Dear Simon, Po Valley Energy Limited (‘the Company or “PVE”) –...

Dear Simon,
Po Valley Energy Limited (‘the Company or “PVE”) –

Response to Queries on Appendix 5B

We refer to your letter to PVE dated 14 August 2020 and in addition provide the following background on the Company and its activities on behalf of the Board. Background The Company has been quoted on ASX for some 16 years first bringing its production assets online around 2010. These assets were subsequently spun out into an AIM listed entity the transaction for which was completed in early 2018. The Company retained an interest in the production assets through shares in the AIM listed entity and these interests were subsequently transferred to PVE shareholders. PVE has since then been focused on the exploration assets in its portfolio having preliminary production concessions at Selva Malvezzi (Selva) and Teodorico and exploration permits at AR94PY; Cadelbosco di Sopra (gas and oil); Grattasasso; Podere Gallina and Torre del Moro. The Company’s Licences are set out in Appendix A and its Reserves and Resources in Appendix B.

The Selva (onshore gas) and Teodorico (offshore gas) development projects are of primary focus for the Company with both projects having been granted preliminary production concession by the Italian Government. PVE has previously advised the market that Primary environmental approval has been published by the Ministry of the Environment for Selva and the Board expects final production concession approval in the second half of 2020.

Unfortunately, since the beginning of 2020 Italy has faced a very challenging operating environment as a result of COVID-19 virus impacts and the resulting State of Emergency and associated lockdowns. The Company has put in place a number of initiatives to safe-guard its staff and contractors and together with the Government concessions materially reduced overheads. The Board believes that PVE will be able to move quickly to advance the Selva development once formal production approvals are received.

The Company enjoys the very real and ongoing support of its Board and major shareholders and has been in the process of finalising funding arrangements since the beginning of the year.

Given the current circumstances the Company has agreed to accept additional unsecured loans from directors and major shareholders increasing unsecured borrowings by AU$380,000 bringing the total amount proposed to be drawn since 30 June 2020 to AU$500,000. (Refer ASX Announcement 19 August 2020).

The Company believes that this will provide sufficient working capital to PVE pending a more significant fund raising in the latter half of 2020 which will coincide with the anticipated granting of development approval for Selva.

ASX Queries
Our response to the questions raised in the ASX query letter of 14 August 2020 are set out below:

1. Please explain the basis for and the factors considered by the Directors to satisfy themselves that PVE will be able to continue its operations and meet its business objectives, as referred to in the 2019 Accounts, March Appendix 5B and June Appendix 5B. The Directors have satisfied themselves that PVE will be able to continue its operations and meet its business objectives by implementing the following three step funding strategy:

a) Cost Reductions – PVE has reduced costs following the continued impact of COVID-19 on operations in Italy. PVE has a small executive and consulting team who have elected to defer or reduce fees to significantly lower levels over the next two quarters and at least until final formal approval of Selva development is obtained and development can commence. The Company has further cut costs to minimum levels for field and technical costs and travel costs due to minimised field operations and travel during current COVID-19 restrictions. The Company continues to reduce costs further where possible in relation to administrative and office costs as staff continue to work from home. The cost reduction plan is essentially complete and has been implemented successfully. As is often the case, costs savings are expected to be more visible in the third and fourth quarters of 2020.

b) Funding - PVE enjoys the very real and ongoing support of Directors and major shareholders. To that end, the Directors and major shareholder loan facilities have been further extended to provide additional funding to the Company, subsequent to 30 June 2020 undertakings have been received for an additional AU$500,000. These loans will fund current working capital requirements.

c) Selva approval - The Company received technical committee approval in early 2020 from the Italian Ministry of Environment for the development of the Selva gas field.

Approval from the technical committee at the Ministry is the heart of the environmental approval (EIA) process whereby the project development plan is reviewed in great detail. As a final step, the Environmental Minister must sign off on the technical committee’s review report. The Italian Government has been focussed on COVID- legislation and European funding stimulus packages which has delayed domestic approvals; however, given the progress made during the summer months, the Company anticipates final approval to be granted on Selva by October 2020. This will allow the Company to complete its funding plans for development by December 2020 and prepare for gas production in 2021.

2. In light of PVE’s cash balance at 30 June 2020 of €31,000 and estimated quarters funded of ‘-0.1’, does PVE consider that its financial condition is sufficient to warrant continued listing on ASX as required under Listing Rule 12.2? In answering this question, please explain the basis for this conclusion. Directors are cognisant of the fact that additional funding is required to meet working capital requirements. The Company believes that, following the undertaking to provide additional unsecured loan funding from Directors and major shareholders, together with the unusual circumstances in 2020 continued quotation is appropriate. The Directors and major shareholder loan facilities have been extended to provide additional funding to the Company.

The next phase of fund raising will be predicated on the receipt of formal development approval from the Italian Ministry of the Environment for the Selva development, which is anticipated to be received by October 2020. PVE expects to complete an equity raising by December 2020 to fund the Selva development and to provide working capital. The Directors believe that this capital raising will be supported by existing shareholders and potential third party investors. 3. Please provide an update on the review of financing options and plans to raise additional funds as referred to in the March Appendix 5B and the June Appendix 5B. As noted in 1 and 2 above, the Company has agreed terms for additional loans of AU$500,000 to fund working capital. The next phase of fund raising is anticipated by December 2020 following approval for Selva Development.

As previously outlined the Company has the continued support of its Board and major shareholders and as a result the directors reasonably expect that they will be able to raise sufficient funds to meet its exploration and working capital requirements to continue its operations and to meet its business objectives.

4. Please detail PVE’s current cash position as at the date of this letter. Cash position at 14 August 2020 is approximately €12,000, but with additional loan funds to fund working capital to be received.

5. Please confirm that PVE is complying with Listing Rule 3.1 and that there is no information about its financial condition that should be given to ASX in accordance with that rule that has not already been released to the market. The Company confirms there is no additional information.

6. Please confirm that PVE’s responses to the questions above have been authorised and approved under its published continuous disclosure policy or otherwise by its board or an officer of PVE with delegated authority from the board to respond to ASX on disclosure matters.

The Company confirms that the responses above have been approved and authorised by the Board. PVE acknowledges that its working capital position requires strengthening, however the ongoing support of its shareholders and of the Board together with the quality of the projects it has in Italy provides the Directors with the comfort and belief that its financial position will be strengthened in the short term.

Yours faithfully


Michael Masterman
Chairman