lessees with an exemption from
	assessing whether a COVID-19 related rent concession is
	a lease modification
IAS 1 & IAS 8 amendments	Amendments regarding the definition of materiality
IFRS 3 amendments	Amendments to clarify the definition of a business and
	amendments updating a reference to the conceptual
	framework

2.6 New standards, amendments and interpretations not yet adopted

Standards /interpretations

Application

IAS 1 amendments

Presentation of Financial Statements: Classification of

Liabilities

as Current or Non-Current.

Effective:

Annual periods beginning on or after 1

January

2023

IFRS 3 amendments

Business Combinations – Reference to the Conceptual

Framework.

Effective:

Annual periods beginning on or after 1

January

2022

IFRS 16

Amended by Covid-19 Related Rent Concessions beyond

June 2021 (amendment to IFRS 16)

Effective:

Annual periods beginning on or after 1 April

2021

IAS 8

Amendments regarding the definition of accounting

estimates

Effective

Annual periods beginning on or after 1

January

2023

IAS 12

Amendments resulting from Deferred tax related to Assets

and

Liabilities arising from a single transaction.

Effective

Annual periods beginning on or after 1

January

2023

IAS 16 amendments

Amendments prohibiting a company from deducting from

the

cost of property plant and equipment amounts

received

from selling items produced while the

company is

preparing

the asset for intended use.

Effective:

Annual periods beginning on or after 1

January

2022

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.6 New standards, amendments and interpretations not yet adopted (continued)

IAS 37 amendments

Amendments regarding the costs to include when

assessing

whether a contract is onerous.

Effective: Annual periods beginning on or after 1 January

2022

IFRS 1, IFRS 9, IFRS 16,

IAS41

Annual Improvements to IFRS Standards 2018-2020

Cycle.

(Fees in the ’10 per cent’ test for derecognition

financial

liabilities) Effective: Annual periods beginning

or after 1 January 2022

There are no IFRS’s or IFRIC interpretations that are not yet effective that would be expected

to have a material impact on the Company or Group.

2.7 Investments in subsidiaries

Investments in subsidiaries are accounted for at cost less impairment.

2.8 Foreign Currency Translation

x Functional and presentation currency

Items included in each of the financial statements of the Group’s entities are measured

using the currency of the primary economic environment in which the entity operates (the

‘functional currency’). The functional currency of the UK parent entity and Nobel UK

Limited is pound sterling and the functional currency of the US subsidiaries is US dollars.

The financial statements are presented in US Dollars, rounded to the nearest dollar, which

is the Group’s and Company’s presentation currency.

x Transactions and balances

Foreign currency transactions are translated into the functional currency using the

exchange rates prevailing at the dates of the transactions or valuation where such items

are re-measured. Foreign exchange gains and losses resulting from the settlement of

such transactions and from the translation at year-end exchange rates of monetary assets

and liabilities denominated in foreign currencies are recognised in the Statement Of

Comprehensive Income.

x Group companies

The results and financial position of all the Group entities that have a functional currency

different from the presentation currency are translated into the presentation currency as

follows:

x assets and liabilities for each Statement of Financial Position presented are translated

at the closing rate at the date of that Statement of Financial Position;

x income and expenses for each Statement of Comprehensive Income are translated at

average exchange rates (unless this average is not a reasonable approximation of the

cumulative effect of the rates prevailing on the transaction dates, in which case income

and expenses are translated at the dates of the transactions); and

x all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in

foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement

is neither planned nor likely to occur in the foreseeable future are taken to other comprehensive

income. When a foreign operation is sold, such exchange differences are recognised in the

Statement of Comprehensive Income as part of the gain or loss on sale.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Property, plant and equipment

Following evaluation of successful exploration of wells, if commercial reserves are established

and the technical feasibility of extraction demonstrated, and once a project is sanctioned for

commercial development, then the related capitalised exploration costs are transferred into a

single field cost centre within ‘producing properties’ within property, plant and equipment after

testing for impairment.

The net book values of ‘producing properties’ are depreciated on a unit of production basis at

a rate calculated by reference to proven and probable reserves and incorporating the estimated

future cost of developing and extracting those reserves once production has commenced.

The Petroleum (Mineral lease) expenditure to date is over land that has already had historical

vertical drilled wells and has proven oil reserves. All these costs were therefore immediately

capitalised within property, plant and equipment.

All costs incurred after the technical feasibility and commercial viability of producing

hydrocarbons has been demonstrated, are capitalised within ‘drilling costs and equipment’ on

a well-by-well basis. Subsequent expenditure is capitalised only where it either enhances the

economic benefits of the development/producing asset or replaces part of the existing

development/producing asset. Any costs remaining associated with the part replaced are

expensed.

All property, plant and equipment other than oil and gas assets are stated at historical cost less

depreciation. Historical cost includes expenditure that is directly attributable to the acquisition

of the items.

All other repairs and maintenance are charged to the Statement of Comprehensive Income

during the financial period in which they are incurred.

Depreciation is charged so as to allocate the cost of assets, over their estimated useful lives,

on a straight-line basis as follows:

Office equipment – 4 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each

financial year-end.

Gains and losses on disposal are determined by comparing proceeds with carrying amount.

These are included in the Statement of Comprehensive Income.

2.10 Intangible assets

x Development expenditure

Expenditure on the drilling of development wells, including service, is capitalised

initially within intangible fixed assets and when the well has formally commenced

commercial production, then it is transferred to property, plant and equipment and is

depreciated from the commencement of production as described in the accounting

policy for property, plant and equipment

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.10 Intangible assets (continued)

x Drilling costs and Petroleum mineral leases

The Group applies the successful efforts method of accounting for oil and gas assets,

having regard to the requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral

Resources’. Costs incurred prior to obtaining the legal rights to explore an area are

expensed immediately to the Statement of Comprehensive Income.

Exploration expenditure incurred in the process of determining exploration targets is

capitalised initially within intangible assets as drilling costs. Drilling costs are initially

capitalised on a well-by-well basis until the success or otherwise has been established.

Drilling costs are written off on completion of a well unless the results indicate that

hydrocarbon reserves exist and there is a reasonable prospect that these reserves are

commercially viable. Drilling costs are subsequently transferred to ‘Drilling

expenditure’ within property, plant and equipment and depreciated over their

estimated useful economic life. All such costs are subject to regular technical,

commercial and management review on at least an annual basis to confirm the

continued intent to develop or otherwise extract value from the discovery. Where this

is no longer the case, the costs are immediately expensed to the Statement of

Comprehensive Income.

2.11 Impairment of Non-Financial Assets

Assets not ready for use are not subject to amortisation and are tested annually for impairment.

Assets that are subject to amortisation or depreciation are reviewed for impairment at each

reporting date. An impairment loss is recognised for the amount by which the asset’s carrying

amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s

fair value less costs to sell and value in use. For the purposes of assessing impairment, assets

are grouped at the lowest levels for which there are separately identifiable cash flows (cash-

generating units). Non-financial assets other than goodwill that suffered impairment are

reviewed for possible reversal of the impairment at each reporting date.

2.12 Financial assets

Classification

Financial assets are recognised when the Group becomes a party to the contractual provisions

of the instrument. At initial recognition, the Group measures its financial assets at amortised

cost which comprise ‘trade and other receivables’ and ‘cash and cash equivalents’.

A financial asset shall be measured at amortised cost if both of the following conditions are

met:

x the financial asset is held within a business model whose objective is to hold financial

assets in order to collect contractual cash flows; and

x the contractual terms of the financial asset give rise on specified dates to cash flows that

are solely payments of principal and interest on the principal amount outstanding.

Recognition and measurement

At initial recognition, an entity shall measure a financial asset at its fair value plus transaction

costs that are directly attributable to the acquisition or issu

e of the financial asset.

At initial recognition, an entity shall measure trade receivables at their transaction price if the

trade receivables do not contain a significant financing component.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.12 Financial assets (continued)

Derecognition

The Group derecognises a financial asset when the contractual rights to the cash flows from

the asset expire, or it transfers the rights to receive the contractual cash flows on the financial

asset in a transaction in which substantially all the risks and rewards of the ownership of the

financial asset are transferred. Any interest in transferred financial assets that is created or

retained by the Group is recognised as a separate asset or liability.

Derecognition also takes place for certain assets when the Group writes-off balances pertaining

to the assets deemed to be uncollectible.

Impairment of financial assets

IFRS 9 mandates the use of an expected credit loss model to calculate impairment losses

rather than an incurred loss model, and therefore it is not necessary for a credit event to have

occurred before credit losses are recognised. The impairment model applies to the Group’s

financial assets and loan commitments. The Group recognises lifetime expected credit losses

(“ECL”) when there has been a significant increase in credit risk since initial recognition.

However, if the credit risk on the financial instrument has not increased significantly since initial

recognition, the Group measures the loss allowance for that financial instrument at an amount

equal to 12-month ECL.

The Group is satisfied that the credit risk of its financial assets has not significantly increased

and no provision for losses is required. The Group has concluded this on the basis of ongoing

monitoring of the credit status of bank counterparties and the long-term operating relationships

that the Group has with the other debtor counterparties.

2.13 Short term investments

Short term investments include amounts held in bank accounts and deposits by intermediaries

that have been approved by the Directors.

2.14 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and demand deposits with

banks.

2.15 Trade and other payables

Trade and other payables are initially measured at fair value, net of transaction costs that are

directly attributable to the issue of the financial liability and are subsequently measured at

amortised cost using the effective interest method if the time value of money is significant.

2.16 Borrowings

Borrowings are recognised initially at fair value minus transaction costs that are directly

attributable to the issue of the financial liability. Borrowings are subsequently carried at

amortised cost; any difference between the proceeds (net of transaction costs) and the

redemption value is recognised in the Income Statement over the period of the borrowings,

using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to

defer settlement of the liability for at least 12 months after the end of the reporting period.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.17 Share capital

Ordinary shares are classified as equity when there is no obligation to transfer cash or other

assets. Incremental costs directly attributable to the issue of equity instruments are shown in

equity as a deduction from the proceeds, net of tax. Incremental costs directly attributable to

the issue of equity instruments as consideration for the acquisition of a business are included

in the cost of acquisition.

2.18 Reserves

The reverse merger as described in Accounting Policy 2.2; the acquisition has been accounted

for as a share-based payment transaction which should be accounted for in accordance with

IFRS 2. On the basis of the guidance in para 13A of IFRS 2, the reverse merger has been

treated as a continuation of the Nobel Group into the Pennpetro Group. The consideration

included the issue of new share capital and the issue of a convertible bond. The total

consideration less the share capital in Nobel UK resulted in the creation of the reorganisation

reserve.

The convertible reserve represents the principal value of a mandatory convertible note issued

by Pennpetro Petroleum plc to Nobel Petroleum Ireland Limited in part consideration for the

acquisition of Nobel Petroleum UK under an agreement dated 17 May 2017.

The translation reserve represents effects of currency translation in the year.

2.19 Taxation

The tax expense or credit comprises current and deferred tax. It is calculated using tax rates

that have been enacted or substantively enacted by the Statement of Financial Position date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary

differences arising from differences between the carrying amount of assets and liabilities in the

financial statements and the corresponding tax basis used in the computation of taxable profit.

In principle, deferred tax liabilities are recognised for all taxable temporary differences and

deferred tax assets are recognised to the extent that it is probable that taxable profits will be

available against which deductible temporary differences can be utilised. Such assets and

liabilities are not recognised if the temporary difference arises from goodwill (or negative

goodwill) or from the initial recognition (other than in a business combination) of other assets

and liabilities in a transaction, which affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments

in subsidiaries and associates, and interests in joint ventures, except where the Group is able

to control the reversal of the temporary difference and it is probable that the temporary

difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates

that are expected to apply to the period when the asset is realised, or the liability is settled.

Deferred tax is charged or credited in the Statement of Comprehensive Income, except when

it relates to items credited or charged directly to equity, in which case the deferred tax is also

dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income

taxes levied by the same taxation authority and the Group intends to settle its current tax assets

and liabilities on a net basis.

2.20 Segment Information

Operating segments are reported in a manner consistent with the internal reporting provided to

the chief operating decision-maker (“CODM”), who is responsible for allocating resources and

assessing performance of the operating segments and making strategic decisions. The CODM

is determined to be the board of Directors.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.21 Share based payments

All services received in exchange for the grant of any share-based remuneration are measured

at their fair values. These are indirectly determined by reference to the fair value of the share

options/warrants awarded. Their value is appraised at the grant date and excludes the impact

of any non-market vesting conditions (for example, profitability and sales growth targets).

Share based payments are ultimately recognised as an expense in the Statement of

Comprehensive Income with a corresponding credit to other reserves in equity, net of deferred

tax where applicable. If vesting periods or other vesting conditions apply, the expense is

allocated over the vesting period, based on the best available estimate of the number of share

options/warrants expected to vest. Non-market vesting conditions are included in assumptions

about the number of options/warrants that are expected to become exercisable. Estimates are

subsequently revised, if there is any indication that the number of share options/warrants

expected to vest differs from previous estimates. No adjustment is made to the expense or

share issue cost recognised in prior periods if fewer share options ultimately are exercised than

originally estimated.

Upon exercise of share options, the proceeds received net of any directly attributable

transaction costs up to the nominal value of the shares issued are allocated to share capital

with any excess being recorded as share premium.

Where share options are cancelled, this is treated as an acceleration of the vesting period of

the options. The amount that otherwise would have been recognised for services received over

the remainder of the vesting period is recognised immediately within the Statement of

Comprehensive Income.

3. FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks: market risk (including currency

risk and cash flow and interest rate risk), credit risk and liquidity risk.

Market risk

The Group operates in an international market for hydrocarbons and is exposed to risk arising

from variations in the demand for and price of the hydrocarbons. Oil and gas prices historically

have fluctuated widely and are affected by numerous factors over which the Group has no

control, including world production levels, international economic trends, exchange rate

fluctuations, speculative activity and global or regional political events.

Currency risk

The majority of the Group’s purchase transactions and expenditure are denominated in US

dollars. The currencies are stable, and any exchange risk is managed by maintaining bank

accounts denominated in those currencies.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

3. FINANCIAL RISK MANAGEMENT (continued)

Credit risk

The Group’s principal financial assets are cash and cash equivalents, other receivables and

short-term investments.

Credit risk represents the risk of loss the Group would incur if third party operators and

counterparties fail to fulfil their credit obligations. The risk is concentrated between a relatively

small group of operators given the small number of parties involved in oil and gas exploration

and production activities. The Group seeks to mitigate this risk where possible by assessing

the credit quality of the participants and by establishing ongoing and long-term relationships.

The initial credit risk on cash and cash equivalents and short-term investments is limited

because it is the Group’s policy to invest with banks that firstly offer the greatest degree of

security in the view of the Group and, secondly the most competitive interest rates. The credit

risk for short term investments and cash and cash equivalents is considered negligible since

the counterparties are reputable banks.

Other receivables include amounts due from parties that have been involved in the Gonzales

Project since its inception and continue to have an interest in the Group in their capacity as

shareholders in Pennpetro or as lenders to the Group. Other receivables are therefore initially

considered low credit risk.

Other receivables are considered in default if the entity or party has not settled its payment

obligation by the due date set out in the underlying contracts and agreements.

A loss allowance is recognised for expected credit losses on all financial assets held at the

balance sheet date. Given risk mitigation steps undertaken by the Directors, no provision has

been made for losses.

The maximum exposure due to credit risk for the Group on financial assets during the year was

$346,198 (2020: $359,424). All amounts are expected to be received in full and on time.

Liquidity risk

Cash flow forecasting is performed in the operating entities of the Group and aggregated by

Group Finance. Group Finance monitors rolling forecasts of the Group’s liquidity requirements

to ensure it has sufficient cash to meet operational needs, while seeking to maintain sufficient

headroom on its undrawn committed borrowing facilities (note 20) at all times, so that the Group

does not breach borrowing limits or covenants (where applicable) on any of its borrowing

facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant

compliance, compliance with internal Statement of Financial Position ratio targets, and, if

applicable, external regulatory or legal requirements (for example, currency restrictions).

The table below analyses the Group’s non-derivative financial liabilities and net-settled

derivative financial liabilities into relevant maturity groupings, based on the remaining period at

the Statement of Financial Position to the contractual maturity date. The amounts disclosed in

the table are the contractual undiscounted cash flows.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

3. FINANCIAL RISK MANAGEMENT (continued)

Liquidity risk (continued)

Group	Less than	Between	Between
	1 year	1 and 2 years	2 and 3 years
At 31 December 2021	$	$	$
Borrowings (undiscounted)	4,190,324	-	-
Trade and other payables	1,044,529	-	-
At 31 December 2020
Borrowings (undiscounted)	4,242,366	-	-
Trade and other payables	496,086	-	-

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

4.1 Use of estimates and judgements

The preparation of Financial Statements in conformity with IFRSs requires management to

make judgements, estimates and assumptions that affect the application of policies and

reported amounts of assets and liabilities, income and expenses. The estimates and associated

assumptions are based on historical experience and various other factors that are believed to

be reasonable under the circumstances, the results of which form the basis of making the

judgements about carrying values of assets and liabilities that are not readily apparent from

other sources. Actual results may differ from these estimates.

The 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 if the revision

affects only that period, or in the period of the revision and future periods if the revision affects

both current and future periods. In particular, information about significant areas of estimation

uncertainty and critical judgements in applying accounting policies that have the most

significant effect on the amount recognised in the financial statements are described below.

4.2 Critical accounting judgements

x Recoverability of non-producing mineral leases and capitalised drilling costs &

equipment

Management tests annually whether non-producing mineral leases have future economic

value in accordance with the accounting policies. This assessment takes into consideration

the likely commerciality of the asset, the future revenues and costs pertaining and the

discount rates to be applied for the purposes of deriving a recoverable value. In the event

that a lease does not represent an economic drilling target and results indicate that there

is no additional upside, the mineral lease and drilling costs will be impaired. The Directors

have reviewed the estimated value of the licences and have concluded that an impairment

charge of $Nil (2020: $Nil) should be recognised. The Directors do not consider that there

is a significant risk of material adjustment to the estimated value of the leases given the

underlying value of proven reserves and the successful testing, trials and completion of the

initial well.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

4.2 Critical accounting judgements (continued)

x Impairment of investments

The Directors have assessed at year end whether there is any indication that the carrying

value of the Company’s investment in its subsidiaries has been impaired. The Directors

have determined that the value of the assets owned by its subsidiaries, namely the mineral

leases, the proven oil and gas reserves and Net Revenue Interests are significantly higher

than the Investment carried in the Company’s books. The Directors therefore do not

consider any impairment is necessary. The Directors do not consider that there is a

significant risk of material downward adjustment to the estimated levels of proven and

probable reserves in the next 12 months, but have disclosed this as an area of significant

estimation based on the size of the balance.

x Going concern

When assessing going concern the Directors considered whether there was a material

uncertainty The Company is currently looking to draw down funds under the Share

Subscription Facility awarded on 2 June 2021.. The Directors have considered the current

share price and historic pricing movements and are satisfied, based on this, that adequate

funds will be received that, in conjunction with existing sources of finance, will enable the

Group to continue to operate as a going concern for at least 12 months from the date of

signature. On 16 March 2022, the Company raised £350,000 gross proceeds through the

issue of 1,166,667 new ordinary shares at a price of 30p per share. Additionally, on 29 June

2022, Petroquest Energy Limited extended the repayment date by one year on the loan

owing by Nobel Petroleum LLC. The revised maturity date on the loan is 31 December

2023. On this basis the Directors did not consider there to be a material uncertainty in

respect of going concern.

x Estimated impairment of producing properties and capitalised drilling costs &

equipment

At 31 December 2021, petroleum mineral leases and capitalised drilling costs & equipment

on petroleum properties have a total carrying value of $5,618,821 (2020: $5,618,204),

(notes 12 and 13). Management tests annually whether the assets have future economic

value in accordance with the accounting policies and has placed reliance on the Competent

Persons Report (“CPR”) prepared in December 2017.

All of the mineral leases were offered on an initial term of three years with an option to

extend them by two years. All of the leases covering the initial permit area do not need

renewing whilst there is any production from the permitted area. The initial drilled well

COG#1-H was drilled within the initial term and is classified by the Texas Commission as

a production unit and therefore leases are held pursuant to that production status.

The recoverable amount of each property has been determined based on a value in use

calculation which requires the use of certain estimates and assumptions such as long-term

commodity prices (i.e. oil and gas prices), pre-tax discount rates, operating costs, future

capital requirements and mineral resource estimates. These estimates and assumptions

are subject to risk and uncertainty and therefore a possibility that changes in circumstances

will impact the recoverable amount.

The following information has been used by the Directors in determining the recoverability

of the Company’s Petroleum properties. The Source for this information is the CPR

prepared in December 2017.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

(continued)

x Estimated impairment of producing properties and capitalised drilling costs &

equipment (continued)

x The Pennpetro Group owns approximately 1,000 leases on 2,500 acres in

Gonzales, Texas.

x T h e Group’s Net Working Interests are 4,000 Mbbl of oil and 2,000 MMcf of gas.

x Base case oil sold is assumed at $33 per barrel and gas at $3.20 per thousand

cubic feet.

x WTI Oil initially for two years at $33 then at $45 and gas pricing held constant to

depletion in 2031.

x The total proved future Net Revenue Interest after costs as at 1 June 2021:

Undiscounted $120m (2020: $92m).

The Directors are comfortable in relying on the CPR for the following reasons:

- The oil sold price used by the Directors in their revised assessment of future Net

Revenue of $33, is lower than current and future forecast WTI prices. The WTI price as

at 23 June 2022 was $105.32 (source: Bloomberg markets).

- Operating costs remain unchanged.

- The Group increased its Working Interest to 100% during 2019 and consequently its

Net Revenue Interest increased to 75%. This was as a result of taking legal ownership

of the remaining participants interests in the Gonzales Project.

- The effect of the increase in the Group’s Net Revenue Interest counteracts the

reduction in oil price used by the Directors in calculating the total proved future Net

Revenue Interest after costs.

Based on the information provided in the CPR, updated for changes in Net Revenue

Interest and oil price, the Directors have determined that the Company’s oil properties have

not been impaired as at the 31 December 2021. The Directors also do not consider that

there is a significant risk of material adjustment to the estimates used to assess impairment

of producing properties and capitalised drilling costs & equipment in the next 12 months,

but have disclosed this as an area of significant estimation based on the size of the balance.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

5. SEGMENTAL INFORMATION

The Group operates in two geographical areas, the United Kingdom and the United States of

America. Activities in the UK are mainly administrative in nature whilst the activities in the USA

relate to exploration and production from oil and gas wells. The reports reviewed by the Board

of Directors that are used to make strategic decisions are based on these geographical

segments.

Year ended 31 December 2021

			Intra-segment
	USA	UK	balances	Total
	$	$	$	$
Revenue	-	-	-	-
Operating loss	(29,595)	(991,451)	-	(1,021,046)
Depreciation &	-	-	-	-
amortisation
Capital expenditure	617	-	-	617
Development expenditure	-	-	-	-
Total assets	6,050,937	3,128,332	(3,042,414)	5,965,019
Total liabilities	3,593,419	1,335,042	(3,042,414)	5,300,791

Year ended 31 December 2020

			Intra-segment
	USA	UK	balances	Total
	$	$	$	$
Revenue	66,798	-	-	66,798
Operating profit/(loss)	(671,842)	(639,524)	-	(1,311,366)
Depreciation &	577	959	-	1,536
amortisation
Capital expenditure	23,151	-	-	23,151
Development expenditure	67,153	-	-	67,153
Total assets	5,877,838	3,111,264	(3,011,474)	5,977,628
Total liabilities	6,686,644	548,910	(3,011,474)	4,224,080

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

5. SEGMENTAL INFORMATION (continued)

The amounts provided to the Board of Directors with respect to total assets are measured in a

manner consistent with that of the financial statements. These assets are allocated based on

the operations of the segment and physical location of the asset.

Reportable segments’ assets are reconciled to total assets as follows:

	Year ended	Year ended
	31 December	31 December
	2 0 2 1	2 0 2 0
	$	$
Segmental assets for reportable segments	5,965,019	5,977,628
Total assets per Statement of Financial Position	5,965,019	5,977,628

Information about major customers/operating partners

At 31 December 2021, Nobel USA held a 100% Working Interest (2020: 100%) in the leasehold

petroleum interests which are centred on the City of Gonzales, southwest Texas, USA,

comprising the undeveloped central portion of the Gonzales Oil Field.

6. EXPENSES BY NATURE

Group

	Year ended	Year ended
	31 December	31 December
	2 0 2 1	2 0 2 0
	$	$
Legal, professional and compliance costs	186,028	84,192
Depreciation and amortisation	-	76,630
Foreign exchange loss	22,307	743,679
Loan arrangement fee	550,033	-
Other costs	262,678	473,663
Total administrative expenses	1,021,046	1,378,164

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

7. AUDITOR REMUNERATION

Services provided by the Company’s auditor and its associates

During the year, the Group (including its overseas subsidiaries) obtained the following services

from the Company’s auditor:

	Year ended	Year ended
	31 December	31 December
	2 0 2 1	2 0 2 0
	$	$
Fees payable to the Company’s auditor for the audit
of the parent company and consolidated financial
Statements	38,400	32,000

8. STAFF COSTS

Group

and Company

	2 0 2 1	2 0 2 0
	$	$
Wages and salaries	114,652	160,000
Social security costs	7,233	12,146
Valuation of options	229,224	362,730
	351,109	534,876

Directors’ Emoluments

		2 0 2 1	2 0 2 0
		$	$
Keith Edelman (resigned on 15 April 2021)	Emoluments	13,528	47,026
	Valuation of options	27,601	90,682
Olof Rapp	Emoluments	40,306	40,306
	Valuation of options	79,913	90,682
Philip Nash (resigned on 8 June 2021)	Emoluments	17,558	40,306
	Valuation of options	41,797	90,682
Thomas Evans	Emoluments	40,306	40,306
	Valuation of options	79,913	90,682
		340,922	530,672

The Group does not employ any full-time employees at its US subsidiaries. Instead the Group

uses specialist service providers to fulfil its well drilling and land management requirements.

The average monthly number of staff, including the Directors, during the financial year was as

follows:

	2 0 2 1	2 0 2 0
Directors	3	4

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

9. FINANCE INCOME AND FINANCE COSTS

	2 0 2 1	2 0 2 0
	$	$
Loan adjustment for effective interest and bank interest	-	2,058
Interest expense	290,661	262,796

10. INCOME TAX

The tax charge for the year is $Nil (2020: $Nil).

Factors affecting the tax charge for the period

The tax charge for each year is explained below:

	2 0 2 1	2 0 2 0
	$	$
Loss for the year before taxation	(1,311,707)	(1,046,512)
UK Loss before tax multiplied by the UK tax	( 249,224)	(198,837)
rate 19% (2020: 19%)
Tax effect of:
Expense not deductible for tax purposes	-	-
Unutilised tax losses carried forward	249,224	198,837
	-	-

The Group has UK tax losses of approximately $913,199 (2020: $663,895) to carry forward

against future profits. The Directors have not recognised a deferred tax asset on the losses to

date due to the uncertainty of recovery.

On 10 June 2021, the UK Government’s proposal to increase the rate of UK corporation tax

from 19% to 25% with effect from 1 April 2023 was enacted into UK law.

11. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is based on the following loss and

number of shares:

	2021	2 0 2 0
Group:
Loss attributable to equity holders of the parent ($)	1,311,707	1,046,512
Weighted average number of shares (number)	76,452,106	75,109,393
Loss per share (cents)	(1.72)	(1.39)

There is no difference between the basic and diluted earnings per share as the effect would be

to increase the loss per share.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

12. PROPERTY, PLANT AND EQUIPMENT

	Petroleum
Group	(Mineral	Office
	Leases)	equipment	Total
	$	$	$
Cost
At 1 January 2020	1,361,163	11,512	1,372,675
Additions	23,151	-	23,151
Currency translation	-	275	275
At 31 December 2020	1,384,314	11,787	1,396,101
Additions	617	-	617
Currency translation	-	(88)	(88)
At 31 December 2021	1,384,931	11,699	1,396,630
Accumulated Depreciation
At 1 January 2020	-	9,941	9,941
Charge for the year	-	1,536	1,536
Currency translation	-	310	310
At 31 December 2020	-	11,787	11,787
Charge for the year	-	-	-
Currency translation	-	(88)	(88)
At 31 December 2021	-	11,699	11,699
Net Book Amount
At 31 December 2020	1,384,314	-	1,384,314
At 31 December 2021	1,384,931	-	1,384,931

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

12. PROPERTY, PLANT AND EQUIPMENT (continued)

	Office
Company	equipment
	$
Cost
At 1 January 2020	9,203
Additions	-
Currency translation	275
At 31 December 2020	9,478
Additions	-
Currency translation	(88)
At 31 December 2021	9,390
Accumulated Depreciation
At 1 January 2020	8,209
Charge for the period	959
Currency translation	310
At 31 December 2020	9,478
Charge for the period	-
Currency translation	(88)
At 31 December 2021	9,390
Net Book Amount
At 31 December 2020	-
At 31 December 2021	-

Office equipment depreciation expense of $Nil (2020: $959) has been charged in administrative

expenses.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

13. INTANGIBLE ASSETS

		Loan
Group	Drilling	arrangement
	costs	fees	Total
	$	$	$
Cost
At 1 January 2020	4,166,737	270,339	4,437,076
Additions	67,153	-	67,153
At 31 December 2020	4,233,890	270,339	4,504,229
Additions	-	-	-
At 31 December 2021	4,233,890	270,339	4,504,229
Amortisation
At 1 January 2020	-	195,245	195,245
Amortisation charge for the year	-	75,094	75,094
At 31 December 2020	-	270,339	270,339
Amortisation charge for the year	-	-	-
At 31 December 2021	-	270,339	270,339
Net Book Amount
At 31 December 2020	4,233,890	-	4,233,890
At 31 December 2021	4,233,890	-	4,233,890

Drilling costs represents acquired exploration and evaluation assets with an undetermined

useful life and are tested annually for impairment. Drilling costs are capitalised on a well by well

basis if the results indicate the existence of a commercially viable level of reserves. No amounts

are pledged as security for liabilities.

At 31 December 2021, the Company held, through its US based subsidiary entities, 100% in

the leasehold petroleum interests centred on the City of Gonzales, southwest Texas.

Impairment review – Intangible assets

The Directors have undertaken a review to assess whether circumstances exist which could

indicate the existence of impairment, considering the following indicators:

x The Group no longer has title to mineral leases.

x A decision has been taken by the Board to discontinue exploration due to the absence

of a commercial level of reserves.

x Sufficient data exists to indicate that the costs incurred will not be fully recovered from

future development and participation.

Following their assessment, the Directors recognised that no impairment charge is necessary.

Further details regarding consideration of the carrying value is contained in note 4.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

14. INVESTMENTS

Investments in subsidiaries

Company	2 0 2 1	2 0 2 0
	$	$
Shares in group undertakings
At 1 January	7,104,824	6,899,108
Additions
Foreign exchange movements	(66,193)	205,716
At 31 December	7,038,631	7,104,824

The Group comprises of the following subsidiaries:

Pennpetro USA Corp
Registered Office:	8 The Green Ste		A, Dover, Delaware 19901, USA
Nature of business:	Oil and Gas
Class of share:	Ordinary shares
% of equity shares held by Company:	100%
Nobel Petroleum USA Inc.	198	West 13th Street, Wilmington, Delaware
Registered Office:	19801,	USA
Nature of business:		Oil and Gas
Class of share:	Ordinary shares
% of equity shares held by Company:	100% via Pennpetro USA Corp
Nobel Petroleum LLC	3867	Plaza Tower DR Baton Rouge, Louisiana
Registered Office:	70816-	4378,	USA
Nature of business:		Oil and Gas
Class of share:	Ordinary shares
% of equity shares held by Company:	100% via Pennpetro USA Corp
Nobel Petroleum UK Limited
Registered Office:	1/88 Whitfield St. London W1T 4EZ, UK
Nature of business:	Dormant, dissolved in April 2022
Class of share:	Ordinary shares (£100)
% of equity shares held by Company:	100%
Pennpetro Greentec UK Limited
Registered Office:	1/88 Whitfield St. London W1T 4EZ, UK
Nature of business:	Dormant
Class of share:	Ordinary shares (£100)
% of equity shares held by Company:	100%
Pennpetro Green Energy Limited
Registered Office:	1/88 Whitfield St. London W1T 4EZ, UK
Nature of business:	Dormant
Class of share:	Ordinary shares (£100)
% of equity shares held by Company:	100%

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

14. INVESTMENTS (continued)

Pennpetro Greentec Limited	1 Kalymnou, Q MERITO, 4th Floor, Agios Nikolaos,
Registered Office:
	6037	Larnaca, Cyprus
Nature of business:	IP Holding
Class of share:	Ordinary shares (€1,000)
% of equity shares held by Company:	100%

These subsidiary undertakings are included in the consolidation. The proportion of the voting

rights in the subsidiary undertaking held directly by the parent company does not differ from

the proportion of ordinary shares held.

15. TRADE AND OTHER RECEIVABLES

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Amounts owed from group	-	-	3,079,883	3,047,540
undertakings
Other receivables	309,456	308,943	13,535	14,572
	309,456	308,943	3,093,418	3,062,112

The fair value of all receivables is the same as their carrying values stated above.

Group

The carrying amounts of the Group’s trade and other receivables are denominated in the

following currencies:

	2 0 2 1	2 0 2 0
	$	$
UK Pound Sterling	13,535	13,663
US Dollar	295,921	295,280
	309,456	308,943

The maximum exposure to credit risk at the reporting date is the carrying value of each class

of receivable mentioned above. With respect to amounts due from Development participants,

each participant has provided a lien over its lease interests and a security interest over its

interest in well assets. The Group does not hold any collateral as security for other receivables.

The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the

carrying value of other receivables denominated in UK Pounds by approximately $1,353 (2020:

$1,366). The impact of a 10% adverse movement in the US Dollar to UK Pound would reduce

the carrying value of other receivables denominated in UK Pounds by approximately $1,353

(2020: $1,366).

Company

The carrying amounts of the Company’s trade and other receivables are denominated in UK

Pound Sterling.

The maximum exposure to credit risk at the reporting date is the carrying value of each class

of receivable mentioned above. The Company does not hold any collateral as security for other

receivables.

The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the

carrying value of other receivables denominated in UK Pounds by $309,341 (2020: $306,211).

The impact of a 10% adverse movement in the US Dollar to UK Pound would reduce the

carrying value of other receivables denominated in UK Pounds by $309,341 (2020: $306,211).

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

16. SHORT-TERM INVESTMENTS

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Short-term investments	34,914	49,152	34,914	49,152

Short term investments include $34,914 (2020: $49,152) of cash being held by FHF Corporate

Finance Limited on behalf of Pennpetro. The amount is held in Pounds Sterling.

Group

The carrying amounts of the Group’s short-term investments are denominated in the following

currencies:

	2 0 2 1	2 0 2 0
	$	$
UK Pound Sterling	34,914	49,152
US Dollar	-	-
	34,914	49,152

The maximum exposure to credit risk at the reporting date is the carrying value of the short-

term investment mentioned above. The Group does not hold any collateral as security.

The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the

carrying value of short-term investments denominated in UK Pounds by approximately $3,491

(2020: $4,915). The impact of a 10% adverse movement in the US Dollar to UK Pound would

reduce the carrying value of short-term investments denominated in UK Pounds by

approximately $3,491 (2020: $4,915).

Company

The carrying amounts of the Company’s short-term investments are denominated in UK Pound

Sterling.

17. CASH AND CASH EQUIVALENTS

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Cash at bank	1,828	1,329	-	-

At 31 December 2021, the Group held cash of $1,828 (2020: $1,329) in banks with a Fitch

credit rating of A (Stable).

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

18. SHARE CAPITAL AND PREMIUM

	Ordinary shares			Share premium
Group	Number of	Value	Value	Value	Value	Total
	shares	£	$	£	$	$
At 1 January 2020	72,333,702	723,337	926,711	1,187,098	1,538,636	2,465,347
Share issue	4,118,404	41,184	52,716	2,018,018	2,583,064	2,635,780
At 31 December	76,452,106	764,521	979,427	3,205,116	4,121,700	5,101,127
2020
Share issue	-	-	-	-	-	-
At 31 December	76,452,106	764,521	979,427	3,205,116	4,121,700	5,101,127
2021

Each ordinary share has a nominal value of 1 pence per share.

A convertible loan note which was issued by Pennpetro to Nobel Ireland in the Reverse merger

of Nobel UK, may be converted into 19 million ordinary shares if certain conditions are met, at

a fixed subscription price of 25 pence.

19. SHARE BASED PAYMENTS

Share options

On 2nd November 2018 the Company granted options under the Pennpetro Energy Plc Option

Share Plan with an exercise price of £0.35p per share over, in aggregate, 1,700,000 ordinary

shares of £0.01 each to Directors Keith Edelman, Phillip Nash, Tom Evans and Olof Rapp,

who each received 425,000 options. The share price of the options granted are linked to the

price of shares issued on listing. Options are granted at 35p, which is a modest premium to

the issue price of the listing share price of 25p.

	Weighted average
	exercise price	N u m b e r o f
	£	awards
Exercisable at 1 January 2020	0.35	1,700,000
Awarded	-	-
Forfeited	-	-
Exercisable at 31 December 2020	0.35	1,700,000
Awarded	-	-
Expired	-	(1,700,000)
Exercisable at 31 December 2021	-	-

The share options expired on 2 November 2021. No share options were exercised by the

Directors.

The fair value of the options was determined using the Black-Scholes valuation model.

$229,224 (2020: $400,268) was recognised in the Statement of Comprehensive Income in

relation to share based payment transactions.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

20. BORROWINGS

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Current liabilities
Corporate borrowings	4,256,262	3,727,995	-	-

As at 31 December 2021, the Group had a $5 million Loan Note arrangement with Petroquest

Energy Limited, with a maturity date of 31 December 2021. In June 2021, Petroquest Energy

Limited agreed to extend the maturity date to 31 December 2022.

The annual interest rate is set at 1% below Barclays Bank base rate, which has been less than

0.75% since the loan’s inception and therefore no interest has been charged on the loan. The

undiscounted balance drawn against this loan note as at 31 December 2021 was $4,190,324

(2020: $4,242,367). The borrowing facility is secured against certain petroleum leases owned

by the Group. The discounted present value of the loan as at 31 December 2021 was

$3,658,987 (2020: $3,661,045) and reflects an adjustment for effective interest calculated at

8% per annum over the remaining term of the loan.

The movement in total borrowings in the year was as follows. Borrowings are denominated

partially in US dollars and partially in Pounds Sterling.

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
At 1 January	3,727,995	6,078,992	-	-
Advance	304,556	66,950	-	-
Interest charge	290,661	271,189	-	-
Net repayment	(65,938)	-	-	-
Loan settlement	-	(2,324,351)
Adjustment for effective interest	2,058	2,058
Loan term modification	-	(533,985)	-	-
adjustment
Foreign currency exchange	(3,070)	167,142	-	-
At 31 December	4,256,262	3,727,995	-	-

The fair value of borrowings equals their carrying amount. Borrowings are denominated in US

dollars.

The net debt position (total borrowings less cash on hand) as at 31 December 2021 is

$4,254,434 (2020: $3,726,666).

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

20. BORROWINGS (continued)

Group

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

	2 0 2 1	2 0 2 0
	$	$
UK Pound Sterling	304,556	66,950
US Dollar	3,951,706	3,661,045
	4,256,262	3,727,995

The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the

carrying value of borrowings denominated in UK Pounds by approximately $30,455 (2020:

$6,695). The impact of a 10% adverse movement in the US Dollar to UK Pound would reduce

the carrying value of the borrowings denominated in UK Pounds by approximately $30,455

(2020: $6,695).

Company

The company does not carry any borrowings.

21. TRADE AND OTHER PAYABLES

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Trade and other payables	408,726	291,412	663,510	308,171
Amounts owed to group	-	-	35,729	36,065
undertakings
Accrued expenses	635,803	204,673	635,803	204,674
At 31 December	1,044,529	496,085	1,335,042	548,910

Group

The carrying amounts of the Group’s trade and other payables are denominated in the

following currencies:

	2 0 2 1	2 0 2 0
	$	$
UK Pound Sterling	994,529	446,086
US Dollar	50,000	50,000
	1,044,529	496,086

The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the

carrying value of trade and other payables denominated in UK Pounds by approximately

$99,453 (2020: $44,609). The impact of a 10% adverse movement in the US Dollar to UK

Pound would reduce the carrying value of trade and other payables denominated in UK

Pounds by approximately $99,453 (2020: $44,609).

Company

The carrying amounts of the Company’s trade and other payables are denominated in UK

Pound sterling. The carrying amounts of the Company’s US subsidiary companies are

denominated in US Dollars.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

22. FINANCIAL INSTRUMENTS BY CATEGORY

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Assets as per Statement of Financial Position
Loans and receivables:
Trade and other receivables	309,456	308,943	3,093,418	3,062,112
(excluding prepayments)
Short-term investments	34,914	49,152	34,914	49,152
Cash and cash equivalents	1,828	1,329	-	-
	346,198	359,424	3,128,332	3,111,264
Liabilities per Statement of Financial Position
Financial liabilities at amortised
cost:
Borrowings	4,256,262	3,727,995	-	66,950
Trade and other payables	1,044,529	496,085	1,335,042	445,895
(excluding non-financial liabilities)	5,300,791	4,224,080	1,335,042	512,845

Certain leases which have been capitalised in Property Plant and Equipment have been

pledged as collateral against the loan from Pennpetro Bonds II Limited. No other financial

assets are pledged as security. Pennpetro Bonds II Limited is not in the Pennpetro group.

23. TREASURY POLICY

The Company and Group operate informal treasury policies which include ongoing

assessments of interest rate management and borrowing policy. The Board approves all

decisions on treasury policy.

The Group has financed its activities by raising funds through borrowings set out in note 20

above. There are no material differences between the book value and fair value of the financial

assets.

24. CAPITAL MANAGEMENT POLICIES

The Group and Company set the amount of capital in proportion to its overall financing

structure and manage their capital structure and make adjustments to it in the light of changes

in economic conditions and the risk characteristics of the underlying assets.

The Group considers its equity to be its capital.

The Group and Company’s capital management objectives are:

x to ensure compliance with borrowing covenants;

x to ensure the Group’s and Company’s ability to continue as a going concern; and

x to provide an adequate return to shareholders.

In order to maintain or adjust the capital structure, the Group may issue new shares or sell

assets to reduce debts. The Group will continue making interest payments in accordance with

financial and non-financial loan covenants.

PENNPETRO ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS (continued)

For the year ended 31 December 2021

25. CAPITAL COMMITMENTS

As at 31 December 2021 and 2020, the Group had no capital commitments for drilling and

equipment costs contracted but not provided for.

26. RELATED PARTY TRANSACTIONS

Transactions with Directors

An amount of £10,000 that was previously advanced to Thomas Evans remains outstanding

as at 31 December 2021 (2020: £10,000). The amount is secured against shares held by him

in the Company and is due for repayment within 12 months. No interest has been charged on

the advance.

Thomas Evans is a Director of Pennpetro Bonds II Limited, which provided a £2m loan facility

to the Group in 2018 and was repaid in 2020. In his capacity as a Director of Pennpetro Bonds

II Limited, Mr. Evans received director’s fees of £Nil (2020: £Nil) from that Company.

Pennpetro Bonds II Limited is not in the Pennpetro group.

Thomas Evans is a Director of the following companies which are considered as related

parties:

x FHF Securities (A’Asia) Limited – a shareholder in Pennpetro with a 6.54%

shareholding in the Company.

x Nobel Petroleum UK Limited which is a 100% subsidiary of Pennpetro.

x Nobel Petroleum LLC, which is a 100% directly owned subsidiary of Pennpetro USA

Corp.

x Nobel Petroleum USA, Inc, which is a 100% owned subsidiary of Pennpetro USA

Corp.

x Pennpetro USA Corp., which is a 100% owned subsidiary of Pennpetro.

x Pennpetro Greentec UK Limited, which is a 100% owned subsidiary of Pennpetro.

x Pennpetro Green Energy Limited, which is a 100% owned subsidiary of Pennpetro.

x Pennpetro Greentec Limited, which is a 100% owned subsidiary of Pennpetro.

Transactions with Group undertakings

During the year ended 31 December 2021, the Company provided funds to its wholly owned

subsidiary Nobel Petroleum USA of $6,875 (2020: $19,480).

After the foreign exchange gains of $427,692 (2020: $432,252) the total amount due from the

Group as at 31 December 2021 was $3,078,144 (2020: $3,047,540).

All Group transactions were eliminated on consolidation.

26. ULTIMATE CONTROLLING PARTY

As at 31 December 2021, there was no ultimate controlling party.

27. EVENTS AFTER THE REPORTING PERIOD

On 16 March 2022, the Company raised £350,000 gross proceeds through the issue of

1,166,667 new ordinary shares at a price of 30p per share. The Company also announced the

appointment of Peterhouse Capital Limited as broker to the Company on the same day.

On 29 June 2022, Petroquest Energy Limited extended the repayment date by one year on

the loan owing by Nobel Petroleum LLC. The revised maturity date on the loan is 31 December

2023.

The Company has issued 952,268 ordinary shares to GEM Yield Bahamas Limited in lieu of

fees owed as at 1 June 2022 of £266,640.