Prospex Energy PLC (AIM:PXEN) Final Results

AGM Notice and Final Results for Year ended 31 December 2021

Successfully transitioned from an explorer to a gas producing, electricity and income generating investing company

Prospex Energy plc, the AIM quoted investment company, is pleased to announce its audited Final Results for the year ended 31 December 2021.

Highlights

· El Romeral

o Acquisition of the El Romeral gas producing licenses and gas power plant. Prospex holds a 49.9% working interest in El Romeral through its interest in Tarba Energía S.L. (“Tarba”)

o Tarba Transitioned from exploration company to a significant gas producing, electricity generating and income generating company

o El Romeral plant is running 24 hours a day 7 days a week following optimisation and automation carried out by Tarba at the end of 2021

· The Selva field

o The Selva field received full environmental approval from Italy’s Ecological Transition Ministry for production development with the final Environmental Impact Assessment (‘EIA’) decree

o Full production licence for Selva expected in the second quarter of 2022

o Increased its stake in the Selva field in Italy to 37%

Corporate and Financial Highlights (as at 31 December)

· Total Assets of £8,984,437 (2020: £5,748,211) – increase of 56%

· Successfully raised £750,000 gross via an oversubscribed placing

· Cash and cash equivalents of £220,060 (2020: £220,618)

o Subsequent to year end, Company completed a placing of £2.455m

· Fair value of the Company’s investments stood at £6,697,305 (2020: £3,620,890)

· Strengthened management team with the appointment of Mark Routh as CEO and Alasdair Buchanan as Non-Executive Director

The Company also gives notice that its Annual General Meeting (‘AGM’) will be held at the offices of Shakespeare Martineau LLP, 6th Floor 60 Gracechurch Street, London, United Kingdom, EC3V 0HR at 11.00 a.m. on 15 June 2022. The Financial Results for the year ended 31 December 2021 (‘Accounts’) together with the Notice of AGM will be available to download today from the Company’s website and will also be posted to shareholders on or around 20 May 2022.

Commenting on the results, Mark Routh, Prospex’s CEO, said:

“It has been a transformational year for Prospex as we transitioned from being an investing company with interests in exploration assets to a company including interests in a gas producing and electricity generating asset. We have invested in the optimisation and automation of El Romeral enabling it to run 24 hours a day 7 days a week and allowing us to benefit from the unprecedented rise in electricity prices. In addition, our successful fundraising earlier in this year, enabled us to increase our stake in Selva to 37%, where a full production licence is anticipated during 2022.

“Looking ahead, w ith Selva expected to commence production in Q2-2023 and with the application process now commenced for a multi-well drilling programme at El Romeral, potentially in 2023, the year ahead promises to see major progress. Prospex is in a strong operational position with an experience team who remain committed to increase shareholder value.”

* * ENDS * *

Chairman’s Report for the year ended 31 December 2021

The 2021 financial year saw significant changes to Prospex Energy.

On 1 March 2021, Tarba Energía S.L. (‘Tarba’), the joint venture vehicle in which Prospex, via its wholly owned subsidiary PXOG Muirhill Ltd, holds its Spanish investments, completed the acquisition of the El Romeral gas producing licenses and gas to power plant near Carmona in southern Spain, thus transitioning from an exploration company to a significant gas producing, electricity generating and therefore an income generating company. The El Romeral asset produces gas to a power station selling electricity into the Spanish grid. Following much preparation, the plant and its employees seamlessly transferred over to Tarba, production hours were increased, and all operations have been without incident. Tarba, with collaboration from its shareholders has continued to review operations, both above and below ground at El Romeral. Two of the three generators at the power plant currently operate alternately, and work is planned to recommission the third generator in preparation for increased gas production expected from the future infill well drilling campaign. The permitting process for the El Romeral infill wells is underway with applications having been submitted, however there is no defined timeline for the government to respond. Tarba and its shareholders continue to actively progress this.

In March 2021, the Selva field joint venture in Italy, held by Prospex via its wholly owned subsidiary PXOG Marshall Ltd, received the full environmental approval from Italy’s Ecological Transition Ministry for production development at the Selva field with the final Environmental Impact Assessment (‘EIA’) decree. This paved the way for the grant of a full production licence from Italy’s Economic Development Ministry. The Operator, Po Valley Energy Limited, continues to pursue the various strands that support its application for a full production licence for Selva which is currently expected in the second quarter of 2022. This includes applying for an INTESA (intergovernmental agreement) between the regional and national governments, which is a standard development procedure for onshore gas fields in Italy.

Prior to Spain’s Act on Climate Change and Energy Transition (7/2021) coming into force on 22 May 2021, Tarba submitted an application to convert the vast majority of the existing Tesorillo Project exploration permit into an exploitation concession. This application was submitted to the MITECO on 12 May 2021 together with a field development plan for approval. The outcome of this application will not be known for some time. Whilst the new act states that no new hydrocarbon permits or licences will be granted in Spain, it specifically excluded existing permits. It has been confirmed that applications from existing permits prior to the Climate Change Act coming into force maintain their validity under the new law. The El Romeral exploitation concessions at which Tarba operates its gas to power plant are in force and are unaffected by the Climate Change Act.

The Tarba team continues to liaise with various government agencies to progress drilling and environmental approvals for both El Romeral and Tesorillo. Tarba is targeting conventional sandstone gas reservoirs. There are no financial or drilling commitments attached to the Tesorillo Project Exploitation Concession application and, pending the decision by the regulators, no work is scheduled and the existing Tesorillo permit remains suspended.

In July 2021, Mark Routh was appointed as Prospex Energy’s new CEO and director following votes received at the AGM to make changes to the Board of Directors.

In August 2021, Alasdair Buchanan was appointed as a non-executive director.

On 8 August 2021, Prospex agreed to purchase an additional 20% of the Selva field in Italy from United Oil & Gas plc, increasing Prospex’s share of the Selva joint venture from 17% to 37%. (The acquisition was completed on 8 April 2022.)

An Extraordinary General Meeting was convened on 5 October 2021 at the request of a group of shareholders proposing the replacement of the entire Board of Directors. Shareholders voted to support the current Board of Directors by 59% versus 41% of the votes cast. Subsequently the CEO has increased communications with all shareholders and the Board believes there is improved alignment on objectives and strategy of the Company going forward.

In October 2021, Tarba undertook field work including workovers and a data acquisition campaign executed on three of the El Romeral gas wells.

In December 2021, in Italy, a seismic and subsidence monitoring programme commenced at the Selva field in order to comply with the requirement to complete a full 12 months of monitoring before gas production may commence. This monitoring programme will be completed by December 2022.

In December 2021, Tarba completed a plant optimisation and automation project at El Romeral to allow remote monitoring and control of the plant, allowing reduced manual intervention and providing the ability to run the plant 24 hours a day 7 days a week. Further studies have been conducted and, at the date hereof, the plant is running 24 hours a day 7 days a week.

Also in December 2021, Tarba re-paid €300,000 of its El Romeral loan to its shareholders Prospex and Warrego (Net proceeds to PXEN €149,700). The remaining balance of this loan and interest was subsequently repaid on 28 April 2022 (Net to PXEN €144,499 plus interest)

Financial Review

For the year ended 31 December 2021, the Company is reporting Total Assets of £8,984,437 (2020: £5,748,211), the value of which largely comprises the Company’s investment in PXOG Marshall Ltd, the vehicle for the Company’s Italian assets. The 56% increase is dominated by a revaluation reflecting measured recognition of positive changes in the forward curve of European gas prices at 31 December 2021 and includes revaluations of the Company’s investments (‘the Investments’) as well as repayments and advances on loans receivable from those investments. Unrealised gains arising on revaluation of Investments at fair value amounted to £3,076,415 (2020: unrealised loss £1,121,815).

In March 2021, the Company raised £750,000 gross via an oversubscribed placing primarily to fund the planned programmes at El Romeral and the Podere Gallina licence.

In June 2021, the Company refinanced 83% of its outstanding 2018 Loan Notes. £321,681 of the then £386,017 outstanding loan notes were rolled over into the 2021 Loan note instrument, whilst increasing the interest rate to 12% the repayment dates have been extended by 18 months. At the time of issue in 2018, the repayment obligation was based on what was then the anticipated commencement of gas production at Selva, which has been delayed by a number of uncontrollable factors, but with the recent progress made by the Operator, is now anticipated to take place in Q2 2023.

As at 31 December 2021, the fair value of the Company’s investments stood at £6,697,305 (2020: £3,620,890). The combined value of these equity investments, current and non-current loans is £8,726,484 (2020: £5,383,880). The current year figures include a non-refundable deposit of 5% of the purchase consideration for United Oil and Gas plc’s 20% interest in the Selva field in Italy (the acquisition was completed subsequent to year-end). The Company continues to have significant asset backing relative to its market capitalisation.

Administrative expenses for the full year totalled £891,676, an 8% reduction from 2020’s £972,193, as management took steps to reduce the Company’s cost base.

As at 31 December 2021, the Company held cash and cash equivalents of £220,060 (2020: £220,618).

Post period end, in February 2022, the Company raised £2.455 million (before expenses) by way of a placing of 70,137,143 new ordinary shares of 0.1p each in the Company at a price of 3.50 pence per share. The net proceeds of the placing have been used to complete the acquisition of 20% of the Selva Field in Italy, increasing the Company’s ownership from 17% to 37%, and to contribute towards the funding of the Selva development and general working capital requirements. All directors participated in the placing.

Outlook

With the current shortage of gas across Europe, markets have experienced historically high gas and electricity prices. The Prospex Board recognises that energy prices seen since the end of 2021 are not sustainable in the long term, so, whilst benefiting from the increased demand and pricing, Prospex has continued to apply a conservative approach when looking at forward energy prices in the valuation of its assets.

In the current environment, governments are rightly taking steps to find alternative energy sources, improve energy security and reduce energy costs to end consumers. Prospex is well positioned to contribute positively in all these areas. To put this in context, local indigenous onshore gas production in Spain has a carbon footprint which is ten times lower than the importation of LNG from the USA, and at a substantially lower delivered cost. With this in mind, Prospex intends to grow its gas production assets and simultaneously become a model for the energy transition process.

Prospex supports the drive to renewable energy and is actively pursuing ways of developing these sources. However, we also recognise that natural gas will be required to contribute to the energy mix during the transitional period, and that local indigenous onshore gas is the optimum source to meet this need. With the strength of our team and our assets, Prospex is well positioned to grow its business into these market opportunities.

The outlook for Prospex is one of consolidation and growth. With Selva expected to commence production in Q2-2023 and with the application process now commenced for a multi-well drilling programme at El Romeral, potentially in 2023, the year ahead promises to see major progress. I look forward to providing further updates as developments occur.

Following the Annual General Meeting of shareholders in July 2021, the team leading your Company included Mark Routh as CEO and a director and Alasdair Buchanan as a non-executive director. These two individuals bring a significant depth of experience to the Board and management and have a thorough understanding of the existing assets and joint venture partners as well as bringing skills and experience to implementing new opportunities. Ed Dawson, former Managing Director and a founder of the Company was instrumental in building the asset base of the Company in Italy and Spain. James Smith, a former non-executive director, contributed technical strength and governance experience to the Board. I would like to extend my thanks to Ed and James for the considerable work they put in to establishing the strong platform for growth that Prospex enjoys today.

Finally, I would like to thank the Board and management team for their continued hard work, commitment and support.

Bill Smith

Non-executive Chairman

19 May 2022

Read More

For further information visit www.prospex.energy or contact the following:

Mark Routh

Prospex Energy PLC

Tel: +44 (0) 20 7236 1177


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