Preliminary Results Statement 2022

CHAIRMAN'S STATEMENT

2022 has been an important year of delivery for Parkmead. Building on the solid foundations established in recent years, the Group increased its revenue by 236% in the period to £12.1 million and generated strong profits at both operating and pre-tax levels. Parkmead achieved an operating profit of £5.2 million and a record profit before tax of £4.0 million.

We also delivered a number of important, value-adding steps across our projects this year, including increasing our stake in Skerryvore, acquiring the Kempstone Hill wind farm and completing the Netherlands gas royalty transaction.

Financial Performance

The Group's revenue for the year to 30 June 2022 was £12.1m (2021: £3.6m), generating a substantial increase in gross profit to £10.8m (2021: £1.8m). The gross margin improved from 49% to 89%, showing the high-quality nature of Parkmead's onshore production in the Netherlands and strong operating leverage.

The increased revenue in the year reflected the good operating performance and substantially higher gas prices during 2021, which increased further in 2022 following Russia's invasion of Ukraine. This strength in gas prices has continued since the financial year end, with prices reaching approximately €350/MWh in August 2022. Since then, prices have softened and are now trading at more normalised levels as seen during the financial year. The spike in pricing has resulted in revenue from the Netherlands in the four-month period to 31 October 2022 in excess of €9.0 million. Parkmead remains 100% unhedged and therefore benefits from these higher prices.

Operating profit for the year was £5.2m (2021: £12.8m loss) and an adjusted EBITDA was delivered of £9.0m (2021: £1.0m loss). A record profit before tax was recorded of £4.0m (2021: £13.4m loss).

Taxation paid of £4.8m (2021: £0.4m) relates primarily to Parkmead's Netherlands assets and reflects high revenue and very low operating costs across the onshore portfolio. Accordingly, the Group's net loss for the period fell significantly to £0.8m (2021: £13.8m). Parkmead maintains a strong balance sheet with total assets of £86.3m (2021: £78.7m) as 30 June 2022. Cash and cash equivalents at year-end were £23.3m (2021: £23.4m) and interest bearing loans receivable were £2.9m (2021: £2.9m). The Group's net asset value was £57.0m (2021: £57.7m). Debt within the Group remains minimal and was £0.9m at 30 June 2022 (2021: £0.5m). This prudent approach to external debt is an important part of our financial discipline.

An impairment of goodwill was recorded in the year of £2.2m (2021: £nil) relating to historic contracts held by the Group's benchmarking and economics subsidiary company, Aupec Limited. Aupec is undergoing a growth strategy change that will focus the company's offering to a more interactive, cloud-based system for clients. This will also allow Aupec to offer a benchmarking analytics service to clients outside of the energy sector.

As a result of the excellent cash flow received from the Netherlands this year, we decided to move forward with legacy decommissioning activities that are required to be carried out in the UKCS. Completing this work will position Parkmead well ahead of its next phase of growth, with no major abandonment liabilities going forward. Decommissioning provisions for the period were £19.2m (2021: £0.4m). The Group is also capitalising on lower costs, agreed before the significant inflation in the offshore market.

Group administrative expenses were £2.2m (2021: £3m). Underlying staff costs, before share based payments, were reduced to £1.7m (2021: £2.0m).

Netherlands Gas Projects

In July 2021, Parkmead completed the acquisition of a gas royalty associated with the Group's existing interests in the Drenthe IV, Drenthe V and Andel Va licenses in the Netherlands from Vermilion Energy. These licences contain the Grolloo, Geesbrug and Brakel onshore gas fields, respectively.

The acquisition doubled the Group's effective financial interest from 7.5% to 15% (in line with Parkmead's working interest in the licences). This royalty was previously held by NAM (a Shell and ExxonMobil joint venture) and came with the licences when they were acquired by Parkmead. The consideration for the royalty was €565k.

The acquisition is already proving to be of significant benefit to Parkmead as it was completed ahead of the recent increase in energy prices. It is expected that the royalty deal will also significantly extend the producing life of these fields, through greater partner alignment.

Our Netherlands production was some of the most efficient and profitable in Europe during 2022, on a per-barrel basis. Average gross production for the financial year across the Group's Netherlands assets was 21.7 MMscfd, approximately 3,740 barrels of oil equivalent per day ("boepd").

We recently announced the spudding of the 'LDS' two-well drilling campaign in the Netherlands. The LDS wells are being drilled from the existing Diever well site and will target a combined mid-case gas-in-place of 37.2 billion cubic feet ("Bcf") in the prolific Rotliegendes reservoirs within this licence. The production tie-in period for these onshore targets is very short and, provided success at LDS, would result in significant additional revenue and cash flow for Parkmead.

The operating cost of the combined fields is very low at just $8.6 per barrel of oil equivalent. These high-quality assets, combined with the operating leverage from a fixed cost base, underpins the outstanding gross profit margin during the year and allows us to invest in further opportunities. Parkmead's onshore gas production continues to form a key part of the Group and an important role in our transition to a lower-carbon environment. On our Drenthe VI licence, the Diever gas field remains one of the most prolific producing onshore fields in the Netherlands. Given the production from Parkmead's Netherlands assets, especially in the context of current gas prices, a key near term focus for the Company will be to maximise the opportunities within these licences. The LDS two-well drilling campaign is part of this strategy.

UK Oil and Gas Projects

Skerryvore

Following consultation with its joint venture partners in Licence P.2400 (which encompasses the Skerryvore prospects) and having received approvals from the regulatory authorities, post period end Parkmead reached agreement to increase its stake in the Skerryvore project from 30% to 50%. Parkmead will continue as Operator on the licence, which is testament to the efforts and capability of the Parkmead team. Skerryvore will be Parkmead's first operated exploration well. Parkmead's joint venture partners in the licence going forward will be Serica Energy (UK) Limited (20%) and CalEnergy (Gas) Limited (30%).

In addition, Parkmead has received approval from the North Sea Transition Authority (NSTA) to enter the next phase of this licence with agreement to drill the high-impact Skerryvore prospects. The Company's geotechnical work programme has confirmed the considerable multi-interval potential of Skerryvore. The planned well will target the main stacked exploration prospects, at Mey and Chalk level, which studies indicate could contain 157 million barrels of oil equivalent ("MMboe") in the P50, most likely case. The licence also contains additional prospectivity at the Ekofisk and Jurassic levels. A successful discovery could be tied into existing and planned infrastructure in the vicinity.

The area around Skerryvore is currently seeing important activity on several fronts, with Harbour Energy progressing the adjacent Talbot discovery, NEO Energy proceeding with the redevelopment of Affleck and TotalEnergies appraising the Isabella discovery. Development activity is also taking place in the Norwegian sector in close proximity to Skerryvore at Tommeliten A, a licence operated by ConocoPhillips.

Greater Perth Area ("GPA")

Parkmead has engaged a leading energy corporate finance advisory firm, Gneiss Energy Limited, to manage the process to find a suitable industry partner (or partners) in relation to the Company's 100% interest in the Greater Perth Area "GPA") development project.

The core Perth field holds approximately 55MMboe on a most likely, P50 basis. The wider GPA project has the potential to deliver between 75 and 130 MMboe on a P50 basis and could provide material value-adding volumes to surrounding infrastructure through field life extension.

GPA is one of the North Sea's largest undeveloped oil projects and has been fully appraised, so no further appraisal drilling is needed. The constituent wells have been flow tested at rates of up to 6,000 barrels of oil per day and have produced good quality, light crude oil of between 37° and 32° API.

Parkmead has continued dialogue on commercial terms with the nearby Scott field partnership for the potential tie-back of the GPA project to Scott. Scott lies just 6 miles southeast of GPA and a tie-back could yield a number of mutually beneficial advantages for both the Scott partnership and the Perth owners.

Transportation studies for the base case GPA development concept have previously been completed. These have confirmed there are no technical showstoppers that would prevent the transportation and processing of fluids from the Perth production wells, all the way through the offshore infrastructure and onshore facilities. Parkmead continues to align potential project development concepts with the UK government's net zero commitment and has therefore initiated a net zero study for GPA. Encouraging industry interest has also been received with regards to the GPA farm out and constructive dialogue continues across all three GPA licences with NSTA.

Parkmead believes that projects like GPA play an important role in underpinning the supply of energy that the UK needs during its transition to net zero. As a fuel that is primarily used for transportation, manufacturing and petrochemicals, oil will continue to feature as a vital commodity in the UK over the coming years. Therefore, it is very important that the UK continues to develop projects such as GPA in order to reduce the UK's reliance on less-regulated, more carbon-intensive imports. Parkmead believes that production of hydrocarbons from GPA can be done in a sustainable fashion, in alignment with the UK Government's most recent targets on carbon emissions.

Russia's invasion of Ukraine has increased the UK Government's focus on energy security and confirmed the importance of having sizeable and robust UK domestic energy production. The rise in international oil and gas prices has also strengthened investment appetite through enhanced economics. Parkmead has also seen a positive investment sentiment emanating from the introduction of the new UK Energy Profits Levy, whereby the associated investment allowance of up to 91% has created a powerful incentive for major producers to invest in new UK North Sea developments.

Onshore Renewables

The acquisition of the Kempstone Hill Wind Farm, completed 31 January 2022, has now been fully integrated into the Group. The acquisition was immediately revenue and cash flow enhancing. In the last 12 months the wind farm generated 2,850 MWh with a 99.7% availability, enough to power up to 1,000 homes.  Kempstone Hill benefits from an attractive inflation-linked, Feed-in Tariff through until 2036. Wholesale export prices have seen strong gains throughout 2022. As part of Kempstone Hill's integration into Parkmead, a new Power Purchase Agreement was negotiated, commencing 1 August 2022, which we expect to result in a substantial increase in 2023's cashflow. Parkmead also has been assessing a number of opportunities to further enhance the Kempstone Hill Wind Farm, such as the potential inclusion of solar power generation, and expanding sales of electricity to local industrial users.

The major shift in the electricity generation market has changed the dynamics of renewable projects and Parkmead has decided to position Pitreadie based on a hybrid of renewable technologies following the completion of successful feasibility studies during the year. To that effect, Parkmead is progressing the work required to allow the Company to consider submitting a full planning application for a combined wind and solar farm, with added potential for a battery storage unit. This complements our existing onshore projects throughout the UK and Netherlands as the Group looks to continue expanding its onshore energy portfolio. 

Outlook

Our focus at Parkmead is to continue building a robust and balanced European energy business, driving forward both organic and inorganic growth opportunities. We have delivered significant growth across our portfolio this year, alongside achieving record gas revenue and profit before tax.

The Directors believe that there are excellent prospects to increase production from Parkmead's Netherlands assets and we will imminently spud a new two-well drilling campaign to begin accessing these opportunities. The current gas price environment provides a strong platform to capitalise on the low cost of production from these concessions.

We maintain a very healthy appetite for transactions which could provide incremental revenue, cash flow and long-term value for shareholders. Our proactive approach to investment in cleaner energies positions Parkmead to continue building a balanced portfolio of assets across the Group.

Parkmead's strict financial discipline has allowed us to remain unhedged for 100% of our gas production, thus gaining maximum exposure to the higher Dutch gas prices. The Company has started the 2023 financial year on a sound footing, with work ongoing across a number of projects which should pave the way for a successful year ahead.

Tom Cross

Executive Chairman

22 November 2022

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Notes:

1.   Tim Coxe, Parkmead Group's Managing Director, North Sea, holds a First-Class Master's Degree in Engineering and over 30 years of experience in the oil and gas industry. Tim is accountable for the company's HSE, Subsurface, Drilling, Production Operations and Development Project functions and has approved the technical information contained in this announcement. Reserves and contingent resource estimates have been produced by Parkmead's subsurface team and are stated as of 30 September 2022. Parkmead's evaluation of reserves and resources was prepared in accordance with the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers.

Group statement of profit or loss

for the year ended 30 June 2022

Group statement of profit or loss and other comprehensive income

for the year ended 30 June 2022

Group statement of financial position

as at 30 June 2022

Group statement of changes in equity

for the year ended 30 June 2022

Group statement of cashflows

for the year ended 30 June 2022

Notes to the financial information for the year ended 30 June 2022

1.   Basis of preparation of the financial information

The financial information set out in this announcement does not comprise the Group and Company's statutory accounts for the years ended 30 June 2022 or 30 June 2021.

The financial information has been extracted from the audited statutory accounts for the years ended 30 June 2022 and 30 June 2021. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The statutory accounts for the year ended 30 June 2021 have been delivered to the Registrar of Companies. The

statutory accounts for the year ended 30 June 2022 will be delivered to the Registrar of Companies following the

Company's Annual General Meeting.

The accounting policies are consistent with those applied in the preparation of the interim results for the period ended 31 December 2021 and the statutory accounts for the year ended 30 June 2021 and have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom.

2.   Administrative expenses

Administrative expenses include a charge in respect of a non-cash revaluation of share appreciation rights (SARs) and share based payments totalling £505,000 (2021: £56,000). The SARs may be settled via shares or cash and are therefore revalued with the movement in share price. The valuation was impacted by the increase in share price between 30 June 2021 and 30 June 2022.

3.   Profit / (loss) per share

Profit/(loss) per share attributable to equity holders of the Company arise from continuing and discontinued operations as follows:

The calculations were based on the following information:

Profit/(loss) per share is calculated by dividing the profit/(loss) for the year by the weighted average number of ordinary shares outstanding during the year.

Diluted profit/(loss) per share

Profit/(loss) per share requires presentation of diluted profit/(loss) per share when a company could be called upon to issue shares that would decrease net profit or net loss per share. When the group makes a loss the outstanding share options are therefore anti-dilutive and so are not included in dilutive potential ordinary shares.

4.   Notes to the statement of cashflows

Reconciliation of operating (loss) / profit to net cash flow from continuing operations

5.   Approval of this preliminary announcement

This announcement was approved by the Board of Directors on 22 November 2022.

6.   Publication of annual report and accounts

Copies of the Annual Report and Accounts will be made available shortly on the Company's website www.parkmeadgroup.com, along with a copy of this announcement.