I3 Energy Regulatory News (I3E)

7 August 2020

i3 Energy plc

("i3", "i3 Energy", or the "Company")

Final Results for the year ended 31 December 2019

i3 Energy plc, an independent oil and gas company with assets and operations in the UK, is pleased to announce the audited results for the year ended 31 December 2019. A copy of the Company's financial statements will be posted to shareholders and made available shortly on the Company's website at https://i3.energy together with a notice of General Meeting. The AGM will be held at 1:00 pm on 4th September 2020 at 2 Riding House Street, London, W1W 7FA.

Highlights and Outlook

· Completed equity placings, raising gross proceeds of approximately £24.4 million prior to expenses

· Redeemed all outstanding Convertible Loan Notes totalling £433,153 in principal and paid interest in accordance with the terms on the maturity date of 31 March 2019

· Conducted a site survey for the 2019 multi-well drilling campaign at the Company's UK North Sea licences

· Closed investments with funds managed by Bybrook Capital LLP, BP Oil International Limited, Lombard Odier Investment Managers Group and James Caird Asset Management for a £22 million Loan Note facility

· Entered into a contract with Dolphin Drilling for the Borgland Dolphin semi-submersible rig for a multi-well, 94-day drilling programme commencing in Summer 2019

· Executed a crude oil offtake and marketing agreement with BP Oil International Limited to market future UK crude production

· Awarded Baker Hughes, a GE Company ("BHGE"), contracts for the Company's 2019 summer drilling programme on its Liberator and Serenity assets

· Completed drilling of the Liberator 13/23c-9 pilot well; 13/23c-9 was plugged and abandoned as planned following completion of the vertical seismic profile ("VSP") survey and shear wave sonic logging

· Linda Beal appointed as a non-executive director of the Company

· Completed drilling of the 13/23c-10 exploration well, discovering the Serenity oil field

· Completed drilling of the Liberator 13/23c-11 well; the 13/23c-11 well was plugged and abandoned as planned

· Extended the Funding Long-stop Date of the Company's Loan Note facility from 30 November 2019 to 30 April 2020, by which time i3 was required to enter a reserve-based lending ("RBL") facility or to source alternative development financing for the Liberator Phase I development. Subsequent to the year-end the Company announced that the Funding Long-stop Date had been waived and a new Corporate Development Long-stop Date had been set for 30 September 2020 prior to which the Company has to achieve certain conditions as detailed below in Post Period and Outlook 23 June 2020.

Post Period and Outlook

On 2nd January 2020, the Company announced a corporate and funding update.

Well and fluid data from the Serenity 13/23c-10 discovery well encountered sweet, 31.5° API crude in 11 feet of upper Captain oil-bearing sands confirming the strong commercial potential of the Serenity area. Though Liberator wells 13/23c-9 and 13/23c-11 did not meet the Company's expectations, post-drill mapping of the entire Liberator structure still shows significant in place resources in the Liberator West and Minos High areas. With the highly successful Serenity discovery and remaining potential at Liberator, the Company is planning a multi-well appraisal programme and conducting a farm down process of its licences to potentially fund that drilling campaign.

The Company issued 2,816,739 warrants to subscribe for Ordinary Shares at an exercise price of 56.85 pence per Ordinary Share to GE Oil & Gas UK Limited ("GE UK"), in addition to the 2,204,574 issued to GE UK in October 2019. These warrants relate to deferred payments for Oilfield Service ("OFS") contracts entered into between the Company and Baker Hughes. To 30 November 2019, Baker Hughes had performed and invoiced the Company for £3,000,000 worth of oilfield services. GE UK can exercise the warrants via cash settlement or in exchange for payments due to Baker Hughes under OFS contracts with the Company.

On 7th February 2020, the Company provided a Board update where it announced that Linda Beal would become the interim Chairperson of the company, replacing David Knox. After nearly 3 years as the Chairperson of the Board, David stepped down to pursue another role in the renewable energy sector in Australia. The Company also announced plans to list its shares on a secondary exchange, for administrative reasons related to the Company's Loan Notes issued 31st May 2019. 

On 19th March 2020, the Company entered into a drilling contract with Dolphin Drilling Limited ("Dolphin") to utilise either the Borgland Dolphin or Blackford Dolphin semi-submersible drilling rig for a minimum 82-day programme which was due to commence not later than 1st September 2020 or as otherwise agreed between the parties. The contract was conditional on the Company confirming availability of funds to satisfy its obligations under the contract, 90 days prior to drilling commencement. The Company also agreed that Dolphin could earn up to a 10% economic interest in Block 13/23c via a Net Revenue Sharing Agreement in exchange for Dolphin forgoing its drilling contract profit margin above its opex, up to a maximum amount of US$14.4 million (the "Dolphin Commitment"). Accordingly, the Dolphin Commitment would cover approximately 22% of the total expected gross drilling costs. Under the terms of the drilling contract, i3 was to notify Dolphin not later than 90 days prior to 1st September 2020 that it had sufficient financial capacity to fund the minimum 82-day drilling programme. i3 was not in a position to do so on 1st June 2020. The parties remain in discussion on the potential timing of future drilling at the Company's UK licences.

On 30th March 2020, the Company announced that it had entered into an Option agreement to acquire all the issued and outstanding common shares of Toscana Energy Income Corporation ("Toscana" or "TEIC"), a TSX listed oil and gas corporation with assets in the Western Canadian Sedimentary Basin ("WCSB") in Alberta and Saskatchewan, Canada (the "Option"). Upon the Company's exercise of the Option, Toscana shareholders will be offered up to 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of approximately 4% to the Company's current shareholders and having a market value at March 27th of approximately C$0.55 million. The Company also announced that on March 27th it had purchased the rights and interests in Toscana's senior and junior debt facilities (which were in default). The Company acquired Toscana's C$24.8 million senior facility for C$3.0 million and its C$3.2 million junior facility for C$0.4 million, with cash consideration for each being paid 50% up front and 50% at year-end. The total aggregate consideration being paid by the Company for TEIC's debt and equity totals approximately C$3.95 million. Upon completion of the transaction with Toscana, the Company intends that its enlarged share capital would also be listed on the TSX, satisfying the Company's obligation under its existing Loan Notes to seek a secondary listing for its shares.

On 1st May 2020, the Company announced an update relating to the Development Funding Long-stop date of its Loan Note facility. On 8th November 2019, the majority noteholders had agreed to extend the date by which the Company was required to enter into a reserve-based lending facility or find an alternative means of funding to achieve first oil from the Liberator field, to 30th April 2020. i3 was not in a position to enter into such a facility by 30th April, but the Company remained in discussion with all noteholders to waive this condition.

On 23rd June 2020, the Company announced that the obligation to enter into a development facility for Liberator by a certain date (30th April 2020 - the Development Funding Long-stop Date) had been waived. A new Corporate Development Long-stop Date has been set for 30th September 2020 prior to which the Company has to achieve one of the following Corporate Development Long-stop Conditions:

· Secure firm irrevocable commitments for a minimum of £15 million of unsecured or fully subordinated financing, subject only to closing mechanics; or

· Agree a farm-out and/or funding term sheet, subject only to legal documentation to fund the drilling of at least one appraisal well on Serenity during 2020 or 2021; or

· Execute an acquisition agreement for at least 2500 boepd of production net to i3.

In addition, the Company has an obligation to achieve net corporate production at or above 5000 boepd by 30th April 2021.

As part of the above Loan Note restructuring, all warrants associated with the Loan Notes had their strike prices reset to the nominal value of i3 shares (£0.0001/share). The Loan Note Instrument amendments include the requirement that the currently outstanding i3 management options be cancelled and replacement options issued to i3 staff and directors which replicate the terms of the adjusted Loan Note warrants (the "New Options") in relation to the exercise price, to seek alignment between the Noteholders and management.

On 23rd June 2020, the Company announced that it had exercised the above-mentioned Option to acquire all of the issued and outstanding common shares of Toscana Energy Income Trust, a TSX-listed oil and gas company. Upon completion, i3 will also be listed on the Toronto Stock Exchange, thereby satisfying a requirement under the Company's Loan Notes to obtain a listing on an HMRC-recognized exchange, which AIM is not. Under the Loan Notes, i3 was to apply for this additional listing not later than 28th February 2020 and have admitted to that secondary exchange not later than 30 April 2020.

Also, on 23rd June 2020, the Company announced that it had entered into a non-binding letter of intent to acquire a package of producing Canadian oil and gas assets (the "Proposed Assets"). In 2019, the Proposed Assets produced at over 10,000 boepd and generated over US$34 million in field netback from multiple, low-decline, long-life, light oil and gas fields. Upon completion, the proposed transaction would add 2019 year-end reserves of over 25 MMboe PDP and over 65 MMboe 2P to i3's portfolio. The total consideration to be paid for the Proposed Assets under the letter of intent is just under US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P reserves. The proposed transaction would be a reverse take-over under the AIM Rules for Companies and, at i3's request, the Company's shares were suspended from trading on AIM until i3 either publishes a "Readmission Document" detailing the proposed acquisition or provides confirmation that discussions have ceased.

On 3rd July 2020 (the "PSA Date"), i3 entered a binding purchase and sale agreement with Gain Energy Ltd. ("Gain") to acquire 100% of its producing and non-producing petroleum assets in the Canadian provinces of Alberta and Saskatchewan, the aforementioned Proposed Assets (the "Gain Assets"). In Q4 of 2019, the Gain Assets produced on average 10,645 boepd (47% liquids) to which Gain's independent reserve evaluator had attributed PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets produced ~US$34 million in field EBITDA (revenues minus royalties, opex and transportation) from 242 Gain-operated wells at an average working interest of 78% and 1,633 non-operated wells at an average working interest of 11%, and include 174k net developed acres and 186k net undeveloped acres of land.

Further specifics and updates regarding the Gain transaction and other matters will be released as part of i3's Readmission Document when published.

The Company's focus for the remainder of 2020 will be on 3 key areas:

1 The completion of the Gain Transaction and i3's Readmission to AIM

2 The completion of the TEIC transaction and the integration of the Company's UK and Canadian businesses

3 The farmout of i3's UK licences to conduct further appraisal drilling at Serenity and/or Liberator

The Company continuously evaluates opportunities to strengthen its balance sheet whilst maintaining tight control of its costs and working capital position.

Majid Shafiq, CEO of i3 Energy plc, commented:

"2018 was a year of intense activity for i3 Energy. In very difficult capital markets we managed to finance a three well drilling campaign on our North Sea acreage, whilst maintaining a 100% working interest in those licenses. Although drilling results on the Liberator field were disappointing, we believe we made a potentially very significant discovery in the Serenity field and the campaign was conducted essentially on time and budget. We plan to appraise Serenity next year, with the drilling to be fully or partly funded by a farm-out of the asset. If Serenity is as large as we think it might be, it will be a transformational asset for the Company and will have multiple monetisation options. We also believe that Liberator West and the Minos High area still contain significant exploration potential and will seek to test those potential volumes again by a farm down of the acreage. The Company has for some time been looking at adding production assets to its portfolio and has evaluated numerous opportunities in the North Sea and other petroleum basins. This work led to the conclusion that there currently exists a time limited opportunity to build a large onshore production base in the Western Canadian Sedimentary Basin on very attractive acquisition metrics through M&A and in early 2020 we decided to act on this opportunity. We have since announced two significant transactions; the first a corporate transaction to acquire an operating company, TSX listed Toscana Energy Income Corporation and the second an asset deal to acquire a large production base. We are currently in the process of conducting a financing to complete the asset transaction. When completed these diverse, long life, low decline assets will support our goal of becoming a dividend paying oil and gas company, with the option to grow the business through further M&A or organically by developing a large undeveloped reserves base. I would like to thank our UK management team for their determined effort through 2019 to execute on our strategy to test our oil and gas acreage and delivering the Serenity discovery and to welcome our new colleagues in i3 Canada and look forward to navigating our new horizons as we look to continue our transformation into a material oil and gas production company."

Enquiries:

Notes to Editors:

i3 is an oil and gas development company initially focused on the North Sea. The Company's core asset are located in Blocks 13/23d and 13/23c, containing the Liberator and Serenity oil discoveries. The Company's strategy is to acquire high quality, low risk producing and development assets, to broaden its portfolio and grow its reserves and production.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

Chairperson's and Chief Executive's Statement

2019 was an intensely active year for i3 on all fronts, with the period separated into three key phases - funding, operational preparation, and drilling. Entering the year, the team was excited with the prospect of proving up its subsurface analysis of the Company's UK North Sea blocks 13/23c and 13/23d, seeing the potential to target an estimated 500 million barrels of oil within the Liberator and Serenity structures on its licences.

2019's mixed drilling results hold unrecognized value

In order to properly evaluate our UK assets and to ensure funding could be secured for future development works, the Company spent the year making preparations for and conducting a multi-well appraisal drilling campaign. In January, i3 executed an LOI with Dolphin Drilling to conduct an expected US$41 million drilling programme starting in Q3. Having a 2018 year-end market capitalisation of circa £16 million meant the Company would be required to source a multiple of its enterprise value in order to meet this commitment. Given the continual struggle to match sufficient capital with planned operational demands, the Company advanced all funding options simultaneously, while recognizing that a "first past the post" approach would be necessary if our operational commitments and associated contractual agreements were to be satisfied.

During early Q1 it became evident that our intended summer drilling program could only remain on track if funded through a loan note facility i3 had been negotiating, in combination with an equity raise, and the Company quickly moved to conclude these initiatives. To secure the Dolphin Drilling contract and to ensure all drilling operations were completed in 2019, i3 concluded a funding exercise between January and July which raised from equity, debt and supply chain investors an aggregate amount of £43 million - a number far in excess of our market capitalisation coming into 2019 and a very significant achievement for a small cap oil and gas company with no production. Sizeable anchor investments from the likes of Bybrook Capital, Lombard Odier and Miton, additional commitments from James Caird Asset Management, and material contributions from respected industry players such as BP Oil International and Baker Hughes GE enabled i3 to commit to a three-well drilling programme.

Operational activity on our assets commenced in April with the completion of a site survey over the surface locations for our summer 2019 drilling campaign, and on May 31st we confirmed our contract with Dolphin Drilling for the Borgland Dolphin semi-submersible rig to conduct a minimum 94-day programme to start mid-summer, with two wells planned at Liberator and one at Serenity. Following the seamless re-activation of the Borgland Dolphin rig between April and August, with much anticipation i3 began its drilling operations. A summary of that campaign follows.

On October 4th we announced that the Serenity 13/23c-10 well had been spud. The purpose of this well was to confirm that the Serenity structure was hydrocarbon bearing. On October 29th, i3 announced a successful oil discovery had been made at the Serenity structure and that key geologic horizons were encountered within the prognosed tolerances. The well was drilled down-dip from the Repsol Sinopec operated Tain discovery and encountered a sequence of oil-bearing sands. Importantly, the oil-water contact was estimated to be at 5270ft based on pressure measurements, the same level as seen in the Blake and Liberator fields. The net oil interval encountered in the 13/23c-10 well was thicker (c.10ft TVD) than in the up-dip Tain discovery and was consistent with our expectation that the Captain sands thicken to the west in Serenity. Reservoir quality is expected to be equivalent to that seen in the Tain wells, one of which (13/23b-5Z) tested at an estimated 2750 bopd from a circa 5ft interval in the Captain sand. The results of the Serenity 13/23c-10 well were closely in line with the Company's expectations and confirmed the strong commercial potential of the Serenity area, of which i3 owns 100%.

Countering the Company's Serenity success were the two wells drilled in the potential Liberator Phase I development area, the 13/23c-9 and 13/23c-11 wells, which delivered unexpected results. Frustratingly for our shareholders and our team, on September 10th i3 announced that preliminary petrophysical information obtained from the Measurement While Drilling ("MWD") tools in the 13/23c-9 well indicated that the targeted upper Captain sand was not penetrated and that these were pinched out at that location. While the Company sent the Borgland rig northward to drill Serenity, i3 acquired the only other seismic dataset available in an attempt to remap the field and reconcile the subsurface interpretation with the 13/23c-9 well results. Following completion of this work, i3 selected a re-positioned location to the north of Liberator's 2013 13/23d-8 discovery well, and on November 8th the Company announced that it had spud well 13/23c-11. Disappointingly, on November 25th we announced that the sand thickness with oil indications in the 13/23c-11 well was circa 20ft, which is thinner than the level i3 would target for a development well location. The disappointing results from these two wells, which were deemed to be relatively low-risk, exemplify an inherent risk in the oil and gas business - the drill bit remains the only way to definitively resolve geological uncertainty.

The Liberator results were discouraging and led to the Company's inability to secure the necessary funding for a small Liberator Phase I development. With the timing of obtaining first production and near-term cash flow from the Company's UK assets becoming uncertain, i3 experienced substantial downward pressure on its share price. However, the Company remains confident in the resource potential of the Serenity prospect and holds that the Liberator West and Minos High areas offer tremendous potential. Though the outcome of our 2019 campaign was mixed, we believe that with further appraisal drilling the value of these fields will eventually be recognized.

Shortening the path to shareholder value

For the reasons stated above, we believe it is necessary to diversify our asset portfolio in order to spread and mitigate risk. Ideally this would balance multiple aspects of our business, including geological, project life cycle, project capital intensity and capital market risks, whilst also being accretive to shareholders. The Company also believes it is critical to add production to its asset portfolio to provide internal free cash flow to grow the company and provide a near-term return to our shareholders. Having considered a number of global oil and gas basins and specific opportunities, including the UK North Sea in the context of our acquisition criteria, we concluded in late 2019 that the Western Canadian Sedimentary Basin (the "WCSB") provides a unique, time-limited opportunity to build a portfolio of production assets on superior metrics not achievable elsewhere. A short to medium term lack of infrastructure to transport Canadian oil and gas to international markets in combination with depressed gas prices in North America due to the growth in gas supply from shale drilling has led to many small and mid-cap oil and gas producers, particularly those with overleveraged balance sheets and heavily gas-weighted portfolios, to become financially distressed and to have limited access to the North American capital markets to fund maintenance opex or growth capex. Many of these companies contain excellent, long-life, low-decline production assets, with solid growth potential that may be acquirable at attractive metrics.

In March 2020, i3 announced that it had acquired the rights and interests in the senior-secured and subordinated debt of Toscana Energy Income Corporation ("Toscana" or "TEIC"), a TSX-listed oil and gas corporation with assets and operations in the WCSB.

As a result of accessing debt to acquire assets in a much stronger commodity environment, Toscana had struggled for some years and was in default under the terms of its debt facility agreements. i3 purchased Toscana's C$28 million senior and junior debt facilities for a total of C$3.4 million. At the same time, the Company announced its entry into an Option agreement with Toscana to acquire 100% of the issued share capital of TEIC under which Toscana shareholders would receive 4,399,224 i3 ordinary shares, representing dilution of approximately 4% to i3's shareholders at the time of announcement. On 23rd June 2020, i3 announced that it had exercised its Option with Toscana, the result of which will see i3's enlarged share capital also being listed on the TSX, post-completion.

Toscana's strong management and operations teams, and production and asset base, provides a platform for i3's entry into Canada. As stated in March 2020, i3 intended to swiftly leverage the TEIC platform to execute an M&A driven growth strategy to build a large, low capital intensity, long-life production base in Canada. On 23rd June 2020, with further detail on 6th July 2020, i3 announced the planned acquisition of all the petroleum assets of Gain Energy Ltd., a private Canadian company with assets in the Western Canadian Sedimentary Basin. Under the AIM Rules, the Gain Transaction constitutes a reverse take-over, and at the Company's request its shares were suspended from trading on AIM.

Upon the Company's production of a Readmission Document and upon the completion of an ongoing fundraising effort to finance the Gain Transaction, the acquired assets are expected to deliver immediate shareholder value.

Production + Growth Potential = Dividend + Upside

The Company expects to become a dividend payer as i3's Canadian business expands. Under current market conditions, residual free cash flow above the dividend will likely be redeployed to acquire additional developed producing reserves or to exploit the best production adding opportunities within the Canadian portfolio, in order to replace natural decline and increase production levels. At such time as markets improve and acquisition multiples become unattractive, i3 will focus on unlocking the material value held in its acquired proven undeveloped (PUD) and 2P inventory, which has the capacity to more than double current production levels into a strengthening commodity price environment. Fresh production will be hedged in these strengthening markets to secure future cash flow or, alternatively, the Company may monetize new production so that it returns additional value to shareholders.

Financial review

During the year ended 31 December 2019, the Group incurred a net loss of £10,851,177 (31 December 2018 - net loss of £1,959,802). The majority of the loss resulted from the Group's expenses relating to day-to-day operations, finance costs, interest expenses and stock option scheme expense.

A total of £24.4 million of equity (before expenses) was issued during the year ended 31 December 2019 through the placing of 66,701,962 ordinary shares at an average price of 35 pence per share.

In addition, the Company closed a £22 million H1-2019 Loan Note facility. Proceeds from the equity issuances and the Loan Notes were used for Liberator and Serenity drilling and working capital requirements.

Moving forward we will continue to manage our existing cash resources, which stood at £19,069,541 at the end of December 2019. 

Looking Forward

The COVID-19 virus has had a significant impact, affecting economies and populations globally. The spread of COVID-19 has been unlike any previous virus, taking governments and countries by surprise. It is anticipated that the world economy will be severely impacted by COVID-19 despite measures taken by governments to protect against it. i3 Energy is preserving its capabilities and cash position while ensuring all staff are safe and abiding by government guidelines and recommendations. The directors anticipate there will be distressed M&A opportunities that will arise as a result of this situation and are positioning themselves to take advantage of these as they arise.

We maintain our strong belief that there is substantial value to be created in the UK North Sea through the development of small and mid-sized fields which lie proximal to aging but well-maintained infrastructure. Potential satellite developments from fields such as Serenity and Liberator closely adhere to guidance provided by the OGA in regards to maximising economic recovery from the UK's resources, and i3 continues to work diligently on creating value there.

We are additionally very excited for our entry into Western Canada and believe it holds tremendous potential to deliver substantial near-term returns to i3's shareholders. The Canadian transactions are expected to create a solid foundation to aggressively build upon, and we are very much looking forward to integrating our UK and Canadian teams together in the coming months.

We extend deep gratitude for the commitment and effort of the Company's management team and staff. The highs and lows of 2019 only increased their resolve to ensure we are building a company for the benefit of its owners. Collectively holding a meaningful portion of the Company, the management and board remain closely aligned to the interests of all i3 stakeholders.

As always, we also thank our noteholders, institutional investors, and shareholders. We will be very intentional in the coming years about structuring a Company and organization that returns value to you as it is created.

Consolidated Statement of Comprehensive Income

All operations are continuing.

The accompanying notes on pages 49 - 74 form part of these financial statements.

Consolidated Statement of Financial Position

The consolidated financial statements of i3 Energy plc, company number 10699593, were approved by the Board of Directors and authorized for issue on 6 August 2020.

Signed on behalf of the Board of Directors by:

Majid Shafiq

Director

The accompanying notes on pages 49 - 74 form part of these financial statements.

Consolidated Statement of Changes in Equity

The following describes the nature and purpose of each reserve within equity:

Note: The issued share capital comprises of both ordinary and deferred shares and the consolidated nominal value exceeds the required minimum issued capital of £50,000.

The accompanying notes on pages 49 - 74 form part of these financial statements.

Consolidated Statement of Cash Flow

Net debt reconciliation is shown on page 63

The accompanying notes on pages 49 - 74 are an integral part of these financial statements.

Notes Forming Part of the Financial Statements

1 Summary of significant accounting policies

General Information and Authorisation of Financial Statements

i3 Energy plc ("the Company") is a Public Company, limited by shares, registered in England and Wales under the Companies Act 2006 with registered number 10699593. The Company's ordinary shares are traded on the AIM Market operated by the London Stock Exchange. The address of the Company's registered office is New Kings Court, Tollgate, Chandler's Ford, Eastleigh, Hampshire, SO53 3LG.

The Company and its subsidiaries (together, "the Group") principal activities consist of the development and production of oil and gas in the UK North Sea. The Company's wholly-owned subsidiary, i3 Energy North Sea Limited, is an independent oil and gas company with assets in the UK. The Company's principal activity is that of a listed holding company.

Changes in accounting standards

The standards which applied for the first time this year have been adopted and have not had a material impact.

IFRS 16 'Leases'

IFRS 16 Leases became applicable to the current reporting period, replacing IAS 17 Leases. The key change under IFRS 16 is that most leases designated as "operating leases" under IAS 17 now qualify for balance sheet recognition, subject to certain exceptions. The Group reviewed all its leasing arrangements and identified one contract previously classified as operating leases which would require recognition as lease liabilities in the 1 January 2019 balance sheet.

The Group has concluded that the effect of the impact on implementation of IFRS 16 is not material to the financial statements and therefore no adjustment has been processed.

IAS 19 'Employee Benefits'

The standard is effective on or after 1 January 2019. Under the provisions of the amendment, when a change to the defined benefit plan - an amendment, curtailment or settlement occurs, IAS 19 now requires that the current service cost and the net interest for the period after remeasurement are determined using the updated assumptions used for the remeasurement. The change in the effect of the asset ceiling that may result from the plan amendment, curtailment or settlement is recognized in other comprehensive income. The company continues to monitor the potential impact to group's financial statements but does not expect material impact in the current year.

IFRS 3 'Business Combination' and IFRS 11 'Joint Operations'

The standard is effective on or after 1 January 2020. Both the amendments to IFRS 3 and IFRS 11 are related to changes in group composition. If a joint operation becomes a subsidiary during the year, the previously held interest in the joint operation should be remeasured at fair value. However, no such remeasurement is required in the joint operation if the entity obtains joint control of another entity that is a joint operation. The company continues to monitor the potential impact to group's financial statements but does not expect material impact in the current year.

IAS 12 'Income Taxes'

The standard is effective on or after 1 January 2019 with earlier application permitted and disclosed. The Company must recognize all income tax consequences of dividends in profit or loss, other comprehensive income or equity, depending on where the entity recognised the originating transaction or event that generated the distributable profits giving rise to the dividend. The Company does not expect material impact to the group's financial statements as a result of this amendment.

IAS 23 'Borrowing Costs'

The standard is effective on or after 1 January 2019 with earlier application permitted and disclosed. Under the amendment, when a qualifying asset is ready for its intended use or sale, and some of the specific borrowing related to the qualifying asset is outstanding, that borrowing should be included to calculate capitalization rate on general borrowings. The Company has determined that this amendment is not applicable for the financial year 2019.

IASB New and Revised Standards

The International Accounting Standards Board (IASB) has issued the following new and revised standards, amendments and interpretations to existing standards that are not effective for the financial year ending 31 December 2019 and have not been adopted early. The Group is currently assessing the impact of these standards and based on the Group's current operations do not expect them to have a material impact on the financial statements.

IFRS 3 'Business Combination'

The standard is effective for periods beginning on or after 1 January 2020 and will be applied prospectively. The amendments narrowed and clarified the definition of business include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition, if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If an election to use a concentration test is not made, or the test failed, then the assessment focuses on the existence of a substantive process.

2 Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) as adopted by the European Union.

The financial information is presented in Pounds Sterling (£) to the nearest £ unless otherwise stated.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied unless otherwise stated. The Company has elected not to present individual financial statements as it is not required to do so.

Basis of Consolidation

The consolidated financial statements consolidate the audited financial statements of i3 Energy plc and the financial statements of its subsidiary undertakings made up to 31 December 2019.

Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Going concern

The financial statements have been prepared on a going concern basis. The Group's assets are not generating revenues, an operating loss has been reported and an operating loss in the UK is expected in the 12 months subsequent to the date of these financial statements and as a result the Company will need to raise funding to provide additional working capital to finance their ongoing activities and non-discretionary expenditures. The Board has previously successfully raised monies and consider that they would be supported in any further raise.

The net proceeds of any placing would be used towards potential acquisitions, exploration, development and general corporate purposes. Based on the Board's assessment that the cash flow budgets can be achieved, which include consideration of the impact of COVID-19 and that the necessary funds will be raised, the Directors have a reasonable expectation that the Group and the Company has access to adequate resources to continue in operation for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements for the year ended 31 December 2019.

These conditions indicate the existence of material uncertainties that may cast significant doubt regarding the applicability of the going concern assumption and the auditors have made reference to this in their audit report.

Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

3 Significant accounting policies

The accounting policies adopted are consistent with those applied in the previous financial year, unless otherwise indicated.

Financial instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with original maturity periods of up to three months. Any interest earned is accrued monthly and classified as interest income within finance income.

Trade and other receivables

Trade and other receivables are initially recognised at fair value when related amounts are invoiced then carried at this amount less any impairment of these receivables.

Trade and other payables

These financial liabilities are all non-interest bearing and are initially recognised at the fair value of the consideration payable.

Loan Notes

These financial liabilities are all non-interest bearing and are initially recognised at amortised costs and include the transaction costs directly related to the issuance. The transaction costs are amortised using the effective interest rate method over the life of the Loan Notes.

Impairment of financial assets

In relation to financial assets, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of receivables is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Financial liabilities at Fair Value Through Profit or Loss ("FVTPL")

Financial liabilities at FVTPL comprise of the Company's convertible loan notes payable. Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration that may be paid by an acquirer as part of a business combination to which IFRS 3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

· it has been incurred principally for the purpose of repurchasing it in the near term; or

· on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

· it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:

· such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

· the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

· it forms part of a contract containing one or more embedded derivatives, and IFRS Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the 'other gains and losses' line item in the income statement.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

Equity

Equity instruments issued by the Company are usually recorded at the proceeds received, net of direct issue costs, and allocated between called up share capital and share premium accounts as appropriate.

Foreign currency

The Company does not have any foreign operations. Transactions denominated in currencies other than functional currency are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences that arise are recorded in the income statement.

For the purpose of the financial statements, the results and financial position are expressed in GBP, being the functional and presentational currency of all entities within the Group.

Taxation

Tax is recognised in the consolidated Statement of Comprehensive Income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively.

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 bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

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 profit will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Company 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 assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

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 assets and liabilities are not discounted.

Intangible assets

Exploration and evaluation expenditures (E&E):

a Development expenditure

Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including service, is capitalized 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

b Drilling costs and intangible licenses

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.

Expenditure incurred on the acquisition of a licence interest is initially capitalised within intangible assets on a licence by licence basis. Costs are held, unamortised, within Petroleum mineral leases until such time as the exploration phase of the licence area is complete or commercial reserves have been discovered. The cost of the licence is subsequently transferred into "Producing Properties" within property, plant and equipment and depreciated over its estimated useful economic life.

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 into '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.

Impairment of Non-Financial Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. This includes consideration of the IFRS 6 impairment indicators for any intangible exploration and evaluation assets capitalised as intangible costs. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use. This is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, and the asset's value in use cannot be estimated to be close to its fair value. In such cases, the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, it is considered impaired and is written down to its recoverable amount. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset, unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Statement of Comprehensive Income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Finance income

Finance income consists of bank interest on cash and cash equivalents which is recognised as accruing on a straight-line basis, over the period of the deposit.

Investments

Investments in subsidiary undertakings are stated at cost less any provision for impairment in value, prior to their elimination on consolidation.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:

· Office equipment 20% or straight line over the life of the equipment - whichever is the lesser;

· Field equipment - between 5% and 25%.

All assets are subject to annual impairment reviews.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replacement part is derecognised. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred. The asset's residual value and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying value is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within the Statement of Comprehensive Income.

Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Earnings per share

Basic Earnings per share is calculated as profit attributable to equity holders of the parent for the period, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Significant accounting judgements, estimates and assumptions

Critical Accounting Estimates and Judgements

The preparation of financial statements using accounting policies consistent with IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. The preparation of financial statements also requires the Directors to exercise judgement in the process of applying the accounting policies. Changes in estimates, assumptions and judgements can have a significant impact on the financial statements.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively from the period in which the estimates are revised.

There are no critical judgements identified, apart from those involving estimations (which are dealt with separately below) that the Directors have made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Carrying value of exploration and evaluation assets

At 31 December 2019, the Group held oil and gas exploration and evaluation assets of £46.53m (2018: £5.71m), Note 12. Management assesses whether there are indicators of impairment in accordance with the accounting policies. In making the assessment Management considers the results of drilling activities, management's intentions to develop the asset, the remaining period of exploration available and changes in the general economic environment which would indicate that the carrying amount is unlikely to be recovered.

These estimates and assumptions are subject to risk and uncertainty and therefore a possibility that changes in circumstances will impact the assessment of impairment indicators.

Fair value measurements and valuation processes

Some of the Company's assets and liabilities are measured at fair value for financial reporting purposes, see note 21. The Board of Directors of the Company determine the appropriate valuation techniques and inputs for fair value measurements.

In estimating the fair value of an asset or liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in notes 19 and 21.

4 Segmental reporting

The Chief Operating Decision Maker (CODM) is considered to be the Board of Directors. They consider that the Group operates in a single segment, that of oil and gas exploration, appraisal and development, in a single geographical location, the North Sea of the United Kingdom. As a result, the financial information of the single segment is the same as set out in the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of Changes in Equity and Consolidated Statement of Cashflows.

5 Administrative expenses

5 (a) Auditor remuneration

During the year, the Group obtained the following services from the Company's auditor:

6 Employee information

i3 Energy plc had no staff during the year ended 31 December 2019 (2018 - Nil) and therefore no payments were made. Director remuneration is disclosed in Note 10.

The average number of persons employed by the Company, including Executive Directors, was:

7 Interest payable and similar costs

8 Taxation

Taxation reconciliation

The below table reconciles the tax charge for the year to the expected tax charge based on the result for the year and the corporation tax rate.

As at 31 Dec 2019 the Group had taxable losses of £14,942,652 (31 Dec 2018 - £1,950,442) and mineral extraction allowances of £46,527,633 (31 Dec 2018 - £5,706,646) . The taxable losses do not expire.

The unrecognised deferred tax asset is due to uncertainty over the availability of future taxable profits to offset these losses against so a deferred tax asset has not been recognised in accordance with IAS 12. 

9 Dividends

No dividends were proposed. (2018 - Nil).

10 Directors' remuneration

No pension benefits are provided for any Directors (2018 - Nil).

The total amount of Directors' fees to the Non-Executive Directors, in 2019, in the amount of £116,216 (2018 - £150,000) had been accrued. The accrued Non-Executive Directors' fees were paid 1 April 2020.

11 Earnings per share

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:

The 31 December 2019 and 31 December 2018 calculations use the Ordinary Shares, both basic and diluted, held at these dates. The diluted loss per Ordinary Share is calculated by adjusting the weighted average number of Ordinary shares outstanding to consider the impact of options, warrants and other dilutive securities. As the effect of potential dilutive Ordinary Shares would be anti-dilutive, they are not included in the above calculation of diluted earnings per Ordinary Share.

12 Exploration and evaluation assets (Intangible)

13 Investment in subsidiaries

At 31 December 2019 the Company held 100% of the share capital of the following wholly owned subsidiary:

*Wholly owned subsidiary of i3 Energy plc.

14 Trade and other receivables

Other receivables are all due within one year.

Loans advanced from or to the subsidiary are unsecured, interest free and have no fixed repayment date, see note 20.

The fair value of other receivables is the same as their carrying values as stated above.

Other receivables do not contain any impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

15 Trade and other payables

The average credit period taken for trade purchases is 30 days. No interest is charged on the trade payables. The carrying values of trade and other payables are considered to be a reasonable approximation of the fair value and are considered by the Directors as payable within one year.

On 2 July, 2019 the Company agreed with a supplier that £3,000,000 of oilfield service and oilfield equipment contract payments will not become payable until such time as i3 has received its first sales revenues from Liberator Phase I. This payable has been recorded as a non-current accounts payable.

16 Convertible loan notes

Net debt reconciliation

17 H1-2019 Loan Note Facility

In May 2019, the Company completed a £22 million H1-2019 loan note facility ("H1-2019 LN"). The H1-2019 LNs have a term of 4 years, maturing on 31 May 2023 and bearing interest, payable on a quarterly basis at the Company's option (i) in cash at a rate of 8% per annum, or (ii) in kind (at i3's option) at a rate of 11% per annum by the issuance of additional H1-2019 LNs.

The noteholders were granted warrants ("H1-2019 LN Warrants") in the notional amount of £1 for each £1 of loan notes issued, with H1-2019 Warrants being issued proportionately across three series. The H1-2019 LN Warrants vested on the issue date and expire 4 years thereafter and can be exercised through either/or a combination of a cash payment and/or surrender of H1-2019 LNs plus accrued interest equal to the aggregate notional amount of the H1-2019 LN Warrants being exercised. Each H1-2019 LN Warrant gives the holder the right to convert the notional amount into such number of shares as is derived by dividing the notional amount by the exercise price.

The fair value of the Tranche 1 warrants were determined by the Black-Scholes method. In the Black Scholes model the inputs were share price of £0.39, exercise price of £0.4070, time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as 0.9755%.

The fair value of the Tranche 2 warrants were determined by the Black-Scholes method. In the Black Scholes model the inputs were share price of £0.39, exercise price of £0.4810, time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as 0.9755%.

The fair value of the Tranche 3 warrants were determined by the Black-Scholes method. In the Black Scholes model the inputs were share price of £0.39, exercise price of £0.5550, time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as 0.9755%.

Total fair value of the Tranche 1, Tranche 2 and Tranche 3 warrants on issuance was £11,375,184 and was bifurcated from the debt contract and classified as equity.

The H1-2019 LNs are comprised of the following components: the debt contract, the conversion feature, the interest rate payment option and the early conversion feature (at i3's option). At inception the debt component was recorded at an estimated fair value of £10,624,816. The debt balance is unwound using the effective interest rate method to the principal value at maturity with a corresponding non-cash accretion charge to earnings.

The H1-2019 LNs are redeemable before the maturity date and the holders are secured against the Company's assets. The Company may repay all or part of the H1-2019 LNs within the first 12 months at 116% of par and at par plus accrued interest thereafter. The fair value of the repayment option is nil at 31 December 2019.

Interest expense and accretion expense to 31 December 2019 was £1,226,637 and £1,194,731 respectively.

18 Authorised, issued and called-up share capital

The ordinary shares confer the right to vote at general meetings of the Company, to a repayment of capital in the event of liquidation or winding up and certain other rights as set out in the Company's articles of association.

The deferred shares do not confer any voting rights at general meetings of the Company and do confer a right to a repayment of capital in the event of liquidation or winding up, they do not confer any dividend rights or any of redemption.

On 18 March 2019, 11,005,527 ordinary shares with a nominal of £1,101 were issued at a price of £0.37 per share as part of placing in which the company raised £17.15 million. Share issuance costs of £265,986 were incurred which have been recognised as direct costs of capital against share premium.

On 1 April 2019, 32,237,716 ordinary shares with a nominal of £3,224 were issued at a price of £0.37 per share as part of placing in which the company raised £17.15 million. Share issuance costs of £704,155 were incurred which have been recognised as direct costs of capital against share premium.

On 4 April 2019, 2,131,538 ordinary shares with a nominal of £213 were issued at a price of £0.37 per share as part of placing in which the company raised £17.15 million. 

On 5 April 2019, 983,059 ordinary shares with a nominal of £98 were issued at a price of £0.37 per share as part of an open offer in relation to an equity placing in which the company raised £17.15 million. 

On 31 May 2019, 5,405,405 ordinary shares with a nominal of £540 were issued at a price of £0.37 per share in conjunction with the Company's placing of H1-2019 loan notes. Share issuance costs of £100,000 were incurred which have been recognised as direct costs of capital against share premium.

On 31 May 2019, 653,002 ordinary shares with a nominal of £65 were issued at a price of £0.43 per share as payment in kind for finance costs in relation to the Company's H1-2019 loan note facility.

On 6 December 2019, 14,285,715 ordinary shares with a nominal of £1,429 were issued at a price of £0.35 per share as part of an equity issuance managed by Bybrook Capital LLP.

19 Share based payments

During the year the Company had share based payment expense of £3,116,995 (2018 -£540,623).

Share Options

During the year the Company had share based payment expense relating to the issuance of share options of £1,205,722 (2018 - £540,623).

The following share options were issued during the year and £670,933 (2018 - £540,623) of share-based payment expense relates to the 20 March 2019 vested share options which was calculated using the Black Scholes method:

In the Black Scholes model the inputs were stock price of £0.385 (2018 - £0.635), exercise price of £0.395 (2018 - £0.635), time to maturity of 10 years (2018 - 10 years), Volatility as 98% (2018 - 94.62%), and the Risk-Free Interest Rate as 1.177% (2018 - 1.665%).

On 12 October 2019, 912,609 share options, issued on 12 October 2018, vested and the cost of £534,789 was calculated using the Black Scholes method. In the Black Scholes model the inputs were stock price of £0.215, exercise price of £0.395, time to maturity of 9 years, Volatility as 98%, and the Risk-Free Interest Rate as 1.177%.

Other Share Based Payments

During the year the Company had share based payment expense relating to the issuance of warrants of £1,911,273 (2018 - Nil).

GE Oil & Gas UK Limited

On 18th September 2019, as part of an agreement announced 2nd July 2019, the Company issued 5,021,313 warrants to subscribe for Ordinary Shares in the Company at an exercise price of £0.5685 per ordinary share to GE Oil and Gas UK Limited. The warrants relate to deferred payments for Oilfield Service contracts entered into between i3 and Baker Hughes.

In the Black Scholes model the inputs were stock price of £0.275 (2018 - Nil), exercise price of £0.5685 (2018 - Nil), time to maturity of 2 years (2018 - Nil), Volatility as 96% (2018 - Nil) and the Risk-Free Interest Rate as 0.4635% (2018 - Nil) for a share based payment expense of £452,420.

Bybrook Work Fee

The Company announced on 29 October 2019 that it was obligated to enter a reserve-based lending facility by no later than December 2019 to remain in compliance with the terms of its Loan Notes. The Majority Noteholders agreed to extend the date by which the Company must enter an RBL or find an alternative means of funding to achieve first oil from its assets to 30 April 2020. For their previous and ongoing work and allocation of resources to structure and support the Company's funding requirements as it undertook a large-scale drilling programme, the loan note holders were issued 8,000,000 warrants on 8 November 2019 and 1,503,798 warrants on 6 December 2019 to subscribe for ordinary shares in the Company at an exercise price of £0.40 per ordinary share.

In the Black Scholes model, for the warrants issued on 8 November 2019, the inputs were stock price of £0.385 (2018 - Nil), exercise price of £0.40 (2018 - Nil), time to maturity of 2 years (2018 - Nil), Volatility as 102% (2018 - Nil) , and the Risk-Free Interest Rate as 0.5271% (2018 - Nil) for a share based payment expense of £1,366,353.

In the Black Scholes model, for the warrants issued on 6 December 2019, the inputs were stock price of £0.19 (2018 - Nil), exercise price of £0.40 (2018 - Nil), time to maturity of 2 years (2018 - Nil), Volatility as 119% (2018 - Nil) , and the Risk-Free Interest Rate as 0.5449% (2018 - Nil) for a share based payment expense of £92,500.

EMI Options

The Company operates an Employee Management Incentive (EMI) share option scheme. Grants were made as set out below on 14th April 2016 and 6th December 2016. The scheme is based on eligible employees being granted EMI options. The right to exercise the option is at the employee's discretion for a ten-year period from the date of issuance. 500,000 options are exercisable at a price equal to £0.11 per share respectively. As the Options may be exercised at any time, the vesting period is deemed to be immediate. If the options remain unexercised after a period of ten years from the date of grant the options expire. Employees who leave i3 Energy have 60 days to exercise the Options prior to them being forfeited.

The options outstanding at 31 December 2019 had a weighted average exercise price of £0.11 (Dec 18 - £0.11), and a weighted average remaining contractual life of 6.92 years.

20 Related party transactions

The Company had the following related party transactions:

a During the year ended 31 December 2019, two Non-Executive Directors, Neill Carson (served as Executive Director until 7 October 2018 and a Non-Executive Director thereafter) and Richard Ames, held convertible loan notes in the amounts of £112,782 (2018 - £112,782) and £150,780 (2018 - £156,620) respectively. The loan notes were settled on 4 April 2019 and 8 April 2019, respectively.

b During the year the Company provided funds amounting to £24,592,137 for total funds provided to date of £33,876,085 (2018 - £9,283,948) to its subsidiary and received funds in the amount of £1,095,276 (2018 - £1,248,058) during the year for total funds received to date of £2,343,334 from its subsidiary. The total net receivable during the year from its subsidiary was £23,496,861 with total funds receivable at 31 December 2019 of £31,532,751 (2018 - £8,035,890).

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of Key Management Personnel

Directors of the Company are considered to be Key Management Personnel. The remuneration of the Directors is set out in note 10.

21 Financial instruments and capital risk management

Financial Risk Management

Financial Risk Factors

The Group's activities expose it to a variety of financial risks; market risk (including foreign currency risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out by the Board of Directors under policies approved at Board meetings. The Board frequently discusses principles for overall risk management including policies for specific areas such as foreign exchange.

a Market Risk

i Foreign Exchange Risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the UK pound sterling and the US dollar. Foreign exchange risk arises from recognised monetary assets and liabilities (USD bank account) where they may be denominated in a currency that is not the Group's functional currency.

The exposure to this risk is not considered material to the Group's operations and thus the Directors consider that, for the time being, no hedging or other arrangements are necessary to mitigate this risk.

On the assumption that all other variables were held constant, and in respect of the Group and the Company's expenses the potential impact of a 1% increase / decrease in the UK Sterling: US Dollar Foreign exchange rate on the Group's loss for the year and on equity is not material and therefore has not been shown.

b Credit Risk

Credit risk arises from cash and cash equivalents.

The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk. The Group will only keep its holdings of cash with institutions which have a minimum credit rating of 'A'.

The Group considers that it is not exposed to major concentrations of credit risk.

The Group holds cash as a liquid resource to fund its obligations. The Group's cash balances are held in Sterling and US Dollar. The Group's strategy for managing cash is to maximise interest income whilst ensuring its availability to match the profile of the Group's

expenditure. This is achieved by regular monitoring of interest rates and monthly review of expenditure forecasts.

c Liquidity Risk

To date the Group has relied upon equity funding to finance operations. The Directors are confident that adequate funding will be forthcoming with which to finance operations. Controls over expenditure are carefully managed.

The Group ensures that its liquidity is maintained by a management process which includes projecting cash flows and considering the level of liquid assets in relation thereto, monitoring Balance Sheet liquidity and maintaining funding sources and back-up facilities.

Fair Value Estimation

The following table presents the Group's financial asset and financial liabilities that are measured at fair value at 31 December 2019.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Fair value measurements

To estimate fair value of the risk management contracts, the Company uses quoted market prices when available, or industry accepted third-party models and valuation methodologies that utilise observable market data. In addition to market information, the Company incorporates transaction specific details that market participants would utilise in a fair value measurement, including the impact of non-performance risk. The Company characterises inputs used in determining fair value using a hierarchy that prioritises inputs depending on the degree to which they are observable. However, these fair value estimates may not necessarily be indicative of the amounts that could be realised or settled in a current market transaction.

The three levels of the fair value hierarchy are as follows:

· Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates, and volatility factors, which can be observed or corroborated in the marketplace.

· Level 3 - inputs that are less observable, unavailable or where the observable data does not support the majority of the instruments fair value.

In forming estimates, the Company utilises the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy,

the measurement is categorised based upon the lowest level of input that is significant to the fair value measurement.

All financial assets are classified as loans and receivables and are accounted for on an amortised cost basis. All financial liabilities are classified as other liabilities. The carrying amount of the other financial assets and liabilities approximates the fair value due to its short maturities.

Fair value measurements recognised in the statement of financial position

There were no transfers between Level 1 and 2 during the current or prior year. Trade and other receivables and trade and other payables are held at approximate fair value therefore the financial instruments noted above do not require fair value disclosure.

The Company's convertible Loan Notes were issued in both GBP and USD. The Loan Notes issued in USD are subject to the FX fluctuation between the USD and GBP rates and can impact the fair value reported in GBP. All convertible Loan Notes were paid in full in April 2019.

Capital Risk Management

The Group's objectives when managing capital are to safeguard the Group's ability to position as a going concern and to continue its exploration and production activities. The Group has debt of £34,250,936 as at 31 December 2019 (2018 - £1,821,465) and has capital, defined as the total equity and reserves of the Group of £31,659,278 (2018 - £4,655,225).

The group monitors its level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time.

22 Commitments

On 1 April 2017, I3 Energy North Sea Limited, at that time i3 Energy Limited, entered into a 5-year lease agreement to rent space. The lease expires in April 2022.

As at 31 December 2019, the Company had cancellation exposure to certain long-lead items for its Liberator development totalling £3,959,781 (2018 - £5,817,612). As at 30 June 2020 the Company's cancellation exposure for long-lead items was £3,959,781 (2018 - £6,593,284).

23 Ultimate controlling party

There is no ultimate controlling party of i3 Energy plc.

24 Events after the reporting period

On 2nd January 2020, the Company announced a corporate and funding update.

Well and fluid data from the Serenity 13/23c-10 discovery well encountered sweet, 31.5° API crude in 11 feet of upper Captain oil-bearing sands confirming the strong commercial potential of the Serenity area. Though Liberator wells 13/23c-9 and 13/23c-11 did not meet the Company's expectations, post-drill mapping of the entire Liberator structure still shows significant in place resources in the Liberator West and Minos High areas. With the highly successful Serenity discovery and remaining potential at Liberator, the Company is planning a multi-well appraisal programme and conducting a farm down process of its licences to potentially fund that drilling campaign.

The Company issued 2,816,739 warrants to subscribe for Ordinary Shares at an exercise price of 56.85 pence per Ordinary Share to GE Oil & Gas UK Limited ("GE UK"), in addition to the 2,204,574 issued to GE UK in October 2019. These warrants relate to deferred payments for Oilfield Service ("OFS") contracts entered into between the Company and Baker Hughes. To 30 November 2019, Baker Hughes had performed and invoiced the Company for £3,000,000 worth of oilfield services. GE UK can exercise the warrants via cash settlement or in exchange for payments due to Baker Hughes under OFS contracts with the Company.

On 7th February 2020, the Company provided a Board update where it announced that Linda Beal would become the interim Chairperson of the company, replacing David Knox. After nearly 3 years as the Chairperson of the Board, David stepped down to pursue another role in the renewable energy sector in Australia. The Company also announced plans to list its shares on a secondary exchange, for administrative reasons related to the Company's Loan Notes issued 31st May 2019. 

On 19th March 2020, the Company entered into a drilling contract with Dolphin Drilling Limited ("Dolphin") to utilise either the Borgland Dolphin or Blackford Dolphin semi-submersible drilling rig for a minimum 82-day programme which was due to commence not later than 1st September 2020 or as otherwise agreed between the parties. The contract was conditional on the Company confirming availability of funds to satisfy its obligations under the contract, 90 days prior to drilling commencement. The Company also agreed that Dolphin could earn up to a 10% economic interest in Block 13/23c via a Net Revenue Sharing Agreement in exchange for Dolphin forgoing its drilling contract profit margin above its opex, up to a maximum amount of US$14.4 million (the "Dolphin Commitment"). Accordingly, the Dolphin Commitment would cover approximately 22% of the total expected gross drilling costs. Under the terms of the drilling contract, i3 was to notify Dolphin not later than 90 days prior to 1st September 2020 that it had sufficient financial capacity to fund the minimum 82-day drilling programme. i3 was not in a position to do so on 1st June 2020. The parties remain in discussion on the potential timing of future drilling at the Company's UK licences.

On 30th March 2020, the Company announced that it had entered into an Option agreement to acquire all the issued and outstanding common shares of Toscana Energy Income Corporation ("Toscana" or "TEIC"), a TSX listed oil and gas corporation with assets in the Western Canadian Sedimentary Basin ("WCSB") in Alberta and Saskatchewan, Canada (the "Option"). Upon the Company's exercise of the Option, Toscana shareholders will be offered up to 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of approximately 4% to the Company's current shareholders and having a market value at March 27th of approximately C$0.55 million. The Company also announced that on March 27th it had purchased the rights and interests in Toscana's senior and junior debt facilities (which were in default). The Company acquired Toscana's C$24.8 million senior facility for C$3.0 million and its C$3.2 million junior facility for C$0.4 million, with cash consideration for each being paid 50% up front and 50% at year-end. The total aggregate consideration being paid by the Company for TEIC's debt and equity totals approximately C$3.95 million. Upon completion of the transaction with Toscana, the Company intends that its enlarged share capital would also be listed on the TSX, satisfying the Company's obligation under its existing Loan Notes to seek a secondary listing for its shares.

On 1st May 2020, the Company announced an update relating to the Development Funding Long-stop date of its Loan Note facility. On 8th November 2019, the majority noteholders had agreed to extend the date by which the Company was required to enter into a reserve-based lending facility or find an alternative means of funding to achieve first oil from the Liberator field, to 30th April 2020. i3 was not in a position to enter into such a facility by 30th April, but the Company remained in discussion with all noteholders to waive this condition.

On 23rd June 2020, the Company announced that the obligation to enter into a development facility for Liberator by a certain date (30th April 2020 - the Development Funding Long-stop Date) had been waived. A new Corporate Development Long-stop Date has been set for 30th September 2020 prior to which the Company has to achieve one of the following Corporate Development Long-stop Conditions:

· Secure firm irrevocable commitments for a minimum of £15 million of unsecured or fully subordinated financing, subject only to closing mechanics; or

· Agree a farm-out and/or funding term sheet, subject only to legal documentation to fund the drilling of at least one appraisal well on Serenity during 2020 or 2021; or

· Execute an acquisition agreement for at least 2500 boepd of production net to i3.

In addition, the Company has an obligation to achieve net corporate production at or above 5000 boepd by 30th April 2021.

As part of the above Loan Note restructuring, all warrants associated with the Loan Notes had their strike prices reset to the nominal value of i3 shares (£0.0001/share). The Loan Note Instrument amendments include the requirement that the currently outstanding i3 management options be cancelled and replacement options issued to i3 staff and directors which replicate the terms of the adjusted Loan Note warrants (the "New Options") in relation to the exercise price, to seek alignment between the Noteholders and management.

On 23rd June 2020, the Company announced that it had exercised the above-mentioned Option to acquire all of the issued and outstanding common shares of Toscana Energy Income Trust, a TSX-listed oil and gas company. Upon completion, i3 will also be listed on the Toronto Stock Exchange, thereby satisfying a requirement under the Company's Loan Notes to obtain a listing on an HMRC-recognized exchange, which AIM is not. Under the Loan Notes, i3 was to apply for this additional listing not later than 28th February 2020 and have admitted to that secondary exchange not later than 30 April 2020.

Also, on 23rd June 2020, the Company announced that it had entered into a non-binding letter of intent to acquire a package of producing Canadian oil and gas assets (the "Proposed Assets"). In 2019, the Proposed Assets produced at over 10,000 boepd and generated over US$34 million in field netback from multiple, low-decline, long-life, light oil and gas fields. Upon completion, the proposed transaction would add 2019 year-end reserves of over 25 MMboe PDP and over 65 MMboe 2P to i3's portfolio. The total consideration to be paid for the Proposed Assets under the letter of intent is just under US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P reserves. The proposed transaction would be a reverse take-over under the AIM Rules for Companies and, at i3's request, the Company's shares were suspended from trading on AIM until i3 either publishes a "Readmission Document" detailing the proposed acquisition or provides confirmation that discussions have ceased.

On 3rd July 2020 (the "PSA Date"), i3 entered a binding purchase and sale agreement with Gain Energy Ltd. ("Gain") to acquire 100% of its producing and non-producing petroleum assets in the Canadian provinces of Alberta and Saskatchewan, the aforementioned Proposed Assets (the "Gain Assets"). In Q4 of 2019, the Gain Assets produced on average 10,645 boepd (47% liquids) to which Gain's independent reserve evaluator had attributed PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets produced ~US$34 million in field EBITDA (revenues minus royalties, opex and transportation) from 242 Gain-operated wells at an average working interest of 78% and 1,633 non-operated wells at an average working interest of 11%, and include 174k net developed acres and 186k net undeveloped acres of land.

Further specifics and updates regarding the Gain transaction and other matters will be released as part of i3's Readmission Document when published.

COVID-19

The assessment of the COVID-19 situation will need continued attention and will evolve over time. In our view, COVID19 is considered to be a non-adjusting post statement of financial position event and no adjustment is made in the financial statements as a result. The rapid development and fluidity of the COVID-19 virus make it difficult to predict the ultimate impact at this stage. Management will continue to assess the impact of COVID-19 on the Group and Company and will put plans in place to mitigate any impact as far as possible, however, it is not possible to quantify the impact, if any, at this stage.