PTR.L Regulatory News (PTR)

PetroNeft Resources plc

Unaudited interim condensed

consolidated financial statements

for the 6 months ended 30 June 2020

Forward Looking Statements

This report contains forward-looking statements. These statements relate to the Group's prospects, developments, and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statements.

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Group Information

Directors [1] David Golder (U.S. citizen)

(Independent Non-Executive Chairman)

David Sturt (British citizen)

(Chief Executive Officer)

Pavel Tetyakov (Russian citizen- appointed 17th January 2020) (Vice President Business Development)

Thomas Hickey (Irish citizen)

(Independent Non-Executive Director)

Maxim Korobov (Russian citizen-resigned 17th January 2020) (Independent Non-Executive Director)

Anthony Sacca (Australian citizen)

(Independent Non-Executive Director)

Daria Shaftelskaya (Russian citizen- appointed 17th January 2020) (Non-Executive Director)

[1] Irish citizens unless otherwise stated

Registered Office and Business Address 20 Holles Street

Dublin 2

Ireland

Secretary Michael Power appointed 3rd May 2020

Karl Johnson resigned 3rd May 2020

Karl Johnson appointed 5th February 2019

Paul Dowling resigned 5th February 2019

Auditor BDO

Beaux Lane House

Mercer Street Lower

Dublin 2

Ireland

Nominated Adviser, Euronext Growth Market Adviser, Davy

and Broker 49 Dawson Street

Dublin 2

Ireland

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Group Information (continued)

Principal Bankers KBC Bank Ireland AIB Bank

Sandwith Street 1 Lower Baggot Street

Dublin 2 Dublin 2

Ireland Ireland

Solicitors Byrne Wallace

88 Harcourt Street

Dublin 2

Ireland

Registered Number 408101

Registrar Computershare

Heron House

Corrig Road

Sandyford Industrial Estate

Dublin 18

Ireland

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Chairman's Statement

Dear Shareholder,

I am pleased to report on the activities of the Group for the six months to 30th June 2020 and an update on our plans. The first six months of the year have been a busy time for the company with progress been made across the business and notable achievements that include:

· Successfully raised $2.13M through an equity raise at a 58% premium to the market closing price.

· Completed construction of a 26 km pipeline connecting Sibkrayevskoye field to the Central Processing Unit significantly ahead of schedule and within budget, allowing year-round production from Sibkrayevskoye which commenced from the end of March 2020

· Optimisation of the water flood program at the Lineynoye field resulting in a 20% year on year increase in production (July to July).

· Successfully completed extended well test of the C-4 well producing and selling 1,200 bbls of oil at competitive rates.

· Restarted construction of mini refinery at License 61, which is now under test production.

· Daria Shaftelskaya and Pavel Tetyakov joined the board, while Maxim Korobov resigned after almost 4 years as a director

Production and Sales for the period

Our team achieved a major milestone during the period with the company producing and selling oil from Licence 67 for the first time under an extended test regime on the C-4 well at the Cheremshanskoye field. In total 1,200 barrels (gross) of oil were produced and purchased at the well head at competitive market rates of approximately $46.5/bbl without transportation tariffs by a local refinery. We see significant potential in Licence 67 and we will see more activity on this Licence in the coming months.

Gross production at Licence 61 in the six months to 30 June 2020 averaged 1,566 bopd, which represents a decline of 9.6% year from the same period in 2019 (1,743 bopd). A significant portion of the decline was due to the company taking the decision in April to shut off approximately 1,600 bbls of production in response to adverse market conditions when the benchmark West Texas price went negative. If the company had kept producing it would have incurred a significant loss for the month. Excluding the period when significant production was shut in, the decline would have been cut in half to only 5.2% compared to the previous period.

We sold 285,020 (gross) barrels of oil in the six months to 30 June 2020 (H1 2019: 315,479 bbls) and achieved an average Russian Domestic oil price of $42.50 (H1 2019: $44.39). This softer oil price and reduced production led to reduced operating cash flows for the Licence 61 joint venture.

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Chairman's Statement (continued)

Board Changes

After four years on the board, Maxim Korobov resigned from his position as Non-Executive Director. I would like to take this opportunity to thank him for his excellent support and service throughout his time on the board. At the same time Daria Shaftelskaya and Pavel Tetyakov joined the board as Executive and Non-Executive Directors, respectively. Daria brings with her a wealth of knowledge of the Tomsk and wider Russian business environment particularly from a finance perspective. Pavel has been involved with the company since 2016 as Vice President Business Development, he brings with him a deep understanding of the Russian Upstream oil industry.

Review of PetroNeft loss for the period

The loss for the period was US$2.720m (H1 2019: US2.006m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$3.41m and US$0.34m respectively (H1 2019: US$2.87m and US$0.32m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$1.97m (H1 2019: US$2.160m) relates primarily to interest receivable on loans to the joint ventures.

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Chairman's Statement (continued)

Licence 61 joint venture - WorldAce Group

The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:

PetroNeft Resources plc

for the 6 months ended 30 June 2020

Chairman's Statement (continued)

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 10 to these condensed financial statements.

The onset of the Covid pandemic, coupled with the Saudi / Russian dispute on production quotas gave rise to lower production and oil prices in H1 2020. Accordingly, the margin in 2020 weakened as compared to the same period last year. This led to an operating loss in the L-61 joint venture of US$2.49M compared to an operating loss in the same period last year of US$957k.

Finance

The company places a high degree of focus on its cash flow position and financial commitments. In January, the company successfully placed 107,755,037 new Ordinary Shares at 1.5p each representing a 58% premium to the closing market price. There was a significant commitment from directors representing 44% of the placing.

The Company as reported in the 2019 Annual Financial Statements, is conscious of the maturity of both the Convertible Debt Holders and Petrogrand AB loan by the end of 2020. We are working with both groups on arrangements to extend the redemption dates on these facilities and negotiations are ongoing.

Outlook

The first half of 2020 presented many challenges to the company through the dual effects of the Covid pandemic and turmoil in the world's energy markets. We have however been seeing increased stability through the third quarter and are optimistic that this will continue through the end of 2020 and into 2021.

With the success of the C-4 extended well test combined with stabilising production at Licence 61, we believe the company is well positioned to benefit from a future improvement in the market. We are particularly looking forward to an active winter work program at the end of this year and in to 2021.

At Licence 67, the successful C-4 extended test enables the well to be placed on year round production from the start of 2021. While certain infrastructure investments will be required to ensure this is possible, we are confident that the major part of these costs will be covered by the loan agreement which is being finalised with the Alexandrovskoye refinery. It is pleasing to see that our confidence in the potential of this asset is matched by the purchaser of the oil produced during the winter 2020 extended test. We are currently working on options to be able to continue the well re entry program at the Ledovoye field and hope to be able to provide an update shortly..

On Licence 61, as our production has stabilised, we anticipate significantly improved economics arising from our recently completed mini refinery which has already produced over 100 tons of good quality fuel as part of the testing programme. We are confident that as well as meeting our own internal fuel requirements we are confident that as well as meeting our own needs, we will be able to sell excess stock thereby generating an important new revenue stream. In addition we are continuing to focus on optimising existing production from improving water floods which has worked so well at the Lineynoye field. We are now looking forward to continuing these field optimisation programs with the current focus on the Arbuzovskoye field.

We believe that the continued and sustained improvement in our operational and financial performance demonstrated during the period will enhance our ability to generate value for our shareholders whether it be through a full or partial sale or continued development of the assets.

Whilst the company faces many challenges, our team has demonstrated considerable creativity, innovation and focus during the period, and continues to generate deeper technical and operational insights which will enable us to undertake future investments with confidence. We continue to work on building a strong platform for a value growth proposition which ultimately benefits our shareholders.

David Golder

Non-Executive Chairman

PetroNeft Resources plc

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2020

Interim Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2020

PetroNeft Resources plc

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2020

PetroNeft Resources plc

Interim Condensed Consolidated Statement of Changes in Equity.

For the 6 months ended 30 June 2020

PetroNeft Resources plc

Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2020

PetroNeft Resources plc

Notes to the Interim Condensed Consolidated Financial Statements (continued)

For the 6 months ended 30 June 2020

1. Corporate Information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors on 28 October 2020.

PetroNeft Resources plc ('PetroNeft, 'the Company', or together with its subsidiaries and joint ventures, 'the Group') is a public limited company incorporated in the Republic of Ireland with a company registration number 408101. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

The principal activities of the Group are oil and gas exploration, development, and production.

2. Going Concern

In March 2019 PetroNeft agreed an extension of an existing loan facility and an increase by US$500,000 up to US$2.5 million with Swedish company Petrogrand AB, a related party. The loan matures on 15 December 2020, and maybe extended for a further year if certain milestones are met. The loan is secured by way of a floating charge on the assets of PetroNeft. The original loan facility was used for general corporate purposes and to finance the drilling programme in 2018. The increase is being used for general corporate purposes. This loan facility has provided time and space for a more long-term financing solution to be put in place. In June 2019, the Company agreed another loan facility with a group of five investors for US$1.3 million. This loan matures on 31 December 2020, or such later date as may be agreed, and a portion (up to 65% of the principal) may be repaid via conversion to Ordinary shares of the Company at the option of the lenders at a conversion price of US$0.015477 per share. Three of the five investors are related parties.

In January 2020, the Company completed a successful share issue with both Institutional and other investors. Gross proceeds of US$2.12 million was raised at £0.015 per share at a premium of approximately 58%. The money raised will primarily be used to fund the 2020 capital investment program and demonstrated significant commitment from directors, supporting 44% of the placing. 

The Group has analysed its cash flow requirements through to 30 June 2021 in detail. The cash flows are highly dependent on the successful re-financing of the Petrogrand loan and on future production rates and oil prices achieved in its joint-venture undertaking, WorldAce Investments Limited. Should the Petrogrand loan not be re-financed the Group will need additional funding to continue as a going concern.

The Group has put in place cost saving measures and the Board and management have agreed to reduce and defer significant portions of their remuneration.

In 2018 the Company, in conjunction with its joint venture partners engaged financial advisers to evaluate the disposal of License 61 and/or License 67. While there remains significant uncertainty that any transaction will be completed, the Company has seen interest from a range of well-financed industry players.  The result of the C-4 well which was drilled during 2018 has generated additional interest. The Company has signed non-disclosure agreements and opened data rooms in relation to the potential sale or farmout of both Licence 61 and 67. As there are delaying factors, including regulatory factors, which have been adversely impacted by the effects of the Covid 9 pandemic , around transferring licences and in a share for share type transaction, the timeframe to close such a successful transaction could be at least six months following binding agreement between the parties. The Board is confident that one of these options will bring a solution.

The above circumstances represent material uncertainties that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainties described above, the Directors are confident that the Group and the Company will have adequate

resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.

PetroNeft Resources plc

Notes to the Interim Condensed Consolidated Financial Statements (continued)

 3. Accounting Policies

3.1 Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2019 which are available on the Group's website - www.petroneft.com.

The interim condensed consolidated financial statements are presented in US dollars ("US$").

3.2 Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2019.

4. Segment information

At present the Group has an operating segment, which is oil exploration and production through its joint venture undertakings.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all the Group's sales and capital expenditures are in Russia.

PetroNeft Resources plc

Notes to the Interim Condensed Consolidated Financial Statements (continued)

10. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$79,850,387 following a loss in the period of US$6,821,723 together with a negative currency translation adjustment of US$9,060,374. PetroNeft's 50% share is included above and results in a negative carrying value of US$35,242,789. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$35,242,789 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 12).

Additional financial information in respect of the WorldAce Group joint venture entity is disclosed below:

Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft.

The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble weakened against the US Dollar during the period from RUB61.905:US$1 at 31 December 2019 to RUB69.314:US$1 at 30 June 2020.

PetroNeft Resources plc

Notes to the Interim Condensed Consolidated Financial Statements (continued)

WorldAce Group