Annual Report and Financial Statements

 

Strategic Report

The Directors present their strategic report on the group for the year ended 31 March 2024.

 

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'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.

 

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.

 

Review of Business

 

On 27 June 2023 the Group signed agreements to increase its stake in Whistling Straits 5H well from 25% interest to 100% interest with 75% net revenue interest. In November, Chalk Talk 1 well began producing oil at an average of 161 bopd which saw regular revenues for the Group through to April 2024. The well then experienced a number of top-of-well and bottom-of-well technical issues requiring intervention and resulted in a sustained fall in overall daily production. Technical issues have also been encountered at Whistling Straits 5H well which has slowed progress for the Group. After the reporting period, a deal Heads of Terms was signed with Globalvision International U. LDA ("Globalvision") whereby they will purchase 100% of the issued share capital in the Company's subsidiary Nobel USA, for a life of asset royalty on the City of Gonzales #1 Well, Chalk Talk #1 Well, Chalk Talk #4 Well and Whistling Straits #5 Well, securing long term positive cash flow for the Group.

 

The sudden passing of the Company Secretary in April 2024, who was acting through a corporate structure and was the sole signatory on the Company's bank account, caused significant delays in obtaining the necessary financial information of the audit of these Financial Statements.

 

The Board have been working closely with the Company's accountants and auditors to present these financial statements and to fill gaps where required. Note 7 discloses an amount of unknown expenditure for which the Board are unable to provide supporting documentation. During the course of reviewing these gaps of information, the Board undertook a review of the Group's lease portfolio and identified a number of leases where the validity and enforceability of the leases is uncertain. In light of this uncertainty, the Board has resolved to impair the related asset values until clarity over a final decision has been obtained.

 

Financial Performance Review

The loss of the Group for the year ended 31 March 2024 amounts to $8,897,048 (15 month period ended 31 March 2023: loss of $318,902).

 

The Board monitors the activities and overall performance of the Group on a regular basis by reference to certain key milestones. The main Key Performance Indicators ("KPIs") for the Group are as follows:

 

KPIs	2024 $	2023 $
Net cash flows from operating activities	(763,259)	(389,892)
Cash and short-term investments	6,266	129,016

 

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 four 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 Environmental, Health, Safety and Social Responsibility Policy include:

 

•   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.

 

•   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.

 

•   The use of internationally recognised standards, procedures and specifications for design, construction and commissioning activities are essential for achieving operational excellence.

 

•   The minimisation of environmental risks and liabilities are integral parts of the Group's operations.

 

•   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.

 

•   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.

 

•   Open and honest communication with the communities, authorities and stakeholders with which the Group operates builds confidence and trust in the integrity of Pennpetro.

 

•   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 the current and prior period.

 

During the year to 31 March 2024, the Group closely monitored the limited drilling, completion and production operations of its 5H well and there have been no breaches of any applicable Acts recorded against the Group during the reporting period.

 

Task Force on Climate-related Financial Disclosures (TCFD)

 

This section of the report sets out our climate-related disclosures in relation to the four pillars of the TCFD framework; Governance, Strategy, Risk Mitigation and Metrics & Targets.

 

Governance

The Board of Directors is responsible for oversight of climate related risks and opportunities - refer to the principal risk exposure on climate related matters on page 10. Climate related risks and opportunities are reviewed each six months.

 

Strategy

The principal focus of environmental risk is around potential flaring gas related issues but is highly cognisant as to the impact of climate change issues prevailing within the petroleum industry.

 

The Company's operational activity is situated in Texas, where weather patterns can influence activities. The county of Gonzales where activities are located can be impacted by windstorms and especially hurricanes during certain months of the year. This can lead to flooding of operational sites as has happened to the Company in the past resulting in severe flooding to drilling operations, resulting in additional expenditures for water recovery.

 

Risk Management

The Board of Directors is responsible for identifying and assessing climate related risks. Although there's currently no formal process for this, the Board is considering developing one as the Group's activities are expected to increase in the coming years.

 

As current onsite operations are limited at present, there have not been significant physical environmental risks identified. The Board works with the operator at its sites to ensure measures are in place to mitigate the impact of climate-related risks such as flooding or storm damage.

 

The Directors also monitor the activities of the Texas petroleum authority - the Texas Railroad Commission - regarding obligations and regulatory matters with operational requirements on both a State and Federal perspective such that the Company can be pro-active in complying with new requirements.

 

Metrics and Targets

The Group has limited operational and administrative activity at present and hence the Directors are in the process of developing climate related metrics and targets appropriate to the current extent of operations. The Group performs regular checks of air quality operational equipment and analyses the results against local township vectors.

 

The Directors have assessed there to be limited Scope 1 and Scope 3 emissions from the Group's administrative and operational activities; Scope 3 emissions relating to the supply chain have not yet been evaluated.

 

 

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. The application of the s172 requirements are demonstrated throughout this report and the financial statements as a whole, with the following examples representing some of the key decisions made in this reporting period and up to the date of approval of these financial statements:

 

The likely consequences of any decision in the long term

The application of the Section 172 (1) requirements can be demonstrated in relation to some of the key decisions made during the reporting period, including:

 

·     Continuing to invest in work on numerous projects across Texas

·     Continuing to focus on strategic partnerships with the JV partner

·     Continued assessment of corporate and operational overheads and expenditure

 

The need to act fairly between members of the Company

After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy over the long-term, taking into consideration the impact on stakeholders. The Directors believe they have acted in the way they consider most likely to promote the success of the Company for the benefit of its members as a whole.

 

The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with key private shareholders, analysts, and brokers, providing the opportunity to discuss issues and provide feedback at meetings with the Company. All shareholders are encouraged to attend the Company's Annual General Meeting and any general meetings held by the Company.

 

The desirability of the Company maintaining a reputation for high standards of business conduct

The Board periodically reviews and approves clear frameworks to ensure that its high standard are maintained both within the Group and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards, help ensure its decisions are taken and that the Group acts in ways that promote high standards of business conduct.

 

The interests of the Company's employees

The Board recognises that the Company's employees are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety, and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible.

 

The fostering of relationships with suppliers, customers and others

Delivering on our strategy requires strong mutually beneficial relationships with suppliers. The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence option agreement terms. The Group is committed to being a responsible entity and doing the right thing for its suppliers and business partners.

 

The impact of the Company's operations on the community and the environment

The Group is committed to the highest environmental, social and governance standards both internally and within the Group and externally with its partners. The Group is committed to being a responsible entity in terms of the community and the wider environment. As a mining exploration Company operating in Texas, the Board takes seriously its ethical responsibilities to the communities and environment in which it works. We abide by the local and relevant UK laws on anti-corruption & bribery. The Company, recognizing the global impact of environmental concerns, initiated due diligence to expand its experiences and core competencies in the fossil energy sector to specific green energy initiatives. These initiatives were secured with US intellectual property filings and are being expanded internationally.

 

Conclusion

The Directors believe that to the best of their wisdom and abilities, they have acted in the way they consider prudent to promote the success of the Company for the benefit of its members as a whole, in the true spirit of the provisions of Section 172 (1) of the Companies Act 2006.