Announcement PDF Annual Report For the year ended 31 December 2023 PO VALLEY ENERGY LIMITED ABN 33 087 741 571 CORPORATE DIRECTORY Directors Kevin Bailey AM Sara Edmonson Joseph Constable Katrina O’Leary Company Secretary Kevin Hart Registered Office Level 5, 191 St Georges Terrace, Perth WA 6000 Rome Office Via Isonzo 34, Rome 00198 Italy Tel: +39 06 42014968 Share Register Link Market Services Limited Level 12, 250 St Georges Terrace, Perth WA 6000 Tel: +61 8 9211 6670 Auditor HLB Mann Judd (WA Partnership) Level 4, 130 Stirling Street, Perth WA 6000 Solicitors Steinepreis Paganin Level 4, The Read Buildings, 16 Milligan Street, Perth WA 6000 Stock Exchange Listing Po Valley Energy Limited shares are listed on the Australian Securities Exchange (ASX) under the code PVE Website address www.povalley.com Chairman Non-Executive Director Non-Executive Director Non-Executive Director PO VALLEY ENERGY LIMITED ABN 33 087 741 571 CONTENTS CHAIRMAN’S LETTER TO SHAREHOLDERS ................................................................................................................... 1 DIRECTORS’ REPORT .................................................................................................................................................... 3 REMUNERATION REPORT .......................................................................................................................................... 11 AUDITOR’S INDEPENDENCE DECLARATION ............................................................................................................... 18 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ............................................................... 19 STATEMENT OF FINANCIAL POSITION ....................................................................................................................... 20 STATEMENT OF CHANGES IN EQUITY ........................................................................................................................ 21 STATEMENT OF CASH FLOWS .................................................................................................................................... 22 NOTES TO THE FINANCIAL STATEMENTS.................................................................................................................... 23 DIRECTORS’ DECLARATION ........................................................................................................................................ 63 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................... 64 TECHNICAL SUMMARY – RESERVES AND RESOUCES STATEMENT ............................................................................ 69 ASX ADDITIONAL INFORMATION ............................................................................................................................... 75 PO VALLEY ENERGY LIMITED ABN 33 087 741 571 CHAIRMAN’S LETTER Dear Shareholder, On behalf of the Board of Directors, we are pleased to present the Company’s Annual Report. 2023 was a pivotal year for the Company. Maiden produc�on from the Podere Maiar-1 (PM-1) field commenced in early July reaching a cumula�ve 9.8 million standard cubic metres (6.2 million standard cubic metres net) within year-end genera�ng revenue of €2.3 million for the Group. This produc�on coupled with our con�nued focus on opera�onal discipline resulted in the first profit a�er tax in many years. The well has con�nued to show strong results during the first few months of 2024. Post commissioning, the average daily produc�on rate is in the order of 80,000 scm per day and gas prices are rising on the back of increased conflict in the Middle East. At a macro level, Europe has boldly addressed its reliance on cheap Russian gas and consump�on levels are at a record low. The Italian government, like many EU member states, has taken steps to strengthen its own energy security by maintaining high natural gas storage levels and, more recently, passing legisla�on to enable and accelerate domes�c gas development. Gas con�nues to play an important role in Italy and Europe as a cri�cal transi�on energy source with the poten�al to reduce the carbon footprint of key industries such as steel manufacturing by more than 50%. 2024 will mark the Company’s 20th year on the Australian Stock Exchange and we are delighted that this milestone is met with an exci�ng new development phase including a 3D seismic campaign across the Selva Malvezzi produc�on concession and a mul�ple well drilling program. From a financial standpoint, the Company stands strong with no debt and a cash reserve at bank of €2.1 million ($3.5 million AUD) for the first quarter of 2024. This con�nues to increase daily with free cash flow from the PM-1 well. Net of all costs and royal�es at current prices we are adding on average of €220 thousand ($365,000 AUD) every month to our cash balance. These revenues will be used to help fund our upcoming work program. The focus of the Board and Management has been to posi�on the company for op�mal value in the medium term. The broader strategy is to increase produc�on in the Selva Malvezzi concession with addi�onal wells. This will substan�ally increase cash flow and support Italy as it strengthens its energy security and protects domes�c industry. There are four other gas prospects in the Selva Malvezzi produc�on concession, and we intend to apply to the Ministry for drilling approval this year. Due considera�on is being given to how we will fund these addi�onal wells. Op�ons are being assessed with the aim to be least dilu�ve to exis�ng shareholders. We are also advancing the opportunity to realize value from our offshore Adria�c asset at Teodorico through either the sale of the asset to one of the major offshore operators or the farm in of a joint venture partner. Recent developments have been encouraging as the Italian Government explores ways to boost domes�c produc�on in this gas-rich basin. We hope to realise value from some of our smaller sites including Cadelbosco and Gratasasso and our condensate explora�on license at Torro del Moro. 1 PO VALLEY ENERGY LIMITED ABN 33 087 741 571 CHAIRMAN’S LETTER Separately, we intend to begin evalua�ng both storage opportuni�es from exis�ng assets and new geothermal opportuni�es with the aim to leverage the extensive exper�se of our technical team while broadening our por�olio. We share your disappointment in the current share price performance which has dri�ed down over the last twelve months as some shareholders have sold their posi�ons. It has been said that in the short term, the share market is a vo�ng machine but in the long term it is a weighing machine. This is par�cularly true in the junior resource space. The Board is confident however that the Company has the key ingredients to create significant mid-term value and is ideally posi�oned to deliver results. A�er many years of hard work and building rela�onships in the Italian market, Po Valley Energy is at the right place at the right �me. We look to the future with op�mism and a commitment to delivering for the benefit of all shareholders. Kevin Bailey AM Chairman 2 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT The Directors of Po Valley Energy Limited (“the Company” or “PVE”) present their report together with the financial report for the year ended 31 December 2023 of the Group, being the Company and its controlled entities (“the Group” or “Po Valley”). 1. Directors The Directors of the Company at any time during or since the end of the financial year are: Kevin Bailey AM — Director since 22 April 2016 Non-Executive Chairman DipFP, Age 63 Kevin was appointed as a director on 22 April 2016 and as Chairman on 2 May 2022. He has been a shareholder of PVE since April 2008 and brings significant business acumen and experience to the Board. Kevin is a highly successful businessman with a range of business interests, both local and overseas. He worked for 28 years as a Certified Financial Planner and was a founding director of Shadforth Financial Group Limited. He was a member of the Prime Minister’s Community Business Partnership and devotes considerable time to philanthropic interests. Kevin is currently Chairman of Parousia Media Pty Ltd and has served as director of various entities including the Investment Advisory Board of the Timor Leste Petroleum Fund, the $17bn Sovereign Wealth Fund of Timor Leste, Outward Looking International Pty Ltd, Halftime Australia Pty Ltd, Alpha Australia, Empart Inc, and Dads4Kids Fatherhood Foundation. In the past three years, Kevin has not been a director of any other listed company. Sara Edmonson — Director since 23 December 2019 Non-Executive Director BSBA, MBA, Age 44 Sara was appointed as a director on 23 December 2019. Sara has extensive experience in natural gas, the critical transition fuel for a low carbon future. Sara is a former President at Associazione Energia Nazionale, an Italian association created to promote sustainable production, transportation and use of domestic energy and is fluent in Italian, having previously worked both in Italy and internationally for Ernst & Young Transaction Advisory Services. During her tenure at EY, Sara advised numerous blue-chip corporate clients on transactions in Russia, Romania, Turkey and the US including the US$5 billion acquisition of DRS Technologies by Finmeccanica in 2008. She holds an MBA from St John’s University in New York City and a Masters in Sustainability Sciences from Harvard University. Sara led PVE as CEO from July 2010 to 2017 and served on the board of Coro Energy Plc from November 2017 to October 2018 and as executive until March 2019. Sara has spent the last several years focused on the energy transition leading large commercial-scale development of green hydrogen projects in Europe. She has been deeply involved in the policy shaping around decarbonisation and climate targets at EU and Member State level. In the past three years, Sara has not been a director of any other listed company. Joseph Constable — Director since 30 November 2021 Non-Executive Director BA(Hons) MPhil, Age 32 Joseph was appointed as a director on 30 November 2021. Joseph is an Executive Director of Hancock & Gore Limited (ASX: HNG), and portfolio manager at H&G Investment Management Limited and has been a long-time shareholder of PVE personally as well as professionally via H&G High Conviction Limited (ASX: HCF), of which 3 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT he is an Executive Director. Joseph has a detailed understanding of the Company and its assets and brings his significant financial skills to the benefit of PVE and the board of directors. In the past three years, Joseph has not been a director of any other listed company. Katrina O’Leary — Director since 2 May 2022 Non-Executive Director BA LLB, LLM, Age 60 Katrina was appointed as a director on 2 May 2022. Katrina is an Intellectual Property (IP) and Information Technology lawyer with decades of experience in IP management, commercial and litigious matters. Katrina also advises on ESG compliance especially in the area of ethical sourcing. Her practice is international, and she has worked in Italy, the USA and Australia representing government and international organisations and major public companies. Katrina brings to the board her strength in legal compliance, governance, and risk management. In the past three years, Katrina has not been a director of any other listed company. 2. Company Secretary Kevin Hart – Company Secretary, B.Comm, FCA Kevin Hart is a Chartered Accountant and was appointed to the position of Company Secretary on 17 April 2018. He has over 30 years’ experience in accounting , management and administration of public listed entities in the mining, mining services and exploration industry. Kevin is a Principal in the Company Secretarial and CFO divisions of the Automic Group which provides Company Secretarial, CFO support and corporate compliance advice to a number of ASX listed entities. 3. Directors’ Meetings The number of meetings of the Board of Directors held during the financial year and the number of meetings attended by each director are provided below: Director Attended Held Kevin Bailey AM 11 11 Sara Edmonson 9 11 Joseph Constable 10 11 Katrina O’Leary 11 11 Held: represents the number of meetings held during the time director held office. The roles and responsibilities normally undertaken by the Audit and Risk Committee and the Remunerations and Nominations Committee have been dealt with by the full board as part of its duly convened meetings rather than through separate committees. 4. Principal Activities The principal continuing activities of the Group in the course of the year were: • Production of gas at Podere-Maiar 1 in the Selva Malvezzi concession • The exploration for gas and oil in the Po Valley region in Italy. • Appraisal and development of gas and oil fields. 4 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT 5. Operating and financial review Financial results for the year This Group’s focus for the 2023 year was the completion of the development of the Podere Maiar-1 well which commenced gas production in early July 2023. Production from commencement to 31 December 2023 was 9,838 Mcm of gas (gross, net to the Group of 63% or 6,198 Mcm) generating revenue of €2.34 million for the Group. The profit after tax for the year from continuing operations was €586,657 (2022: Loss €983,714). The Group’s cash reserves as at 31 December 2023 were €1,252,717 (31 December 2022: €1,536,041). A review of the operations and the results of those operations of the Group during the year is as follows: Summary of results table: 2023 Mcm Production volume (net) 6,198 €’000 2022 Mcm €’000 Gas Sales 2,337 - EBITDA1 1,157 (734) Depreciation and amortisation – production (189) - Depreciation (27) (9) Unwind of discount of restoration provision (108) - EBIT1 833 (743) Finance costs other than restoration provision discounting (32) (253) Taxation (215) 12 Net profit / (loss) after tax attributable to shareholders 586 (984) EBITDA (earnings before interest, tax, depreciation and depletion, exploration expensed and impairment losses) and EBIT (earnings before interest and tax) are non-IFRS measures that are presented to provide an understanding of the Group’s operations. The non-IFRS measures are unaudited, however, the numbers have been extracted from the financial statements that have been subject to audit by the Company’s auditor. 1 Share issues The Company issued 5,000,000 shares on the exercise of options during the year at an exercise price of AU$0.05 (~€0.031) per share raising €155,711 (before costs). 3,000,000 shares were issued on exercise of performance rights during the year. The performance rights had a Nil exercise price. Earnings per share The basic and diluted earnings per share for the Group from continuing operations was 0.05 € cents (2022: loss of (0.09) € cents) Operations Selva Gas Field (63% PVO) - Selva Malvezzi Production concession Selva is an onshore natural gas field located in the eastern part of the Po Plain, among the Ferrara and Bologna provinces, in the Emilia Romagna Region. The Selva Malvezzi Production Concession awarded in July 2022 5 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT measures 80.68km2 and includes the Podere Maiar Gas field (PM-1) (in production) and the gas prospects known as East Selva, Selva North and South, Riccardina and Fondo Perino. Previously these areas fell within the Podere Gallina Exploration Permit which the Company relinquished in September 2022 having secured the Production Concession over the prospective areas. Po Valley Operations (100% subsidiary of the Company, “PVO”) is the operator under a Joint Operating Agreement (“JOA”) and holds a 63% interest in the Selva gas field with Prospex Oil and Gas Plc (“Prospex”) holding 37% (includes 20% held by Prospex subsidiary UOG Italia S.r.l). Figure 1: Selva Malvezzi Production Concession Podere Maiar-1 (“PM-1”) gas facility and production: The PM-1 gas facility construction and grid connection to the Italian national pipeline grid operated by SNAM (Società Nazionale Metanodotti / National Pipeline Company) was completed in May 2023 on schedule and within 3% of budget. The performance bond of €757,000 (63% to PVO €476,910) initially deposited with SNAM at the commencement of the PM-1 gas facility development was returned to the Group following the successful completion of the pipeline tie-in and having satisfied the condition of a Gas Sale Agreement being in place. Production at PM-1 commenced on 4 July 2023 with a four-week ramp up and commissioning programme. Gas is sold under the gas sales agreement (GSA) with BP Gas Marketing Limited (BPGM). The contract with BPGM is an 18-month contract by which PVO will supply an estimated 37,000,000 standard cubic meters of gas at the gas supply price in the contract which is linked to Italy’s “Heren PSV day ahead mid” price. The option to renew contract is open 30 days prior to the end of the contract term (30 September 2024) (refer to ASX Announcement dated 14 February 2023). PVO carried out several slick line operations over the production period to 31 December 2023 the first immediately after ramp-up concluded followed by programmes at end of August, September, November and in mid-December. The slick line work programs were based around delivering well certainty for the long term, monitoring bottom hole pressure and temperature and for any debris accumulation. Preliminary concerns around debris accumulation identified post ramp-up during August slick line operations were rectified and resolved as part of the September slick line work programme. Ongoing monitoring throughout the period ensured no accumulation issues were evident. Bottom hole pressure and temperature readings in static 6 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT conditions were in line with expectations. PVO completed two further slick line operations in January 2024 with results confirming no debris accumulation and with the well performance in line with expectations. Choke levels have been set to produce at ~78,000 to 80,000 standard cubic meters (‘scm’) / day. PM-1 production for the year is shown in the table below: PM-1 Gas Production for the year to 31 December 2023 July to September 2023 October to December 2023 PM-1 Production (scm) (scm) PM-1 – 100% 5,658,117 4,180,015 PM-1 – 63% (PVE share) 3,564,613 2,633,409 Revenue € (‘000) € (‘000) PM-1- 100% 1,937 1,773 PM-1 – 63% (PVE share) 1,220 1,117 Total (scm) 9,838,132 6,198,022 € (‘000) 3,710 2,337 Selva Malvezzi Prospects: Selva North and South, Selva East and Riccardina The Selva Malvezzi Production Concession is the key area of focus for the Company with the next stages of development including development of drilling programmes at Selva North, South, East and Riccardina, a seismic survey over East Selva and Riccardina and planned Environmental Impact Studies for all four wells. Works have already commenced, and once environmental approval is received, detailed planning for drilling will follow. Approvals of these programs are expected in the second half of 2024. Initial discussions with landholders near the North / South and East drilling prospects have commenced and been very positive. Teodorico Offshore Gas field development (100% PVO) The Teodorico gas field is located in shallow waters (approximately 30m deep) off the east coast in the northern Adriatic Sea; the primary source of domestic gas production for much of Italy; and in close proximity to existing east coast offshore gas production facilities. Teodorico has the largest gas-in-place of all of Po Valley Energy’s gas fields and is at an advanced stage of assessment, ready for development. The Group holds a preliminary production concession for this area and the Environmental Impact Assessment (“EIA”) decree for Teodorico was granted in March 2021. In December 2023, the Italian government published a New Energy Decree in response to Italy’s energy security needs which include measures to strengthen the production and security of domestic natural gas supply. An accelerate permitting regime is envisaged as an integral part of this decree. The decree was converted into law in February 2024. This law must now be operationalised, and the Italian Government has assigned this mandate to Gestiore Servizi Energetici “GSE”, an existing regulated body for energy in Italy. Po Valley is currently investigating the implications of this new law in consultation with its legal advisers and the relevant Ministry, MASE, to determine the full impact on Teodorico. Ultimately the law is promoting domestic production citing the Northern Adriatic as a key source of natural gas for the country therefore the impact on Teodorico is positive, however the details are still being worked through from an operational perspective. The Company continues to assess how best to realise value from its 100%-owned Teodorico off-shore asset, either via a joint venture or sale. Torre del Moro, Cadelbosco di Sopra and Grattasasso exploration licences (100% PVO) The Company is reviewing optimal development paths for these residual assets including introduction of thirdparty investors/partners who have interest in participating in their development. 7 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Cadelbosco di Sopra and Grattasasso are shallow gas opportunities which fit neatly with the Company’s proven exploration and development capabilities whilst Torre del Moro is a large deep gas prospect. Strategy Po Valley remains a northern Italy-focused energy production, development and exploration company with a streamlined focus on the following assets: - The onshore gas production and further development at Selva Malvezzi; - Offshore Adriatic gas development at Teodorico; - The large-scale gas prospect at Torre del Moro; and - Canolo and Zini gas prospects in the Cadelbosco di Sopra exploration licence. Po Valley’s primary focus is gas production at the Podere Maiar-1 well in the Selva Malvezzi Production Concession and to advance development of the surrounding prospects at North, South and East Selva, with the goal of drilling these prospects in the next twelve to twenty-four months. Teodorico is very leveraged to the current market conditions in Italy and Po Valley continues to explore options to introduce joint venture partners or divest this large offshore gas field. Health, safety and environment Paramount to Po Valley’s ability to pursue its strategic priorities is a safe workplace and a culture of safety first. The Group regards environmental awareness and sustainability as key strengths in planning and carrying out business activities. Po Valley’s daily operations are conducted in a way that adheres to these principles and management is committed to their continuous improvement. Whilst growing from exploration roots, the Group has strived to continually improve underlying safety performance. The Group has adopted an HSE Management System which provides for a series of procedures and routine checks (including periodical audits) to ensure compliance with all legal and regulatory requirements and best practices in this area. In 2023, the Group maintained its outstanding occupational health safety and environmental track record with no incidents or near misses to report. Principal risks and uncertainties Oil and gas exploration and appraisal involves significant risk. The future profitability of the Group and the value of the Company’s shares are directly related to the results of exploration and appraisal activities. There are inherent risks in these activities. No assurances can be given that funds spent on exploration and appraisal will result in discoveries that will be commercially viable. Future exploration and appraisal activities, including drilling and seismic acquisition, may result in changes to current perceptions of individual prospects, leads and permits. The Group identifies and assesses the potential consequences of strategic, safety, environmental, operational, legal, reputational and financial risks in accordance with the Group’s risk management policy. Po Valley management continually monitors the effectiveness of the Group’s risk management, internal compliance and control systems which includes insurance coverage over major operational activities, and reports to the Board on areas where there is scope for improvement. The Board as a whole is responsible for oversight of the Group’s risk management and control system. The principal risks and uncertainties that could materially affect PVE’s future performance are described below. 8 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT External risks Exposure to gas pricing Changes to law, regulations or Government policy Uncertainty of timing of regulatory approvals Volatile gas prices make it difficult to predict future price movements with any certainty. Decline in gas prices could have an adverse effect on PVE. The Group does not currently hedge its exposures to gas price movements long term. The profitability of the Group’s prospective gas assets will be determined by the future market for domestic gas. Gas prices can vary significantly depending on other European gas markets, worldwide supply and the terms under which long term take or pay arrangements are agreed. Changes in laws and regulations or government policy may adversely affect PVE’s business. Examples include changes to land access or the introduction of legislation that restricts or inhibits exploration and production. Similarly changes to direct or indirect tax legislation may have an adverse impact on the Group’s profitability, net assets and cash flow. Delays in the regulatory process could hinder the Group’s ability to pursue operational activities in a timely manner including drilling exploration and development wells, installing infrastructure, and to producing gas. In particular, oil and gas operations in Italy are subject to both Regional and Federal approvals. Operating risks Exploration, development and production Estimation of reserves Tenure security The future value of PVE will depend on its ability to find, develop, and produce gas that is economically recoverable. The ultimate success or otherwise of such ventures requires successful exploration, establishment of commercial reserves, establishment of and successful effective production from processing facilities, and transport and marketing of the end product. Through this process, the business is exposed to a wide variety of risks, including failure to locate hydrocarbons, changes to reserve estimates or production volumes, variable quality of hydrocarbons, weather impacts, facility malfunctions, lack of access to appropriate skills or equipment and cost overruns. The estimation of oil and natural gas reserves involves subjective judgments and determinations based on geological, technical, contractual and economic information. It is not an exact calculation. The estimate may change because of new information from production or drilling activities. Exploration licences held by PVE are subject to the granting and approval by relevant government bodies. Government regulatory authorities generally require the holder of the licences to undertake certain proposed exploration commitments and failure to meet these obligations could result in forfeiture. Exploration licences are also subject to partial or full relinquishments after the stipulated period of tenure if no alternative licence application (e.g., production concession application) is made, resulting in a potential reduction in the Group’s overall tenure position. In order for production to commence in relation to any successful oil or gas well, it is necessary for a production concession to be granted. 9 PO VALLEY ENERGY LIMITED DIRECTORS’ REPORT Health, safety and environmental matters Climate Change Exploration, development and production of oil and gas involves risks which may impact the health and safety of personnel, the community and the environment. Industry operating risks include fire, explosions, blow outs, pipe failures, abnormally pressured formations and environmental hazards such as accidental spills or leakage of petroleum liquids, gas leaks, ruptures, or discharge of toxic gases. Failure to manage these risks could result in injury or loss of life, damage or destruction of property and damage to the environment. Losses or liabilities arising from such incidents could significantly impact the Group’s financial results. PVE recognises climate-related risks and the need for these to be managed effectively particularly across the energy industry. Key climate-related risks and opportunities relevant to PVE’s operations include: • The transition to a low carbon economy through technological improvements and innovations that support a lower carbon energy efficient system with decreased demand and changing community sentiment for fossil fuels. In addition, there may be increased uncertainty, time and cost associated with regulatory bodies granting approvals or licences on fossil fuel intensive projects. Transition to a lower carbon economy may also give rise to opportunity for PVE’s potential gas production assets. Natural gas is viewed as a key element to supporting a sustainable energy transition. Possibility to produce Blue H2 (with CCS/CCUS) and/or LNG from PVO gas fields (utilising access and support via EU or Italian research development funds). • Physical changes caused by climate change include increased severe weather events and chronic changes to weather patterns which may impact demand for energy and PVE’s development and production assets and production capability. These events could have a financial i