ANNUAL REPORT 2018 Successful transition with strong growth platform B e a c h E n e r g y L i m i t e d A n n u a l R e p o r t 2 0 1 8 Beach Energy Limited ABN 20 007 617 969 Our vision, purpose and values are clear and concise statements that define Beach as an organisation. These statements have been developed to be enduring, and to navigate us through the longer term. We are truly a transformed company, proud of our history and focussed on the future.” Beach Energy Limited | ABN 20 007 617 969 We are Australia’s leading mid-cap oil and gas exploration and production company.Our portfolio is diverse, with onshore and offshore operations in five basins across Australia and New Zealand.We are helping to meet the growing demand for energy, supplying about 15 per cent of the east coast gas market. IN THIS REPORT Overview About Beach Energy Our strategy Financial performance Chairman’s letter Chief Executive Officer’s report Review of operations Sustainability Board of Directors Executive team Full Year Report Directors’ report Auditor’s independence declaration 2018 Remuneration in brief (unaudited) Remuneration report (audited) Directors’ declaration Full year financial report Notes to the financial statements Independent auditor’s report Additional Information Glossary of terms Schedule of tenements Shareholder information Corporate information 01 02 04 06 08 10 14 26 30 32 34 35 58 59 60 75 76 81 117 125 125 127 131 132 Competent Persons Statement The reserves and resources information in this Annual Report is based on, and fairly represents, information and supporting documentation prepared by, or under the supervision of, Mr Tony Lake (Manager Development Western Flank Gas). Mr Lake is an employee of Beach Energy Ltd and has a BE (Mech) degree from the University of Adelaide and is a member of the Society of Petroleum Engineers. The reserves and resources information in this report has been issued with the prior written consent of Mr Lake in the form and context in which it appears. Annual General Meeting Venue Adelaide Convention Centre Address North Terrace, Adelaide SA 5000 Date 10.30am, Friday, 23 November 2018 Callawonga facility, Cooper Basin, South Australia Annual Report 2018 01 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION ABOUT BEACH ENERGY Australia’s largest onshore oil producer, with a major gas business Beach Energy is an ASX listed, oil and gas, exploration and production company headquartered in Adelaide, South Australia. Founded in 1961, it has operated and non-operated, onshore and offshore, oil and gas production from five producing basins across Australia and New Zealand and is a key supplier to the Australian east coast gas market. Beach’s asset portfolio includes ownership interests in strategic oil and gas infrastructure, such as the Moomba processing facility and Otway Gas Plant, as well as a suite of high potential exploration prospects. Beach is focused on maintaining the highest health, safety and environmental standards. Beach has established a world-class operated oil business on the Western Flank of the Cooper Basin, and has grown to become Australia’s largest onshore oil producer. We have an active operated drilling program focused on key Western Flank play fairways, and we continue to develop our acreage across the Cooper Basin. Beach also has a major gas business comprising operated and non-operated, onshore and offshore assets across five producing basins that supply gas to the Australian west coast and east coast markets and the New Zealand market. With its Cooper Basin, offshore Otway Basin and Bass Basin producing assets, Beach supplies approximately 15% of Australian east coast domestic gas demand. In addition to its producing assets, Beach has permits in the onshore Otway, Bonaparte and Browse basins in Australia and the Canterbury Basin in New Zealand. Beach continues to pursue growth opportunities within Australia and nearby which align with its strategy, satisfy strict capital allocation criteria, and demonstrate clear potential for shareholder value creation. Beach is also committed to engaging positively with the local communities in which it operates, providing local employment, as well as partnerships with a range of clubs and organisations. FY18: A transformational year During the financial year, Beach acquired the Lattice Energy Group, Benaris’ interest in the Otway Gas Project and Toyota Tsusho Corporation’s interest in the Otway Gas Project and the BassGas project. Beach acquired these interests for $1,532 million in consideration with an effective accounting acquisition date of 1 January 2018. To fund the acquisitions, Beach raised approximately $301 million through a 3 for 14 pro–rata accelerated non–renounceable entitlement offer and entered into banking arrangements to access $1,475 million in credit facilities, including a $450 million revolving credit facility. Today, Beach has an expanded footprint with five production hubs and significant gas processing infrastructure. 02 Beach Energy Limited | ABN 20 007 617 969 OUR VISION We aim to be Australia’s premier multi-basin upstream oil and gas company OUR PURPOSE To deliver sustainable growth in shareholder value OUR VALUES Our values define us, guide our actions, our decisions and our words Safety Creativity Respect Integrity Safety takes precedence in everything we do We continuously explore innovative ways to create value We respect each other, our communities and the environment We are honest with ourselves and others Performance We strive for excellence Teamwork and deliver on our promises We help and challenge each other to achieve our goals Our committed people and our values-based culture are our foundation for success The transformational event in FY18 was the acquisition of Lattice. This was a unique opportunity for Beach, and provides us a large and diversified footprint across Australia and New Zealand, significantly increasing our scale while continuing to maintain financial strength.” MATT KAY CHIEF EXECUTIVE OFFICER 0 500km Gas pipeline Gas pipeline (proposed) Major Basin Beach permit interest Bonaparte Basin (Offshore) Darwin Browse Basin Bonaparte Basin (Onshore) Perth Basin Waitsia (Beach 50% non-operated) Beharra Springs (Beach 67% operated) Western Australia Perth INFRASTRUCTURE PRODUCTION EXPLORATION Northern Territory Queensland Cooper Basin Cooper Basin (Various operated and non-operated interests) Moomba Gas Hub Moomba Brisbane South Australia New South Wales BEACH HEAD OFFICE Adelaide Sydney Otway Basin (Onshore) Victoria Canberra OPERATIONS OFFICE Melbourne Taranaki Basin Kupe (Beach 50% operated) New Plymouth (Regional Office) Otway Basin (offshore) Otway Gas Project/HBWS (Beach 100% operated) Bass Basin BassGas (Beach 53.75% operated) Tasmania Hobart Wellington Canterbury Basin Please note map is not to scale FY18 Pro Forma Production1 – by region – by oil vs gas and gas liquids 7% 12% 51% RECORD PRODUCTION OF 26.8 MMboe 27% 3% Cooper Basin Perth Basin Otway Basin Taranaki Basin BassBasin BEACH OPERATES ~70% of production 22% OIL 78% GAS 1. Pro forma FY18 defined as a Beach FY18 reported production of 19.0 MMboe plus H1 FY18 Lattice production of 7.9 MMboe. H1 FY18 Lattice production was not consolidated within the accounts of Beach. This information is provided for information purposes only and should not be relied upon. Note: Due to rounding, figures and ratios in tables and charts throughout this annual report may not reconcile to totals. Annual Report 2018 03 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION STRATEGIC PILLARS FY18 Progress OUR STRATEGY Our clearly articulated strategy provides the roadmap for sustainable growth through the cycle Beach’s strategy is premised on its Vision: We aim to be Australia’s premier multi-basin upstream oil and gas company, and its Purpose: To deliver sustainable growth in shareholder value. To achieve these goals, four strategic pillars drive all decision making and serve as a roadmap for the future. THE STRATEGIC PILLARS ARE 1. Optimise our core in the Cooper Basin 2. Build a complementary gas business in east coast basins 3. Pursue compatible growth opportunities in Australia and nearby 4. Maintain financial strength FY18 was transformational for Beach, headlined by the Lattice acquisition which was a unique fit against all of the strategic pillars. The adjacent table summarises progress made against each strategic pillar during FY18. FY19 is expected to the biggest ever investment year for Beach as we seek to exploit the high calibre portfolio of investment opportunities. Details of the FY19 capital program can be found later in this annual report, within the Directors’ Report. The acquisition of Lattice demonstrated Beach’s cost and capital discipline. As integration nears completion and our financial position continues to strengthen, we continue to assess growth opportunities in a disciplined manner.” LEE MARSHALL GROUP EXECUTIVE CORPORATE STRATEGY AND COMMERCIAL 04 Beach Energy Limited | ABN 20 007 617 969 Pillar 1 Pillar 2 Pillar 3 Pillar 4 Optimise our core in the Cooper Basin Build a complementary gas business in east coast basins Pursue compatible growth opportunities in Australia and nearby Maintain financial strength § Cooper Basin production increased to 12.3 MMboe § Cooper Basin 2P oil and gas reserves increased 71% to 128 MMboe at 30 June 2018 § 14 MMbbl of 2P oil reserves added in the Western Flank driven by successful application of horizontal drilling technology and continued excellent production at the Bauer oil field § Broad ranging operating and cost efficiencies including the introduction of the fit-for-purpose shallow-well drill rig in the Cooper Basin JV § Completion of major infrastructure expansion projects such as the phase-one expansion of the Middleton facility to 40 MMScfd raw gas capacity § Addition of a third Cooper Basin JV drill rig and focus on faster drill times saw participation in 96 wells, up from 58 in FY17 § Beach now supplies approximately 15 per cent of the east coast domestic gas demand § Lattice acquisition adds an expanded development and exploration opportunity set § GSAs in place with attractive price and structure: annual step-ups and CPI adjustments and market price resets every 3–4 years § Lattice acquisition was a unique fit against all of Beach’s strategic pillars and acquired at an opportune time in the cycle § Beach moved to strategic 100% ownership of the Otway Basin assets and commenced a process for the proposed sell down of these assets § Frontier exploration opportunities in three basins § Agreed potential farm-in to Ironbark exploration prospect in the Carnarvon Basin, WA § $301 million entitlement offer undertaken § Arranged $1,475 million in credit facilities, including $450 million revolving credit facility § Net drawn debt reduced by $221 million since financial close of Lattice acquisition to $639 million at 30 June § Net gearing ratio under 26% is well ahead of initial targets § Available liquidity of $761 million at 30 June 2018 § Free cash flow of $349 million generated in FY18 § Interim plus final dividend of 2.0 cents per share Beach has made tangible progress against its four pillar strategy since its implementation in August 2015. In light of the transformative Lattice acquisition, the Beach strategy is being assessed in the context of the new enlarged organisation. Annual Report 2018 05 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION FINANCIAL PERFORMANCE Financial performance in FY18 demonstrates the step change from the new asset base SALES VOLUMES MMboe SALES REVENUE $ million 92% 1,251 OPERATING CASH FLOW $ million 25 20 15 10 10.8 10.5 10.8 11.8 5 0 70% 20.1 1050 1,052 875 700 525 350 175 0 728 653 558 583 600 525 450 375 300 225 150 75 0 319 229 233 108% 663 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 UNDERLYING NPAT1 $ million 86% 302 UNDERLYING EPS1 cps 259 20 20.3 162 91 36 63% 13.9 16 12 8 4 0 8.5 7.0 2.4 FULLY FRANKED DIVIDENDS cps 4.00 Unchanged 2.00 2.00 1.50 0.50 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 UNDERLYING NPAT1 $302M 86% FREE CASH GENERATED BY THE COOPER BASIN JV $126M 19M STRONG CASH FLOW AND BALANCE SHEET OPERATING CASH FLOW $663M 108% 1. Underlying results in the charts above are categorised as non-IFRS financial information provided to assist readers to better understand the financial performance of the underlying operating business. They have not been subject to audit or review by Beach’s external auditors. Please refer to the table on page 44 for a reconciliation of this information to the financial report. 06 Beach Energy Limited | ABN 20 007 617 969 2018 was a strong year of delivery and most importantly, safety remained front and centre through relentless focus and delivery of safe, reliable and efficient operations across all of our producing assets.” DAWN SUMMERS CHIEF OPERATING OFFICER PERFORMANCE OVERVIEW Production 2P reserves 2C contingent resources Sales revenue Net profit after tax Underlying net profit after tax Earnings per share Underlying earnings per share Net assets Net debt / (cash) Gross gearing ratio FY14 FY15 FY16 FY17 FY18 MMboe MMboe 9.6 86 MMboe 467 $ million 1,052 $ million $ million 102 259 9.1 74 677 728 9.7 70 205 558 (514) (589) 91 36 10.6 75 153 653 388 162 7.9 (39.6) (39.6) 20.4 cps cps 20.3 7.0 229 2.4 233 8.5 319 $ million 1,871 1,355 1,075 1,402 1,838 $ million (261) (20) (49) (198) 19.0 313 207 1,251 199 302 9.2 13.9 663 639 34.2 2.0 2,277 1.755 Cash flow from operating activities $ million 583 Fully franked dividends declared per share cents 4.00 % 8.6 11.0 1.50 13.5 0.50 11.8 2.0 Shares on issue million 1,292 1,300 1,861 1,874 Share price at year end $ 1.68 1.05 0.61 0.575 Market capitalisation at year end $ million 2,171 1,365 1,135 1,077 3,995 Annual Report 2018 07 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CHAIRMAN’S LETTER GLENN DAVIS CHAIRMAN As we continue to deliver strong returns on shareholders’ equity the new financial year sees the start of a multi- year exploration and development program across our now much expanded portfolio.” GLENN DAVIS CHAIRMAN Dear Shareholder, In this letter last year, I wrote of the considerable change in the business, the excellent results our focus on costs and efficiency had continued to deliver and the expected benefits of the Lattice acquisition that had yet to close. In FY18 our continued focus on safe low cost operations has again borne fruit as has our acquisition of Lattice. Throughout the acquisition and its integration, we have maintained the Beach culture regarding our safe low cost operating model. As a consequence, the executive has delivered a smooth integration of Lattice employees and assets at the same time as capturing $37m per annum in savings at the end of FY18 with more to come. This approach to business, together with favourable oil prices has further strengthened the financial position of your company. Underlying NPAT of $302m and operating cash flow of $663m signify the growth in, and strength of, Beach. This performance will enable us to continue to pay down debt associated with the Lattice acquisition quickly seeing us with net gearing of under 26% at the close of FY18. As we continue to deliver strong returns on shareholders equity the new financial year sees the start of a multi-year exploration and development program across our now much expanded portfolio. One of the key drivers in the Lattice acquisition was to deliver an enlarged portfolio across Australia and New Zealand. Our multi-year program is designed, in a disciplined and efficient way, to unlock the value in those assets. That program requires significant capital investment on an ongoing basis. Such is the nature of an upstream oil and gas company. As performance shows, that capital will continue to be allocated in a diligent and disciplined way. The board is expecting another year of strong operational performance. We expect underlying NPAT, operating cash flow and return on capital to all continue to grow in FY19 as we invest to realise the tremendous portfolio of assets Beach now has. Board changes occurred with the retirement of Fiona Bennett at last year’s AGM and Jim McKerlie at this year’s AGM. We thank both Fiona and Jim for their contribution as directors during an important time at Beach. In February we welcomed Joycelyn Morton to the board. Joycelyn brings a diverse financial and executive background to your board. 08 Beach Energy Limited | ABN 20 007 617 969 Two vacancies now exist at board level. We are considering the required skill sets to add value at the board table. We will appoint appropriately qualified and experienced people who we believe can help drive returns for shareholders, maintain our high standards of governance and who improve the diversity of our board as a whole. Thank you to the executive and all employees at Beach who should be proud of what they have achieved in FY18. Thank you to our shareholders for your continued support as we look forward to again delivering strong returns on the capital you have invested in the company. Glenn Davis Chairman 5 October 2018 Cooper Basin, South Australia Annual Report 2018 09 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CHIEF EXECUTIVE OFFICER’S REPORT Dear Shareholder, At Beach we call FY18 a ‘transformational’ year. As I write to our shareholders and reflect on the change that has occurred, this description feels like an understatement. The key event in FY18 was the acquisition of Lattice, which completed in January this year. Through this transaction, Beach has enhanced its position in its traditional home, the Cooper Basin, added significant operated gas production in Victoria, gained the exciting Waitsia resource in Western Australia and we are now active in New Zealand with the high quality operated Kupe asset. Starting the financial year with about 200 staff, we now have approximately 500 full time staff across our diversified geographic footprint being led by an expanded executive team, recruited to bring to Beach their leading global energy company experience, and extensive offshore operations experience. We remain Australia’s largest onshore oil producer, and Beach is now a key supplier to the Australian east coast gas market, supplying approximately 15% of gas demand. With our expanded asset portfolio, leadership team and the continued support of our shareholders, we are excited to enter a new phase of executing our strategy to become a premier upstream oil and gas company. But first, reflecting on FY18: FY18 operational highlights Pleasingly, our focus on operational performance and safety has been maintained through the integration of Lattice. We participated in 96 wells in FY18, with a success rate of 82%. The combination of strong operational performance, new wells online and the newly acquired assets resulted in record annual production of 19 MMboe, up 80% on the prior year. In Beach’s traditional Cooper Basin business, we successfully introduced horizontal drilling to the Western Flank with the Bauer-26 well. Further horizontal wells were drilled in the Beach-operated Stunsail Field and Senex-operated Growler Field during the year, as well as in the Santos-operated Cooper Basin JV. Production from our new offshore assets was characterised by high reliability at the Otway Gas Plant in the Otway Basin, MATT KAY CHIEF EXECUTIVE OFFICER With our expanded asset portfolio, leadership team and the continued support of our shareholders, we are excited to enter a new phase of executing our strategy to become a premier upstream oil and gas company.” MATT KAY CHIEF EXECUTIVE OFFICER 10 Beach Energy Limited | ABN 20 007 617 969 initial incremental gross production of 4 – 5 TJ/d in the Bass Basin after a successful wireline campaign on Yolla and production from Kupe in the Taranaki Basin meeting high New Zealand customer demand. Our first annual reserves audit since completion of the acquisition of Lattice saw our 2P reserves more than quadruple over the prior year to 313 MMboe. Pleasingly, this increase in reserves wasn’t solely attributed to acquisitions, with more than one third of the increase due to the underlying performance of the assets and exploration / appraisal success. Our 2P reserves life has increased to 11 years at the end of FY18. Despite the increased operational activity and unavoidable degrees of disruption that come from a large acquisition, I am happy to write that we still maintained a strong safety performance in FY18. Pleasingly we saw no lost time injuries for contractors in FY18. In terms of our environmental performance, we continued our sustained and material improvement in crude oil spills with the lowest level achieved for the Company. We are also pleased to provide our first report on the impact of climate change on page 28 of this report and work is continuing on review of our performance in accordance with recommendations released by the Task Force on Climate- related Financial Disclosures. FY18 financial highlights The strong operational performance combined with higher commodity prices led to an historic full year financial result for Beach. Sales revenue was up 92% on the prior year and our underlying net profit after tax of $302 million was up 86% on the prior year, and as an indication of how far we have come, it is over 700% higher than in FY16. Beach benefited from a rising oil price environment in FY18 recording a 36% increase in our average realised oil price. Beach has carefully constructed the diversified revenue position it is now in – with a material portion of production supported by long term gas sales agreements containing regular pricing step ups and resets whilst maintaining a meaningful exposure to oil price. Notably, oil and gas liquids contributed approximately 60% of Beach revenue in the June quarter. Complemented by higher sales volumes, the increase in average realised oil price drove the 92% increase in our sales revenue which in turn supported a 121% increase in underlying EBITDA to $766 million. A very strong result. Field operating costs on a barrel of oil equivalent basis increased with the addition of the newly acquired assets. Being a low-cost operator is part of Beach’s culture, we have commenced a campaign to lower controllable costs through various operational and drilling focussed initiatives and continue to target synergy savings. With cost reduction and efficiency improvement opportunities continuing to be identified, we raised our synergy and efficiencies target to $60 million per annum by the end of FY19. Our synergy run rate was $37 million per annum at the end of FY18. At the end of FY18 we find ourselves in excellent financial shape. We generated operating cash flow of $663 million, a 108% increase over the prior year, which in turn helped to drive net gearing below 26% by 30 June, well ahead of our 30% target announced 6 months ago. As a reminder, we consolidated the assets acquired from Lattice from 1 January 2018, so only 6 months of Lattice is reflected in our FY18 results. FY19 will include a full 12 months. Kupe Platform, New Zealand Annual Report 2018 11 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED FY19 and beyond With a foundation of strong operating cash flows, balance sheet capacity and supportive market dynamics, Beach is now ready to accelerate growth to underpin our medium term production target of more than 30 MMboe by FY21. We have commenced what we expect to be a record investment year in FY19. The reasons for this significant investment are clear. Beach has an expanded portfolio of high quality investment opportunities. A detailed review of the entire growth portfolio was completed in H2 FY18, yielding a list of highly value-accretive investment opportunities. Further, a significant proportion of our investment is aimed at bringing new gas supplies into the east coast gas market. Prevailing market conditions are supportive of investment. Oil prices are above US$80 dollars a barrel at the time of writing, however Beach is well positioned to remain profitable in a low oil price environment. With these dynamics as a backdrop, we believe the time is right to increase disciplined growth investment. Higher investment in a high returning portfolio should lead to higher production and higher cash flows, which in turn will lead to the rapid pay down in debt, leaving Beach in an even stronger financial position in the future. To conclude, we no longer think of Beach as a combination of the former Beach plus Lattice. With a diverse geographic footprint, five production hubs, significant gas processing infrastructure, offshore and onshore capabilities and over 300 MMboe of 2P reserves, we are truly a transformed company, proud of our history and focussed on the future, and encourage you all to think of us the same way. Matt Kay Chief Executive Officer 5 October 2018 41% COOPER BASIN FY18 BEACH 2P RESERVES 10% TARANAKI BASIN 3% BASS BASIN 313MMboe 24% OTWAY BASIN 23% PERTH BASIN SAFETY PERFORMANCE1 5.4 4.6 67%REDUCTION IN LTIFR SINCE FY13 2.1 1.9 1.8 1.6 FY13 FY14 FY15 FY16 FY17 FY18 1. Includes Lattice assets from 1 January 2018. Callawonga facility, Cooper Basin South Australia Thylacine platform, Otway Basin, Victoria 12 Beach Energy Limited | ABN 20 007 617 969 UNDERLYING EBITDA $ million 766 121% 347 FY17 FY18 UNDERLYING NPAT $ million 86% 302 162 36 FY16 FY17 FY18 Since FY13, we have seen a 67% reduction in time lost due to injuries across the business, and FY18 demonstrated the least spilt volume of produced hydrocarbons on record.” BRETT DOHERTY, GROUP EXECUTIVE HEALTH, SAFETY, ENVIRONMENT AND RISK Zero CONTRACTOR LOST TIME INJURIES FOR FY18 SYNERGY AND EFFICIENCY TARGET INCREASED TO $60M PER ANNUM Annual Report 2018 13 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS A leading Australian upstream oil and gas operator Beach organises itself into three reporting segments: § SAWA – South Australia and Western Australia; § Victoria; and § New Zealand Operational highlights from FY18 are summarised below. Further details are contained later in this Annual Report within the Directors’ Report. Production During the financial year, Beach acquired the Lattice Energy Group, Benaris’ interest in the Otway Gas Project and Toyota Tsusho Corporation’s interest in the Otway Gas Project and the BassGas project. The effective accounting acquisition date was 1 January 2018. Beach recorded annual production of 19.0 MMboe, up 80% from the prior year. Gas and gas liquids production of 13.3 MMboe was 174% higher than the prior year and accounted for 70% of total production, while oil production of 5.7 MMbbl was in line with the prior year and accounted for 30% of total production. SAWA Western Flank Oil Western Flank oil operations accounted for 25% of Beach’s FY18 production and the majority of Beach’s FY18 oil production. Producing permit areas include ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator, Cooper Energy 25%) and ex PEL 104/111 (Beach 40%, Senex 60% and operator). Western Flank net oil production was 4.7 MMbbl, in line with the prior year. Western Flank Gas Western Flank gas operations accounted for 7% of Beach’s FY18 production. Producing permit areas include ex PEL 106 (Beach 100%), the Mokami Field in ex PEL 91 (Beach 100%) and the Udacha Block – PRL 26 (Beach 100%). Other permits include PEL 630 (Beach 50% and operator, Bridgeport 50%). Western Flank net gas production was 1.4 MMboe, a 46% increase over the prior year. Cooper Basin JV Beach’s wholly owned subsidiaries Delhi Petroleum Pty Ltd and Lattice Energy Limited own non-operated interests in the South Australian Cooper Basin joint ventures (collectively 33.40% in SA Unit and 27.68% in Patchawarra East) and the South West Queensland joint ventures (various interests of 30% to 52.2%), which are collectively referred to as the Cooper Basin JV. Beach increased its interests in the Cooper Basin JV via the Lattice acquisition and consolidated the associated increased interests from 1 January 2018. The Cooper Basin JV operations accounted for 31% of Beach’s FY18 production. Net gas and gas liquids production of 5.1 MMboe was up 36% from the prior year and comprised sales gas of 4.2 MMboe (up 33%) and gas liquids of 0.8 MMboe (up 55%). Net oil production of 0.8 MMbbl was up 17% on the prior year. Other Cooper Basin Other Cooper Basin represents producing permit areas ATP 299 (Tintaburra) (Beach 40%, Santos 60% and operator) and ex PEL 513/632 (Beach 40%, Santos 60% and operator). Other permits include PEL 570 JV (Beach 25%, Santos 75% and operator). Production from Other Cooper Basin producing permit areas was 0.2 MMboe, down 35% from the prior year. Other Cooper Basin accounted for 1% of Beach’s total production. Production Western Flank Oil Western Flank Gas Cooper Basin JV Other Cooper Basin Perth Basin SAWA Otway Basin Bass Basin Victoria New Zealand FY17 Oil Equivalent (MMboe) FY18 Oil (MMbbl) Gas Liquids (MMboe) Gas (PJ) Oil Equivalent (MMboe) Year-on year change (%) 4.8 1.0 4.4 0.3 – 10.6 – – – – 4.7 – 0.8 0.1 – 5.7 – – – – – 0.5 0.8 0.0 0.0 1.3 0.5 0.3 0.7 0.5 2.5 – 5.5 24.7 0.3 2.4 32.9 19.0 4.7 23.7 5.8 62.5 4.7 1.4 5.9 0.2 0.4 12.7 3.7 1.1 4.8 1.5 19.0 (1%) 46% 33% (35%) – 20% – – – – 80% Total Production 10.6 5.7 14 Beach Energy Limited | ABN 20 007 617 969 Perth Basin Perth Basin operations accounted for 2% of Beach’s FY18 production. Producing permit areas include Waitsia (Beach 50%, Mitsui 50% and operator) and Beharra Springs (Beach 67% and operator, Mitsui 33%). Beach acquired its interests in the Perth Basin via the Lattice acquisition and consolidated these interests from 1 January 2018. Net Perth Basin production was 0.4 MMboe. Victoria Otway Basin Otway Basin operations accounted for 19% of Beach’s FY18 production. Producing licence areas include HBWS (Beach 100%) and OGP (Beach 100%). Beach consolidated 100% of HBWS and OGP from 1 January 2018. Net Otway Basin production in FY18 was 3.7 MMboe. Bass Basin Bass Basin operations accounted for 6% of Beach’s FY18 production and comprises the BassGas Project. Beach acquired its interests in the BassGas Project via the Lattice and Toyota Tsusho acquisitions. Beach consolidated these interests from 1 January 2018. Net Bass Basin production in FY18 was 1.1 MMboe. New Zealand Taranaki Basin Taranaki Basin operations accounted for 8% of Beach’s FY18 production and comprises Kupe (Beach 50% and operator, Genesis 46%, NZOG 4%). Beach acquired its interest in the Taranaki Basin via the Lattice acquisition and consolidated this interest from 1 January 2018. Net Taranaki Basin production in FY18 was 1.5 MMboe. We want to be the best at what we do, everywhere we operate. Better safety and improved operational reliability, combined with strong discipline in further sustainable reductions in operating costs will deliver strong performance and will continue to be our key focus.” DAWN SUMMERS CHIEF OPERATING OFFICER Halladale drill site, Otway Basin, Victoria Annual Report 2018 15 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS CONTINUED Exploration and development Beach participated in 96 wells at a success rate of 82%. Drilling successes included: § Bauer-26 (ex PEL 91), Beach’s first operated horizontal oil development well; § The Stunsail oil field development (ex PEL 91) with McKinlay and Birkhead horizontal wells; § The Marauder-1 oil discovery and the Growler-15 horizontal development well both drilled by Senex (ex PEL 104); § Five Western Flank operated gas exploration wells (increasing to six, subsequent to year-end); § Haselgrove-3 ST1 gas discovery in the onshore Otway Basin (PPL 62); and § Numerous small scale appraisal and exploration successes in the Cooper Basin JV Reserves and resources As at 30 June 2P Reserves (MMboe) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 4 11 36 90 145 66 66 77 93 93 86 74 70 75 313 16 Beach Energy Limited | ABN 20 007 617 969 Bass Gas Plant, Victoria EXCELLENT FY18 OPERATIONAL PERFORMANCE 96 WELLS DRILLED AT A SUCCESS RATE OF 82% ANNUAL REPORTED PRODUCTION OF 19.0/MMboe 80% Cooper Basin, South Australia FY18 Drilling summary Category Wells Drilled Successful Wells1 Success Rate Cooper/Eromanga Basins Oil – Exploration Oil – Appraisal Oil – Development Gas – Exploration Gas – Appraisal Gas – Development Total Cooper/Eromanga Onshore Otway Basin Gas – Exploration Total wells drilled 6 16 21 18 13 21 95 1 96 3 14 20 10 10 21 78 1 79 50% 88% 95% 56% 77% 100% 82% 100% 82% 1. Success defined as wells that have been cased and suspended as future producers/injectors Cooper Basin, South Australia Beach introduced horizontal oil development drilling to its repertoire in FY18. A successfully executed horizontal well intersects a greater stretch of a producing reservoir which can lead to increased production and potentially superior project returns.” GEOFF BARKER GROUP EXECUTIVE DEVELOPMENT Annual Report 2018 17 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS CONTINUED FY18 successful wells (Cooper and Eromanga basins) EROMANGA BASIN COOPER BASIN NORTH SA QLD Ballera Jackson Bauer Callawonga Middleton Lycium Moomba 0 20 40 60 80 km Gas well Beach operated permit Oil well Facility Beach non-operated permit Cooper Basin JV CE18-0119A NSW FY18 marked the successful return to exploration drilling in the onshore Otway Basin in south east South Australia, with the Haselgrove-3 Sawpit discovery, as Beach strives to bring new gas supply to the Australian southern and east coast gas market.” JEFFREY SCHRULL GROUP EXECUTIVE EXPLORATION AND APPRAISAL Year FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Total NUMBER OF WELLS1 DRILLING SUCCESS RATE Exploration Appraisal Exploration Appraisal 12 7 11 35 28 14 13 13 32 43 31 21 16 18 25 319 5 8 8 31 34 16 8 4 14 11 13 22 12 13 29 228 17% 14% 45% 34% 32% 64% 31% 54% 47% 60% 58% 52% 75% 44% 56% 48% 60% 100% 88% 81% 68% 75% 88% 100% 86% 82% 69% 82% 92% 85% 83% 80% Total 30% 60% 63% 56% 52% 70% 53% 65% 59% 64% 61% 67% 82% 61% 70% 61% 18 Beach Energy Limited | ABN 20 007 617 969 1. Excludes coal seam drilling 2P RESERVES MORE THAN QUADRUPLED 320% INCREASE IN 2P RESERVES TO 313MMboe 2P RESERVES LIFE INCREASED TO 11 Years RESERVES (NET) Oil (MMbbl) Gas and gas liquids (MMboe) Total as at 30 June 2018 (MMboe) Total as at 30 June 2017 Increase / (decrease) 1P 25 165 190 38 2P 42 272 313 75 3P 73 418 491 138 405% 320% 255% DEVELOPED AND UNDEVELOPED RESERVES (NET) Oil (MMbbl) Gas and gas liquids (MMboe) 1P 19 84 Total as at 30 June 2018 (MMboe) 103 Total as at 30 June 2017 33 Developed Undeveloped 2P 28 135 163 60 3P 46 214 259 106 1P 6 81 87 5 2P 13 137 150 14 3P 27 205 232 32 Increase / (decrease) 213% 171% 145% 1,735% 944% 615% NB. All reserve and resource figures are quoted net of fuel; due to rounding, figures and ratios may not reconcile to totals. Beach 2C contingent resources Net 2C contingent resources increased 35% to 207 MMboe. The table below provides a summary. 2C CONTINGENT RESOURCES (NET) Oil (MMbbl) Conventional gas and gas liquids (MMboe) Unconventional gas and gas liquids (MMboe) Total (MMboe) 30-Jun-17 Revisions 30-Jun-18 29 86 38 153 2 65 (14) 54 31 152 24 207 Annual Report 2018 19 Notes on the reserves statement Beach prepares its petroleum reserves and contingent resources estimates in accordance with the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers. The reserves and contingent resources presented in this report were originally disclosed to the market in ASX release #034/18 from 2 July 2018. Beach confirms that it is not aware of any new information or data that materially affects the information included in the aforesaid market announcement and that all the material assumptions and technical parameters underpinning the estimates in the aforesaid market announcement continue to apply and have not materially changed. Conversion factors used to evaluate oil equivalent quantities are sales gas and ethane: 5.816 TJ per kboe, LPG: 1.389 bbl per boe, condensate: 1.069 bbl per boe and oil: 1 bbl per boe. The reference point for reserves determination is the custody transfer point for the products. Reserves are stated net of fuel and third party royalties. Beach ended FY18 with 2P oil and gas reserves 320% higher than the prior year Beach recorded an organic 2P reserves replacement ratio of 368% for the 12 month period ended 30 June 2018, with year-end 2P oil, gas and gas liquids reserves 320% higher than the prior year. Including the impact of acquisitions/ divestments, Beach recorded a 2P reserves replacement ratio in FY18 of 938%. Approximately one third of the increase in 2P reserves was due to the underlying performance of the assets and exploration/appraisal success. 2P reserves life increased from 7 years at the end of FY17 to 11 years at the end of FY18. OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS CONTINUED 2P Reserves by segment (Reconciliation) 2P RESERVES (NET) Revisions 2P 30-Jun-17 (MMboe) FY18 Production (MMboe) Acquisitions/ Divestments (MMboe) Exploration / Appraisal (MMboe) Other Revisions (MMboe) 2P 30-Jun-18 (MMboe) Oil (MMbbl) Gas (PJ) LPG (kt) Condensate (MMbbl) Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 Other Cooper Basin4 Perth Basin5 SAWA Otway Basin6 Bass Basin7 Victoria Taranaki Basin (New Zealand)8 Total 2P Reserves 20 8 46 0 – 75 – – – – (5) (1) (7) (0) (1) (14) (9) (2) (11) (3) – – 26 – 44 70 50 10 61 32 2 3 2 – 29 37 – – – – 17 (1) 17 (0) (0) 33 33 1 – 2 34 34 – – 9 84 0 72 – 7 – – 34 177 377 754 1 419 5 – 200 42 832 936 75 9 83 30 – – – – 375 651 39 104 414 755 128 560 – 2 6 0 0 8 5 1 6 4 75 (28) 162 37 68 313 42 1,374 2,252 18 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 2P reserves of 34 MMboe as at 30 June 2018 is split 75% ex PEL 91, 17% ex PEL 92 and 8% ex PEL104/111. A mixture of probabilistic and deterministic methodologies is applied. 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 2P reserves of 9 MMboe as at 30 June 2018 is split 77% ex PEL 106, 18% PRL 26 and 5% ex PEL 91. A mixture of probabilistic and deterministic methodologies applied. 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. Deterministic methodology applied. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). Deterministic methodology applied. 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). A mixture of probabilistic and deterministic methodologies applied. 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant) (Beach 100%), Otway Gas Project (Beach 100%) and Haselgrove area (Beach 100%). 2P reserves of 75 MMboe as at 30 June 2018 is split 10% HBWS, 90% Otway Gas Project and 0% Haselgrove area. A mixture of probabilistic and deterministic methodologies applied. 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). A mixture of probabilistic and deterministic methodologies applied. 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). A mixture of probabilistic and deterministic methodologies applied. 20 Beach Energy Limited | ABN 20 007 617 969 2P Reserves by segment (Developed/Undeveloped) 2P RESERVES (NET) Developed Reserves Undeveloped Reserves LPG (kt) Condensate (MMbbl) Oil (MMbbl) Total (MMboe) Gas (PJ) LPG (kt) Condensate (MMbbl) Oil (MMbbl) Total (MMboe) Gas (PJ) – – 34 177 307 616 Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 Other Cooper basin4 1 Perth Basin5 89 4 – SAWA 431 798 Otway Basin6 127 232 Bass Basin7 39 104 Victoria 165 336 Taranaki Basin (New Zealand)8 Total 2P Reserves 59 259 656 1,393 – 2 5 0 0 6 2 1 3 2 11 22 – 6 – – 22 9 69 0 15 – – 71 0 330 – – 138 1 – 28 115 401 138 – – – – 25 9 249 420 – – 34 249 420 14 68 300 28 163 718 859 – – 1 0 0 1 3 – 3 2 6 12 – 1 – – 13 – – – – 12 – 16 0 57 85 49 – 49 16 13 150 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 2P reserves of 34 MMboe as at 30 June 2018 is split 75% ex PEL 91, 17% ex PEL 92 and 8% ex PEL104/111. A mixture of probabilistic and deterministic methodologies is applied. 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 2P reserves of 9 MMboe as at 30 June 2018 is split 77% ex PEL 106, 18% PRL 26 and 5% ex PEL 91. A mixture of probabilistic and deterministic methodologies applied. 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. Deterministic methodology applied. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). Deterministic methodology applied. 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). A mixture of probabilistic and deterministic methodologies applied. 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant) (Beach 100%), Otway Gas Project (Beach 100%) and Haselgrove area (Beach 100%). 2P reserves of 75 MMboe as at 30 June 2018 is split 10% HBWS, 90% Otway Gas Project and 0% Haselgrove area. A mixture of probabilistic and deterministic methodologies applied. 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). A mixture of probabilistic and deterministic methodologies applied. 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). A mixture of probabilistic and deterministic methodologies applied. Annual Report 2018 21 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS CONTINUED 1P Reserves by segment (Reconciliation) 1P RESERVES (NET) Revisions 1P 30-Jun-17 (MMboe) FY18 Production (MMboe) Acquisitions/ Divestments (MMboe) Exploration / Appraisal (MMboe) Other Revisions (MMboe) 1P 30-Jun-18 (MMboe) Oil (MMbbl) Gas (PJ) LPG (kt) Condensate (MMbbl) Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 Other Cooper Basin4 Perth Basin5 SAWA Otway Basin6 Bass Basin7 Victoria Taranaki Basin (New Zealand)8 Total 1P Reserves 9 3 25 0 – 38 – – – – (5) (1) (7) (0) (1) (14) (9) (2) (11) (3) – – 11 – 22 33 30 7 36 20 2 1 1 – 23 27 – – – – 16 0 13 0 1 30 30 2 33 1 22 3 43 0 45 22 – 4 – – – 13 – 70 195 385 1 263 3 – 114 25 472 458 51 7 58 18 – – – – 258 450 30 82 288 532 74 324 38 (28) 90 27 64 190 25 834 1,313 – 1 3 0 0 4 3 1 4 3 11 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 1P reserves of 22 MMboe as at 30 June 2018 is split 75% ex PEL 91, 17% ex PEL 92 and 8% ex PEL104/111. A mixture of probabilistic and deterministic methodologies is applied. 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 1P reserves of 3 MMboe as at 30 June 2018 is split 78% ex PEL 106, 14% PRL 26 and 9% ex PEL 91. A mixture of probabilistic and deterministic methodologies applied. 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. Deterministic methodology applied. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). Deterministic methodology applied. 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). A mixture of probabilistic and deterministic methodologies applied. 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant) (Beach 100%), Otway Gas Project (Beach 100%) and Penola Trough (Beach 70-100%). 1P reserves of 51 MMboe as at 30 June 2018 is split 8% HBWS, and 92% Otway Gas Project. A mixture of probabilistic and deterministic methodologies applied. 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). A mixture of probabilistic and deterministic methodologies applied. 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). A mixture of probabilistic and deterministic methodologies applied. 22 Beach Energy Limited | ABN 20 007 617 969 1P Reserves by segment (Reconciliation) 1P RESERVES (NET) Developed Reserves Undeveloped Reserves Gas (PJ) LPG (kt) Condensate (MMbbl) Oil (MMbbl) Total (MMboe) Gas (PJ) LPG (kt) Condensate (MMbbl) Oil (MMbbl) Total (MMboe) Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 – 13 – 70 164 329 Other Cooper Basin4 Perth Basin5 1 66 3 – SAWA 245 402 Otway Basin6 Bass Basin7 Victoria 88 30 118 169 82 251 Taranaki Basin (New Zealand)8 46 200 – 1 3 0 0 3 1 1 2 1 16 – 3 – – 19 – – – – 16 3 37 0 11 67 18 7 24 11 – – 30 0 196 227 170 – – – 55 0 – 56 281 – 170 281 28 123 – – 1 0 0 1 2 – 2 1 6 – 0 – – 6 – – – – Total 1P Reserves 409 853 7 19 103 425 460 4 6 6 – 7 0 34 46 34 – 34 7 87 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 1P reserves of 22 MMboe as at 30 June 2018 is split 75% ex PEL 91, 17% ex PEL 92 and 8% ex PEL104/111. A mixture of probabilistic and deterministic methodologies is applied. 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 1P reserves of 3 MMboe as at 30 June 2018 is split 78% ex PEL 106, 14% PRL 26 and 9% ex PEL 91. A mixture of probabilistic and deterministic methodologies applied. 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. Deterministic methodology applied. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). Deterministic methodology applied. 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). A mixture of probabilistic and deterministic methodologies applied. 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant) (Beach 100%), Otway Gas Project (Beach 100%) and Penola Trough (Beach 70-100%). 1P reserves of 51 MMboe as at 30 June 2018 is split 8% HBWS and 92% Otway Gas Project. A mixture of probabilistic and deterministic methodologies applied. 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). A mixture of probabilistic and deterministic methodologies applied. 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). A mixture of probabilistic and deterministic methodologies applied. Annual Report 2018 23 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REVIEW OF OPERATIONS CONTINUED 2C Contingent Resources by Permit (by Product) 2C CONTINGENT RESOURCES Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 Other Cooper Basin4 Perth Basin5 Otway Basin6 Bass Basin7 Taranaki Basin8 Bonaparte Basin9 Carnarvon Basin10 Browse Basin11 Total Conventional 2C Contingent Resources Cooper Basin JV Unconventional12 Total 2C Contingent Resources Oil (MMbbl) Sales Gas & Ethane (PJ) Condensate (MMbbl) Total Oil Equivalent (MMboe) 6 – 15 11 – – – – – – – 31 0 31 – 7 202 41 186 100 104 11 112 – – 762 132 894 – 2 6 1 0 0 11 1 1 – – 21 1 22 6 3 55 19 32 17 29 3 20 – – 183 24 207 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant – Beach 100%), Otway Gas Project (Beach 100%) and Penola Trough (Beach 70-100%). 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). 9. Bonaparte Basin comprises the Petrel field (Beach 5%). 10. Carnarvon Basin comprises the Hurricane field (Beach 10%). In Q1 FY18 NOPTA approved the transfer of Beach’s interest in WA-48-R to an existing joint venture partner. 11. Browse Basin comprises the Lasseter South and Burnside fields (Beach 7.339%). 12. Cooper Basin JV unconventional includes contingent resources classified as unconventional and comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 20.76% to 45.00%. 24 Beach Energy Limited | ABN 20 007 617 969 2C Contingent Resources by Permit (Reconciliation) 2C CONTINGENT RESOURCES (NET, MMBOE) Western Flank Oil1 Western Flank Gas2 Cooper Basin JV3 Other Cooper Basin4 Perth Basin5 Otway Basin6 Bass Basin7 Taranaki Basin8 Bonaparte Basin9 Carnarvon Basin10 Browse Basin11 Total 2C Contingent Resources 2C 30 June 2017 Acquisitions Revisions / Discoveries 2C 30 June 2018 9 3 108 21 – 1 – – – 1 11 153 – – 73 – 83 25 21 4 10 – – 217 (3) – (102) (2) (51) (9) 7 (1) 10 (1) (11) (163) 6 3 79 19 32 17 29 3 20 0 0 207 1. Western Flank Oil comprises ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator) and ex PEL 104/111 (Beach 40% interest, Senex operator). 2. Western Flank Gas comprises ex PEL 106 (Beach 100%), PRL 26 (Beach 100%) and the Mokami Field in ex PEL 91 (Beach 100%). 3. The Cooper Basin JV comprises the South Australian Cooper Basin joint ventures where Beach equity interests are 27.68% and 33.40% and the South West Queensland joint ventures where Beach equity interests range from 30% to 52.20%. 4. Includes ex PEL 513/632 (SWJV) (Beach 40%, Santos operator) and PRL 135 (Vanessa) (Beach 43% interest, Senex operator). 5. Perth Basin comprises Waitsia (Beach 50%, AWE operator) and Beharra Springs (Beach 67% and operator). 6. Otway Basin comprises HBWS (Halladale, Black Watch, Speculant) (Beach 100%), Otway Gas Project (Beach 100%) and Penola Trough (Beach 70-100%). 7. Bass Basin comprises BassGas producing permits (Beach 53.75% and operator) and BassGas exploration permits (Beach 50.25% and operator). 8. Taranaki Basin comprises Kupe Gas Project (Beach 50% and operator). 9. Bonaparte Basin comprises the Petrel field (Beach 5%). 10. Carnarvon Basin comprises the Hurricane field (Beach 10%). In Q1 FY18 NOPTA approved the transfer of Beach’s interest in WA-48-R to an existing joint venture partner. 11. Browse Basin comprises the Lasseter South and Burnside fields (Beach 7.339%). Annual Report 2018 25 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION SUSTAINABILITY Our People Our success is contingent upon a highly capable workforce that seeks to continually improve and reach new standards of performance Health and Safety Performance § Zero heat-stress related illness in the field § Zero Lost Time Injuries for contractors § Maintaining strong safety performance following Lattice integration § Completed process safety review for all assets § Completed full implementation of in-field driver competency assessment Workforce development and retention § Continued delivery of the ‘Leading for High Performance’ program § Formed a new and expanded leadership team across Australia and New Zealand to support Beach’s low-cost and high-performance model § Introduced new Management Operating System (MoS), incorporating new governance processes and reporting across the organisation to drive organisational performance § Integrated the Lattice Energy Services organisation into Beach, transforming the organisation structure, footprint, capabilities, workforce composition and talent mix For additional information on Beach’s health and safety performance, workforce development initiatives, related data and case studies, please refer to our 2018 Sustainability Report available on Beach’s website. 26 Beach Energy Limited | ABN 20 007 617 969 Economics Our focus is on creating long-term sustainable growth for our shareholders and the communities in which we operate Economic Performance § Underlying net profit after tax up 86% to $302 million § Operating cash flow up 108% to $663 million § 2P reserves increased by 320% § Total production increased by 80% to 19.0 MMboe § Liquidity of $761 million at 30 June 2018 § Gas and gas liquids production increased by 174% to 13.3 MMboe For additional information on Beach’s economic performance, related data, and case studies please refer to our 2018 Sustainability Report available on Beach’s website. 2P RESERVES INCREASED BY UNDERLYING NPAT 320% $302M 86% Our Environment As an oil and gas explorer and producer, we recognise our responsibility to understand and respect the environment we operate in, to minimise our impact, and remediate areas affected by past activities Environmental Performance § Record-low produced hydrocarbon spills, 1 bbl § Offset 403 hectares of land, through financial contributions to Witchelina Station reserve, which is run by Nature Foundation SA § Completed review of the TCFD (Task Force on Climate- related Financial Disclosures) Recommendations to enable future implementation of these practices at Beach § Review of current waste segregation and disposal practices, to help enable improved recycling and re-use into the future For additional information on Beach’s environmental performance, related data, and case studies please refer to our 2018 Sustainability Report available on Beach’s website. Annual Report 2018 27 Cooper Basin, South Australia Our Communities Beach’s long-term sustainability is contingent upon maintaining strong and meaningful relationships with the communities in which we operate. As such, Beach seeks to create and maintain long-term relationships that ensure we make a positive contribution to these communities Community Performance § Won the Excellence in Community Partnership and Engagement Award at the New Zealand Petroleum Conference § Made a substantial financial grant to BlazeAid for equipment and materials to support bush fire recovery for farmers in Western Victoria § Sponsorship of a key community health education program and solar heating of the community swimming pool in Timboon, Victoria § Experiential learning for science and vocational students at BassGas and the Otway Gas Plant For additional information on community investments, related data and case studies please refer to our 2018 Sustainability Report available on Beach’s website. OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION COP21 Paris Agreement The Paris Agreement in 2015 saw the world’s governments come together and commit to a mutual goal of preventing dangerous impacts of climate change by limiting global warming to below 2°C. The Paris Agreement sets in place a framework for all countries to take climate action from 2020, building on existing international efforts in the period up to 2020. Key outcomes include: § Limiting global temperature increase to well below 2 degrees Celsius, while pursuing efforts to limit the increase to 1.5 degrees § All countries to prepare, communicate and maintain a nationally determined contribution (NDC) and to pursue domestic measures to achieve them. § Starting in 2023, all countries to communicate their NDCs every 5 years and provide information necessary for clarity and transparency § Financial, technological and capacity building support to help developing countries implement the Agreement. This is targeted at a minimum of US$100bn per year from 2020-2025 SUSTAINABILITY CONTINUED Climate change Beach Energy accepts climate change is a significant social, environmental and business issue. We support the Australian government’s position to limit global warming to less than two degrees Celsius above pre-industrial levels. Beach, through its expanded natural gas portfolio, is well- placed to play an important role in the transition to a low carbon future. The acquisition of Lattice Energy this year has further increased Beach’s exposure to the Australian east coast gas market, and as of 30 June 2018, natural gas accounted for 64%1 of Beach’s total hydrocarbon production. Natural gas has a critical role in the transition to a lower carbon economy. According to the International Energy Agency, the emissions from natural gas combustion (per unit of energy produced) are around 40% lower than coal2. Furthermore, natural gas is the perfect partner for renewable energy generation as it provides a flexible and responsive energy source to provide balance to the electricity grid. In addition, natural gas is used as a feedstock in the manufacture of a wide range of industries including fertilisers and plastics. 1. Represents combined sales gas and ethane production of Beach and Lattice Energy. This number is provided for information purposes only and should not be relied upon. 2. https://www.iea.org/newsroom/news/2017/october/commentary- the-environmental-case-for-natural-gas.html Cooper Basin, South Australia 28 Beach Energy Limited | ABN 20 007 617 969 Domestic Demand for Gas GAS CONSUMPTION ACTUAL AND FORECAST, 2010-2038, ALL SECTORS, NEUTRAL SCENARIO According to the 2018 Australian Energy Market Operator (AEMO) Gas Statement of Opportunities (GSOO), Australia will continue to maintain demand for natural gas over the next 20 years. Key takeaways include: § Declining forecast consumption in the early years (2018-23), due to a decline in projected residential/ commercial consumption, due to energy efficiency gains and gas to electric fuel switching as well as a forecast decline in gas consumption from gas-powered generation (GPG) of electricity, due to penetration of renewable generation sources increasing at a rapid rate in the National Electricity Market (NEM). § Consumption stabilising over the medium term of forecasts (2024-28), due to projected ramp-up in LNG exports to full LNG train utilisation to meet growing Asian demand, offsetting a forecast continued decline in residential/ commercial consumption. § Forecast growing consumption of residential/commercial sectors and GPG in the long term (2029-38), due to a growth in connections as electric fuel switching plateaus and GPG demand growing as it is expected to assist in integrating renewable generation reliably and securely, particularly as aging coal generators are forecast to retire. 2,500 2,000 1,500 1,000 500 0 2010 2015 2018 2020 2025 2030 2035 2038 Industrial Residential and Commercial GPG LNG Source: AEMO 2018 Gas Statement of Opportunities, June 2018 Task Force on Climate- related Financial Disclosures Beach recognises the potential impacts of climate change on its business and the importance of appropriate climate-related disclosure for its stakeholders. Beach is committed to ensuring appropriate disclosure and in FY18, taking into account the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Beach undertook a climate change disclosure review. This review has helped Beach understand the gaps in its current climate change disclosure practices and to prepare for future disclosure and management of material climate risks and opportunities of the global goal of limiting global temperature increase to less than 2°C above pre-industrial levels. In FY19, Beach expects to make further progress in this area, and will look to implement an overarching climate strategy. This strategy will consider the development of a climate change policy, reviewing board and committee charters to help ensure appropriate documentation of climate-related matters. Furthermore it will consider the documentation of management’s responsibilities for climate change matters as well as the ongoing assessment of climate change risks and opportunities. Other actions under consideration include the establishment and documentation of time horizons for climate change risk assessment, a review of climate risks and opportunities to assess the impacts of and organisational responses to material risks and opportunities, finalising scenario modelling/analysis, as well as reviewing HSE risk standards to ensure adequate consideration of climate impacts. Annual Report 2018 29 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION BOARD OF DIRECTORS Glenn Davis INDEPENDENT NON-EXECUTIVE CHAIRMAN LLB, BEc, FAICD Mr Davis has practiced as a solicitor in corporate and risk throughout Australia for over 30 years initially in a national firm and then a firm he founded. He brings to the Board his expertise in the execution of large transactions and his expertise and experience in corporate activity regulated by the Corporations Act and ASX Limited. Mr Davis is a director of ASX listed companies Monax Mining Limited (since 2004) and a former director of Marmota Energy Limited (from 2007 to June 2015). Mr Davis’s special responsibilities include membership of the Remuneration and Nomination Committee. Mr Davis joined Beach on 6 July 2007 as a non-executive director. He was appointed non-executive Deputy Chairman in June 2009 and Chairman in November 2012. He was last re-elected to the Board on 10 November 2016. Colin Beckett INDEPENDENT NON-EXECUTIVE DEPUTY CHAIRMAN FIEA, MICE, GAICD As an engineer with over 40 years’ experience in engineering design, project management, commercial and gas marketing, Mr Beckett offers a diverse and complementary set of skills in a range of technical disciplines. Mr Beckett previously held senior executive positions at Chevron Australia Pty Ltd, most recently as the General Manager responsible for the development of the Gorgon LNG and domestic gas project, being developed on Barrow Island offshore Western Australia. Mr Beckett read engineering at Cambridge University and has a Master of Arts (1975). He is currently the Chancellor of Curtin University and Western Power. He is a past Chairman of Perth Airport Pty Ltd and also a past Chairman and board member of the Australian Petroleum Producers and Explorers Association (APPEA). In addition Mr Beckett is a past member of the West Australian Scitech Board and the Resources Sector Suppliers Advisory Forum and a Fellow of the Australian Institute of Engineers. Mr Beckett’s special responsibilities include chairmanship of the Remuneration and Nomination Committee and membership of the Risk, Corporate Governance and Sustainability Committee. He was appointed to the Board on 2 April 2015, last having been re-elected to the Board on 23 November 2017. Philip Bainbridge INDEPENDENT NON-EXECUTIVE DIRECTOR BSc (Hons) Mechanical Engineering, MAICD Mr Bainbridge has extensive industry experience having worked for the BP Group for 23 years in a range of petroleum engineering, development, commercial and senior management roles in the UK, Australia and USA. From 2006, he has worked at Oil Search, initially as Chief Operating Officer, then Executive General Manager LNG, responsible for all aspects of Oil Search’s interests in the $19 billion PNG LNG project, then EGM Growth responsible for gas growth and exploration. He is currently a non-executive chairman of the PNG Sustainable Development Program and a non-executive Chairman of Sino Gas and Energy Holding. He was formerly a non-executive director of Drillsearch Energy Limited from 2013 to 2016. Mr Bainbridge’s special responsibilities include chairmanship of the Risk, Corporate Governance and Sustainability Committee. He was appointed by the Board on 1 March 2016, last having been elected to the Board on 10 November 2016. Jim McKerlie INDEPENDENT NON-EXECUTIVE DIRECTOR BEc, Dip Fin Mgt, FCA FAICD Mr McKerlie brings to the Board over 20 years’ experience as director and chairman of public companies. He is the current chairman of ELMO Software Limited (since June 2017) and is the former chairman of Drillsearch Energy Limited (from 2008 to 2016), and a director of Great Artesian Oil and Gas, former chairman of Manalto Limited (from 2016 to 2017), Lithium Consolidated Minerals Exploration Limited (2017), onthehouse Limited (2010 to 2012) and Two Way TV (1999 to 2002). He is an experienced international executive and Chartered Accountant with appointments as a partner at KPMG and Partner in Charge at Deloitte. Mr McKerlie’s special responsibilities include membership of the Audit Committee. He was appointed to the Board on 1 March 2016 following the merger with Drillsearch and was last elected to the Board on 10 November 2016. Ryan Stokes NON-EXECUTIVE DIRECTOR BComm FAIM Mr Stokes is the Managing Director and Chief Executive Officer of Seven Group Holdings Limited (SGH). SGH is a listed diverse investment company involved in Industrial Services, Media, and Energy. SGH interests include 25.6% of Beach Energy, WesTrac, Coates Hire and 41% of Seven West Media Limited. Mr Stokes is a director of WesTrac, Chairman of Coates Hire, and a director of Seven West Media. Mr Stokes is Chairman of the National Gallery of Australia. He is also a member of the Prime Ministerial Advisory Council on Veterans’ Mental Health, a Committee member of the innovationXchange (within the Department of Foreign Affairs and Trade), and a member of the International Olympic Committee Education Commission. His previous roles include Chairman of the National Library of Australia. Mr Stokes is a member of the Remuneration and Nomination Committee. He was appointed by the Board on 20 July 2016, last having been re-elected to the Board on 10 November 2016. Richard Richards NON-EXECUTIVE DIRECTOR BComs/Law (Hons), LLM, MAppFin, CA, Admitted Solicitor Mr Richards is currently Chief Financial Officer of Seven Group Holdings Limited (SGH) (since October 2013). He is responsible for Finance across the diversified conglomerate (equipment manufacture, sales and service, equipment hire, investments, property, media and oil and gas). Mr Richards is a member of the Board of Directors of WesTrac, SGH Energy, is a Director and Chair of the Audit and Risk Committee of Coates Hire Pty Limited, a Director and 30 Beach Energy Limited | ABN 20 007 617 969 Chair of the Audit and Risk Committee of KU Children Services (NFP) and a member of the Marcia Burgess Foundation Committee (DGR). He had held senior finance roles with Downer EDI, the Lowy Family Group and Qantas. Mr Richards is both a Chartered Accountant and admitted solicitor with over 30 years of experience in business and complex financial structures, corporate governance, risk management and audit. Mr Richards’ special responsibilities include membership of the Audit Committee, which he temporarily chaired during a casual vacancy. He was appointed to the Board on 4 February 2017 and then elected to the Board on 23 November 2017. Dr Peter Moore INDEPENDENT NON-EXECUTIVE DIRECTOR PhD, BSc (Hons), MBA, GAICD Dr Moore has over 35 years of oil and gas industry experience. His career commenced at the Geological Survey of Western Australia, with subsequent appointments at Delhi Petroleum Pty Ltd, Esso Australia, ExxonMobil and Woodside. Dr Moore joined Woodside as Geological Manager in 1998 and progressed through the roles of Head of Evaluation, Exploration Manager Gulf of Mexico, Manager Geoscience Technology Organisation and Vice President Exploration Australia. From 2009 to 2013, Dr Moore led Woodside’s global exploration efforts as Executive Vice President Exploration. In this capacity, he was a member of Woodside’s Executive Committee and Opportunities Management Committee, a leader of its Crisis Management Team, Head of the Geoscience function and a director of ten subsidiary companies. From 2014 to 2018, Dr Moore was a Professor and Executive Director of Strategic Engagement at Curtin University’s Business School. He has his own consulting company, Norris Strategic Investments Pty Ltd. Dr Moore is currently a non-executive director of Central Petroleum Ltd (since 2014) and Carnarvon Petroleum Ltd (since 2015). Dr Moore’s special responsibilities include membership of the Risk, Corporate Governance and Sustainability Committee and of the Renumeration and Nomination Committee. Dr Moore was appointed by the Board on 1 July 2017 and then elected to the Board on 23 November 2017. Joycelyn Morton INDEPENDENT NON-EXECUTIVE DIRECTOR BEc, FCA, FCPA, FIPA, FGIA, FAICD Ms Morton has more than 38 years’ experience in finance and taxation having begun her career with Coopers & Lybrand (now PwC), followed by senior management roles with Woolworths Limited and global leadership roles in Australia and internationally within the Shell Group of companies. Ms Morton was National President of both CPA Australia and Professions Australia, has served on many committees and councils in the private, government and not-for-profit sectors and held international advisory positions. She holds a Bachelor of Economics degree from the University of Sydney. Her other current ASX listed board positions are Argo Investments Limited and Argo Global Listed Infrastructure Limited. She is also a non-executive director of ASC Pty Ltd and Snowy Hydro Limited. She has valuable board experience across a range of industries, including previous roles as a non-executive director and Chair of both Thorn Group Limited and Noni B Limited and a non- executive director of Crane Group Limited, Count Financial Limited and InvoCare Limited. Ms Morton’s special responsibilities include Chairmanship of the Audit Committee. She was appointed a non-executive director of Beach Energy Limited on 21 February 2018. Haselgrove-3 drilling, Otway Basin, South Australia Annual Report 2018 31 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION EXECUTIVE TEAM Matthew Kay CHIEF EXECUTIVE OFFICER BEc, MBA, FCPA, GAICD Mr Kay joined Beach in May 2016 as Chief Executive Officer. Prior to joining Beach, Mr Kay served as Executive General Manager, Strategy and Commercial at Oil Search, a position he held for two years. In that role he was a member of the executive team and led the strategy, commercial, supply chain, economics, marketing, M&A and legal functions. Prior to Oil Search, Mr Kay spent 12 years with Woodside Energy in various leadership roles, including Vice President of Corporate Development, General Manager of Production Planning leading over 80 operations professionals, and General Manager of Commercial for Middle East and Africa. In these roles Mr Kay developed extensive leadership skills across LNG, pipeline gas and oil joint ventures, and developments in Australia and internationally. Morné Engelbrecht CHIEF FINANCIAL OFFICER BCom (Hons), CA (ANZ & South Africa), MAICD Mr Engelbrecht joined Beach in September 2016 as Chief Financial Officer and is responsible for the finance, tax, treasury, information technology, contracts & procurement, insurance and investor relations functions. He is a Chartered Accountant with more than 18 years’ experience including in the oil, gas and resource sectors across various jurisdictions including Australia, South Africa, the United Kingdom, Papua New Guinea and China. He held the position of Chief Executive Officer of ASX-listed company, Carbon Energy, prior to his role with Beach. Prior to this he held various financial, commercial and advisory senior management positions at InterOil, Newcrest, Harmony Gold and PwC. Mr Engelbrecht also has extensive experience in strategy and planning, capital management, debt and equity markets, M&A and joint venture management and operations. Dawn Summers CHIEF OPERATING OFFICER BEng (Hons) (Chemical) Ms Summers joined Beach in January 2018 as Chief Operating Officer and brings to Beach over 25 years of upstream and downstream, international oil and gas experience. Prior to joining Beach, Ms Summers was Chief Operating Officer of Origin Energy’s integrated gas division, with operational responsibility for the Lattice asset portfolio and Asia Pacific LNG assets. Prior to this, Ms Summers’ experience includes two years on the executive team at Genel Energy plc, an independent exploration and production company focused on Iraq and Africa, and 20 years with BP, ending up as Global Vice President for Upstream Production Operations and Safety & Operational Risk. Geoff Barker GROUP EXECUTIVE DEVELOPMENT BSc, MEng (Pet Eng) Mr Barker joined Beach in February 2018 as Group Executive Development and brings to Beach over 30 years of upstream oil and gas experience. Prior to joining Beach, Mr Barker was a Partner at leading oil and gas consulting firm RISC where he managed development and value enhancement studies on a wide range of onshore and offshore major projects internationally and within the Australasian region. Mr Barker has held senior management and technical positions in development and operations at Woodside, Shell and Bridge Oil. 32 Beach Energy Limited | ABN 20 007 617 969 Kupe Gas Plant and Mount Taranaki, New Zealand Lee Marshall GROUP EXECUTIVE CORPORATE STRATEGY AND COMMERCIAL BE Commerce (Economics and Finance) Mr Marshall joined Beach in January 2018 as Group Executive Corporate Strategy and Commercial. Prior to joining Beach, Mr Marshall was most recently General Manager UK for Woodside Energy. Based in London, Mr Marshall managed exploration assets and business development opportunities in the Atlantic Basin and Africa. He has over 20 years of Australian and global commercial, business development and financial management experience across upstream oil and gas and LNG. Mr Marshall is responsible for upstream commercial, strategy, economics, M&A, business development and marketing. Jeff Schrull GROUP EXECUTIVE EXPLORATION AND APPRAISAL BSc Geophysics (Maths, Geology, Physics), M.S Geophysics Mr Schrull joined Beach in January 2017 in the position of Group Executive Exploration and Development. He brings to Beach over 30 years of upstream oil and gas experience. Prior to this, Mr Schrull held the position of General Manager Exploration and Production at Cue Energy. He previously held several senior international positions with Chevron over a 19 year period, and was subsequently at Addax Petroleum in the role of Corporate General Manager of Exploration. He has a strong track record in creating and delivering growth through exploration, development, operations and M&A. Brett Doherty GROUP EXECUTIVE HEALTH, SAFETY, ENVIRONMENT AND RISK BEng (Electrical), LLB (Hons) Mr Doherty joined Beach in February 2018 as Group Executive Health, Safety, Environment and Risk, bringing over 30 years of upstream oil and gas experience to Beach. His career includes extensive exposure to both offshore and onshore development and operations. Prior to Beach, Mr Doherty was General Manager of Health, Safety and Environment at INPEX Australia. He has held several senior international positions during his career, including ten years as the Chief HSEQ Officer at RasGas Company Limited, in the State of Qatar. Sheree Ford GENERAL COUNSEL BA, LLB, MBA Ms Ford joined Beach in March 2018, bringing over 25 years’ experience as a corporate lawyer primarily in the upstream oil and gas industry. Prior to joining Beach Ms Ford worked for over 10 years as in house counsel at BHP Billiton Limited, primarily in the oil and gas business and was General Counsel and Company Secretary at listed and privately owned oil and gas companies including InterOil Corporation, Oil Search Limited and Roc Company Limited. As well as extensive experience in the upstream oil and gas business across Australia, Asia, Africa and the United Kingdom, Ms Ford has been involved numerous large company transactions including M&A. Annual Report 2018 33 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION FULL YEAR REPORT Directors’ Report Auditor’s Independence Declaration 2018 Remuneration in Brief (Unaudited) Remuneration Report (Audited) Directors’ Declaration Full Year Financial Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Basis of preparation Results for the year 1. Operating segments 2. Revenue and other income 3. Expenses 4. Employee benefits 5. Taxes 6. Earnings per share (EPS) Capital employed 7. Inventories 8. Property, plant and equipment (PPE) 9. Petroleum assets 10. Exploration and evaluation assets 11. Interests in joint operations 12. Carrying value of oil and gas properties 13. Provisions 14. Commitments for expenditure Financial and risk management 15. Finances and borrowings 16. Cash flow reconciliation 17. Financial risk management Equity and group structure 18. Contributed equity 19. Reserves 20. Dividends 21. Subsidiaries 22. Deed of cross guarantee 23. Parent entity financial information 24. Related party disclosures 25. Disposal group held for sale 26. Business combination Other information 27. Contingent liabilities 28. Remuneration of auditors 29. Subsequent events Independent Auditor’s Report Glossary of Terms Schedule of Tenements Shareholder Information Corporate Information & Directory 34 Beach Energy Limited | ABN 20 007 617 969 35 58 59 60 75 77 78 79 80 81 81 83 83 84 85 85 87 90 91 91 91 92 95 96 97 97 99 100 100 101 102 106 106 107 107 108 109 111 112 112 113 115 115 116 116 117 125 127 131 132 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Your directors present their report for Beach Energy Limited (Beach or Company) on the consolidated accounts for the financial year ended 30 June 2018. Beach is a company limited by shares that is incorporated and domiciled in Australia. The directors of the Company during the year ended 30 June 2018 and up to the date of this report are: Surname Bainbridge Beckett Bennett Davis McKerlie Moore Morton Stokes Richards Other Names Philip James Colin David Fiona Rosalyn Vivienne Position Independent non-executive director Independent non-executive Deputy Chairman Independent non-executive director 1 Glenn Stuart James David Peter Stanley Joycelyn Cheryl Ryan Kerry Richard Joseph Independent non-executive Chairman Independent non-executive director Independent non-executive director 2 Independent non-executive director 3 Non-executive director Non-executive director 1. Retired on 23 November 2017 2. Appointed as a non-executive director on 1 July 2017 3. Appointed as a non-executive director on 21 February 2018 Directors Interests in shares, options and rights The relevant interest of each director in the ordinary share capital of Beach at the date of this report is: Shares held in Beach Energy Limited Name P J Bainbridge C D Beckett G S Davis J D McKerlie P S Moore J C Morton R K Stokes 3 R J Richards 3 Shares Rights 118,090 2 65,914 1 153,226 2 124,840 2 22,500 2 50,000 1, 2 – 179,443 2 – – – – – – – – 1. Held directly 2. Held by entities in which a relevant interest is held 3. Mr Stokes does not hold a relevant interest in Beach shares but he was nominated as a director by Beach’s largest shareholder Seven Group Holdings Limited (SGH) and related corporations who collectively have a relevant interest in 25.58% of Beach shares. He is Managing Director and Chief Executive Officer of SGH. Mr Richards was also nominated as a director by SGH. He is the Chief Financial Officer of SGH. Details of the qualifications, experience, special responsibilities and meeting attendance of each of the directors are set out later in the Directors’ Report. Principal activities Beach Energy is an ASX listed, oil and gas, exploration and production company headquartered in Adelaide, South Australia. It has operated and non-operated, onshore and offshore, oil and gas production from five producing basins across Australia and New Zealand and is a key supplier to the Australian east coast gas market. Beach’s asset portfolio includes ownership interests in strategic oil and gas infrastructure, such as the Moomba processing facility and Otway Gas Plant, as well as a suite of high potential exploration prospects. Beach is focused on maintaining the highest health, safety and environmental standards. Annual Report 2018 35 I W E V R E V O T R O P E R R A E Y L L U F I N O T A M R O F N I L A N O T D D A I I DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Operating and Financial Review The following operating results and events from FY18 are discussed in this Directors’ Report. § During the financial year, Beach acquired the Lattice Energy Group, Benaris’ interest in the Otway Gas Project and Toyota Tsusho Corporation’s interest in the Otway Gas Project and the BassGas project. Beach acquired these interests for $1,532 million in consideration with an effective accounting acquisition date of 1 January 2018. § To fund the acquisitions, Beach raised approximately $301 million through a 3 for 14 pro–rata accelerated non–renounceable entitlement offer and entered into banking arrangements to access $1,475 million in credit facilities, including a $450 million revolving credit facility. § At 30 June 2018 Beach reported net debt of $639 million versus $198 million net cash position as at 30 June 2017. Net gearing decreased from less than 33% at the time of completion of the Lattice acquisition to less than 26% at 30 June 2018, primarily due to cash flow generation in H2 FY18. Beach ended FY18 with available liquidity of $761 million. § Beach recorded annual production of 19.0 MMboe, up 80% from the prior year. § Gas and gas liquids production of 13.3 MMboe was 174% higher than the prior year and accounted for 70% of total production. § Oil production of 5.7 MMbbl was in line with the prior year and accounted for 30% of total production. § Capital expenditure (before acquisitions and divestments) of $288 million was 85% higher than the prior year as Beach commenced its multi-year capital program in the Cooper Basin and expenditure increased with the expanded asset portfolio. § Beach participated in 96 wells at a success rate of 82%, up from 58 wells at 79% in the prior year. Exploration and appraisal wells accounted for 25% and 30% of total wells, respectively, with success rates of 56% and 83%, respectively. § Drilling successes included: 1) Bauer-26 (ex PEL 91), Beach’s first operated horizontal oil development well, 2) the Stunsail oil field development (ex PEL 91) with McKinlay and Birkhead horizontal wells, 3) the Marauder-1 oil discovery and the Growler-15 horizontal development well both drilled by Senex (ex PEL 104), 4) five Western Flank operated gas exploration wells (increasing to six, subsequent to year-end), 5) Haselgrove-3 ST1 gas discovery in the onshore Otway Basin (PPL 62) and 6) numerous small scale appraisal and exploration successes in the Cooper Basin JV. § Strong appraisal results at Waitsia in H1 FY18, with deliverability rates of 39, 50 and 90 MMscfd announced by the operator. § 2P oil and gas reserves were 313 MMboe at year-end, up 320% from the prior year. The recently acquired Lattice assets were responsible for approximately two thirds of the increase in 2P reserves, with around one third due to positive reserve revisions across existing Beach assets. § Net operating cash flow of $663 million was assisted by higher production and commodity prices, with Beach average realised price, across all products, of $62.3/boe, up 14% from $54.8/boe in the prior year. Beach reporting segments are: § SAWA – South Australia and Western Australia; § Victoria; and § New Zealand Production summary Production (net to Beach) 2 Western Flank Oil Western Flank Gas Cooper Basin JV Other Cooper Basin Perth Basin SAWA Otway Basin Bass Basin Victoria New Zealand Total Production FY17 Oil Equivalent (MMboe) 4.8 1.0 4.4 0.3 – 10.6 – – – – 10.6 FY18 Oil (MMbbl) Gas Liquids (MMboe) Gas (PJ) Oil Equivalent (MMboe) Year-on year change (%) 4.7 – 0.8 0.1 – 5.7 – – – – 5.7 – 0.5 0.8 0.0 0.0 1.3 0.5 0.3 0.7 0.5 2.5 – 5.5 24.7 0.3 2.4 32.9 19.0 4.7 23.7 5.8 62.5 4.7 1.4 5.9 0.2 0.4 12.7 3.7 1.1 4.8 1.5 19.0 (1%) 46% 33% (35%) – 20% – – – – 80% 1. See ASX Announcements from AWE Ltd (ASX: AWE) dated 22 November 2017, 10 November 2017 and 23 October 2017. 2. Due to rounding, figures may not reconcile to totals. 36 Beach Energy Limited | ABN 20 007 617 969 Drilling summary Cooper / Eromanga Basins Total Cooper/Eromanga Onshore Otway Basin Total wells drilled Category Oil – Exploration Oil – Appraisal Oil – Development Gas – Exploration Gas – Appraisal Gas – Development Gas – Exploration 1. Success defined as wells that have been cased and suspended as future producers / injectors. Wells Drilled Successful Wells 1 Success Rate 6 16 21 18 13 21 95 1 96 3 14 20 10 10 21 78 1 79 50% 88% 95% 56% 77% 100% 82% 100% 82% SAWA Western Flank Oil Western Flank oil operations accounted for 25% of Beach’s FY18 production and the majority of Beach’s FY18 oil production. Producing permit areas include ex PEL 91 (Beach 100%), ex PEL 92 (Beach 75% and operator, Cooper Energy 25%) and ex PEL 104/111 (Beach 40%, Senex 60% and operator). Western Flank net oil production was 4.7 MMbbl, in line with the prior year. The production result benefited from the following activities, which almost fully offset natural field decline. § Oil discovery: In July 2017, Beach announced a Birkhead oil discovery in Senex-operated ex PEL 104 in the Marauder Field, approximately two kilometres north of the producing Growler and Spitfire oil fields. Marauder-1 was brought online in the first quarter. § Horizontal drilling: Horizontal drilling technology was successfully introduced to the Western Flank in FY18. Beach completed its first operated horizontal well, Bauer-26. The well was drilled and brought online in less than two months. Beach drilled a further two horizontal oil development wells in the third quarter at Stunsail-6 and -7 as part of the Stunsail Field development campaign. Senex also introduced horizontal drilling to its operated acreage, with Growler-15 drilled and brought online in February-March 2018. § New wells brought online: 18 oil wells were brought online in FY18. § Production optimisation projects: Beach was very active in the field throughout FY18. Artificial lift, which included both beam pumps and electric submersible pumps, was installed at 19 wells while debottlenecking work was undertaken both in the flowline network and via increase of fluid handling capability at various facilities in ex PEL 91 and ex PEL 92. Beach participated in 15 Western Flank oil wells in FY18; four exploration wells, four appraisal wells and seven development wells. The overall Western Flank oil drilling success rate was 67%. At 30 June 2018, Western Flank 2P oil reserves were 34 MMbbl, an increase of 14 MMbbl, net of production, over the prior year. Western Flank Gas Western Flank gas operations accounted for 7% of Beach’s FY18 production. Producing permit areas include ex PEL 106 (Beach 100%), the Mokami Field in ex PEL 91 (Beach 100%) and the Udacha Block – PRL 26 (Beach 100%). Other permits include PEL 630 (Beach 50% and operator, Bridgeport 50%). Western Flank net gas production was 1.4 MMboe, a 46% increase over the prior year. The production increase was the result of compression at the Middleton facility, exploration success and new wells brought online more than offsetting natural field decline. § Middleton compression: FY18 was the first full year period to benefit from the expanded daily throughput capacity of 25 MMscf raw gas at the Middleton facility. As Beach executes on its strategic goal of increasing its east coast gas business, further expansion of the Middleton facility is being undertaken. Phase-one was completed with a new gas export line commissioned on 30 June. Gas began being exported via the line into the Santos network on 1 July 2018 and has allowed Western Flank raw gas production to increase to between 35 – 38 MMscfd. § Gas exploration success: Beach drilled 11 wells of a 12-well, two-phase operated gas exploration campaign in FY18. The 12-well campaign was completed subsequent to year-end with an overall success rate of 50% and two of the six successes being considered new field discoveries. § New producing wells: Six gas wells were brought online in FY18. Beach participated in 11 Western Flank gas wells in FY18, all of which were exploration wells, at a success rate of 45%. At 30 June 2018, Western Flank 2P gas reserves were 9 MMboe, an increase of 1 MMboe, net of production, over the prior year. Cooper Basin JV Beach’s wholly owned subsidiaries Delhi Petroleum Pty Ltd and Lattice Energy Limited own non-operated interests in the South Australian Cooper Basin joint ventures (collectively 33.40% in SA Unit and 27.68% in Patchawarra East) and the South West Queensland joint ventures (various interests of 30% to 52.2%), which are collectively referred to as the Cooper Basin JV. Beach increased its interests in the Cooper Basin JV via the Lattice acquisition and consolidated the associated increased interests from 1 January 2018. Annual Report 2018 37 I W E V R E V O T R O P E R R A E Y L L U F I N O T A M R O F N I L A N O T D D A I I DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 The Cooper Basin JV operations accounted for 31% of Beach’s FY18 production. Net gas and gas liquids production of 5.1 MMboe was up 36% from the prior year and comprised sales gas of 4.2 MMboe (up 33%) and gas liquids of 0.8 MMboe (up 55%). Net oil production of 0.8 MMbbl was up 17% on the prior year. The production increase was the result of Beach increasing its interests in the Cooper Basin JV as well as an expanded drilling program and ongoing operating efficiencies more than offsetting natural field decline. § Increased ownership interests: See section entitled “Corporate activities – Acquisition of Lattice” which discusses the acquisition of Lattice. § Expanded drilling program: The Cooper Basin JV engaged a third drilling rig in the second quarter of FY18. The third rig is a fit-for-purpose, shallow-well rig, designed to reduce drilling times and allow smaller targets to be potentially economic. Operating a third rig assisted the Cooper Basin JV to drill 64 wells in FY18, double the 32 wells drilled in FY17. § Operating efficiencies: Drilling efficiencies from the fit-for-purpose drill rig, faster rig move times and the increased use of pad drilling in conjunction with high drilling success rates, optimised completion strategies, prioritisation of well connections and continued innovation in field operations, such as the use of a dedicated truck mounted workover rig to bring oil wells back online, assisted the strong operating result. Beach participated in 64 Cooper Basin JV wells, six gas exploration, 13 gas appraisal, 21 gas development, two oil exploration, eight oil appraisal and 14 oil development wells. Highlights from the FY18 drilling program included: § Overall success rate of 91%. § 100% success rate in the six-well oil development campaign in the McKinlay Field, which comprised four horizontal wells and two vertical wells. § 100% success rate in the five-well gas and oil development campaign in the Tirrawarra-Gooranie Field. § Horizontal wells in the Balcaminga and Tirrawarra fields targeting gas and oil respectively. At 30 June 2018, 2P oil and gas reserves were 84 MMboe, an increase of 38 MMboe, net of production. Other Cooper Basin Other Cooper Basin represents producing permit areas ATP 299 (Tintaburra) (Beach 40%, Santos 60% and operator) and ex PEL 513/632 (Beach 40%, Santos 60% and operator). Other permits include PEL 570 JV (Beach 25%, Santos 75% and operator). Production from Other Cooper Basin producing permit areas was 0.2 MMboe, down 35% from the prior year. Other Cooper Basin accounted for 1% of Beach’s total production. A four-well oil appraisal drilling campaign was undertaken in ATP 299 (Tintaburra) during FY18. The four wells were cased and suspended, three as future producers and one as a water injector to assist with future field production. A single deep coal gas exploration well was drilled in PEL 570 JV and was cased and suspended for future completion, fracture stimulation and flow testing. At 30 June 2018, 2P oil and gas reserves were nominal. South Australia Otway Basin South Australia Otway Basin includes permits PPL 62 (Beach 100%) and PEL 494 (Beach 70% and operator, Cooper Energy 30%) in the Penola Trough. No production was recorded in these permits in FY18. In the second quarter, Beach drilled Haselgrove-3 ST1 targeting the Sawpit Sandstone and shallower Pretty Hill Sandstone. On 11 January 2018, Beach announced Haselgrove-3 ST1 as a new gas field discovery. An initial production test was conducted from 10 February to 14 March 2018, which confirmed gas deliverability and low inert content (~5%) in the Sawpit Sandstone. Flow rates and pressure data indicated that further appraisal was required to assess resource size and commerciality of the Sawpit Sandstone structure. Subsequent to year-end, Beach announced plans to drill Haselgrove-4 (Beach 100%) to appraise the Haselgrove Field, and exploration well Dombey-1 (Beach 70% and operator, Cooper Energy 30%), to be drilled approximately 20km west of Penola targeting the Pretty Hill and Sawpit sandstones. As announced in December 2017, drilling of Dombey-1 will be supported by the South Australian Government through a $6.89 million PACE gas grant. The PACE gas grant scheme aims to bring new gas to market by the end of 2020. In June 2018, Beach accepted a $6 million Commonwealth Government GAP grant to assist with the development of the Hazelgrove-3 project to supply gas to the South Australian market. This in addition to the South Australian Government PACE grant of $6 million awarded in March 2017. Results of Haselgrove-4 and Dombey-1 will be incorporated into assessments of future commercial options in the South Australia Otway Basin. Perth Basin Perth Basin operations accounted for 2% of Beach’s FY18 production. Producing permit areas include Waitsia (Beach 50%, Mitsui 50% and operator) and Beharra Springs (Beach 67% and operator, Mitsui 33%). Beach acquired its interests in the Perth Basin via the Lattice acquisition and consolidated these interests from 1 January 2018. § Waitsia: Beach acquired a 50% non-operated interest via the Lattice acquisition. The project consists of the Waitsia Gas Project, an interest in the Xyris production facility and other in-field pipelines. Gas from two production wells is processed at the Xyris gas processing facility at a rate of ~10 TJ/d (gross) and is sold to Alinta Energy under a gas sales agreement. § Beharra Springs: Beach acquired a 67% operated interest via the Lattice acquisition. The project consists of the Beharra Springs, Redback Terrace and Tarantula gas fields, and the Beharra Springs gas processing facilities. Gas from nearby wells is processed at the Beharra Springs gas processing facility and is sold to Western Australia gas customers. In H2 FY18, AWE Limited, the operator of Waitsia with a 50% interest and 33% joint venture partner at Beharra Springs, was acquired by Mitsui. Beach is working with Mitsui to evaluate gas commercialisation opportunities and optimise development plans for the Perth Basin. Net Perth Basin production was 0.4 MMboe. At year-end, Perth Basin 2P oil and gas reserves were 72 MMboe. 38 Beach Energy Limited | ABN 20 007 617 969 New Zealand Taranaki Basin Taranaki Basin operations accounted for 8% of Beach’s FY18 production and comprises Kupe (Beach 50% and operator, Genesis 46%, NZOG 4%). Beach acquired its interest in the Taranaki Basin via the Lattice acquisition and consolidated this interest from 1 January 2018. Net Taranaki Basin production in FY18 was 1.5 MMboe. At 30 June 2018, Taranaki Basin 2P oil and gas reserves were 30 MMboe. Kupe produces gas from the Kupe Field, situated approximately 30 kilometres off the New Zealand North Island, in licence PML38146. Gas from Kupe is piped to an onshore production station near Hawera (Kupe production station). In FY18 gas from Kupe was sold to Genesis. Corporate activities Acquisition of Lattice and Toyota Tsusho interests During the financial year, Beach acquired the Lattice Energy Group, Benaris’ interest in the Otway Gas Project and Toyota Tsusho interest in the Otway Gas Project and the BassGas project. Beach acquired these interests for $1,532 million in consideration with an effective accounting acquisition date of 1 January 2018. The acquisitions were funded from cash reserves, which included proceeds of the entitlement offer as detailed below and the drawdown of new debt facilities. Entitlement offer Beach raised approximately $301 million at an offer price of $0.75 per share through a 3 for 14 pro-rata accelerated non-renounceable entitlement offer to partially fund the Lattice acquisition. On 2 October 2017, Beach announced that the accelerated institutional entitlement offer had been completed with a near record take-up rate of over 98%. On 19 October 2017, Beach announced that the retail entitlement offer had been successfully completed and was strongly supported by eligible shareholders. Pursuant to the entitlement offer 401,543,843 new fully paid ordinary shares were issued. Victoria Otway Basin Otway Basin operations accounted for 19% of Beach’s FY18 production. Producing licence areas include HBWS (Beach 100%) and OGP (Beach 100%). Beach consolidated 100% of HBWS and OGP from 1 January 2018. Net Otway Basin production in FY18 was 3.7 MMboe. At 30 June 2018, Otway Basin 2P oil and gas reserves were 75 MMboe. § HBWS: Beach acquired a 100% interest in the VIC/L1(v) and VIC/P42(v) licences which contain the Halladale, Black Watch and Speculant gas fields, via the Lattice acquisition. HBWS produces gas from the Halladale and Speculant gas fields via extended reach wells drilled from an onshore location. Gas from both fields is processed at the Otway Gas Plant. Beach is evaluating options to develop the Black Watch gas field and drill the Enterprise gas prospect via an extended reach well drilled from an onshore location. § OGP: Beach acquired its 100% interest in OGP via the Lattice Energy, Benaris and Toyota Tsusho interest with effect from 1 January 2018. OGP produces gas from the Geographe and Thylacine offshore gas fields situated approximately 55 and 70 kilometres off the Victorian coast, respectively, south of Port Campbell in licences VIC/L23, T/L2 and T/L3. Gas is piped to shore and processed at the Otway Gas Plant, near Port Campbell. Beach is evaluating options to develop additional reserves in the Geographe and Thylacine fields as well as drilling the Artisan gas prospect. Bass Basin Bass Basin operations accounted for 6% of Beach’s FY18 production and comprises the BassGas Project. Beach acquired its interests in the BassGas Project via the Lattice and Toyota Tsusho acquisitions. The BassGas Project comprises the Yolla offshore gas field, the BassGas pipeline and onshore Lang Lang gas plant (Beach 53.75% and operator, Mitsui 35%, Prize Petroleum International 11.25%), and various exploration permits and retention licenses (Beach 50.25% and operator, Mitsui 40%, Prize Petroleum International 9.75%). Beach consolidated these interests from 1 January 2018. Net Bass Basin production in FY18 was 1.1 MMboe. At 30 June 2018, Bass Basin 2P oil and gas reserves were 9 MMboe. The BassGas Project produces gas from the Yolla Field, situated approximately 140 kilometres off the Gippsland coast to the south of Orbost in production licence T/L1. Gas from Yolla is piped to a gas processing facility located near the township of Lang Lang approximately 70 kilometres southeast of Melbourne. A wireline campaign conducted on Yolla in H2 FY18 resulted in initial incremental gross production of 4 – 5 TJ/d. Annual Report 2018 39 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Beach and its wholly owned subsidiaries increased their ownership in the OGP and BassGas Project as set out in the table below. Summary of change in Beach interests in Otway Gas Project and BassGas Project OGP BassGas Project (producing assets) Interest acquired from Lattice Interest acquired from Toyota 95.00% 42.50% 5.00% 11.25% Beach interest effective post transaction 100.00% 53.75% New executive appointments and leadership structure During the year, Beach announced new executive appointments and functional leadership structure, which followed an extensive recruitment process. The appointments bring to Beach significant upstream oil and gas experience gained with leading global energy companies and extensive offshore operations experience. Beach’s executive structure is summarised below and further details and biographies are contained on the Beach website. Beach Energy Executive Leadership Team as at 30 June 2018 Chief Executive Officer Chief Financial Officer Chief Operating Officer Group Executive Development Group Executive Corporate Strategy and Commercial Group Executive Exploration and Appraisal Group Executive Health, Safety, Environment and Risk Execution of North West Shelf farm-in and call option agreements with Cue Energy Beach entered into binding agreements with Cue Exploration Pty Ltd, a 100% owned subsidiary of Cue Energy Limited (ASX:CUE) to acquire interests in North West Shelf exploration permits WA-359-P and WA-409-P in the Carnarvon Basin, offshore Western Australia. WA-359-P and WA-409-P are adjoining exploration permits which contain the Ironbark gas-condensate prospect. Ironbark is a Mungaroo Formation structural closure that covers an area of approximately 400 square kilometres, and is defined by high-quality 3D seismic data. The Ironbark prospect is interpreted to have reservoirs of similar age to nearby giant fields such as Gorgon and Goodwyn. A discovery at Ironbark could result in a multi-Tcf gas field. Beach will acquire a 21% equity interest in WA-359-P in exchange for a one-off payment to Cue Energy of $900,000 for past costs, and future payments equating to 4% of Cue Energy’s cost of drilling the Ironbark-1 exploration well in the permit. The agreement is subject to the following conditions precedent: § BP exercising its option to acquire a 42.5% equity interest in WA-359-P. BP has until 25 October 2018 to exercise its option, unless extended. Refer to announcements by Cue on 13 December 2017 and 17 April 2018 for further information. § Formation of a Joint Venture and associated Joint Operating Agreement with full funding for the Ironbark-1 exploration well. § Permit holders obtaining an extension to the current permit expiry date of 25 April 2018, to allow satisfactory timing for planning and drilling of the Ironbark-1 exploration well. § Other terms, conditions and approvals customary for transactions of this nature. 40 Beach Energy Limited | ABN 20 007 617 969 Matt Kay Morné Engelbrecht Dawn Summers Geoff Barker Lee Marshall Jeffrey Schrull Brett Doherty In relation to WA-409-P, Beach has acquired for nominal consideration a call option over a 7.5% equity interest in the permit. If exercised, Beach will make future payments equating to 7.5% of Cue Energy’s cost of drilling an exploration well within the permit (timing to be confirmed), and pay Cue Energy a 10% royalty on all future revenue earned by Beach from the permit. The option may be exercised until 31 July 2019. Further details are contained in ASX release #088/17 from 29 November 2017. New gas sales agreements with Adelaide Brighton and Alinta Energy Beach executed new GSAs with Adelaide Brighton Cement Ltd, a wholly owned subsidiary of Adelaide Brighton Ltd (ASX: ABC), and Alinta Energy Retail Sales Pty Ltd for the supply ex-Moomba of processed sales gas from Beach’s 100% owned Western Flank acreage. Under the terms of the GSAs, Beach will supply these customers up to a total of 4 PJ of sales gas at pricing reflective of current market conditions over an initial 12 month period commencing 1 January 2018. Associated LPG and condensate production from Beach’s Western Flank acreage will continue to be sold to the Cooper Basin JV. Further details are contained in ASX release #089/17 from 5 December 2017. Agreement with Senex to transfer free-carry commitment to Western Flank oil assets During Q4 FY18, Beach and Senex reached agreement to transfer the remaining free-carry commitment on the joint venture’s unconventional gas project to the Senex operated Cooper Basin Western Flank oil assets. Beach’s acquisition of Lattice included the commitment to free-carry Senex for up to $43 million of investment, exploring for unconventional gas in the Cooper Basin. After negotiations with Senex, it has been agreed to transfer the commitment of up to $43 million to lower-risk, expected higher-return oil opportunities in Western Flank permits ex PEL 104 and ex PEL 111 (Senex 60% and operator, Beach 40%). The joint venture will commence an agreed work program in early FY19 that includes at least three horizontal development wells and seven exploration wells, and associated infrastructure, over approximately 18 months. The former Lattice earned interest in the unconventional gas acreage will revert to Senex in full, subject to pre-emptive rights. Director appointments and retirements During the year, the following changes to Board composition occurred: § Dr Peter Moore was appointed as an independent non-executive director, with effect from 1 July 2017. Dr Moore is a geologist with over 35 years of oil and gas industry experience, including executive exploration appointments with ExxonMobil and Woodside. § At the Annual General Meeting held 23 November 2017, Ms Fiona Bennett retired from the Board of Directors. § On 22 February 2018, Beach announced the appointment of Ms Joycelyn Morton as an independent non-executive director, with effect from 21 February 2018. She was also appointed chair of the Audit Committee. Ms Morton has an extensive business and accounting background with over 38 years of accounting and finance experience, including global leadership roles in Australia and internationally within the Shell Group of companies. Reserves (net) Oil (million barrels MMbbl) Gas and gas liquids (million barrels of oil equivalent MMboe) Total as at 30 June 2018 (MMboe) Total as at 30 June 2017 Increase / (decrease) At 30 June 2018, the Board comprises eight directors. The approved maximum number of directors is nine. Change of external auditor On 22 January 2018, Beach announced the appointment of Ernst & Young as auditor to Beach. The appointment followed the outcome of a tender process and resignation of KPMG. Reserves and resources Details and disclosures in relation to Beach’s reserves and resources as at 30 June 2018 are contained in ASX release #034/18 from 2 July 2018. An extract of this announcement is provided below. 1P, 2P and 3P reserves were independently audited by RISC Advisory. No new information has subsequently come to hand which would materially alter estimates or underlying assumptions. On 2 July 2018 Beach reported in relation to its reserves and contingent resources as at 30 June 2018. Highlights included: § 1P reserves increased by 152 MMboe (+405%) to 190 MMboe § 2P reserves increased by 239 MMboe (+320%) to 313 MMboe § Beach ‘pre-Lattice acquisition’ assets 1 2P reserves increased from 75 to 95 MMboe § Lattice acquired assets1 2P reserves increased from 158 to 218 MMboe § Organic 2P reserves replacement ratio 2 of 368% § 2P reserves life 2 has increased from 7 years at the end of FY17 to 11 years at the end of FY18 Reserves and resources as at 30 June 2018 are summarised below. 1P 25 165 190 38 2P 42 272 313 75 3P 73 418 491 138 405% 320% 255% DEVELOPED UNDEVELOPED Developed and undeveloped reserves (net) Oil (MMbbl) Gas and gas liquids (MMboe) Total as at 30 June 2018 (MMboe) Total as at 30 June 2017 Increase / (decrease) 1P 19 84 103 33 213% 2P 28 135 163 60 171% 3P 46 214 259 106 1P 6 81 87 5 2P 13 137 150 14 145% 1,735% 944% 3P 27 205 232 32 615% 2C Contingent Resources (Net) Oil (MMbbl) Conventional gas and gas liquids (MMboe) Unconventional gas and gas liquids (MMboe) Total (MMboe) 30-Jun-17 Revisions 30-Jun-18 29 86 38 153 2 65 (14) 54 31 152 24 207 NB. All reserve and resource figures are quoted net of fuel; due to rounding, figures and ratios may not reconcile to totals. 1. Beach ‘pre-Lattice acquisition’ assets refers to the Cooper Basin assets ex PEL 91, ex PEL 92, ex PEL 104/111, Tintaburra, ex PEL 106, ex PEL 513/632, PRL 135 (Vanessa) and interests in the Cooper Basin JV which range from 12.86 to 40.00%. Lattice acquired assets refers to the OGP and HBWS in the Otway Basin, BassGas Project, Waitsia, Beharra Springs, Kupe Gas Project and various interests from 7.9 to 27.0% in the Cooper Basin JV. 2. Please refer to ASX Release #034/18 from 2 July 2018 for calculation definitions. Annual Report 2018 41 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Group profit attributable to equity holders of Beach 2018 $ million 198.8 2017 $ million 387.5 Financial results from FY18 are summarised below: § Sales revenue was up 92% from FY17 to $1,251 million due to higher sales volumes with the acquisition of Lattice as well as higher prices. § Cost of sales were up 67% from FY17 to $774 million, mainly as a result of the acquisition of Lattice with higher operating costs, royalties, depreciation and third party purchases, partly offset by lower inventory. § A net profit after tax of $199 million was reported, as a strong underlying operating performance was offset by impairment charges and acquisition and integration costs. § Other expenses were $198 million including impairment expense on exploration assets of $87 million and acquisition and integration costs of $50 million compared to the prior year which included net impairment reversals of $109 million. Key Results Operations Production Sales Capital expenditure Income Sales revenue Total revenue Cost of sales Gross profit Other income Net profit after tax (NPAT) Underlying NPAT * Dividends paid Dividends announced Basic EPS Underlying EPS * Cash flows Operating cash flow Investing cash flow Financial position Net assets Cash balance MMboe MMboe 19.0 20.1 $m (288.5) 2018 2017 Change % 10.6 11.8 (156.1) 652.6 665.7 (463.4) 189.2 52.6 387.5 161.7 1.50 1.00 20.38 8.50 80% 70% (85%) 92% 90% (67%) 152% (54%) (49%) 86% 33% – (55%) 63% 1,250.8 1,267.4 (773.8) 477.0 24.1 198.8 301.5 2.00 1.00 9.16 13.89 662.9 (1,730.7) 319.0 (152.0) 108% (1,039%) 1,838.0 311.2 1,402.0 348.0 31% (11%) $m $m $m $m $m $m $m cps cps cps cps $m $m $m $m * Underlying results in the table above are categorised as non-IFRS financial information provided to assist readers to better understand the financial performance of the underlying operating business. They have not been subject to audit or review by Beach’s external auditors. Please refer to the table on page 44 for a reconciliation of this information to the financial report. 42 Beach Energy Limited | ABN 20 007 617 969 Revenue Higher oil and gas sales volumes driven by the Lattice acquisition and higher prices and third party sales in FY18 contributed to a 92% increase in sales revenue to $1,251 million ($653 million in FY17). A higher average A$/US$ exchange rate partly offset this increase. Sales revenue from production increased by $561 million and third party sales increased by $37 million. Sales volumes of 20.1 MMboe were 70% higher than FY17 due to higher gas production and gas sales volumes driven by the Lattice acquisition, and higher third party volumes. The average realised oil price increased to A$93/bbl, up A$25/bbl from FY17, due to a higher US$ oil price, but was partly offset by an increase in the average A$/US$ exchange rate. Sales Revenue Comparison ($m) 1,500 1,200 900 600 300 0 207.1 38.7 37.2 20.1 1,250.8 335.3 652.6 Volume/mix Oil and liquids prices US$/boe FY17 $52 FY18 $70 Gas/ethane prices A$/GJ FY17 $6.07 FY18 $6.57 Third party sales FX rates A$/US$ FY17 $0.755 FY18 $0.775 92% $598.2 million total increase FY17 Average price A$55.10/boe FY18 Average price A$62.26/boe Gross Profit Gross profit for the full year of $477 million (FY17 $189 million) was up 152%. The increase in gross profit was primarily due to higher sales revenue driven by the Lattice acquisition partly offset by higher total cost of sales which were up 67% from FY17 to $774 million. The increase in cost of sales is principally due to the Lattice acquisition with higher cash production costs ($139 million), higher depreciation and amortisation ($143 million) and higher third party purchases ($39 million), partly offset by a decrease in inventory charges ($11 million). Cash production costs were up $139 million (59%), reflecting higher operating costs and higher royalties from the increase in production and prices. Higher depreciation and amortisation charges were mainly due to increases in production driven by the Lattice acquisition. Third party oil and gas purchases increased due to increased volumes. The decrease in inventory charges primarily reflects timing of shipments and drawdown of gas from storage. Key movements in gross profit are summarised below: Gross Profit Comparison ($m) 800 700 600 500 400 300 200 100 0 598.2 11.2 39.4 138.9 Inventory Third party purchases 143.3 Cash production costs 477.0 Depreciation Sales Revenue 189.2 FY17 152% $287.8 million total increase FY18 Net profit after tax (NPAT) Other income of $24 million was down $29 million from FY17. FY18 other income includes a gain of $15 million on the settlement of a restoration obligation, and a gain of $5 million on the sale of investments. FY17 other income included a gain on the sale of Beach Egypt ($47 million). Other expenses for FY18 of $198 million, included impairment expense on exploration assets of $87 million and acquisition and integration costs of $50 million compared to the prior year which included net impairment reversals of $109 million. The reported net profit after tax of $199 million is $189 million lower than FY17, primarily due to increased impairment charges and acquisition and integration costs. Annual Report 2018 43 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Underlying NPAT By adjusting FY18 NPAT to exclude impairment and non-recurring items (as summarised below), underlying NPAT was $302 million. This represents an 86% increase on FY17, due mainly to higher production and prices. Comparison of underlying profit Net profit after tax Adjusted for: Acquisition, integration and debt cancellation costs Gain on asset sales Unrealised hedging movements Gain on settlement of restoration obligation Other non-recurring items Impairment (reversal)/loss of assets DTA recognition Tax impact of above changes Provision for international taxes Underlying net profit after tax* 2018 $m 2017 $m Movement from PCP $m 198.8 387.5 (188.7) (49%) 51.4 (5.3) 13.2 (15.0) – 88.3 – (33.7) 3.8 301.5 – (52.0) 3.7 – 10.4 (108.6) (79.3) – – 161.7 51.4 46.7 9.5 (15.0) (10.4) 196.9 79.3 (33.7) 3.8 139.8 86% * Underlying results in this report are categorised as non-IFRS financial information provided to assist readers to better understand the financial performance of the underlying operating business. They have not been subject to audit or review by Beach’s external auditors. All of the items being adjusted pre-tax are separately identified within Notes 2(b), 3(b) and 15 to the financial statements. Underlying Net Profit After Tax Comparison ($m) 500 400 300 200 161.7 100 0 FY17 277.4 1.3 21.3 Other expenses and revenue Net financing costs 115.0 Tax Gross profit 86% $139.8 million total increase 301.5 FY18 44 Beach Energy Limited | ABN 20 007 617 969 Financial Position Assets Total assets increased by $2,184 million to $4,077 million. Cash balances decreased by $37 million to $311 million, primarily due to acquisition of Lattice and Toyota $1,453 million and capital expenditure partly offset by cash flow from operations of $663 million and cash flow from financing activities of $1,030 million. Receivables increased by $158 million primarily due to higher trade receivables and sales accruals with the acquisition of Lattice. Inventories also increased $44 million due to the acquisition of Lattice. Derivative financial instruments assets increased by $18 million due to the rising oil price. Available for Sale (AFS) financial assets decreased by $44 million due to the sale of the Cooper Energy Limited investment. Assets held for sale have increased by $20 million mainly due to the recognition of the corporate head office building as held for sale. Fixed assets, petroleum and exploration assets increased by $1,953 million. This comprised the acquisition of Lattice and Toyota assets of $2,031 million, capital expenditure of $288 million, and increases in restoration assets of $56 million partly offset by amortisation and depreciation of $315 million, impairment charges of $88 million and reclassifications of assets to held for sale of $21 million. Goodwill of $84 million was recognised on the Lattice and Toyota acquisitions. Deferred tax assets (DTA) decreased by $11 million following the acquisition of Lattice. Liabilities Total liabilities increased by $1,748 million to $2,239 million, mainly due to increased borrowings of $778 million, higher payables of $245 million, restoration provisions of $530 million and employee provisions of $11 million driven by the Lattice acquisition, an increase in tax liabilities of $136 million and an increase in derivative financial instruments liabilities of $47 million due to the rising oil price. Equity Equity increased by $436 million, mainly due to the equity raising of $301 million and the net profit after tax of $199 million, partly offset by dividends paid during the year of $42 million and a decrease in other reserves of $22 million. Available for sale reserve reduced by $15 million due to the sale of the investment in Cooper Energy Limited and the hedging reserve decreased by $10 million due to negative mark-to-market movements on the crude oil derivatives designated as cash flow hedges. Dividends During the financial year the Company paid an FY17 fully franked final dividend of 1.0 cent per share as well as an interim FY18 fully franked dividend of 1.0 cent per share. The Company will also pay an FY18 fully franked final dividend of 1.0 cent per share from the profit distribution reserve. State of affairs In the opinion of the directors, other than the effect of the movement in oil prices summarised below, there were no significant changes in the state of affairs of the Group that occurred during the financial year under review not disclosed elsewhere in the Directors’ Report. Oil prices The average A$ realised oil price for FY18 increased 36% from the average price received in FY17. Matters arising subsequent to the end of the financial year There has not arisen in the interval between 30 June 2018 and up to the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the operations of the Group. the results of those operations or the state of affairs of the Group in subsequent financial years, unless otherwise noted in the Financial Report. Annual Report 2018 45 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Future developments Our strategy Beach’s strategy is premised on its Vision: We aim to be Australia’s premier multi-basin upstream oil and gas company, and its Purpose: To deliver sustainable growth in shareholder value. To achieve these goals, four strategic pillars drive all decision making and serve as a roadmap for the future. The strategic pillars are: 1. Optimise our core in the Cooper Basin. 2. Build a complementary gas business in east coast basins. 3. Pursue compatible growth opportunities in Australia and nearby. 4. Maintain financial strength. FY18 was transformational for Beach, headlined by the Lattice acquisition which was a unique fit against all of the strategic pillars. The table below summarises progress made against each strategic pillar during the year. Objectives FY18 Progress Pillar 1 Drive growth in Beach’s core business through organic and inorganic opportunities ✓ Cooper Basin production increased to 12.3 MMboe ✓ Cooper Basin 2P oil and gas reserves increased 71% to 128 MMboe at 30 June 2018 ✓ 14 MMbbl of 2P oil reserves added in the Western Flank driven by successful application of horizontal drilling technology and continued excellent production at the Bauer oil field ✓ Broad ranging operating and cost efficiencies including the introduction of the fit-for-purpose shallow-well drill rig in the Cooper Basin JV ✓ Completion of major infrastructure expansion projects such as the phase-one expansion of the Middleton facility to 40 MMScfd raw gas capacity ✓ Addition of a third Cooper Basin JV drill rig and focus on faster drill times saw participation in 96 wells, up from 58 in FY17 ✓ Beach now supplies approximately 15 per cent of the east coast domestic gas demand ✓ Lattice acquisition adds an expanded development and exploration opportunity set ✓ GSAs in place with attractive price and structure: annual step-ups and CPI adjustments and market price resets every 3-4 years ✓ Lattice acquisition was a unique fit against all of Beach’s strategic pillars and acquired at an opportune time in the cycle ✓ Beach moved to strategic 100% ownership of the Otway Basin assets and commenced a process for the proposed sell down of these assets ✓ Frontier exploration opportunities in three basins ✓ Agreed potential farm-in to Ironbark exploration prospect in the Carnarvon Basin, WA ✓ $301 million entitlement offer undertaken ✓ Arranged $1,475 in credit facilities, including $450 million revolving credit facility ✓ Net drawn debt reduced by $221 million since financial close of Lattice acquisition to $639 million at 30 June ✓ Net gearing ratio under 26% is well ahead initial targets ✓ Available liquidity of $761 million at 30 June 2018 ✓ Free cash flow of $349 million generated in FY18 ✓ Interim plus final dividend of 2.0 cents per share Pillar 2 Pillar 3 Pillar 4 Establish a gas business in east coast basins to benefit from increasing gas demand from east coast markets A disciplined approach to mature the current opportunity set, identify prospective basins and execute growth opportunities Maintain financial strength to underpin exploration efforts and growth options, and support the objective of sustainable growth in shareholder value Beach has made tangible progress against its four pillar strategy since its implementation in August 2015. In light of the transformative Lattice acquisition, the Beach strategy is being assessed in the context of the new enlarged organisation. 46 Beach Energy Limited | ABN 20 007 617 969 FY19 outlook FY19 capital expenditure guidance FY19 capital expenditure is expected to be within the range of $460 – 540 million. The expanded capital program is designed to develop undeveloped reserves and delineate additional reserves via appraisal and exploration. Approximately 80% of expected FY19 capital expenditure is discretionary in nature and will only be spent in accordance with strict investment hurdles and return requirements. Exploration and appraisal expenditure represents approximately one third of Beach’s FY19 discretionary expenditure budget. The remaining FY19 capital expenditure is stay-in-business and committed expenditure (fixed expenditure). This is required expenditure on existing assets for purposes such as maintenance, regulatory commitments and contractual obligations. A more detailed breakdown of our FY19 capital expenditure guidance range is provided below. Key highlights include: § Participation in up to 133 wells (+39% from FY18), including up to 64 exploration and appraisal wells (+19% from FY18). § Participation in up to 87 Cooper Basin JV wells (+36% from FY18), with up to 65 wells targeting gas and 22 oil. § Participation in up to 43 Western Flank wells, with 35 targeting oil. Of the oil wells, Beach expects to participate in the drilling of up to 15 horizontal wells. § Participation in two wells in the South Australia Otway Basin (Haselgrove-4 and Dombey-1), as well as early expenditure on a gas processing facility at Haselgrove. § Drilling of Black Watch gas development well in Victoria Otway Basin (onshore-to-offshore). § Investing in long lead items ahead of further Victoria Otway Basin exploration and development drilling post FY19 (Enterprise, Artisan, Geographe/Thylacine). FY19 capital expenditure split Discretionary expenditure target FY19 capital expenditure by assets group 19% 28% 8% 30% 53% Fixed Development Exploration/appraisal 62% Oil East Coast Gas Other 3% 6% 33% 17% 9% 34% Cooper Basin JV Western Flank SA Otway Victoria WA Other Annual Report 2018 47 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Summary of FY19 drilling programme The table below summarises the number of wells Beach expects to participate in during FY19 versus wells drilled in FY18. Actual or forecast number of wells drilled Cooper Basin JV Western Flank Other Cooper Basin Total Cooper Basin South Australia Otway Basin Victoria (Otway and Bass Basins) Western Australia Beach Total FY18 FY19 Gas 40 11 1 52 1 0 0 53 Oil 24 15 4 43 0 0 0 43 Total Gas 64 26 5 95 1 0 0 96 65 8 0 73 2 1 0 76 Oil 22 35 0 57 0 0 0 57 Total 87 43 0 130 2 1 0 133 FY19 production guidance FY19 production volumes are expected to be within the range of 26.0 – 28.0 MMboe, broadly in-line with pro forma1 FY18 production volumes of 26.8 MMboe. FY19 product split (gas / gas liquids / oil) is expected to be broadly unchanged from FY18 levels. Liquids (gas liquids and oil) are expected to generate more than 60% of Beach revenues in FY19. Production (MMboe) 30 25 20 15 10 5 0 19.0 10.7 2.5 5.7 26.8 17.1 26.0-28.0 16.6-17.6 Oil Gas Liquids (condensate/LPG) Sales Gas/Ethane 3.8 5.9 3.8-4.2 5.6-6.2 FY18 reported production FY18 pro forma production1 FY19 production guidance 1. Pro forma FY18 defined as a Beach FY18 reported production of 19.0 MMboe plus H1 FY18 Lattice production of 7.9 MMboe. H1 FY18 Lattice production which was not consolidated within the accounts of Beach. This information is provided for information purposes only and should not be relied upon. 48 Beach Energy Limited | ABN 20 007 617 969 Funding and capital management As at 30 June 2018, Beach held cash and cash equivalents of $311 million. On 23 November 2017, Beach entered into a $1,475 million Senior Secured Debt Facility comprised of a $475 million three year term debt facility (Facility A), $475 million five year term debt facility (Facility B), $450 million five year revolving debt facility (Facility C), and $75 million Letter of Credit facility (Facility D). As at 30 June 2018, $475 million of Facility A was drawn, $475 million of Facility B was drawn and Facility C remained fully undrawn, with $48.3 million of Facility D being utilised by way of bank guarantees. Beach anticipates that its current funding to be adequate for capital expenditure anticipated in the 2019 financial year. Material Business Risks Beach recognises that the management of risk is a critical component in Beach achieving its purpose of delivering sustainable growth in shareholder value. The Company has a framework to identify, understand, manage and report risks. As specified in its Board Charter, the Board has responsibility for overseeing Beach’s risk management framework and monitoring its material business risks. Given the nature of Beach’s operations, there are many factors that could impact Beach’s operations and results. The material business risks that could have an adverse impact on Beach’s financial prospects or performance include economic risks, health, safety and environmental risks, community and social licence risks and legal risks. These may be further categorised as strategic risks, operational risks, commercial risks, regulatory risks, reputational risks and financial risks. A description of the nature of the risk and how such risks are managed is set out below. This list is neither exhaustive nor in order of importance. Economic risks Exposure to oil and gas prices A decline in the price of oil and gas may have a material adverse effect on Beach’s financial performance. Historically, international crude oil prices have been very volatile. A sustained period of low or declining crude oil prices could adversely affect Beach’s operations, financial position and ability to finance developments. Beach has a policy for hedging oil price and currency risks. Beach uses a structured framework for capital allocation decisions. The process provides rigorous value and risk assessment against a broad range of business metrics and stringent hurdles to maximise return on capital. This process is a significant development in Beach’s continuing focus on reducing capital and operating expenditure and improving business efficiency. Declines in the price of oil and continuing price volatility may also lead to revisions of the medium and longer term price assumptions for oil from future production, which, in turn, may lead to a revision of the carrying value of some of Beach’s assets. The valuation of oil and gas assets is affected by a number of assumptions, including the quantity of reserves and resources booked in relation to these oil and gas assets and their expected cash flows. An extended or substantial decline in oil and/or gas prices or demand, or an expectation of such a decline, may reduce the expected cash flows and/or quantity of reserves and resources booked in relation to the associated oil and gas assets, which may lead to a reduction in the valuation of these assets. If the valuation of an oil and gas asset is below its carrying value, a non-cash impairment adjustment to reduce the historical book value of these assets will be made with a subsequent reduction in the reported net profit in the same reporting period. Value Realisation from Commercial Transactions Commercial transactions undertaken with a growth focus, including the Lattice acquisition, present economic and operational risks that have the potential to impact anticipated value. Beach has implemented a robust integration process including a parallel integration risk management process to reduce the likelihood of sub-optimal outcomes in this respect. Foreign exchange and hedging risk Beach’s financial report is presented in Australian dollars. Beach converts funds to foreign currencies as its payment obligations in those jurisdictions where the Australian dollar is not an accepted currency become due. Certain of Beach’s costs will be incurred in currencies other than Australian dollars, including the US dollar and the New Zealand dollar. Accordingly, Beach is subject to fluctuations in the rates of currency exchange between these currencies. The Company uses derivative financial instruments such as foreign exchange contracts, commodity contracts and interest rate swaps to hedge certain risk exposures, including commodity price fluctuations through the sale of petroleum productions and other oil-linked contracts. The Company does not have a policy to hedge interest rates, which means it may be adversely affected by fluctuations in interest rates. Annual Report 2018 49 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Ability to access funding Although Beach is currently in a strong liquidity position, the oil and gas business involves significant capital expenditure on exploration and development, production, processing and transportation. Beach relies on cash flows from operating activities and bank borrowings and offerings of debt or equity securities to finance capital expenditure. Beach has a Board approved financial risk management policy covering areas such as liquidity, investment management, debt management, interest rate risk, foreign exchange risk, commodity risk and counterparty credit risk. The policy sets out the organisational structure to support this policy. Beach has a treasury function and clear delegations and reporting obligations. The annual capital and operating budgeting processes approved by the Board ensure appropriate allocation of resources. Operational risks Joint Venture Operations Beach participates in a number of joint ventures for its business activities. This is a common form of business arrangement designed to share risk and other costs. Under certain joint venture operating agreements, Beach may not control the approval of work programs and budgets and a joint venture partner may vote to participate in certain activities without the approval of Beach. As a result, Beach may experience a dilution of its interest or may not gain the benefit of the activity, except at a significant cost penalty later in time. Failure to reach agreement on exploration, development and production activities may have a material impact on Beach’s business. Failure of Beach’s joint venture partners to meet financial and other obligations may have an adverse impact on Beach’s business. Beach works closely with its joint venture partners to minimise joint venture misalignment. Material change to reserves and resources Underground oil and gas reserves and resources estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates which are valid at a certain point in time may alter significantly or become uncertain when new oil and gas reservoir information becomes available through additional drilling, or reservoir engineering over the life of the field. As reserves and resources estimates change, development and production plans may be altered in a way that may adversely affect Beach’s operations and financial results. Beach prepares its petroleum reserves and contingent resources estimates in accordance with the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers and are subject to periodic external review or audit. Exploration and development Success in oil and gas production is key and in the normal course of business Beach depends on the following factors: successful exploration, establishment of commercial oil and gas reserves, finding commercial solutions for exploitation of reserves, ability to design and construct efficient production, gathering and processing facilities, efficient transportation and marketing of hydrocarbons and sound management of operations. Oil and gas exploration is a speculative endeavour and the nature of the business carries a degree of risk associated with failure to find hydrocarbons in commercial quantities or at all. Beach utilises well-established prospect evaluation and ranking methodology to manage exploration and development risks. Production risks Any oil or gas project, including off-shore activity, may be exposed to production decrease or stoppage, which may be the result of facility shut-downs, mechanical or technical failure, climactic events and other unforeseeable events. A significant failure to maintain production could result in Beach lowering production forecasts, loss of revenue and additional operational costs to bring production back online. There may be occasions where loss of production may incur significant capital expenditure, resulting in the requirement for Beach to seek additional funding, through equity or debt. Beach’s approach to facility design, process safety and integrity management is critical to mitigating production risks. Cyber Risk The integrity, availability and reliability of data within Beach’s information and operational technology systems may be subject to intentional or unintentional disruption (for example, cyber security attack). Beach continues to invest in leading systems to prevent such attacks and to optimise response should one occur. 50 Beach Energy Limited | ABN 20 007 617 969 Social licence to operate risks Regulatory risk Changes in government policy (such as in relation to taxation, environmental protection and the methodologies permitted to be used in oil and gas exploration and production activity such as produced water disposal) or statutory changes may affect Beach’s business operations and its financial position. A change in government regime may significantly result in changes to fiscal, monetary, property rights and other issues which may result in a material adverse impact on Beach’s business and its operations. Companies in the oil and gas industry may also be required to pay direct and indirect taxes, royalties and other imposts in addition to normal company taxes. Beach currently has operations or interests in Australia and New Zealand. Accordingly its profitability may be affected by changes in government taxation and royalty policies or in the interpretation or application of such policies in each of these jurisdictions. Beach monitors changes in relevant regulations and engages with regulators and governments to ensure policy and law changes are appropriately influenced and understood. Permitting risk All petroleum licences held by Beach are subject to the granting and approval of relevant government bodies and ongoing compliance with licence terms and conditions. Tenure management processes and standard operating procedures are utilised to minimise the risk of losing tenure. Land access and Native Title Beach is required to obtain the consent of owners and occupiers of land within its licence areas. Compensation may be required to be paid to the owners and occupiers of land in order to carry out exploration activities. Beach operates in a number of areas within Australia that are or may become subject to claims or applications for native title determinations or other third party access. Although Beach has experience in dealing with native title claims in Australia in relation to some of its existing Cooper Basin licences, native title claims have the potential to introduce delays in the granting of petroleum and other licences and, consequently, may have an effect on the timing and cost of exploration, development and production. Native or indigenous title and land rights may also apply or be implemented in other jurisdictions in which Beach operates outside of Australia. Beach’s standard operating procedures and stakeholder engagement processes are used to manage land access and native title risks. Health, safety and environmental risks The business of exploration, development, production and transportation of hydrocarbons involves a variety of risks which may impact the health and safety of personnel, the community and the environment. Oil and gas production and transportation can be impacted by natural disasters, operational error or other occurrences which can result in hydrocarbon leaks or spills, equipment failure and loss of well control. Potential failure to manage these risks could result in injury or loss of life, damage or destruction of wells, production facilities, pipelines and other property, damage to the environment, legal liability and damage to Beach’s reputation. Losses and liabilities arising from such events could significantly reduce revenues or increase costs and have a material adverse effect on the operations and/or financial conditions of Beach. Beach employs a combination of insurance policies, standard operating procedures, contractor pre-qualification, facility design and integrity management systems to mitigate these risks. Climate change Beach is likely to be subject to increasing regulations and costs associated with climate change and management of carbon emissions. Strategic, regulatory and operational risks and opportunities associated with climate change are incorporated into Company policy, strategy and risk management processes and practices. The Company actively monitors current and potential areas of climate change risk and takes actions to prevent and/or mitigate any impacts on its objectives and activities. Reduction of waste and emissions is an integral part of delivery of cost efficiencies and forms part of the Company’s routine operations. Annual Report 2018 51 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Forward Looking Statements This report contains forward-looking statements, including statements of current intention, opinion and predictions regarding the Company’s present and future operations, possible future events and future financial prospects. While these statements reflect expectations at the date of this report, they are, by their nature, not certain and are susceptible to change. Beach makes no representation, assurance or guarantee as to the accuracy or likelihood of fulfilling of such forward looking statements (whether expressed or implied), and except as required by applicable law or the ASX Listing Rules, disclaims any obligation or undertaking to publicly update such forward-looking statements. Material Prejudice As permitted by sections 299(3) and 299A(3) of the Corporations Act 2001, Beach has omitted some information from the above Operating and Financial Review in relation to the Company’s business strategy, future prospects and likely developments in operations and the expected results of those operations in future financial years on the basis that such information, if disclosed, would be likely to result in unreasonable prejudice (for example, because the information is premature, commercially sensitive, confidential or could give a third party a commercial advantage). The omitted information typically relates to internal budgets, forecasts and estimates, details of the business strategy, and contractual pricing. Environmental regulations and performance statement Beach participates in projects and production activities that are subject to the relevant exploration and development licences prescribed by government. These licences specify the environmental regulations applicable to the exploration, construction and operations of petroleum activities as appropriate. For licences operated by other companies, this is achieved by monitoring the performance of these companies against these regulations. There have been no known significant breaches of the environmental obligations of Beach’s operated contracts or licences during the financial year. Beach reports under the National Greenhouse and Energy Reporting Act for its Australian Operations and the Climate Change Response Act 2002 for its New Zealand operations. Dividends paid or recommended Since the end of the financial year the directors have resolved to pay a fully franked dividend of 1.0 cents per share on 28 September 2018. The record date for entitlement to this dividend is 31 August 2018. The financial impact of this dividend, amounting to $22.8 million has not been recognised in the Financial Statements for the year ended 30 June 2018 and will be recognised in subsequent Financial Statements. The details in relation to dividends paid during the reporting period are set out below: Dividend Record Date Date of payment Cents per share Total Dividends FY17 Final FY18 Interim 28 August 2017 9 March 2018 29 September 2017 29 March 2018 1.0 1.0 $18.7 million $22.8 million For Australian income tax purposes, all dividends were fully franked and were not sourced from foreign income. 52 Beach Energy Limited | ABN 20 007 617 969 Share options and rights Beach does not have any options on issue at the end of financial year and has not issued any during FY18. Share rights holders do not have any right to participate in any issue of shares or other interests in the Company or any other entity. There have been no unissued shares or interests under option of any controlled entity within the Group during or since the reporting date. For details of performance rights issued to executives as remuneration, refer to the Remuneration Report. During the financial year, the following movement in share rights to acquire fully paid shares occurred: Executive Performance Rights On 1 December 2017, Beach issued 1,122,117 Short Term Incentive (STI) unlisted performance rights under the Executive Incentive Plan (EIP). These performance rights, are exercisable for nil consideration and are not exercisable before 1 July 2018 and 1 July 2019. On 1 December 2017, Beach also issued 2,029,050 Long Term Incentive (LTI) unlisted performance rights under the Executive Incentive Plan (EIP). These performance rights, which expire on 30 November 2022, are exercisable for nil consideration and are not exercisable before 1 December 2020. A further 963,475 LTI unlisted performance rights were issued on 9 April 2018 under the EIP, which expire on 30 November 2022, are exercisable for nil consideration and are not exercisable before 1 December 2020. Rights 2014 LTI unlisted rights Issue 1 December 2014 2015 LTI unlisted rights Issue 1 December 2015 2015 LTI unlisted rights Issue 19 May 2016 CEO STI unlisted rights Issue 19 May 2016 2016 LTI unlisted rights Issue 1 December 2016 2016 LTI unlisted rights Issue 21 February 2017 2016 STI unlisted rights Issue 1 December 2017 2017 LTI unlisted rights Issue 1 December 2017 2017 LTI unlisted rights Issue 9 April 2018 Total Balance at beginning of financial year Issued during the financial year Exercised during the financial year Expired during the financial year and not exercised Balance at end of financial year 887,272 1,739,185 815,401 414,547 2,485,295 479,096 – – – 6,820,796 – – – – – – 1,122,117 2,029,050 963,475 4,114,642 (799,344) (87,928) – – – (414,547) – – – – – (1,335,959) 403,226 – – 815,401 – (881,289) 1,604,006 (203,253) 275,843 (201,596) 920,521 (387,621) 1,641,429 – 963,475 (1,213,891) (3,097,646) 6,623,901 Annual Report 2018 53 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Information on Directors The names of the directors of Beach who held office during the financial year and at the date of this report are: Philip James Bainbridge Independent non-executive director – BSc (Hons) Mechanical Engineering, MAICD Glenn Stuart Davis Independent non-executive Chairman – LLB, BEc, FAICD Experience and expertise Mr Davis has practiced as a solicitor in corporate and risk throughout Australia for over 30 years initially in a national firm and then a firm he founded. He brings to the Board his expertise in the execution of large transactions and his expertise and experience in corporate activity regulated by the Corporations Act and ASX Limited. Current and former listed company directorships in the last 3 years Mr Davis is a director of ASX listed company Monax Mining Limited (since 2004) and a former director of Marmota Energy Limited (from 2007 to June 2015). Responsibilities His special responsibilities include membership of the Remuneration and Nomination Committee. Date of appointment Mr Davis joined Beach on 6 July 2007 as a non-executive director. He was appointed non-executive Deputy Chairman in June 2009 and Chairman in November 2012. He was last re-elected to the Board on 10 November 2016. Experience and expertise Mr Bainbridge has extensive industry experience having worked for the BP Group for 23 years in a range of petroleum engineering, development, commercial and senior management roles in the UK, Australia and USA. From 2006, he has worked at Oil Search, initially as Chief Operating Officer, then Executive General Manager LNG, responsible for all aspects of Oil Search’s interests in the $19 billion PNG LNG project, then EGM Growth responsible for gas growth and exploration. Current and former listed company directorships in the last 3 years He is currently a non-executive chairman of the PNG Sustainable Development Program and a non-executive Chairman of Sino Gas and Energy Holding. He was formerly a non-executive director of Drillsearch Energy Limited from 2013 to 2016. Responsibilities His special responsibilities include chairmanship of the Risk, Corporate Governance and Sustainability Committee. Date of appointment Mr Bainbridge was appointed to the Board on 1 March 2016, last having been elected to the Board on 10 November 2016. Colin David Beckett Independent non-executive Deputy Chairman – FIEA, MICE, GAICD James David McKerlie Independent non-executive director – BEc, Dip Fin Mgt, FCA FAICD Experience and expertise Mr McKerlie brings to the Board over 20 years’ experience as director and chairman of public companies. He is an experienced international executive and Chartered Accountant with appointments as a partner at KPMG and Partner in Charge at Deloitte. Current and former listed company directorships in the last 3 years He is the current chairman of ELMO Software Limited (since June 2017) and is the former chairman of Drillsearch Energy Limited (from 2008 to 2016), and a director of Great Artesian Oil and Gas, former chairman of Manalto Limited (from 2016 to 2017), Lithium Consolidated Minerals Exploration Limited (2017), onthehouse Limited (2010 to 2012) and Two Way TV (1999 to 2002). Responsibilities His special responsibilities include membership of the Audit Committee. Date of appointment Mr McKerlie was appointed to the Board on 1 March 2016 following the merger with Drillsearch and was last elected to the Board on 10 November 2016. Experience and expertise As an engineer with over 40 years’ experience in engineering design, project management, commercial and gas marketing, Mr Beckett offers a diverse and complementary set of skills in a range of technical disciplines. Mr Beckett previously held senior executive positions at Chevron Australia Pty Ltd, most recently as the General Manager responsible for the development of the Gorgon LNG and domestic gas project, being developed on Barrow Island offshore Western Australia. Mr Beckett read engineering at Cambridge University and has a Master of Arts (1975). He is currently the Chancellor of Curtin University and Chairman of Western Power. He is a past Chairman of Perth Airport Pty Ltd and also a past Chairman and board member of the Australian Petroleum Producers and Explorers Association (APPEA). In addition Mr Beckett is a past member of the West Australian Scitech Board and the Resources Sector Suppliers Advisory Forum and a Fellow of the Australian Institute of Engineers. Current and former listed company directorships in the last 3 years Nil. Responsibilities His special responsibilities include chairmanship of the Remuneration and Nomination Committee and membership of the Risk, Corporate Governance and Sustainability Committee. Date of appointment Mr Beckett was appointed to the Board on 2 April 2015, last having been re-elected to the Board on 23 November 2017. 54 Beach Energy Limited | ABN 20 007 617 969 Peter Stanley Moore Independent non-executive director – PhD, BSc (Hons), MBA, GAICD Richard Joseph Richards Non-executive director – BComs/Law (Hons), LLM, MAppFin, CA, Admitted Solicitor Experience and expertise Dr Moore has over 35 years of oil and gas industry experience. His career commenced at the Geological Survey of Western Australia, with subsequent appointments at Delhi Petroleum Pty Ltd, Esso Australia, ExxonMobil and Woodside. Dr Moore joined Woodside as Geological Manager in 1998 and progressed through the roles of Head of Evaluation, Exploration Manager Gulf of Mexico, Manager Geoscience Technology Organisation and Vice President Exploration Australia. From 2009 to 2013, Dr Moore led Woodside’s global exploration efforts as Executive Vice President Exploration. In this capacity, he was a member of Woodside’s Executive Committee and Opportunities Management Committee, a leader of its Crisis Management Team, Head of the Geoscience function and a director of ten subsidiary companies. From 2014 to 2018, Dr Moore was a Professor and Executive Director of Strategic Engagement at Curtin University’s Business School. He has his own consulting company, Norris Strategic Investments Pty Ltd. Current and former listed company directorships in the last 3 years Dr Moore is currently a non-executive director of Central Petroleum Ltd (since 2014) and Carnarvon Petroleum Ltd (since 2015). Responsibilities His special responsibilities include membership of the Risk, Corporate Governance and Sustainability Committee and the Remuneration and Nomination Committee. Date of appointment Dr Moore was appointed by the Board on 1 July 2017 and then elected to the Board on 23 November 2017. Ryan Kerry Stokes Non-executive director – BComm, FAIM Experience and expertise Mr Stokes is the Managing Director and Chief Executive Officer of Seven Group Holdings Limited (SGH). SGH is a listed diverse investment company involved in Industrial Services, Media, and Energy. SGH interests include 25.6% of Beach Energy, WesTrac, Coates Hire and 41% of Seven West Media Limited. Mr Stokes is Chairman of the National Gallery of Australia. He is also a member of the Prime Ministerial Advisory Council on Veterans’ Mental Health, a Committee member of the innovationXchange (within the Department of Foreign Affairs and Trade), and a member of the International Olympic Committee Education Commission. His previous roles include Chairman of the National Library of Australia. Current and former listed company directorships in the last 3 years Mr Stokes is an executive director of SGH and a non-executive director of Seven West Media. Responsibilities His special responsibilities include membership of the Remuneration and Nomination Committee. Date of appointment Mr Stokes was appointed to the Board on 20 July 2016 and then elected to the Board on 10 November 2016. Experience and expertise Mr Richards is currently Chief Financial Officer of Seven Group Holdings Limited (SGH) (since October 2013). He is responsible for Finance across the diversified conglomerate (equipment manufacture, sales and service, equipment hire, investments, property, media and oil and gas). Mr Richards is a member of the Board of Directors of WesTrac, SGH Energy, is a Director and Chair of the Audit and Risk Committee of Coates Hire Pty Limited, a Director and Chair of the Audit and Risk Committee of KU Children Services (NFP) and a member of the Marcia Burgess Foundation Committee (DGR). He had held senior finance roles with Downer EDI, the Lowy Family Group and Qantas. Mr Richards is both a Chartered Accountant and admitted solicitor with over 30 years of experience in business and complex financial structures, corporate governance, risk management and audit. Current and former listed company directorships in the last 3 years Nil. Responsibilities His special responsibilities include membership of the Audit Committee, which he temporarily chaired during a casual vacancy. Date of appointment Mr Richards was appointed to the Board on 4 February 2017 and then elected to the Board on 23 November 2017. Joycelyn Cheryl Morton Independent non-executive director – BEc, FCA, FCPA, FIPA, FCIS, FAICD Experience and expertise Ms Morton has more than 38 years’ experience in finance and taxation having begun her career with Coopers & Lybrand (now PwC), followed by senior management roles with Woolworths Limited and global leadership roles in Australia and internationally within the Shell Group of companies. Ms Morton was National President of both CPA Australia and Professions Australia, has served on many committees and councils in the private, government and not-for-profit sectors and held international advisory positions. She holds a Bachelor of Economics degree from the University of Sydney. She is also a non-executive director of ASC Pty Ltd and Snowy Hydro Limited. Current and former listed company directorships in the last 3 years Her other current ASX listed board positions are Argo Investments Limited and Argo Global Listed Infrastructure Limited. She has valuable board experience across a range of industries, including previous roles as a non-executive director and Chair of both Thorn Group Limited and Noni B Limited and a non-executive director of Crane Group Limited, Count Financial Limited and InvoCare Limited. Responsibilities Her special responsibilities include Chairmanship of the Audit Committee. Annual Report 2018 55 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Date of appointment Ms Morton was appointed a non-executive director of Beach Energy Limited on 21 February 2018. The names of the directors of Beach who held office during the financial year and are no longer on the Board are: Fiona Rosalyn Vivienne Bennett Independent non-executive director – BA(Hons), FCA, FAICD, FAIM Experience and expertise Ms Bennett is a Chartered Accountant with over 30 years’ experience in business and financial management, corporate governance, risk management and audit. She has previously held senior executive positions at BHP Billiton Limited and Coles Group Limited, and has been the Chief Financial Officer at several organisations within the health sector. Ms Bennett is a graduate of The Executive Program at the University of Virginia’s Darden Graduate School and the AICD Company Directors’ course. Current and former listed company directorships in the last 3 years She is currently a director of Hills Holdings Limited (since 2010) and Select Harvests Limited (since 2017) and a former director of Boom Logistics Limited (from 2010 to 2015). Responsibilities Her special responsibilities included chairmanship of the Audit Committee and membership of the Risk, Corporate Governance and Sustainability Committee. Date of appointment/resignation Ms Bennett was elected to the Board on 23 November 2012, last having been re-elected to the Board on 25 November 2015. She retired on 23 November 2017. Directors’ meetings The number of Directors’ meetings and meetings of Committees of Directors held during the financial year and the number of meetings attended by each of the directors is set out below: NUMBER OF DIRECTORS’ MEETINGS AUDIT COMMITTEE MEETINGS REMUNERATION AND NOMINATION COMMITTEE MEETINGS RISK, CORPORATE GOVERNANCE AND SUSTAINABILITY COMMITTEE MEETINGS Name Held 1 Attended Held Attended Held Attended Held Attended G S Davis P J Bainbridge C D Beckett F R V Bennett J D McKerlie P S Moore J C Morton R J Richards R K Stokes 14 14 14 8 14 14 4 14 14 14 14 13 7 14 14 4 14 13 3 – – 3 7 – 1 7 – 3 – – 2 7 – 1 7 – 8 – 8 – – – – – 8 8 – 8 – – – – – 8 – 4 4 2 – 2 – – – – 4 4 1 – 2 – – – 1. Number of Meetings held during the time that the director was appointed to the Board or a committee. Board Committees Chairmanship and current membership of each of the board committees at the date of this report are as follows: Committee Audit Risk, Corporate Governance & Sustainability Remuneration and Nomination Chairman J C Morton P J Bainbridge C D Beckett Members J D McKerlie, R J Richards C D Beckett, P S Moore G S Davis, R K Stokes, P S Moore 56 Beach Energy Limited | ABN 20 007 617 969 Rounding off of amounts Beach is an entity to which ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission applies relating to the rounding off of amounts. Accordingly, amounts in the directors’ report and the financial statements have been rounded to the nearest hundred thousand dollars, unless shown otherwise. Proceedings on behalf of Beach No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of Beach, or to intervene in any proceedings to which Beach is a party, for the purpose of taking responsibility on behalf of Beach for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of Beach with leave of the Court under Section 237 of the Corporations Act 2001. Audit independence declaration Section 307C of the Corporations Act 2001 requires our auditors, Ernst & Young, to provide the directors of Beach with an Independence Declaration in relation to the audit of the full year financial statements. This Independence Declaration is made on the following page and forms part of this Directors’ Report. This directors’ report is signed in accordance with a resolution of directors made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the directors G S Davis Chairman Adelaide, 20 August 2018 Indemnity of Directors and Officers Beach has arranged directors’ and officers’ liability insurance policies that cover all the directors and officers of Beach and its controlled entities. The terms of the policies prohibit disclosure of details of the amount of the insurance cover, the nature thereof and the premium paid. Company Secretary Peter Kupniewski Company Secretary – LL.B/LP Mr Kupniewski joined Beach in June 2018 as Senior Legal Manager & Company Secretary. He most recently worked as an in house lawyer with Santos Ltd working on asset acquisitions and divestments, gas marketing and transport, native title and cultural heritage, contracting and procurement and commercial disputes. Prior to Santos, Mr Kupniewski spent 13 years in private legal practice where he gained extensive experience working on takeovers and schemes, capital raisings, commercial disputes and meeting the daily head office needs of a range of ASX listed entities. Non-audit services Beach may decide to employ the external auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with Beach are important. The Board has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor as set out below, did not compromise the audit independence requirement of the Corporations Act 2001 for the following reasons: § All non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor. § None of the services undermine the general principle relating to auditor independence as set out in APES 110 Code – Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision making capacity for Beach, acting as advocate for Beach or jointly sharing economic risk and reward. Details of the amounts paid or payable to the external auditors, Ernst & Young, for audit and non-audit services provided during the year are set out at Note 28 to the financial statements. Annual Report 2018 57 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION AUDITOR’S INDEPENDENCE DECLARATION Ernst & Young 121 King William Street Adelaide SA 5000 Australia GPO Box 1271 Adelaide SA 5001 Tel: +61 8 8417 1600 Fax: +61 8 8417 1775 ey.com/au Auditor’s Independence Declaration to the Directors of Beach Energy Limited As lead auditor for the audit of Beach Energy Limited for the financial year ended 30 June 2018, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Beach Energy Limited and the entities it controlled during the financial year. Ernst & Young Anthony Jones Partner Adelaide 20 August 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 58 Beach Energy Limited | ABN 20 007 617 969 2018 REMUNERATION IN BRIEF (UNAUDITED) FOR THE YEAR ENDED 30 JUNE 2018 FY18 remuneration outcomes at a glance Fixed Remuneration No increase for senior executives Short Term Incentive (STI) STI awarded LTI partially Long Term Incentive (LTI) vested Non-executive directors Director fee increases 2017 AGM Remuneration Report 98% ‘Yes vote’ Total fixed remuneration (TFR) for senior executives employed in FY17 and FY18 did not increase from the previous year. The board awarded an STI to senior executives. The 2014 LTI performance rights partially vested following achievement of the performance condition. The board engaged an external remuneration consultant to provide benchmark board and committee fee data. Following a review of this data, the Board increased annual board fees (but not committee fees) for the coming year from $250,000 for the Chairman to $275,000, $121,000 for the Deputy Chairman from $100,000 and for members, $110,000 from $100,000. Board fees had not previously increased since 2012. Beach received more than 98% of ‘yes’ votes on a poll to adopt its Remuneration Report for the 2017 financial year. No specific feedback on Beach’s remuneration practices was received at the 2017 annual general meeting. Remuneration to executive key management personnel in FY18 A summary of the audited cost to the Company of executive key management personnel (KMP) remuneration is provided in Table 10. Disclosures required in the remuneration report by the Corporations Act, particularly the inclusion of accounting values for LTI performance rights awarded but not vested, can vary significantly from the remuneration actually paid to senior executives. This is because the Accounting Standards require a value to be placed on a right at the time it is granted to a senior executive and then reported as remuneration even if ultimately the senior executive does not receive any actual value, for example because performance conditions are not met and the rights do not vest. The following table is a summary of remuneration actually paid to executive KMP in FY18. It is not audited. Table 1: Remuneration to executive key management personnel (unaudited) Name Current KMP M V Kay Chief Executive Officer M Engelbrecht Chief Financial Officer D Summers 2 Chief Operating Officer G J Barker 3 Group Executive Development L Marshall 4 Group Executive Corporate Strategy & Commercial J L Schrull Group Executive Exploration & Appraisal Former KMP K Hollingsworth 5 C L Oster 6 R A Rayner 7 M R Squire 8 M R Dodd 9 Total TFR Salary $ Super $ STI cash bonus $ Other 1 $ Termination $ Total Cash $ 878,000 25,000 364,662 500,000 25,000 172,129 275,655 10,142 41,640 181,520 17,244 28,172 244,638 12,500 35,698 454,951 20,049 133,603 167,133 223,378 228,863 217,455 248,347 12,940 12,500 12,402 13,406 12,500 – – – 41,055 – – – – – – – – – – – – – – – – 102,328 – 653,873 – 1,267,662 697,129 327,437 226,936 292,836 608,603 282,401 235,878 895,138 271,916 661,459 3,619,940 173,683 816,959 1,019 1,155,794 5,767,395 – 1,019 399,593 1. Other remuneration includes allowances paid under the terms and conditions of employment such as vehicle allowances. 2. Appointed 31 January 2018. 3. Appointed 19 February 2018. 4. Appointed 15 January 2018. 5. Ceased on 31 December 2017. 6. Ceased to be KMP on 31 December 2017. A termination payment of $644,184 was made to Ms Oster during FY18 but after she ceased to be a KMP. 7. Ceased on 15 December 2017. 8. Ceased to be KMP close of business on 14 January 2018. 9. Ceased on 31 December 2017. Annual Report 2018 59 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 This report has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) (Corporations Act) for the consolidated entity for the financial year ended 30 June 2018. It has been audited as required by section 308(3C) of the Corporations Act and forms part of the Directors’ Report. Key management personnel The Company’s KMP are listed in Table 2. They are the Company’s non-executive directors (NED) and executive KMP who have authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Table 2: Key management personnel during FY18 Name Executive KMP M V Kay M Engelbrecht D Summers G J Barker L Marshall J L Schrull Former KMP M R Dodd K Hollingsworth C L Oster R A Rayner M R Squire Position Period as KMP during the year Chief Executive Officer Chief Financial Officer Chief Operating Officer All of FY18 All of FY18 Appointed 31 January 2018 Group Executive Development Appointed 19 February 2018 Group Executive Corporate Strategy and Commercial Appointed 15 January 2018 Group Executive Exploration and Appraisal All of FY18 Chief Operating Officer Ceased to be a KMP on 31 December 2017 Group Executive Human Resources Ceased to be a KMP on 31 December 2017 General Counsel and Company Secretary Ceased to be a KMP on 31 December 2017 Group Executive Commercial Ceased to be a KMP on 15 December 2017 Group Executive Corporate Development and Strategy Ceased to be a KMP close of business on 14 January 2018 Non-executive Directors G S Davis P J Bainbridge C D Beckett J D McKerlie P S Moore J C Morton R J Richards R K Stokes Former Non-executive Directors Independent Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive director Non-executive Director Non-executive Director Non-executive Director All of FY18 All of FY18 All of FY18 All of FY18 All of FY18 Appointed 21 February 2018 All of FY18 All of FY18 F R V Bennett Non-executive Director Ceased to be a Director on 23 November 2017 Beach’s remuneration policy framework Beach’s purpose is to deliver sustainable growth in shareholder value. Beach’s remuneration framework seeks to focus executives on delivering that purpose: § Fixed remuneration aligns to market practice and prevailing economic conditions. It seeks to attract, motivate and retain executives focused on delivering Beach’s purpose. § ‘At risk’ performance based incentives link to shorter and longer term Company goals. The goals contribute to the achievement of Beach’s purpose. § Longer term ‘at risk’ incentives align with shareholder objectives and interests. Beach benchmarks shareholder returns against peers considered to be alternative investments to Beach. Beach offers share based rather than all cash rewards to executives. § Beach may recover remuneration benefits paid if there has been fraud or dishonesty. § The Corporations Act and Beach’s Share Trading Policy prohibit hedging. Hedging is where a person enters a transaction to reduce the risk of an ‘at risk’ incentive. Beach has a process to track compliance with its no hedging policy. Beach’s Share Trading Policy is available at Beach’s website: www.beachenergy.com.au. How Beach makes decisions about remuneration The Board decides Beach’s KMP remuneration. It decides that remuneration based on recommendations by its Remuneration and Nomination Committee. The Committee’s members are all non-executive directors. Its charter is available at Beach’s website: www.beachenergy.com.au. Beach’s CEO may attend Committee meetings by invitation in an advisory capacity. Other executives may also attend by invitation. The Committee excludes executives from any discussion about their own remuneration. 60 Beach Energy Limited | ABN 20 007 617 969 External advisers and remuneration advice During the year Beach engaged Guerdon Associates to provide services to the Company. It provided data to help the Board make decisions about Board and Committee fees. It did not make a remuneration recommendation for the purpose of the Corporations Act 2001. Beach follows a protocol to engage any adviser to make a remuneration recommendation. The protocol ensures the recommendation is free from undue influence by management. The Board or Committee chair engages the adviser. The Board or Committee chair deals with the adviser on all material matters. Management involvement is only to the extent necessary to coordinate the work. The Board and Committee seek recommendations from the Chief Executive Officer about executive remuneration. The Chief Executive Officer does not make any recommendation about his own remuneration. The Board and Committee have regard to industry benchmarking information. The Board and Committee consulted with governance specialists and other stakeholder groups throughout the year. The matters discussed included KMP remuneration. There were few consistent opinions between these groups. Even so the Board and Committee had regard to their views. How Beach links performance to incentives Beach’s remuneration policy includes short and long term incentive plans. The plans seek to align management performance with shareholder interests. The LTI links to an increase in total shareholder return over an extended period. The STI has equal proportions of cash and performance rights. Performance rights may convert to Beach shares. The following table shows some key shareholder wealth indicators. KPI and STI awards for FY17 and FY18 are detailed in Table 10. Table 3: Shareholder wealth indicators FY14 – FY18 Total revenue Net profit / (loss) after tax Underlying net profit after tax Share price at year-end Dividends declared Reserves Production FY14 FY15 FY16 FY17 FY18 $1,057.7m $101.8m $259.2m $735.5m ($514.1m) $90.7m 168.0 cents 105.0 cents 4.00 cents 86 MMboe 9.6 MMboe 1.50 cents 74 MMboe 9.1 MMboe $564.6m ($588.8m) $35.7m 61.0 cents 0.50 cents 70 MMboe $665.7m $387.5m $161.7m 57.5 cents 2.00 cents 75 MMboe $1,267.4m $198.8m $301.5m 175.5 cents 2.00 cents 313 MMboe 9.7 MMboe 10.6 MMboe 19.0 MMboe Senior executive remuneration structure This section details the remuneration structure for senior executives. Remuneration mix Remuneration for senior executives is a mix of a fixed cash salary component and an ‘at risk’ component. The ‘at risk’ component means that specific targets or conditions must be met before a senior executive becomes entitled to it. What is the balance between fixed and ‘at risk’ remuneration? The remuneration structure and packages offered to senior executives for the period were: § Fixed remuneration. § ‘At risk’ remuneration comprising: Short term incentive (STI) – an annual cash and equity based incentive, which may be offered at the discretion of the Board, linked to Company and individual performance over a year. Long term incentive (LTI) – equity grants, which may be granted annually at the discretion of the Board, linked to performance conditions measured over three years. The balance between fixed and ‘at risk’ remuneration depends on the senior executive’s role. The Chief Executive Officer has the highest level of ‘at risk’ remuneration reflecting the greater level of responsibility of this role. Annual Report 2018 61 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 Table 4 sets out the relative proportions of the three elements of the executives KMP’s total remuneration packages for the 2017 and 2018 financial years. Table 4: Remuneration mix 1 Position Chief Executive Officer 2 2018 2017 Other Executive KMP 2018 2017 Fixed Remuneration % 34 34 51 51 PERFORMANCE BASED REMUNERATION STI % 33 33 23 23 LTI % 33 33 26 26 Total ‘at risk’ % 66 66 49 49 1. The remuneration mix assumes maximum at risk awards. Percentages shown later in this report reflect the actual incentives paid as a percentage of total fixed remuneration, movements in leave balances and other benefits and share based payments calculated using the relevant accounting standards. 2. Mr Kay commenced as Chief Executive Officer on 2 May 2016 and was offered long term incentive ‘at risk’ remuneration for FY16. The figures here do not include the CEO’s commencement grants. Fixed remuneration What is fixed remuneration? How is fixed remuneration reviewed? Senior executives are entitled to a fixed cash remuneration amount inclusive of the guaranteed superannuation contribution. The amount is not based upon performance. Senior executives may decide to salary sacrifice part of their fixed remuneration for additional superannuation contributions and other benefits. Fixed remuneration is determined by the Board based on independent external review or advice that takes account of the role and responsibility of each senior executive. It is reviewed annually against industry benchmarking information including the National Awards Group Incorporated remuneration survey. Fixed remuneration for the year Total fixed remuneration (TFR) of KMP employed in FY17 and FY18 did not increase from the previous year. Remuneration details for individuals are provided in Table 1 and Table 10. Table 10 reports on the remuneration for KMP as required under the Corporations Act. Table 1 shows the actually realised cash remuneration that KMP received. Short Term Incentive (STI) What is the STI? How does the STI link to Beach’s objectives? The STI is part of ‘at risk’ remuneration offered to senior executives. It measures individual and Company performance over a 12 month period. The period coincides with Beach’s financial year. It provides equal parts of cash and equity that may vest subject to extra retention conditions. It is offered to senior executives at the discretion of the Board. The STI is an at risk opportunity for senior executives. It rewards senior executives for meeting or exceeding key performance indicators. The key performance indicators link to Beach’s key purpose. The STI aims to motivate senior executives to meet Company expectations for success. Beach can only achieve its purpose if it attracts and retains high performing senior executives. An award made under the STI has a retention component. Half is paid in cash and half is issued as performance rights with service conditions attached. 62 Beach Energy Limited | ABN 20 007 617 969 What are the performance conditions or KPIs? Beach’s key performance indicators (KPIs) are set by the Board for each 12 month period beginning at the start of a financial year. They reflect Beach’s financial and operational goals that are essential to it achieving its purpose. Senior executives also have individual KPIs to reflect their particular responsibilities. For the reporting period, the performance measures comprised: § Beach KPIs (60% weighting) – Production (15%) – Safety (10%) – Environment (5%) – Reserves replacement (15%) – Statutory NPAT (15%) Individual KPIs (40% weighting). § Refer to Table 6 for more information. Individual KPIs link to Beach’s strategy and strategic plan. Individual KPIs relate to areas where senior executives are able to influence or control outcomes. KPIs may include: delivery of cost savings; development of project specific plans to align with Beach’s strategic pillars; specific initiatives for developing employee capability; funding capacity; improvements in systems to achieve efficiencies; specific commercial or corporate milestones; or specific safety and environmental targets. Are there different performance levels? The Board sets KPI measures at threshold, target and stretch levels. A participant must achieve the threshold level to entitle them to any payment for an individual KPI. The stretch level is the greatest performance outcome for an individual KPI. What is the value of the STI award that can be earned? Incentive payments are based on a percentage of a senior executive’s fixed remuneration. The Chief Executive Officer can earn up to a maximum of 100% of his fixed remuneration. How are the performance conditions assessed? The value of the award that can be earned by other senior executives is up to a maximum of 45% of their fixed remuneration. The KPIs are reviewed against an agreed target. The Board assesses the extent to which KPIs were met for the period after the close of the relevant financial year and once results are finalised. The Board assesses senior executive performance on the Chief Executive Officers recommendation. The Board assesses the achievement of the KPIs for the Chief Executive Officer. Is there a threshold level of performance or hurdle before an STI is paid? Yes. At the end of Beach’s financial year there is a calculation of return on capital. There is also a calculation of a one year relative total shareholder return against the ASX 200 Energy Index. Refer to table 5 below. What happens if an STI is awarded? Table 5: Two-tiered test Measures One year Relative Total Shareholder Return against ASX 200 Energy Total > Index Return of the Performance Period Green Yellow Red >Index return =Index return5% 5% <5% 1. Return on capital (ROC) is based on statutory NPAT/average total equity (being the average total equity at the beginning and end of the financial year). The Board may use its discretion to award or reduce an STI if any one measure is in the red band or both measures are in the yellow band. On achievement of the relevant KPIs, Beach pays half of the STI award in cash. Beach includes cash awards in its financial statements for the relevant financial year. Beach pays cash awards after the end of its financial year, usually in September. Beach issues the remaining half of the STI award value in performance rights. Performance rights vest over one and two years if the senior executive remains employed by Beach at each vesting date. If a senior executive leaves Beach before the vesting date the performance rights lapse. The Board may exercise its discretion for early vesting if the senior executive leaves Beach due to death or disability. The Board may exercise its discretion for early vesting in the event of a change of control of Beach. The Board also has a general discretion to allow early vesting of performance rights. The Board needs exceptional circumstances to consider exercising that general discretion. Annual Report 2018 63 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 STI Performance for the year At the completion of the financial year the Board tested each senior executive’s performance against the STI performance conditions set for the year after exercising its discretion in relation to the hurdle measures. The results of the two hurdle measures were: Measures 1 year Relative Total Shareholder Return against ASX 200 Energy Total Return Index (Index Return) at the end of the Performance Period Return on capital at the end of the Performance Period FY18 Hurdle Measure 220.1% 11.1% Both results fell in the green band. The percentage of the maximum STI that will be paid or forfeited for the period for each executive KMP was as follows: Mr Kay 81%/19%, Mr Engelbrecht 82%/18%, Ms Summers 66%/34%, Mr Marshall 74%/26%, Mr Barker 74%/26%, Mr Schrull 78%/22%. The STI awards made reflect Beach’s strong performance for FY18, including: § The achievement of full year production at the high end of guidance. § Beach’s reserves replacement exceeding stretch targets. § Beach’s statutory NPAT exceeding stretch targets. Further detail regarding the outcomes of the Company related performance conditions that make up 60% of the STI KPIs is provided in Table 6. Table 6: Outcome of FY18 STI Company KPIs STI Measure and weighting Link to Beach’s strategy Performance and score Production – 15 % Production is fundamental to Beach’s earnings and profit. Full year production was 19.0 MMboe and at the high end of guidance of 18.1 – 19.1 MMboe. Reserves replacement – 15% Replacing reserves is fundamental to Beach’s longer term financial sustainability. Safety – measured by total recordable injury frequency rate (TRIFR) – 10% Beach’s key value is that ‘Safety takes precedence in everything we do’. Beach is focused is on ensuring it and its contractors operate in a safe manner. Beach has included other safety and reliability measures in the annual Sustainability Report. The Sustainability Report is available on Beach’s website. Score – met. Beach’s 1P reserves increased by 152 MMboe (+405%) to 190 MMboe and 2P reserves increased by 239 MMboe (+320%) to 313 MMboe. Approximately one third of the increase in 2P reserves was due to the underlying performance of the assets and exploration/appraisal success. 2P reserves life increased from 7 years at the end of FY17 to 11 years at the end of FY18. Score – met. Beach’s safety record in the financial year did not meet the threshold target of 2.5 TRIFR. Score – not met. Environment – 5% Beach strives to reduce the environmental impact of its activities. Beach partially achieved environmental targets for FY18. Statutory NPAT – 15% Statutory NPAT reflects Beach’s earning performance. Stretch performance is achieved through strong sales revenue and cost reduction. Score – partially met. In FY18 Beach delivered NPAT of $198.8m. Score – met. STI performance rights issued in 2016 to senior executives converted automatically to shares because they remained employed by the Company on 1 July 2018. A total of 460,259 shares were issued. 64 Beach Energy Limited | ABN 20 007 617 969 STI performance rights and CEO commencement rights issued or in operation in FY18 The fair value of services received in return for STI rights and the Chief Executive Officer’s commencement rights (see Table 16) granted is measured by reference to the fair value of STI rights granted calculated using the Binomial or Black- Scholes Option Pricing Models. The contractual life of the STI rights is used as an input into the valuation model. The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the rights), adjusted for any expected changes to future volatility due to publicly available information. The risk free rate is based on Commonwealth Government bond yields relevant to the term of the performance rights. Table 7: STI performance rights and CEO commencement rights issued or in operation in FY18 Number of securities issued Share price Exercise price Vesting period (years) Term (years) Dividend yield Fair value of security at grant date Total fair value at grant date CEO Rights 2016 Rights 2016 Rights Vested 2 May 2018 Retention to be tested on 1 July 2018 Retention to be tested on 1 July 2019 414,547 0.665 – 2.0 2.0 1.6% 0.644 561,057 561,060 1.140 – 0.6 0.6 1.6% 1.130 1.140 – 1.6 1.6 1.6% 1.112 267,010 633,714 623,730 Long Term Incentive (LTI) What is the LTI? The LTI is an equity based ‘at risk’ incentive plan. The LTI aims to reward results that promote long term growth in shareholder value or total shareholder return (TSR). Beach offers LTIs to senior executives at the discretion of the Board. How does the LTI link to Beach’s key purpose? The LTI links to Beach’s key purpose by aligning the longer term ‘at risk’ incentive rewards with outcomes that match shareholder objectives and interests by: § benchmarking shareholder returns against a group of companies considered alternative How are the number of rights issued to senior executives calculated What equity based grants are given and are there plan limits? What is the performance condition? Why choose this performance condition? investments to Beach; § giving share based rather than cash based rewards to executives. This links their own rewards to shareholder expectations of dividends and share price growth. The number of performance rights granted to the executives under the LTI is calculated as (fixed remuneration at 1 July [year] x [insert] % / Market Value). The Market Value is the market value of a fully paid ordinary share in the Company, calculated using a five day VWAP, up to and including the date the performance rights are granted. This method of calculating the number of performance rights does not discount for the value of anticipated dividends during the performance period. Beach grants performance rights using the formula set out above. If the performance conditions are met, senior executives have the opportunity to acquire one Beach share for every vested performance right. There are no plan limits as a whole for the LTI. This is due to the style of the plan and advice by external remuneration consultants about individual plan limits. Individual limits for the plans that are currently operational are set out in Table 8. The performance condition is based on Beach’s Total Shareholder Return (TSR) relative to the ASX 200 Energy Total Return Index. The initial out-performance level is set at the Index return plus 5.5% compound annual growth rate (CAGR) over the three year performance period, such that: § < the Index return – 0% vesting § = the Index return – 50% vesting; § Between the Index return and Index + 5.5% – a prorated number will vest; § = or > Index return + 5.5% – 100% vesting. TSR is a measure of the return to shareholders over a period of time through the change in share price and any dividends paid over that time. The dividends are notionally reinvested to perform the calculation. Beach chose this performance condition to align senior executive remuneration with increased shareholder value. The Board has reinforced that alignment by imposing two more conditions. First, the Board sets a threshold level for the executive to meet before making an award. Secondly, the Board will not make an award if Beach’s TSR is negative. Annual Report 2018 65 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 Is shareholders equity diluted when shares are issued on vesting of performance rights or exercise of options? The Board has not imposed dilution limits due to the structure of the LTI plan and the number of rights on issue. Any dilution would be minimal. If all the current performance rights vested at 30 June 2018, shareholders equity would have diluted by 0.29% (FY17 – 0.36%). It has been the practice of the Board when there is an entitlement to shares on vesting of performance rights to issue new shares. Yet there is provision for the buying of shares on market if the Board considers that dilution of shareholder equity may be material. What happens to LTI performance rights on a change of control? The Board reserves the discretion for early vesting in the event of a change of control of the Company. Adjustments to a participant’s entitlements may also occur in the event of a company reconstruction and certain share issues. Table 8: Details of LTI equity awards issued, in operation or tested during the year Details Type of grant 2014, 2015, 2016 and 2017 Performance Rights including CEO 2015 LTI performance rights Performance rights Calculation of grant limits for senior executives Max LTI is 100% of Total Fixed Remuneration (TFR) for Chief Executive Officer Max LTI is 50% of TFR for other senior executives Grant date 2017 Performance Rights 1 Dec 2017/9 April 2018 2016 Performance Rights 1 Dec 2016/21 February 2017 2015 Performance Rights 1 Dec 2015/19 May 2016 for Chief Executive Officer only 2014 Performance Rights 1 Dec 2014 Issue price of performance rights Granted at no cost to the participant Performance period Note: the date immediately after the after the end of the performance period is the first date that the performance rights vest and become exercisable 2017 Performance Rights 1 Dec 2017 – 30 Nov 2020 2016 Performance Rights 1 Dec 2016 – 30 Nov 2019 2015 Performance Rights 1 Dec 2015 – 30 Nov 2018 2014 Performance Rights 1 Dec 2014 – 30 Nov 2017 Expiry / lapse Expiry date Performance rights lapse if vesting does not occur on testing of performance condition 2017 Performance Rights 30 Nov 2022 2016 Performance Rights 30 Nov 2021 2015 Performance Rights 30 Nov 2020 2014 Performance Rights 30 Nov 2019 Exercise price on vesting Not applicable – provided at no cost What is received on vesting? One ordinary share in Beach for every performance right Status 2017 Performance Rights In progress 2016 Performance Rights In progress 2015 Performance Rights In progress 2014 Performance Rights Testing completed. Resulted in partial vesting of performance rights. 66 Beach Energy Limited | ABN 20 007 617 969 Details of LTI performance rights (including CEO 2015 LTI performance rights) issued or in operation in FY18 The fair value of services received in return for LTI performance rights granted is measured by reference to the fair value of LTI performance rights granted calculated using the Binomial or Black-Scholes Option Pricing Models. The estimate of the fair value of the services received for the LTI performance rights and options issued are measured with reference to the expected outcome, which may include the use of a Monte Carlo simulation. The contractual life of the LTI performance rights is used as an input into this model. Expectations of early exercise are incorporated into a Monte Carlo simulation method where applicable. The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the rights or options), adjusted for any expected changes to future volatility due to publicly available information. The risk free rate is based on Commonwealth Government bond yields relevant to the term of the performance rights. Table 9: Details of LTI performance rights (including CEO 2015 LTI performance rights) issued or in operation in FY18 2014 Rights 2015 Rights 2015 CEO Rights 2016 Rights 2017 Rights Partially vested 30 Nov 2017 To be tested in December 2018 To be tested in December 2018 To be tested in December 2019 To be tested in December 2020 Number of securities issued 1,667,671 2,787,763 Share price Volatility (average) Vesting Period (years) Term (years) Risk free rate Dividend yield 0.975 35.100% 3.0 5.0 2.310% 3.080% 0.525 46.155% 3.0 5.0 2.160% 2.860% 815,401 0.665 46.155% 3.0 5.0 2.160% 2.860% 2,964,391 2,675,625 0.862 57.101% 3.0 5.0 2.538% 2.404% 1.187 54.778% 3.0 5.0 2.511% 1.657% Fair value of security at grant date (weighted average) 0.471 0.257 0.326 0.426 0.669 Total fair value at grant date 785,640 717,570 265,495 1,264,186 1,788,754 Employment agreements – senior executives The senior executives have employment agreements with Beach. The provisions relating to duration of employment, notice periods and termination entitlements of the senior executives are as follows: Chief Executive Officer The Chief Executive Officer’s employment agreement commenced with effect 2 May 2016 and is ongoing until terminated by either Beach or Mr Kay on six months’ notice. Beach may terminate the Chief Executive Officer’s employment at any time for cause (for example, for serious breach) without notice. In certain circumstances Beach may terminate the employment on notice of not less than three months for issues concerning the Chief Executive Officer’s performance that have not been satisfactorily addressed. The Chief Executive Officer may also give one month’s notice of termination of his employment in the event that Beach requires him to permanently transfer to another location outside of Adelaide. If this occurs, Beach will pay to the Chief Executive Officer a retirement payment equal to six months’ salary. Other senior executives Other senior executives have employment agreements that are ongoing until terminated by either Beach from between 3 and 12 months’ notice or the senior executive upon giving three months’ notice. Beach may terminate a senior executive’s appointment for cause (for example, for serious breach) without notice. Beach must pay any amount owing but unpaid to the employee whose services have been terminated at the date of termination, such as accrued leave entitlements. In certain circumstances Beach may terminate employment on notice of not less than three months for issues concerning the senior executives performance that have not been satisfactorily addressed. If Beach terminates the senior executive’s appointment other than for cause or he or she resigns due to a permanent relocation of his or her workplace to a location other than Adelaide, then they are entitled to an amount up to one times their final annual salary. Details of total remuneration for KMP calculated as required under the Corporations Act for FY17 and FY18 Legislative and IFRS reported remuneration for KMP Details of the remuneration package by value and by component for senior executives in the reporting period and the previous period are set out in Table 10. These details differ from the actual payments made to senior executives for the reporting period that are set out in Table 1. Annual Report 2018 67 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 Table 10: Senior executives’ remuneration for FY17 and FY18 as required under the Corporations Act SHORT TERM EMPLOYEE BENEFITS SHARE BASED PAYMENTS 3 Fixed Remunera- tion 1 $ Year Annual Leave $ LTI Rights $ STI Rights $ Termin- ation $ STI 2 OTHER LONG TERM BENEFITS Long Service Leave $ Total at risk % Total issued in equity % Total $ 2018 903,000 903,000 2017 15,633 364,662 341,100 64,314 369,378 763,410 199,661 458,399 9,812 2,425,895 1,972,611 6,137 Name M V Kay M Engelbrecht D Summers 4 G J Barker 5 L Marshall 6 J L Schrull 7 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 525,000 567,929 285,797 – 198,764 – 257,138 – 475,000 353,629 17,163 20,400 17,899 – 11,985 – 16,542 – 19,182 17,919 (469) 15,158 Former Senior Executives K Hollingsworth 8 2018 2017 180,073 284,880 C L Oster 9 R A Rayner 10 M R Squire 11 M R Dodd 12 2018 2017 2018 2017 2018 2017 2018 2017 235,878 471,755 12,259 (18,790) 241,265 (19,079) 16,474 524,127 230,861 430,525 261,866 522,280 5,838 (535) 800 (13,732) 77,096 27,667 150,428 – 9,613 – 5,863 – 8,887 – 94,527 – 172,129 75,338 41,640 – 28,172 – 35,698 – 133,603 40,898 – 35,158 – 121,236 – 70,600 41,055 114,136 – 93,098 49,908 – 33,874 – 35,044 – 46,858 11,677 (8,604) 8,604 58,821 113,713 (77,922) 126,339 56,047 89,589 (27,493) 27,493 – – – – – – – – – – – – 3,342 1,135 13,414 – 974 – 974 – 3,024 1,027 945,158 692,469 418,271 – 279,632 – 354,283 – 772,194 425,150 272,571 344,557 362,572 701,222 741,204 758,478 415,489 647,157 62 51 43 15 27 – 25 – 23 – 36 13 N/A 13 N/A 34 N/A 29 N/A 34 N/A 19 34 22 47 33 24 4 14 – 14 – 12 – 18 3 N/A 2 N/A 16 N/A 17 N/A 14 N/A 4 23 9 – 102,328 – – 59,283 – – – (757) 757 (3,669) 13,308 – 653,873 – – (56,933) 20,938 73,518 – – – 8,170 13,442 – 399,593 – – (7,000) 627,766 644,520 15,381 Total 2018 3,794,642 97,753 816,959 613,007 1,165,529 1,155,794 (28,649) 7,615,035 2017 4,058,125 101,208 891,564 604,743 458,399 – 72,125 6,186,164 1. Fixed remuneration comprises base salary and superannuation and ad hoc payments treated as remuneration, relocation and vehicle allowances. 2. This amount represents the cash portion of the STI for FY18, which are expected to be paid in October 2018. It also includes additional cash bonuses totalling $125,000 awarded by the Board to selected KMP in recognition of the successful transaction to acquire Lattice Energy Limited. 3. In accordance with the requirements of the Australian Accounting Standards, remuneration includes a proportion of the notional value of equity compensation granted or outstanding during the year. The fair value of equity instruments which do not vest during the reporting period is determined as at the grant date and is progressively expensed over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individuals may ultimately realise should the rights vest. The fair value of the rights as at the date of their grant has been determined in accordance with principles set out in Note 4 to the Financial Statements. 4. Ms Summers became a KMP on 31 January 2018 when she commenced as Chief Operating Officer. Figures shown for Ms Summers are for the period 31 January 2018 to 30 June 2018. She was not a KMP in FY17. 5. Mr Barker became a KMP on 19 February 2018 when he commenced as Group Executive Development. Figures shown for Mr Barker are for the period 19 February 2018 to 30 June 2018. He was not a KMP in FY17. ‘Fixed remuneration’ includes a relocation payment made to Mr Barker. 6. Mr Marshall became a KMP on 15 January 2018 when he commenced as Group Executive Corporate Strategy and Commercial. Figures shown for Mr Marshall are for the period 15 January 2018 to 30 June 2018. He was not a KMP in FY17. ‘Fixed remuneration’ includes a relocation payment made to Mr Marshall. 7. Mr Schrull became a KMP on 3 January 2017 when he commenced as Group Executive Exploration & Development. FY17 figures shown for Mr Schrull are for the period 3 January 2017 to 30 June 2017. 8. Mr Hollingsworth became a KMP on 5 December 2016 when he commenced as Group Executive Human Resources. FY17 figures shown for Mr Hollingsworth are for the period 5 December 2016 to 30 June 2017. Mr Hollingsworth ceased to be a KMP on 31 December 2017 as part of a corporate restructure following the acquisition of Lattice Energy Ltd. His employment by Beach ended on 4 January 2018. FY18 figures shown for Mr Hollingsworth are for the period 1 July 2017 to 4 January 2018. 9. Ms Oster ceased to be a KMP on 31 December 2017 as part of a corporate restructure following the acquisition of Lattice Energy Ltd. FY18 figures shown for Ms Oster are for the period 1 July 2017 to 31 December 2017. A termination payment of $644,184 was made to Ms Oster during FY18 but after she ceased to be a KMP. 10. Mr Rayner ceased to be a KMP on 15 December 2017. FY18 figures shown for Mr Rayner are for the period 1 July 2017 to 15 December 2017. 11. Mr Squire ceased to be a KMP on 15 January 2018 when Mr Marshall commenced in the role as Group Executive Corporate Strategy and Commercial. FY18 figures for Mr Squire are for the period 1 July 2017 to close of business 14 January 2018. 12. Mr Dodd ceased to be a KMP on 31 December 2017. FY18 figures for Mr Dodd are for the period 1 July 2017 to 31 December 2017. 68 Beach Energy Limited | ABN 20 007 617 969 Remuneration policy for non-executive directors The fees paid to non-executive directors are determined using the following guidelines. Fees are: § not incentive or performance based but are fixed amounts; § determined by reference to the nature of the role, responsibility and time commitment required for the performance of the role including membership of board committees; § are based on independent advice and industry benchmarking data; and § driven by a need to attract a diverse and well-balanced group of individuals with relevant experience and knowledge. The remuneration of Beach non-executive directors is within the aggregate annual limit of $1,500,000 approved by shareholders at the 2016 annual general meeting. The remuneration for non-executive directors comprises directors’ fees, board committee fees and superannuation contributions to meet Beach’s statutory superannuation obligations. Directors who perform extra services for Beach or make any special exertions on behalf of Beach may be remunerated for those services in addition to the usual directors’ fees. Non-executive directors are also entitled to be reimbursed for their reasonable expenses incurred in the performance of their directors’ duties. Details of the fees payable to non-executive directors for Board and committee membership are set out in Table 11. Table 11: Non-executive directors’ fees and board committee fees per annum BOARD 1 BOARD COMMITTEE Chairman / Deputy Chairman $ Member $ Chairman Audit $ Member Audit $ Chairman Remuneration and Nomination $ Member Remuneration and Nomination $ Chairman Risk, Corporate Governance and Sustainability $ Member Risk, Corporate Governance and Sustainability $ 275,000 / 121,000 110,000 25,000 15,000 25,000 15,000 15,000 10,000 1. The Chairman does not receive additional fees for committee work. The fees shown are inclusive of the statutory superannuation contribution. Annual Report 2018 69 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 Table 12: Non-executive directors’ remuneration for FY17 and FY18 Name G S Davis 1 P J Bainbridge 2 C D Beckett 3 F R V Bennett 4 J D McKerlie 5 R J Richards 6 R K Stokes 7 P S Moore 8 J C Morton 9 Total Directors Fees (inc committee fees) $ Superannuation $ 275,000 250,000 100,500 82,500 142,466 132,420 52,667 130,898 114,155 96,271 116,521 42,447 114,155 93,462 105,957 – 44,178 – 1,065,599 827,998 – – 24,500 35,000 13,534 12,580 5,003 12,435 10,845 18,729 11,070 4,032 10,845 8,879 10,066 – 4,197 – 90,060 91,655 Year 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Total $ 275,000 250,000 125,000 117,500 156,000 145,000 57,670 143,333 125,000 115,000 127,591 46,479 125,000 102,341 116,023 – 48,375 – 1,155,659 919,653 1. No superannuation contributions were made on behalf of Mr Davis. Director’s fees for Mr Davis are paid to a related entity. Mr Davis does not receive additional fees for committee work. 2. Mr Bainbridge is chair of the Risk, Corporate Governance and Sustainability Committee. 3. Mr Beckett is Deputy Chairman and chair of the Remuneration and Nomination Committee. He is a member of the Risk, Corporate Governance and Sustainability Committee. 4. Ms Bennett retired as a director on 23 November 2017. Until her retirement she was chair of the Audit Committee and a member of the Risk, Corporate Governance and Sustainability Committee. 5 Mr McKerlie is a member of the Audit Committee. 6. Mr Richards is a member of the Audit Committee. He was chair of the Audit Committee from 23 November 2017 to 21 February 2018. 7. Mr Stokes is a member of the Remuneration and Nomination Committee. 8. Dr Moore became a member of the Risk, Corporate Governance and Sustainability Committee on 23 November 2017. 9. Ms Morton commenced as a director on 21 February 2018. She became chair of the Audit Committee on that date. Other KMP disclosures The following two tables show the movements during the reporting period in shares and performance rights over ordinary shares in the Company held directly, indirectly or beneficially by each KMP and their related entities. 70 Beach Energy Limited | ABN 20 007 617 969 Performance rights held by KMP The following table details the movements during the reporting period in performance rights over ordinary shares in the Company held directly, indirectly or beneficially by each KMP and their related entities. Table 13: Movements in performance rights held by key management personnel Rights CEO M V Kay Senior executives M Engelbrecht D Summers G J Barker L Marshal J L Schrull Former senior executives K Hollingsworth C L Oster R A Rayner M R Squire M R Dodd Total Opening balance Granted Rights exercised / rights vested Other1 Closing balance 2,279,060 1,439,850 (414,547) 304,879 – – – 275,843 203,253 941,211 1,045,700 858,953 302,959 6,211,858 378,129 320,960 217,845 225,365 294,893 225,989 363,228 – 331,483 – – – – – – – (203,074) (225,618) (185,326) – – – – – – – 3,304,363 683,008 320,960 217,845 225,365 570,736 (429,242) (1,101,365) (820,082) (1,005,110) (302,959) – – – – – 3,797,742 (1,028,565) (3,658,758) 5,322,277 1. Relates to rights that did not vest due to performance conditions not being met and were forfeited during the year and changes resulting from individuals ceasing to be KMPs during the period. Annual Report 2018 71 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 The following table details the movements during the reporting period in ordinary shares in the Company held directly, indirectly or beneficially by each KMP and their related entities. Table 14: Shareholdings of key management personnel 565,956 121,277 Ordinary Shares Directors G S Davis P J Bainbridge C D Beckett F R V Bennett J D McKerlie R K Stokes R J Richards P S Moore J C Morton Senior executives M V Kay M Engelbrecht D Summers G J Barker L Marshall J L Schrull Former senior executives K Hollingsworth C L Oster R A Rayner M R Squire M R Dodd Total Opening balance 126,186 97,250 41,929 100,075 349,868 – 147,776 – – – – – – – – 89,352 106,157 – 121,932 1,746,481 Purchased1 Sold Issued upon vesting of performance rights Other2 27,040 20,840 23,985 21,444 74,972 – 31,667 22,500 50,000 – – – – – – 15,332 22,748 – – – – – – (300,000) – – – – – – – – – – – – – – – – – – – – – – – – 414,547 – – – – – – – – – – – – – – – – – – – – – – 203,074 225,618 185,326 – (307,758) (354,523) (185,326) (121,932) Closing balance 153,226 118,090 65,914 121,519 124,840 – 179,443 22,500 50,000 1,101,780 – – – – – – – – – – 431,805 (300,000) 1,028,565 (969,539) 1,937,312 Includes shares issued under entitlement offer. 1. 2. Relates to changes resulting from individuals ceasing to be KMPs during the period, or expiration of employee incentive plan shares. Mr Kay commenced as Chief Executive Officer on 2 May 2016. He was offered retention and commencement rights in partial recognition of incentives foregone from his previous employment. The rights are detailed in the table below and in the release to ASX in the announcement of his appointment on 12 January 2016. Table 15: Commencement rights for CEO GRANTED VESTED Number Maximum value Number Maximum value Lapsed Retention and commencement rights in partial recognition of incentives forgone for previous employment M V Kay Total 414,547 414,547 267,010 267,010 414,547 414,547 267,010 267,010 – – 72 Beach Energy Limited | ABN 20 007 617 969 Specific details of the number of LTI and STI performance rights and CEO commencement and retention rights issued, vested and lapsed in FY18 for KMP are set out below in Table 16. Table 16: Details of LTI and STI Performance Rights and CEO rights Fair Value $ Granted Vested Lapsed – – – 295,396 295,397 849,057 – (414,547) – – – – 1,439,850 (414,547) 1,185,147 267,010 Date of grant 19 May 2016 19 May 2016 1 Dec 2016 1 Dec 2017 1 Dec 2017 1 Dec 2017 Performance rights on issue at 30 June 2017 815,401 414,547 1,049,112 – – – 2,279,060 Name M V Kay Total Total ($) M Engelbrecht 1 Dec 2016 304,879 1 Dec 2017 1 Dec 2017 1 Dec 2017 – – – 304,879 Total Total ($) D Summers 9 Apr 2018 Total Total ($) L Marshall Total Total ($) G J Barker Total Total ($) J L Schrull Total Total ($) M R Dodd Total Total ($) – – – – – – 275,843 – – – 275,843 9 Apr 2018 9 Apr 2018 21 Feb 2017 1 Dec 2017 1 Dec 2017 1 Dec 2017 1 Dec 2016 302,959 0.467 302,959 0.800 320,960 320,960 256,672 0.800 225,365 0.326 0.644 0.467 1.130 1.112 0.616 0.467 1.130 1.112 0.616 0.800 0.218 1.130 1.112 0.616 0.218 1.130 1.112 – 65,243 65,244 247,642 378,129 298,796 225,365 180,224 217,845 217,845 174,211 – 35,418 35,418 224,057 294,893 217,420 – – – – 30,447 30,447 K Hollingsworth 21 Feb 2017 203,253 Total Total ($) C L Oster 1 Dec 2017 1 Dec 2017 1 Dec 2017 – – – 203,253 1 Dec 2014 1 Dec 2015 225,412 441,841 1 Dec 2016 273,958 1 Dec 2017 1 Dec 2017 1 Dec 2017 – – – 0.616 165,095 225,989 169,953 – – – 70,351 70,351 0.471 0.257 0.467 1.130 1.112 0.616 222,526 (203,074) (22,338) – – – – – (441,841) (273,958) (70,351) (70,351) (222,526) Total Total ($) 941,211 363,228 (203,074) (1,101,365) 294,769 95,668 546,878 – – – – – – – – – – – – – – – – – – – – – – – – – (302,959) (302,959) 141,391 (203,253) (30,447) (30,447) (165,095) (429,242) 214,201 – – – – – – – – – – – – – – – – – – – – – – – – – – Performance rights on issue at 30 June 2018 Date performance rights vest and become exercisable 815,401 – 1,049,112 295,396 295,397 849,057 1 Dec 2018 2 May 2018 1 Dec 2019 1 Jul 2018 1 Jul 2019 1 Dec 2020 3,304,363 304,879 1 Dec 2019 65,243 65,244 1 Jul 2018 1 Jul 2019 247,642 1 Dec 2020 683,008 320,960 1 Dec 2020 320,960 225,365 1 Dec 2020 225,365 217,845 1 Dec 2020 217,845 275,843 35,418 35,418 224,057 570,736 – – – – – – – – – – – – – – 1 Dec 2019 1 Jul 2018 1 Jul 2019 1 Dec 2020 1 Dec 2019 1 Dec 2019 1 Jul 2018 1 Jul 2019 1 Dec 2020 1 Dec 2017 1 Dec 2018 1 Dec 2019 1 Jul 2018 1 Jul 2019 1 Dec 2020 Annual Report 2018 73 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2018 Table 16: Details of LTI and STI Performance Rights and CEO rights Name Date of grant Performance rights on issue at 30 June 2017 Fair Value $ Granted Vested Lapsed Performance rights on issue at 30 June 2018 Date performance rights vest and become exercisable R A Rayner 1 Dec 2014 250,436 1 Dec 2015 490,892 1 Dec 2016 304,372 1,045,700 Total Total ($) M R Squire 1 Dec 2014 205,712 1 Dec 2015 403,226 1 Dec 2016 250,015 1 Dec 2017 1 Dec 2017 1 Dec 2017 – – – 0.471 0.257 0.467 0.471 0.257 0.467 1.130 1.112 0.616 – – – – – – – – 64,202 64,203 203,078 (225,618) (24,818) – – (490,892) (304,372) (225,618) (820,082) 106,289 280,098 (185,326) (20,386) – – – – – 1 Dec 2017 1 Dec 2018 1 Dec 2019 1 Dec 2017 – – – – – – – – – – 403,226 1 Dec 2018 250,015 1 Dec 2019 64,202 1 Jul 2018 64,203 1 Jul 2019 203,078 1 Dec 2020 Total Total ($) 858,953 331,483 (185,326) (20,386) 984,724 269,007 87,307 9,604 Looking ahead – Remuneration and related issues for 2019 Human capital management FY19 will see the continued deployment of the leadership for high performance framework and leadership program. All leaders will be enrolled in and commence program attendance. The program commences with an assessment of the leader’s leadership style and the organisational climate they create. It then offers development and concludes with a re-survey of the leadership style and organisational climate. Review of total fixed remuneration for 2019 The Board approved an increase in the total fixed remuneration of the CEO to $1,200,000 effective 1 July 2018. Review of STI structure for senior executives The Board have made some changes to the FY19 STI measures, including: § The hurdle measure for return on capital (ROC) will increase from 5% to > or = 7%. Refer to Table 17 below; § The total weighting of safety and environment measures in FY18 was 15% (10% personal safety and 5% environmental). This total weighting of 15% remains unchanged in FY19, however, an additional safety measure (process safety) has been added for FY19, resulting in changes to the individual weightings of measures. In FY19, personal safety will comprise 5% weighting (down from 10% in FY18), environment will comprise 5% weighting (unchanged from FY18) and process safety will be included as a measure for the first time (and allocated a weighting of 5%). § The inclusion of a process safety measure is standard in all international oil companies and most Australian based operators and will allow us to compare/benchmark our performance to other operators locally and globally. Process Safety Events are measured by Loss of Primary Containment events – which tend to occur with greater frequency in gas processing facilities. The measure has been included to reflect Beach’s changed risk profile as a result of the acquisition of the gas facility, offshore gas wellhead platforms and gas pipelines in the Beach portfolio as a result of the Lattice acquisition. Table 17: FY19 hurdle measures Measures 1 year Relative Total Shareholder Return against ASX 200 Energy Total Return Index (Index Return) at the end of the Performance Period Return on capital 1 at the end of the Performance Period FY19 Hurdle Measure > or = to Index Return > or = to 7% 1. Return on capital (ROC) is based on statutory NPAT/average total equity (being the average total equity at the beginning and end of the financial year). Review of non-executive director fees For FY19 fees payable to the Chair of the Risk and Corporate Governance and Sustainability Committee will increase from $15,000 to $25,000. Fees payable to members of that Committee will increase from $10,000 to $15,000. The increase will make the fees for each Board Committee the same, reflecting that the time required of the members of each Committee is the same. There will be no change to Board fees for FY19. 74 Beach Energy Limited | ABN 20 007 617 969 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2018 1. In the directors’ opinion: (a) the financial statements and notes set out on pages 77 to 116 are in accordance with the Corporations Act 2001, including: (i) complying with accounting standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that Beach will be able to pay its debts as and when they become due and payable. 2. The attached financial statements are in compliance with International Financial Reporting Standards, as noted in the Basis of Preparation which forms part of the financial statements. 3. At the time of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 22 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 22. 4. The directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001 on behalf of the directors. G S Davis Chairman Adelaide 20 August 2018 Annual Report 2018 75 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION FULL YEAR FINANCIAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Basis of preparation Results for the year 1. Operating segments 2. Revenue and other income 3. Expenses 4. Employee benefits 5. Taxes 6. Earnings per share Capital employed 7. Inventories 8. Property, plant and equipment 9. Petroleum assets 10. Exploration and evaluation assets 11. Interests in joint operations 12. Carrying value of oil and gas properties 13. Provisions 14. Commitments for expenditure Financial and risk management 15. Finances and borrowings 16. Cash flow reconciliation 17. Financial risk management Equity and group structure 18. Contributed equity 19. Reserves 20. Dividends 21. Subsidiaries 22. Deed of cross guarantee 23. Parent entity financial information 24. Related party disclosures 25. Disposal group held for sale 26. Business combination Other information 27. Contingent liabilities 28. Remuneration of auditors 29. Subsequent events Signed reports Independent auditors report 76 Beach Energy Limited | ABN 20 007 617 969 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Sales revenue Cost of sales Gross profit Other revenue Other income Other expenses Operating profit before financing costs Interest income Finance expenses Profit before income tax expense Income tax (expense)/benefit Net profit after tax Other comprehensive income/(loss) Items that may be reclassified to profit or loss Net change in fair value of available-for-sale financial assets Net change in hedging reserve Net gain/(loss) on translation of foreign operations Tax effect relating to components of other comprehensive income Other comprehensive (loss)/income, net of tax Total comprehensive income after tax Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. CONSOLIDATED Note 2(a) 3(a) 2(a) 2(b) 3(b) 15 15 5 5 6 6 2018 $million 1,250.8 (773.8) 477.0 16.6 24.1 (197.6) 320.1 7.0 (43.6) 283.5 (84.7) 198.8 (17.2) (14.4) 1.6 6.6 (23.4) 175.4 9.16¢ 9.14¢ 2017 $million 652.6 (463.4) 189.2 13.1 52.6 66.8 321.7 6.9 (20.9) 307.7 79.8 387.5 13.8 – (0.3) (2.3) 11.2 398.7 20.38¢ 20.35¢ Annual Report 2018 77 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 Current assets Cash and cash equivalents Receivables Inventories Derivative financial instruments Other Assets held for sale Total current assets Non-current assets Available-for-sale financial assets Property, plant and equipment Petroleum assets Exploration and evaluation assets Goodwill Deferred tax assets Derivative financial instruments Other financial assets Total non-current assets Total assets Current liabilities Payables Provisions Current tax liabilities Derivative financial instruments Liabilities associated with assets held for sale Total current liabilities Non-current liabilities Payables Provisions Interest bearing liabilities Derivative financial instruments Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings/(accumulated losses) Total equity The accompanying notes form part of these financial statements. 78 Beach Energy Limited | ABN 20 007 617 969 CONSOLIDATED Note 2018 $million 2017 $million 16 17 7 17 25 17 8 9 10 26 5 17 17 13 17 25 17 13 15 17 5 18 19 311.2 273.5 94.4 19.0 4.9 21.2 724.2 – 5.5 2,710.2 478.9 83.9 68.8 – 5.3 3,352.6 4,076.8 293.3 39.6 100.2 47.0 2.6 482.7 17.8 766.8 925.7 – 45.8 1,756.1 2,238.8 1,838.0 1,859.1 210.3 (231.4) 1,838.0 348.0 116.0 50.1 0.6 5.5 1.7 521.9 44.4 26.4 959.8 255.2 – 79.3 0.2 5.9 1,371.2 1,893.1 66.5 48.6 10.1 0.6 0.4 126.2 – 216.4 148.0 0.5 – 364.9 491.1 1,402.0 1,558.5 232.2 (388.7) 1,402.0 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Contributed equity $million Note Retained earnings / (accumulated losses) $million Share based reserve payment $million Available for sale reserve $million Foreign currency translation $million Profit distribution reserve $million Hedging reserve $million Balance as at 30 June 2016 Profit for the year Other comprehensive income Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Shares issued during the year 18 Interim dividend paid 20 Final dividend paid from profit distribution reserve Disposal of foreign operations Increase in share based payments reserve Transactions with owners Balance as at 30 June 2017 Profit for the year Other comprehensive income Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Equity raising during the year Equity raising costs (net of tax) Shares issued during the year Final dividend paid 20 18 18 18 20 Interim dividend paid 20 Increase in share based payments reserve Transactions with owners Balance as at 30 June 2018 1,548.7 – – – 9.8 – – – – (757.5) 387.5 – 387.5 – (18.7) – – – 9.8 (18.7) 28.4 – – – – – – – 0.7 0.7 1,558.5 (388.7) 29.1 – – – 301.1 (3.8) 3.3 – – – 198.8 – 198.8 – – – (18.7) (22.8) – 300.6 (41.5) – – – – – – – – 1.5 1.5 1,859.1 (231.4) 30.6 The accompanying notes form part of these financial statements. – – – – – – 14.9 – (14.9) (14.9) – – – – – – – – 3.4 – 69.8 – 11.5 (0.3) 11.5 (0.3) 181.7 – – – – – (9.3) – – – – – (53.7) – (53.7) (9.3) 15.8 – 1.6 1.6 – – – – – – – 172.4 – – – – – – – – – – Total $million 1,074.5 387.5 11.2 398.7 9.8 (18.7) (9.3) (53.7) 0.7 (71.2) 1,402.0 198.8 – – – – – – – – – – – – (10.1) (23.4) (10.1) 175.4 – – – – – – – 301.1 (3.8) 3.3 (18.7) (22.8) 1.5 260.6 17.4 172.4 (10.1) 1,838.0 Annual Report 2018 79 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Cash flows from operating activities Receipts from customers and other Payments to suppliers and employees Payments for restoration Interest received Financing costs Derivative (payments)/receipts Income tax (paid)/refund Net cash provided by operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for subsurface assets Payments for exploration Proceeds from government grants Sale of joint operations interests Payments for acquisition of subsidiaries and joint operations, net of cash acquired Sale of subsidiary, net of cash disposed Proceeds from sale of non-current assets Proceeds from sale of equity investments Purchase of equity investments Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Costs associated with issue of shares Proceeds from borrowings Debt facility establishment costs Repayment of borrowings Proceeds from employee incentive loans Dividends paid Net cash used in financing activities Net (decrease)/increase in cash held Cash at beginning of financial year Effects of exchange rate changes on the balances of cash held in foreign currencies Cash at end of financial year The accompanying notes form part of these financial statements CONSOLIDATED Note 2018 $million 2017 $million 1,350.6 (633.1) (25.1) 8.4 (15.9) (7.9) (14.1) 691.0 (378.0) (2.2) 5.5 (8.2) 3.3 7.6 16 662.9 319.0 26 25 (46.6) (183.4) (90.1) 6.6 1.3 (1,453.0) – 2.0 32.5 – (1,730.7) 301.1 (5.0) 950.0 (27.7) (150.0) 3.3 (41.5) 1,030.2 (37.6) 348.0 0.8 311.2 (32.0) (78.4) (49.7) – 1.3 – 22.9 1.4 – (17.5) (152.0) – – – – – 1.7 (20.0) (18.3) 148.7 199.1 0.2 348.0 80 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 BASIS OF PREPARATION This section sets out the basis upon which the Group’s (comprising Beach and its subsidiaries) financial statements are prepared as a whole. Significant accounting policies and key judgements and estimates of the Group that summarise the measurement basis used and assist in understanding the financial statements are described in the relevant note to the financial statements or are otherwise provided in this section. Beach Energy Limited (Beach) is a for profit company limited by shares, incorporated in Australia and whose shares are publicly listed on the Australian Securities Exchange (ASX). The nature of the Group’s operations are described in the segment note. The consolidated general purpose financial report of the Group for the financial year ended 30 June 2018 was authorised for issue in accordance with a resolution of the directors on 20 August 2018. This general purpose financial report: § Has been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements comply with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board. § Has been prepared on an accruals basis and is based on the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss or other comprehensive income. § Is presented in Australian dollars with all amounts rounded to the nearest hundred thousand dollars unless otherwise stated, in accordance with ASIC (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investment Commission. § Has been prepared by consistently applying all accounting policies to all the financial years presented, unless otherwise stated. § The consolidated financial statements provide comparative information in respect of the previous period. Where there has been a change in the classification of items in the financial statements for the current period, the comparative for the previous period has been reclassified to be consistent with the classification of that item in the current period. Notes to the financial statements The notes include information which is required to understand the financial statements that is material and relevant to the operations, financial position or performance of the Group. Information is considered material and relevant where the amount is significant in size or nature, it is important in understanding changes to the operations or results of the Group or it may significantly impact on future performance. Key judgements and estimates In the process of applying the Group’s accounting policies, management has had to make judgements, estimates and assumptions about future events that affect the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates and the reasonableness of these estimates and underlying assumptions are reviewed on an ongoing basis. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are found in the following notes: Note 5 – Taxes Note 8 – Property, plant and equipment Note 9 – Petroleum assets Note 10 – Exploration and evaluation assets Note 11 – Interests in joint operations Note 12 – Carrying value of oil and gas properties Note 13 – Provisions Basis of consolidation The consolidated financial statements are those of Beach and its subsidiaries (detailed in Note 21). Subsidiaries are those entities that Beach controls as it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. In preparing the consolidated financial statements, all transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Foreign currency Both the functional and presentation currency of Beach is Australian dollars. Some subsidiaries have different functional currencies which are translated to the presentation currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the foreign exchange rate ruling at the reporting date. Foreign exchange differences arising on translation are recognised in the profit or loss. Nonmonetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Foreign exchange differences that arise on the translation of monetary items that form part of the net investment in a foreign operation are recognised in equity in the consolidated financial statements. Revenues, expenses and equity items of foreign operations are translated to Australian dollars using the exchange rate at the date of transaction while assets and liabilities are translated using the rate at balance date with differences recognised directly in the Foreign Currency Translation Reserve. Annual Report 2018 81 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION Adoption of new and revised accounting standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Australian Accounting Standards and Interpretations has had no significant impact on the Group’s accounting policies or the amounts reported during the financial year. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group: At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Year ended 30 June 2019: AASB 15: Revenue from Contracts with Customers AASB 15 provides a new basis for recognising revenue earned from a contract with a customer and supersedes all current revenue recognition requirements under Australian Accounting Standards. The standard becomes mandatory for the Group for the 30 June 2019 financial year and the Group plans to adopt the new standard on the required effective date using the full retrospective method. During the year the Group has undertaken a detailed review of all its material revenue contracts against the requirements of AASB 15. From this assessment the Group identified a number of judgements that required consideration, including the identification of goods and services provided under a contract that could be considered as separate performance obligations (the existence of which could impact the manner in which revenue is measured and recorded), determining when the customer obtains control of the delivered goods and the influence of any customer acceptance clauses and assessing the effect of variable and estimated revenue pricing. Based on the procedures performed to date the Group does not expect there to be any material timing changes to net assets upon adoption. The key change currently expected by the Group is the reclassification from Revenue to Other Income on settlement differences between actual receipts from customers and provisionally priced sales. These differences are currently recorded as Revenue. AASB 9: Financial Instruments AASB 9, approved in December 2015, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. From the assessment performed to date, it is known that: a. Items previously classified as trade and other receivables will be classified as financial assets at amortised cost or financial assets at fair value; b. Based on historical and expected losses of trade and other receivables, the expected loss model required by AASB 9 will not have a material impact on the Group as at 1 July 2018; and c. All derivatives that currently qualify for hedge accounting will also represent an effective hedge under the new AASB 9. Year ended 30 June 2020: AASB 16: Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group is currently undertaking a detailed review of all its current contracts against the requirements of AASB 16 and considering relevant industry guidance and is yet to complete its assessment of which contracts may contain a lease and what adjustments, if any, are necessary on adoption of AASB 16. It is therefore not yet possible to estimate the amount of right-of-use assets and lease liabilities that will have to be recognised on adoption of the new standard and how this may affect the Group’s profit or loss and classification of cash flows going forward. 82 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 RESULTS FOR THE YEAR This section explains the results and performance of the Group including additional information about those individual line items in the financial statements most relevant in the context of the operations of the Group, including accounting policies that are relevant for understanding the items recognised in the financial statements and an analysis of the Group’s result for the year by reference to key areas, including operating segments, revenue, expenses, employee costs, taxation and earnings per share. 1. Operating segments The Group has identified its operating segments to be its South Australian and Western Australian (SAWA), Victorian and New Zealand interests based on the different geographical regions and the similarity of assets within those regions. This is the basis on which internal reports are provided to the Chief Executive Officer for assessing performance and determining the allocation of resources within the Group. The Group operates primarily in one business, namely the exploration, development and production of hydrocarbons. Revenue is derived from the sale of gas and liquid hydrocarbons. Gas sales contracts are spread across major Australian and New Zealand energy retailers and industrial users with liquid hydrocarbon product sales being made to major multi-national energy companies based on international market pricing. Details of the performance of each of these operating segments for the financial years ended 30 June 2018 and 30 June 2017 are set out as follows: SAWA VICTORIA NEW ZEALAND TOTAL 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million 955.5 652.6 208.2 – 87.1 – 1,250.8 652.6 Segment revenue Sales revenue During the year revenue from two customers amounted to $591.6 million (2017: $382.3 million from two customers) arising from sales from SAWA and Victoria segment. Segment results Gross segment result before depreciation, amortisation and impairment Depreciation and amortisation Reversal of impairment Impairment expense Other revenue Other income Net financing costs Other expenses Profit before tax Income tax benefit Net profit after tax Segment assets Total corporate and unallocated assets Total consolidated assets Segment liabilities Total corporate and unallocated liabilities Total consolidated liabilities Additions and acquisitions of non current assets Exploration and evaluation assets Petroleum assets Total corporate and unallocated assets Total additions and acquisitions of non current assets 576.7 359.3 156.0 (0.9) 56.8 (207.2) (169.2) (91.0) – (60.5) 309.0 150.0 (2.8) 337.3 – – – – – (14.3) – – 65.0 (0.9) 42.5 – – – – – 789.5 358.4 (312.5) (169.2) 2,124.6 1,317.3 1,073.4 459.0 267.9 330.0 – – 76.7 276.1 – 3,474.1 112.0 862.5 974.5 46.2 70.8 117.0 419.3 690.9 1,110.2 8.3 – 8.3 0.1 277.4 277.5 – (60.5) 416.5 16.6 24.1 (36.6) (137.1) 283.5 (84.7) 198.8 – – – 602.7 4,076.8 865.7 1,373.1 2,238.8 531.4 1,830.8 2,362.2 14.5 150.0 (2.8) 336.4 13.1 52.6 (14.0) (80.4) 307.7 79.8 387.5 1,317.3 575.8 1,893.1 267.9 223.2 491.1 54.5 70.8 125.3 3.4 2,376.7 128.7 Annual Report 2018 83 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 1. Operating segments continued AUSTRALIA NEW ZEALAND TOTAL 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million Non-current assets * 3,005.6 1,231.4 272.9 10.0 3,278.5 1,241.4 * excluding financial assets and deferred taxes. 2. Revenue and other income The Group’s revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is derived primarily from the sale of gas and liquid hydrocarbons and is recognised on the basis of the Group’s interest in a producing field (“entitlements” method), when the physical product and associated risks and rewards of ownership pass to the purchaser, which is generally at the time of ship or truck loading, or on the product entering the relevant pipeline. Revenue from take or pay contracts is recognised in earnings when the product has been drawn by the customer and recorded as unearned revenue when not drawn by the customer. Other operating revenue is recognised at the fair value of the consideration received or receivable, when significant risks and rewards have been transferred to the buyer or when the service has been performed. (a) Revenue Crude oil 1 Gas and gas liquids – sales gas and ethane – liquified petroleum gas – condensate Sales revenue Other operating revenue Total revenue (b) Other income Gain on sale of subsidiary (Note 25) Gain on sale of joint operations interests Gain on settlement of restoration obligation Gain on sale of investments Gain on sale of non-current assets Gain on adjustments to fair values on acquisition of subsidiary Government grants received Foreign exchange gains Total other income 1. Inclusive of realised hedge settlements and premiums paid of $10.2 million (2017: $3.3 million in receipts). CONSOLIDATED 2018 $million 2017 $million 595.0 414.7 416.8 97.5 141.5 1,250.8 16.6 1,267.4 – – 15.0 5.3 1.0 – 1.2 1.6 24.1 170.8 27.4 39.7 652.6 13.1 665.7 46.9 3.7 – – 0.6 1.4 – – 52.6 84 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 3. Expenses The Group’s significant expenses in operating the business are described below split between cost of sales and other expenses including impairment, employee benefit expense and corporate and other costs. (a) Cost of sales Operating costs Royalties Total operating costs Depreciation of property, plant and equipment Amortisation of petroleum assets Total amortisation and depreciation for operations Third party oil and gas purchases Change in inventory Total cost of sales (b) Other expenses Impairment Impairment expense/(reversal) on other property, plant & equipment (Note 8) Impairment expense/(reversal) on petroleum assets (Note 9) Impairment of exploration and evaluation assets (Note 10) Total impairment expense/(reversal) Other Employee benefits expense (Note 4) Loss on derivative financial instruments Foreign exchange losses Depreciation of property, plant and equipment Corporate development costs Acquisition and integration costs (Note 26) Corporate expenses Other expenses Total other expenses CONSOLIDATED 2018 $million 2017 $million 273.1 99.5 372.6 81.7 230.8 312.5 75.8 12.9 773.8 1.2 – 87.1 88.3 31.1 13.2 – 2.0 4.0 50.1 8.9 109.3 197.6 179.7 54.0 233.7 55.5 113.7 169.2 36.4 24.1 463.4 3.1 (150.0) 38.3 (108.6) 20.5 3.7 1.7 2.3 6.1 – 7.5 41.8 (66.8) 4. Employee benefits Provision is made for the Group’s employee benefits liability arising from services rendered by employees to the end of the reporting period. These benefits include wages, salaries, annual leave and long service leave. Where these benefits are expected to be settled within 12 months of the reporting date, they are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-vesting personal leave are recognised when the leave is taken and are measured at the rates paid or payable. Liabilities for long service leave and annual leave that is not expected to be taken wholly before 12 months after the end of the reporting period in which the employee rendered the related service, are recognised and measured as the present value of the estimated future cash outflows to be made in respect of employees’ services up to the reporting date. The obligation is calculated using expected future increases in wage and salary rates, experience of employee departures and periods of service. The estimated future payments have been discounted using Australian corporate bond rates. The obligations are presented as current liabilities in the statement of financial position if the Group does not have the unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. Superannuation commitments: Each employee nominates their own superannuation fund into which Beach contributes compulsory superannuation amounts based on a percentage of their salary. Termination benefits: Termination benefits may be payable when employment is terminated before the normal retirement date, without cause, or when an employee accepts voluntary redundancy in exchange for these benefits. Beach recognises termination benefits when it is demonstrably committed to making these payments. Annual Report 2018 85 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 4. Employee benefits continued Equity settled compensation: Employee Incentive Plan – The Group operates an Employee Incentive Plan, approved by shareholders. Shares are allotted to employees under this plan at the Board’s discretion. Shares acquired by employees are funded by interest free non-recourse loans for a term of 10 years which are repayable on cessation of employment with the consolidated entity or expiry of the loan term. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period with a corresponding increase in equity. The fair value of shares issued is determined with reference to the latest ASX share price. Rights are valued using an appropriate valuation technique such as the Binomial or Black-Scholes Option Pricing Models which takes into account the vesting conditions. The following employee shares are currently on issue Balance as at 30 June 2016 Loans repaid during the financial year Balance as at 30 June 2017 Loans repaid during the financial year Balance as at 30 June 2018 Number 9,319,956 (2,616,315) 6,703,641 (3,021,983) 3,681,658 No new shares were issued to employees during the financial year, pursuant to this plan. The closing ASX share price of Beach fully paid ordinary shares at 29 June 2018 was $1.755 as compared to $0.575 as at 30 June 2017. Incentive Rights – The Group operates an Executive Incentive Plan (EIP) for KMP providing both Short Term Incentives (STIs) and Long Term Incentives (LTIs). The STI is part of ‘at risk’ remuneration offered to senior executives. It measures individual and Company performance over a 12 month period coinciding with Beach’s financial year. It is provided in equal parts of cash and equity that may or may not vest subject to additional retention conditions. It is offered annually to senior executives at the discretion of the Board. The LTI is an equity based ‘at risk’ incentive plan. The LTI is intended to reward efforts and results that promote long term growth in shareholder value or total shareholder return (TSR). LTIs are offered to senior executives at the discretion of the Board. The fair value of performance rights issued are recognised as an employee benefits expense with a corresponding increase in equity. The fair value of the performance rights are measured at grant date and recognised over the vesting period during which the KMP become entitled to the performance rights. The fair value of the STIs is measured using the Black-Scholes Option Pricing Model and the fair value of the LTIs is measured using Monte Carlo simulation, taking into account the terms and conditions upon which these rights were issued. Details of the key assumptions used in determining the valuation of both STI’s and LTI’s issued during the year are included in the remuneration report. Movements in unlisted performance rights are set out below: Balance at beginning of period Issued during the period Cancelled during the period Vested during the period Balance at end of period CONSOLIDATED 2018 number 2017 number 6,820,796 4,114,642 6,814,929 2,964,391 (3,097,646) (2,314,988) (1,213,891) (643,536) 6,623,901 6,820,796 On 5 December 2017, Beach issued 1,122,117 STI unlisted performance rights and 2,029,050 LTI unlisted performance rights under the EIP. 561,057 of the STI performance rights vested on 1 July 2018, and the remaining 561,060 STI rights vest on 1 July 2019, subject to the holder of the rights remaining employed with Beach on the vesting dates. The LTI performance rights, which expire on 30 November 2022, are exercisable for nil consideration and are not exercisable before 1 December 2020. A further 963,475 LTI unlisted performance rights were issued on 9 April 2018 under the EIP, which expire on 30 November 2022, are exercisable for nil consideration and are not exercisable before 1 December 2020. Employee benefits expense Short term benefits Post employment benefits Share based payments Total 86 Beach Energy Limited | ABN 20 007 617 969 CONSOLIDATED 2018 $million 2017 $million 25.5 4.1 1.5 31.1 16.7 3.1 0.7 20.5 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 5. Taxes Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income. The income tax expense or benefit for the period is the tax payable on the current period’s taxable income, which is based on the notional income tax rates, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. These temporary differences are recognised at the tax rate expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Recognised in the statement of profit or loss Current tax expense Current financial year tax expense Under/(Over) provision in the prior year Other Total current tax expense Deferred tax expense Origination and reversal of temporary differences Under provision in the prior year Recognition of capital losses Recognition of deferred taxes Total deferred tax benefit Total income tax expense/(benefit) Numerical reconciliation between tax expense and prima facie tax expense Reconciliation of the prima facie income tax expense calculated on profit before income tax expense included in the statement of profit or loss Profit before income tax expense Prima facie income tax expense/(benefit) using an income tax rate at 30% (2017: 30%) Adjustment to income tax expense due to: Recognition of deferred taxes future periods Recognition of deferred tax asset current period Tax impact on disposal of overseas assets Non-deductible expenses Losses of controlled foreign entities not recognised Sale of investments Difference in tax rate Recognition of capital losses Non assessable income Under/(Over) provision in the prior year Income tax expense/(benefit) on pre-tax profit CONSOLIDATED 2018 $million 2017 $million 101.0 3.3 – 104.3 (17.8) (0.1) (1.7) – (19.6) 84.7 283.5 85.0 – – – 5.2 0.2 (1.6) (0.6) (1.7) (5.0) 3.2 84.7 6.0 (4.3) 0.1 1.8 – – (2.3) (79.3) (81.6) (79.8) 307.7 92.3 (79.3) (73.2) (14.2) 0.4 0.8 – – (2.3) – (4.3) (79.8) Annual Report 2018 87 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 5. Taxes continued Tax effects relating to each component of other comprehensive income ($million) Group Available-for-sale financial assets Hedging reserve Exchange difference on translating foreign controlled entities Before tax amount (17.2) (14.4) 1.6 2018 Tax expense 2.3 4.3 – Net of tax amount (14.9) (10.1) Before tax amount 13.8 – 1.6 (0.3) 2017 Tax benefit (2.3) – – Net of tax amount 11.5 – (0.3) Beach and its wholly owned Australian subsidiaries are consolidated for Australian income tax purposes with Beach responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. Beach has entered into tax sharing agreements with its wholly owned subsidiaries whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. Accordingly, as head entity, Beach is responsible for recognising current tax liabilities, current tax assets and deferred tax assets from unused tax losses and credits of members of the tax consolidated group. Deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are allocated amongst the members of the tax consolidated group using the “Separate Taxpayer within Group” approach in accordance with Interpretation 1052, Tax Consolidation Accounting. Movement in Group deferred tax balances ($million) Current financial year Oil & Gas Assets Investments Assets and Liabilities Held For Sale Provisions Employee benefits Other Items Inventories Tax assets/(liabilities) before set-off Set-off of deferred tax assets in Australia Net deferred tax asset/(liabilities) Balance 1 July 2017 Recognised in income 9.5 – (0.5) 81.4 2.0 (12.6) (0.5) 79.3 14.1 (2.3) 1.0 3.0 (0.7) 4.5 0.1 19.7 – – Acquired (240.7) – – 148.0 3.9 5.0 – (83.8) – – Recognised in OCI/ Equity Balance 30 June 2018 Deferred Tax Asset Deferred Tax Liability – 2.3 – – – 5.5 – 7.8 – – (217.1) – 0.5 232.4 5.2 2.4 (0.4) 23.0 55.1 – 0.5 232.4 5.2 20.4 – (272.2) – – – – (18.0) (0.4) 313.6 (290.6) – – (244.8) 68.8 244.8 (45.8) Previous financial year Oil & Gas Assets Investments Assets and Liabilities Held For Sale Provisions Employee benefits Other Items Inventories Tax assets/(liabilities) before set-off Set-off of deferred tax assets in Australia Recognise net deferred tax assets balance Net deferred tax assets/(liabilities) Balance 1 July 2016 Recognised in income Recognised in OCI Balance 30 June 2017 Deferred Tax Asset Deferred Tax Liability 69.0 – 4.2 77.6 2.3 4.0 2.0 159.1 (159.1) – (59.5) 2.3 (4.7) 3.8 (0.3) (16.6) (2.5) (77.5) 159.1 81.6 – (2.3) – – – – – (2.3) 9.5 – (0.5) 81.4 2.0 (12.6) (0.5) 79.3 61.5 – – 81.4 2.0 4.8 – 149.7 (70.4) (52.0) – (0.5) – – (17.4) (0.5) (70.4) 70.4 (2.3) 79.3 79.3 – 88 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Petroleum Resource Rent Tax (PRRT): PRRT is recognised as an income tax under AASB 112 – Income Taxes. From 1 July 2012, the PRRT regime was extended to all Australian onshore oil and gas projects. Accounting for PRRT involves judging the impact of the combination of production licences into PRRT projects, the taxing point of projects, the measurement of the starting base of projects, the impact of farm-ins, the deductibility of expenditure and the impact of legislative amendments. A deferred tax asset is recognised in relation to the carry forward deductible PRRT expenditure of projects only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. The group has determined the carry forward deductible PRRT expenditure of projects including augmentation on expenditure categories in the calculation of future taxable profit when assessing the extent to which a deferred tax asset should be recognised in the financial statements. Deferred tax assets in respect of PRRT are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Beach has previously applied for and was granted a PRRT combination certificate by the Minister for Industry in respect of its Cooper Basin projects, and has inherited other combined projects through the acquisition of the Lattice group. The government has also enacted legislation which will enable contract liabilities with third parties to be apportioned based on the extent that the expenditure relates to the petroleum project. Due to the substantial value of carry forward deductible PRRT expenditure at 30 June 2018, the Group does not expect to pay PRRT in the short to medium term on all of its projects that are subject to the PRRT regime. Deferred tax assets have not been recognised in respect of the following items: Tax losses (capital) Foreign tax losses (revenue) PRRT (net of income tax) Total CONSOLIDATED 2018 $million 2017 $million 18.7 12.5 4,277.3 4,308.5 20.4 15.6 1,132.1 1,168.1 Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST). The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the statement of cash flows on a gross basis. Annual Report 2018 89 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 6. Earnings per share (EPS) The Group presents basic and diluted EPS for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the dilutive effect, if any, of outstanding share rights which have been issued to employees. Earnings after tax used in the calculation of EPS is as follows: Basic EPS and Diluted EPS 2018 $million 2017 $million 198.8 387.5 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of EPS is as follows: Basic EPS Share rights Diluted EPS 2018 Number 2017 1 Number 2,170,981,952 1,901,467,353 2,969,133 5,136,462 2,176,118,414 1,904,436,486 1. Restated to included an additional 35,586,753 shares for the bonus element impact of arising from the rights issue to existing shareholders in the current period. Calculation of EPS is as follows: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 9.16¢ 9.14¢ 20.38¢ 20.35¢ Potential ordinary shares relating to performance rights that were not considered dilutive during the period as vesting would not have occurred based on the status of the required vesting conditions at the end of the relevant reporting period were nil (2017: 3,851,663). Accordingly, these have been excluded from the calculation of diluted EPS. A further 460,259 shares were issued on 2 July 2018 upon vesting of unlisted performance rights previously issued pursuant to the Beach Energy Ltd Executive Incentive Plan for the 2016 Short Term Incentive Offer following satisfaction of the retention condition. 90 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 CAPITAL EMPLOYED This section details the investments made by the Group in exploring for and developing its petroleum business including inventories, property plant and equipment, petroleum assets, joint operations and any related restoration provisions as well as an assessment of asset impairment and details of future commitments. 7. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost is determined as follows: (i) Drilling and maintenance stocks, which include plant spares, consumables, maintenance and drilling tools used for ongoing operations, are valued at weighted average cost; and (ii) Petroleum products, which comprise extracted crude oil, liquefied petroleum gas, condensate and naphtha stored in tanks and pipeline systems and process sales gas and ethane stored in sub-surface reservoirs, are valued using the absorption cost method in a manner which approximates specific identification. Petroleum products Drilling and maintenance stocks Less provision for obsolescence Total current inventories at lower of cost and net realisable value Petroleum products included above which are stated at net realisable value CONSOLIDATED 2018 $million 2017 $million 70.5 38.0 (14.1) 94.4 0.9 40.0 24.2 (14.1) 50.1 1.3 8. Property, plant and equipment (PPE) PPE is measured at cost less depreciation and impairment losses. The carrying amount of PPE is reviewed bi-annually for impairment (refer Note 12). The cost of PPE constructed within the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. 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. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the profit or loss. The depreciable amount of all PPE excluding freehold land is depreciated using a straight line basis over their useful lives commencing from the time the asset is held ready for use. The depreciation rates used in the current and previous period for each class of depreciable asset are: § 2% for the corporate head office building; § 4-33% for other equipment Annual Report 2018 91 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 8. Property, plant and equipment (PPE) continued Land and buildings Land and buildings at cost Less accumulated depreciation Total land and buildings Reconciliation of movement in land and buildings: Balance at beginning of financial year Impairment of land and buildings (Note 12) Reclassification to assets held for sale1 (Note 25) Depreciation expense Total land and buildings Plant and equipment Plant and equipment Plant and equipment under construction Less accumulated depreciation Total plant and equipment Reconciliation of movement in other plant and equipment: Balance at beginning of financial year Additions Reclassification to assets held for sale1 (Note 25) Depreciation expense Total plant and equipment Total property, plant and equipment CONSOLIDATED 2018 $million 2017 $million – – – 22.6 (1.2) (21.0) (0.4) – 13.1 2.7 (10.3) 5.5 3.8 3.4 (0.2) (1.5) 5.5 5.5 24.3 (1.7) 22.6 26.2 (3.1) – (0.5) 22.6 14.4 0.3 (10.9) 3.8 4.6 1.0 – (1.8) 3.8 26.4 1. Head office building classified as held for sale comprises land ($8.5 million), buildings ($12.5 million) and other equipment ($0.2 million) forming part of the sale. 9. Petroleum assets Petroleum assets are stated at cost less accumulated depreciation and impairment charges. They include initial cost, with an appropriate proportion of fixed and variable overheads, to acquire, construct, install or complete production and infrastructure facilities such as pipelines and platforms, capitalised borrowing costs, transferred exploration and evaluation assets and development wells. Subsequent capital costs, including major maintenance, are included in the asset’s carrying amount 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 depreciable amount of all onshore production facilities, field and other equipment excluding freehold land is depreciated using a straight line basis over the lesser of their useful lives and the life of proved and probable reserves commencing from the time the asset is held ready for use. Offshore production facilities and field equipment are depreciated based on a units of production method using proved and probable reserves. The depreciation rates used in the current and previous period for each class of depreciable asset are 4-50% for onshore production facilities, field and other equipment. Subsurface assets are amortised using the units of production method over the life of the area according to the rate of depletion of the proved and probable reserves. Retention of petroleum assets is subject to meeting certain work obligations/commitments as detailed in Note 14. The carrying amount of Petroleum assets is reviewed bi-annually for impairment as detailed in Note 12. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the profit or loss. 92 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Estimates of reserve quantities The estimated quantities of proved and probable hydrocarbon reserves reported by the Group are integral to the calculation of amortisation (depletion), depreciation expense and to assessments of possible impairment or impairment reversal. Estimated reserve quantities are based upon interpretations of geological and geophysical models and assessment of the technical feasibility and commercial viability of producing the reserves. Beach prepares its petroleum reserves estimates in accordance with the Petroleum Resources Management System (PRMS) published by the Society of Petroleum Engineers. All estimates of petroleum reserves reported by Beach are prepared by, or under the supervision of, a qualified petroleum reserves and resources evaluator. To ensure the integrity and reliability of data used in the reserves estimation process, the raw data is reviewed and quality controlled by senior professional production, reservoir, petrophysical and geological staff at Beach. During each petroleum reserves review, this data is updated, analysed and checked against the previous year’s data. These assessments require assumptions to be made regarding future development and production costs, commodity prices, exchange rates and fiscal regimes. Reserves at 30 June 2018 have been independently audited by RISC advisory. The estimates of reserves may change from period to period as the economic assumptions used to estimate the reserves can change from period to period, and as additional geological data is generated during the course of operations. Estimates are reviewed at least annually or when there are significant changes in the circumstances impacting specific assets or asset groups. These changes may impact depreciation, asset carrying values, restoration provisions and deferred tax balances. If proved and probable reserves estimates are revised downwards, earnings could be affected by higher depreciation expense or an immediate write-down of the asset’s carrying value. Field land and buildings Land and buildings at cost Less accumulated depreciation Total land and buildings Reconciliation of movement in field land and buildings: Balance at beginning of financial year Additions Acquisition of subsidiaries and joint operation interests Transfer from production facilities and field equipment Transfer from subsurface assets Depreciation expense Total field land and buildings CONSOLIDATED 2018 $million 2017 $million 87.9 (27.3) 60.6 22.3 32.8 10.1 1.0 4.1 (9.7) 60.6 41.9 (19.6) 22.3 18.7 5.7 – – – (2.1) 22.3 Annual Report 2018 93 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 9. Petroleum assets continued Production facilities and field equipment Production facilities and field equipment Production facilities and field equipment under construction Less accumulated depreciation Total production facilities and field equipment Reconciliation of movement in production facilities, field and other equipment: Balance at beginning of financial year Additions Acquisition of subsidiaries and joint operation interests Impairment reversal on production facilities and field equipment (Note 12) Reclassification from assets held for sale (Note 25) Transfer to field land and buildings Depreciation expense Disposals Total production facilities and field equipment Subsurface assets Subsurface assets at cost Subsurface assets under construction Less accumulated amortisation Total subsurface assets Reconciliation of movement in subsurface assets Balance at beginning of financial year Additions Acquisition of subsidiaries and joint operation interests Increase/(decrease) in restoration Transfer from exploration and evaluation assets Transfer to field land and buildings Reclassification from assets held for sale (Note 25) Impairment reversal on petroleum assets (Note 12) Foreign exchange movement Amortisation expense Total subsurface assets Total petroleum assets CONSOLIDATED 2018 $million 2017 $million 1,851.5 5.2 (595.2) 1,261.5 378.7 6.1 949.8 – – (1.0) (72.1) – 1,261.5 2,617.7 118.1 (1,347.7) 1,388.1 558.8 169.0 634.6 28.0 232.1 (4.1) – – 0.5 (230.8) 1,388.1 2,710.2 859.6 40.5 (521.4) 378.7 381.4 22.4 – 27.8 0.7 – (53.4) (0.2) 378.7 1,569.0 106.7 (1,116.9) 558.8 418.9 75.5 – (32.5) 68.1 – 20.3 122.2 – (113.7) 558.8 959.8 94 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 10. Exploration and evaluation assets Expenditure on exploration and evaluation is accounted for in accordance with the area of interest method. Areas of interest are based on a geological area. These costs are only carried forward to the extent that they are expected to be recouped through the successful development or sale of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of proved and probable hydrocarbon reserves. The costs of acquiring interests in new exploration and evaluation licences are capitalised. The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful discovery of economically recoverable hydrocarbons and the recognition of an area of interest. Subsequent to the recognition of an area of interest, all further evaluation costs relating to that area of interest are capitalised. Upon approval for the commercial development of an area of interest, accumulated expenditure for the area of interest is transferred to petroleum assets. Area of interest An area of interest (AOI) has previously been defined by the Group as an individual geographical basin whereby the presence of hydrocarbons is considered favourable or proved to exist. In the current financial year, this definition has been further redefined to more accurately reflect the exploration activities and the correlation of the costs to the resulting reserves that are being evaluated as being an area defined by major geological structural elements that has a discrete exploration strategy and has largely independent costs for exploration and evaluation from other geological areas. This change in definition has resulted in a number of new discrete areas of interest being established within existing basins. This represents a change in accounting estimate and has resulted in an impairment charge of $87.1 million in the current financial year on AOI’s where there is now either no tenure and/or ongoing exploration program. For the financial year ended 30 June 2017, the carrying value of exploration and evaluation assets was formally assessed, resulting in the recognition of an impairment loss of $38.3 million. Impairment of exploration and evaluation assets The recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective AOI. Each potential or recognised AOI is reviewed half-yearly to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support continued carry forward of capitalised costs. Where a potential impairment is indicated, assessment is performed using a fair value less costs to dispose method to determine the recoverable amount for each AOI to which the exploration and evaluation expenditure is attributed. This assessment requires management to make certain estimates and apply judgement in determining assumptions as to future events and circumstances, in particular, the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under the policy, the Group concludes that it is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the statement of profit or loss. Retention of exploration assets is subject to meeting certain work obligations/exploration commitments as detailed in Note 14. Government grants received in relation to the drilling of exploration wells are recognised as a reduction in the carrying value of the exploration permit as expenditure is incurred. Exploration and evaluation assets at beginning of financial year Additions Increase in restoration Acquisition of subsidiaries and joint operation interests (Note 26) Transfer to petroleum assets Reclassification from/(to) assets held for sale (Note 25) Impairment of exploration and evaluation assets (Note 10) Disposal of joint operation interests Foreign exchange movement Total exploration and evaluation assets CONSOLIDATED 2018 $million 2017 $million 255.2 77.2 29.4 436.3 (232.1) – (87.1) – – 478.9 319.6 51.5 5.1 – (68.1) (1.6) (38.3) (13.0) – 255.2 Annual Report 2018 95 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 11. Interests in joint operations Exploration and production activities are conducted through joint arrangements governed by joint operating agreements, production sharing contracts or similar contractual relationships. A joint operation involves the joint control, and often the joint ownership, of one or more assets contributed to, or acquired for the purpose of the joint operation and dedicated to the purposes of the joint operation. The assets are used to obtain benefits for the parties to the joint operation. Each party may take a share of the output from the assets and each bears an agreed share of expenses incurred. Each party has control over its share of future economic benefits through its share of the joint operation. The interests of the Group in joint operations are brought to account by recognising in the financial statements the Group’s share of jointly controlled assets, share of expenses and liabilities incurred, and the income from the sale or use of its share of the production of the joint operation in accordance with the Group’s revenue policy. Accounting for interests in other entities Judgement is required in assessing the level of control obtained in a transaction to acquire an interest in another entity; depending upon the facts and circumstances in each case, Beach may obtain control, joint control or significant influence over the entity or arrangement. Judgement is applied when determining the relevant activities of a project and if joint control is held over them. Relevant activities include, but are not limited to, work program and budget approval, investment decision approval, voting rights in joint operating committees, amendments to permits and changes to joint arrangement participant holdings. Transactions which give Beach control of a business are business combinations. If Beach obtains joint control of an arrangement, judgement is also required to assess whether the arrangement is a joint operation or a joint venture. If Beach has neither control nor joint control, it may be in a position to exercise significant influence over the entity, which is then accounted for as an associate. The Group has a direct interest in a number of unincorporated joint operations with those significant joint operation interests shown below. Joint Operation Oil and Gas interests Australia Cooper Basin (South Australia) Ex PEL 92 (PRLs 85-104) Ex PEL 104 (PRLs 15,136-141) Ex PEL 513 (PRLs 191-206) Ex PEL 632 (PRLs 131-134) PEL 630 SA Fixed Factor Area SA Unit Cooper Basin (Queensland) Naccowlah Block ATP 299 (Tintaburra) Total 66 Block SWQ Unit Otway Basin (Victoria/Tasmania) BassGas Project Perth Basin (Western Australia) Beharra Springs Waitsia Gas Project International Taranaki Basin (New Zealand) Kupe Gas Project Principal activities % INTEREST 2018 2017 Oil production Oil production Gas production and exploration Gas production and exploration Oil and gas exploration Oil and gas production Oil production Oil production Oil production Oil production Gas production Gas production Gas production Gas production Gas production 75.0 40.0 40.0 40.0 50.0 33.4 33.4 38.5 40.0 30.0 39.9 53.8 67.0 50.0 50.0 75.0 40.0 40.0 40.0 50.0 20.2 20.2 38.5 40.0 30.0 23.2 – – – – Details of commitments for expenditure and contingent liabilities incorporating the Group’s interests in joint operations are shown in Notes 14 and 27 respectively. 96 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 12. Carrying value of oil and gas properties The carrying amounts of oil and gas properties are assessed half yearly to determine whether there is an indication of impairment or impairment reversal for those assets which have previously been impaired. Indicators of impairment and impairment reversals include changes in future selling prices, future costs and reserves. When assessing potential indicators of impairment or reversals the Group models scenarios and a range of possible future commodity prices is considered. If any such indication exists, the asset’s recoverable amount is estimated. Petroleum assets are assessed for impairment indicators and impairments on a cash generating unit (CGU) basis. Following review of interdependencies between the various operations within the Group, it has been determined that the operational CGU’s are Cooper Basin, Perth Basin, OGP, BassGas and Kupe. The recoverable amount of an asset or CGU is determined as the higher of its value in use and fair value less costs of disposal. Value in use is determined by estimating future cash flows after taking into account the risks specific to the asset and discounting it to its present value using an appropriate discount rate. If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is written down and an impairment loss is recognised in the statement of profit or loss. For assets previously impaired, if the recoverable amount exceeds the carrying amount and the indicators driving the increase in value are sustained for a period of time, the impairment loss is reversed. The carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. The Group assessed each CGU to determine whether an indicator of impairment or impairment reversal existed. No indicators of impairment or impairment reversal were identified in the current year. Future cash flow information used for the value in use calculation is based on the Group’s latest reserves, budget, five-year plan and project economic plans. 2018 financial year Impairment and impairment reversal indicator modelling In determining whether there is an indicator of impairment or impairment reversal, in the absence of quoted market prices, estimates are made regarding the present value of future cash flows for each CGU. These estimates require significant management judgement and are subject to risk and uncertainty, and hence changes in economic conditions can also affect the assumptions used and the rates used to discount future cash flow estimates. The present value of future cash flows for each CGU were estimated using the assumptions below with reference to external market forecasts at least bi-annually. The assumptions applied have regard to contracted prices and observable market data including forward values and external market analyst’s forecasts. For the current financial year, the following assumptions were used in the assessment of the CGU’s recoverable amounts: § Brent oil price (real) of US$74.75/bbl in FY19 and US$70/bbl for FY20 and beyond. § A$/US$ exchange rate of 0.77 in FY19 and 0.75 for FY20 and beyond § Pre-tax real discount rate of between 9.4% and 14.4%. § Where appropriate the cash flow inputs have been adjusted to reflect identifiable uncertainty and risk. 2017 financial year For the financial year ended 30 June 2017, the Group assessed each CGU to determine whether an indicator of impairment or impairment reversal existed. Indicators of impairment or impairment reversal include changes in future selling prices, future costs and reserves. Following a formal assessment of the recoverable amount of the Cooper Basin CGU, taking into account the sensitivity of the recoverable amount model to key assumptions, and the market capitalisation of the Company, it was determined that a reversal of impairment expenses of $150 million should be booked in relation to Cooper Basin oil and gas assets. The drivers of the impairment reversal on Cooper Basin oil and gas assets related to the increase in 2P reserves together with improvements to the operating and capital cost assumptions, reflecting improvements made since the last review. 13. Provisions A provision for rehabilitation and restoration is provided by the Group where there is a present obligation as a result of exploration, development, production, transportation or storage activities having been undertaken, and it is probable that an outflow of economic benefits will be required to settle the obligation. The estimated future obligations include the costs of removing facilities, abandoning wells and restoring the affected areas once petroleum reserves are exhausted. Restoration liabilities are discounted to present value and capitalised as a component part of petroleum assets and exploration and evaluation assets. The capitalised costs are amortised over the life of the petroleum assets and the provision revised at the end of each reporting period through the profit or loss as the discounting of the liability unwinds. The unwinding of discounting on the provision is recognised as a finance cost. Estimate of restoration costs The Group estimates the future removal costs of offshore oil and gas platforms, production facilities, wells and pipelines at different stages of the development and construction of assets or facilities. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and liability specific discount rates to determine the present value of these cash flows. The provision amount represents the Group’s current best estimate of its restoration obligations to be performed in the future based on current industry practice and expectations. However this will be dependent on approval by regulatory authorities prior to restoration activities being undertaken and may be subject to change. Annual Report 2018 97 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 13. Provisions continued Estimate of employee entitlements Long service leave is measured at the present value of benefits accumulated up to the end of the reporting period. The liability is discounted using an appropriate discount rate. Management requires judgement to determine key assumptions used in the calculation including future increases in salaries and wages, future on-cost rates and future settlement dates of employees’ departures. Current Other provisions Employee entitlements Restoration Total Non-Current Employee entitlements Restoration Total Movement in the Group’s provisions are set out below: Balance at 1 July 2017 Provision made during the year Provision paid/used during the year Unwind of discount Acquisitions Net transfer to liabilities held for sale Balance at 30 June 2018 CONSOLIDATED 2018 $million 2017 $million 4.3 11.4 23.9 39.6 6.0 760.8 766.8 3.9 5.2 39.5 48.6 1.4 215.0 216.4 Restoration $million Employee entitlements $million Other $million 254.5 39.5 (22.8) 14.9 501.2 (2.6) 784.7 6.6 2.1 (4.0) – 12.7 – 17.4 3.9 0.4 – – – – 4.3 98 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 14. Commitments for expenditure Capital Commitments The Group has contracted the following amounts for capital expenditure at the end of the reporting period for which no amounts have been provided for in the financial statements. Due within 1 year Due within 1-5 years Due later than 5 years Minimum Exploration Commitments The Group is required to meet minimum expenditure requirements of various government regulatory bodies and joint arrangements. These obligations may be subject to renegotiation, may be farmed out or may be relinquished and have not been provided for in the financial statements. Due within 1 year Due within 1-5 years Due later than 5 years CONSOLIDATED 2018 $million 2017 $million 31.1 0.4 – 31.5 56.2 23.5 0.7 80.4 18.3 1.0 – 19.3 7.5 39.9 0.3 47.7 The Group’s share of the above commitments that relate to its interest in joint arrangements are $27.3 million (2017: $17.8 million) for capital commitments and $31.9 million (2017: $32.6 million) for minimum exploration commitments. Operating Commitments The Group has contracted the following amounts for operating expenditure at the end of the reporting period for which no amounts have been provided for in the financial statements. Due within 1 year Due within 1-5 years Due later than 5 years CONSOLIDATED 2018 $million 2017 $million 12.3 1.2 – 13.5 11.4 – – 11.4 Default on permit commitments by other joint arrangement participants could increase the Group’s expenditure commitments over the forthcoming 5 year period and/or result in relinquishment of tenements. Any increase in the Group’s commitments that arises from a default by a joint arrangement party would be accompanied by a proportionate increase in the Group’s equity in the tenement concerned. Annual Report 2018 99 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION FINANCIAL AND RISK MANAGEMENT This section provides details on the Group’s debt and related financing costs, interest income, cash flows and the fair values of items in the Group’s statement of financial position. It also provides details of the Group’s market, credit and liquidity risks and how they are managed. 15. Finances and borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between cost and redemption being recognised in the profit or loss over the period of the borrowings on an effective interest basis. Transaction costs are amortised on a straight line basis over the term of the facility. The unwinding of present value discounting on debt and provisions is also recognised as a finance cost. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Interest income is recognised in the profit or loss as it accrues using the effective interest method and if not received at balance date, is reflected in the balance sheet as a receivable. Net finance expenses/(income) Finance costs 1 Interest expense Discount unwinding on provision for restoration (Note 13) Total finance expenses Interest income Net finance expenses Non-current Borrowings Bank debt Less debt issuance costs Total non-current borrowings CONSOLIDATED 2018 $million 2017 $million 10.6 18.1 14.9 43.6 (7.0) 36.6 950.0 (24.3) 925.7 4.5 5.1 11.3 20.9 (6.9) 14.0 150.0 (2.0) 148.0 1. Includes expensing of $1.3 million in capitalised debt facility costs on cancellation of previous debt facility. On 23 November 2017, Beach executed a Syndicated Debt Facility Agreement for a $1,475 million Senior Secured Debt Facility in order to fund the acquisition of Lattice. The facility is comprised of a $475 million three year term debt facility (Facility A), $475 million five year term debt facility (Facility B), $450 million five year revolving debt facility (Facility C), and $75 million Letter of Credit facility (Facility D). As at 30 June 2018, $475 million of Facility A was drawn, $475 million of Facility B was drawn and Facility C remained fully undrawn, with $48.3 million of Facility D being utilised by way of bank guarantees. Bank debt bears interest at the relevant reference rate plus a margin, with the effective interest rate in FY18 of 3.76% (2017: 3.20%). 100 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 16. Cash flow reconciliation For the purpose of the statement of cash flows, cash includes cash on hand, cash at bank, term deposits with banks, and highly liquid investments in money market instruments, net of outstanding bank overdrafts. Any investments of the Group with fixed maturities are stated at amortised cost using the effective interest rate method where it is the Group’s intention to hold them to maturity. Reconciliation of cash and cash equivalents Cash at bank Term deposits Cash and cash equivalents Reconciliation of net profit to net cash provided by operating activities: Net profit after tax Less items classified as investing/financing activities: – Gain on disposal of non-current assets – Gain on disposal of investments – Gain on sale of joint operation interests – Gain on settlement of restoration obligation – Gain on sale of subsidiary – Gain on adjustments to fair values on acquisition of subsidiary – Recognition of deferred tax assets/(liability) on items direct in equity Add/(less) non-cash items: – Share based payments – Depreciation and amortisation – Impairment expense/(reversal) – Unrealised hedging (gain)/loss – Discount unwinding on provision for restoration – Provision for stock obsolescence movement – Other Net cash provided by operating activities before changes in assets and liabilities Changes in assets and liabilities net of acquisitions / disposal of subsidiaries: – Decrease/(increase) in trade and other receivables – Decrease/(increase) in inventories – Decrease/(increase) in other current assets – Decrease/(increase) in other non-current assets – Decrease/(increase) in deferred tax assets – Increase/(decrease) in provisions – Increase/(decrease) in current tax liability – Increase/(decrease) in deferred tax liability – Increase/(decrease) in trade and other payables – Increase/(decrease) in net derivatives Net cash provided by operating activities CONSOLIDATED 2018 $million 2017 $million 231.2 80.0 311.2 32.3 315.7 348.0 198.8 387.5 (1.0) (5.3) – (15.0) – – 7.8 185.3 1.4 314.5 88.3 (1.3) 14.9 – 5.4 608.5 (56.2) 13.4 0.9 0.7 10.5 (36.8) 90.1 (38.1) 52.1 17.8 662.9 (0.6) – (3.7) – (46.9) (1.4) (2.3) 332.6 0.7 171.5 (108.6) 3.6 11.3 0.8 2.2 414.1 (35.9) 26.4 (0.9) 0.7 (79.3) (6.4) 9.4 – (9.1) – 319.0 Annual Report 2018 101 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 17. Financial risk management The Group’s activities expose it to a variety of financial risks including currency, commodity, interest rate, credit and liquidity risk. Management identifies and evaluates all financial risks and enters into financial risk instruments such as foreign exchange contracts, commodity contracts and interest rate swaps to hedge certain risk exposures and minimise potential adverse effects of these risk exposures in accordance with the Group’s financial risk management policy as approved by the Board. The Group does not trade in derivative financial instruments for speculative purposes. The Board actively reviews all hedging on a regular basis with updates provided to the Board from independent consultants/banking analysts to keep them fully informed of the current status of the financial markets. Reports providing detailed analysis of all hedging are also continually monitored against the Group’s financial risk management policy. Financial instruments are initially measured at fair value, net of transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below: Financial assets at fair value through profit or loss: A financial asset is classified in this category if acquired principally for the purpose of selling in the near term. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in profit or loss in the period in which they arise. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. Held-to-maturity investments: These investments have fixed maturities, and it is the Group’s intention to hold these investments to maturity. Any held-to-maturity investments of the Group are stated at amortised cost using the effective interest rate method. Available-for-sale financial assets: Available for sale financial assets include any financial assets not capable of being included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified to profit or loss. Financial liabilities: Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Fair value: Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment: At each reporting date, the consolidated entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are transferred from the available for sale reserve to be recognised in the profit or loss. (a) Fair values Certain assets and liabilities of the Group are recognised in the statement of financial position at their fair value in accordance with accounting standard AASB 13 Fair Value Measurement. The methods used in estimating fair value are made according to how the available information to value the asset or liability fits with the following fair value hierarchy: § Level 1 – the fair value is calculated using quoted prices in active markets; § Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability; and § Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. 102 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 The Group’s financial assets and financial liabilities measured and recognised at fair value is set out below: CARRYING AMOUNT FAIR VALUE – DERIVATIVES LOANS AND RECEIVABLES AVAILABLE- FOR-SALE OTHER FINANCIAL ASSETS/LIABILITIES TOTAL Note 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million Financial assets Measured at fair value Derivatives Available-for-sale Not measured at fair value Cash Receivables Other Financial liabilities Measured at fair value Derivatives Not measured at fair value Payables Interest bearing liabilities 15 19.0 – 19.0 0.8 – 0.8 – – – – 47.0 47.0 – – – – – – – 1.1 1.1 – – – – – – – – – – – 273.5 116.0 – – 273.5 116.0 – – – – – – – – – – – – – – – – – – – – – – – 44.4 44.4 – – – – – – 19.0 – 19.0 0.8 44.4 45.2 – – – – – – – – – 311.2 348.0 311.2 273.5 10.2 348.0 116.0 11.4 – 11.4 359.4 594.9 475.4 – 10.2 321.4 – – – – 47.0 47.0 1.1 1.1 311.1 66.5 311.1 66.5 950.0 1,261.1 150.0 216.5 950.0 1,261.1 150.0 216.5 The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period. The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments: Derivative financial instruments Derivative financial instruments are initially recognised at fair value. Subsequent to initial recognition, derivative financial instruments are recognised at fair value using valuation techniques that maximise the use of observable market data where it is available with any gain or loss on re-measurement to fair value being recognised through profit or loss or other comprehensive income (OCI) and later reclassified to profit or loss when the hedge item affects profit or loss. The Group’s derivatives are not traded in active markets, however all significant inputs required to fair value an instrument are observable (Level 2). Cash Flow Hedging The Group has designated 2,782,350 bbls of Brent Crude oil monthly average collar for $55-100-110/bbl, allocated as 481,950 bbls/month for July 2018 – September 2018 and 222,750 bbls/month for October 2018 – March 2019, as cash flow hedges under AASB 139. The Australian dollar oil option collar contracts are designated as cash flow hedges of forecast crude oil sales in US dollars, with the hedge effective component of the fair value included in OCI. These forecast transactions are considered highly probable, comprising about 41% of the Group’s total expected oil sales in US dollars to June 2019. The cash flow hedges were assessed to be highly effective and a net unrealised loss of $14.4 million is included in OCI. The Group’s cash flow hedges are not traded in active markets, however all significant inputs required to fair value an instrument are observable (Level 2). Available-for-sale financial assets The fair value of available-for-sale financial assets is determined by reference to their quoted closing price at the reporting date (Level 1). These investments are measured at fair value using the closing price on the reporting date as listed on various securities exchanges. Unrealised gains and losses arising from changes in fair value are taken directly to equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified to the profit or loss. The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 June 2018 and there have been no transfers between the levels of the fair value hierarchy during the year ended 30 June 2018. Annual Report 2018 103 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 17. Financial risk management continued The Group also has a number of other financial assets and liabilities including cash and cash equivalents, receivables and payables which are recorded at their carrying value which is considered to be a reasonable approximation of their fair value. (b) Market Risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group sells a portion of its products and commits to some contracts in US dollars or NZ dollars. Australian dollar oil option contracts are used by the Group to manage its foreign currency risk exposure. Any foreign currencies held which are surplus to forecast needs are converted to Australian dollars as required. The Group is exposed to commodity price fluctuations through the sale of petroleum products and other oil-linked contracts. Option contracts are used by the Group to manage its forward commodity risk exposure. The Group policy is to manage commodity price exposure by way of Australian dollar denominated oil options for up to 18 months. Changes in fair value of these derivatives are recognised immediately in the profit or loss and other comprehensive income, having regard to whether they are defined as accounting hedges. Commodity Hedges outstanding at 30 June 2018 § Brent Crude oil monthly average collar for $40-90-105/bbl for 65,000 bbls/month for the period July 2018 – September 2018 and 30,000 bbls/month for the period October 2018 – December 2018. § Brent Crude oil monthly average collar for $40-90-100/bbl for 95,000 bbls/month for the period July 2018 – September 2018, 65,000 bbls/month for the period October 2018 – December 2018 and 32,500 bbls/month for the period January 2019 – March 2019. § Brent Crude oil monthly average collar for $40-102.5-112.5/bbl for 60,000 bbls/month for the period July 2018 – March 2019 and 30,000 bbls/month for the period April 2019 – June 2019. § Brent Crude oil monthly average collar for $55-100-110/bbl for 595,000 bbls/month for the period July 2018 – September 2018 and 275,000 bbls/month for the period October 2018 – March 2019. Commodity Hedges outstanding at 30 June 2017 § Brent Crude oil monthly average collar for $40-102/bbl for 57,500 bbls/month for the period July 2017 – March 2018. § Brent Crude oil monthly average 3-way collar for $50-96-106/bbl for 42,500 bbls/month for the period July 2017 – September 2017, 37,500 bbls/month for the period October 2017 – December 2017, 30,000 bbls/month for the period January 2018 – March 2018 and 25,000 bbls/month for the period April 2018 – June 2018. § Brent Crude oil monthly average collar for $40-90/bbl for 55,000 bbls/month for the period October 2017 – December 2017, 110,000 bbls/month for the period January 2018 – June 2018, 65,000 bbls/month for the period July 2018 – September 2018 and 30,000 bbls/month for the period October 2018 – December 2018. The Group’s interest rate risk arises from the interest bearing cash held on deposit and its bank loan facility which is subject to variable interest rates. The interest rate profile of the Group’s interest-bearing financial instruments is as follows: Fixed rate instruments: Term deposits Variable rate instruments: Financial assets Bank loan facility CONSOLIDATED 2018 $million 2017 $million 80.0 80.0 231.2 (950.0) (718.8) 315.7 315.7 32.3 (150.0) (117.7) Sensitivity analysis for all market risks The following table demonstrates the estimated sensitivity to changes in the relevant market parameter, with all variables held constant, on post tax profit and equity, which are the same as the profit impact flows through to equity. These sensitivities should not be used to forecast the future effect of a movement in these market parameters on future cash flows which may be different as a result of the Group commodity hedge book. 104 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Impact on post-tax profit and equity A$/$US – 10% increase in Australian/US dollar exchange rate A$/$US – 10% decrease in Australian/US dollar exchange rate US$ oil price – increase of $10/bbl US$ oil price – decrease of $10/bbl Interest rates – increase of 1% Interest rates – decrease of 1% CONSOLIDATED 2018 $million 2017 $million (39.1) 47.0 57.2 (61.6) (0.7) 0.7 (24.6) 30.0 51.4 (51.1) 0.9 (0.9) (c) Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions, and represents the potential financial loss if counterparties fail to perform as contracted. Management monitors credit risk on an ongoing basis. Gas sales contracts are spread across major Australian and New Zealand energy retailers and industrial users with liquid hydrocarbon products sales being made to major multi-national energy companies based on international market pricing. In addition, receivables balances are monitored on an ongoing basis with the result that Beach’s exposure to bad debts is not significant. The Group does not hold collateral, nor does it securitise its trade and other receivables. At 30 June 2018, Beach does not have any material trade and other receivables which are outside standard trading terms which have not been provided against. Ageing of Receivables: Receivables not yet due Receivables past due Considered impaired Total Receivables CONSOLIDATED 2018 $million 2017 $million 272.1 1.8 (0.4) 273.5 116.0 0.4 (0.4) 116.0 Trade debtors to be settled within agreed terms are carried at amounts due. The collectability of debts is assessed at the end of the reporting period and specific provision is made for any doubtful accounts. The Group manages its credit risk on financial assets by predominantly dealing with counterparties with an investment grade credit rating. Customers who wish to trade on unsecured credit terms are subject to credit verification procedures. Cash is placed on deposit amongst a number of financial institutions to minimise the risk of counterparty default. (d) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims at maintaining flexibility in funding to meet ongoing operational requirements, exploration and development expenditure, and small-to-medium-sized opportunistic projects and investments, by keeping committed credit facilities available. Details of Beach’s financing facilities are outlined in Note 15. The Group’s exposure to liquidity risk for each class of financial liabilities is set out below: CARRYING AMOUNT LESS THAN 1 YEAR 1 TO 2 YEARS 2 TO 5 YEARS TOTAL Note 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million 2018 $million 2017 $million Financial liabilities Payables Interest bearing liabilities 15 293.3 – 293.3 66.5 – 66.5 17.8 – 17.8 – 150.0 150.0 – 950.0 950.0 – – – 311.1 950.0 1,261.1 66.5 150.0 216.5 Annual Report 2018 105 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION EQUITY AND GROUP STRUCTURE This section provides information which will help users understand the equity and group structure as a whole including information on equity, reserves, dividends, subsidiaries, the parent company, related party transactions and other relevant information. 18. Contributed equity Ordinary shares are classified as equity. Transaction costs of an equity transaction are accounted for as a reduction to the proceeds received, net of any related income tax benefit. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Issued and fully paid ordinary shares at 30 June 2016 Issued during the FY17 financial year Shares issued on vesting of unlisted performance rights Shares issued under the terms of the Dividend Reinvestment Plan Interim 1.0 cent per share dividend Final 0.5 cent per share dividend Repayment of employee loans and sale of employee shares Issued and fully paid ordinary shares at 30 June 2017 Issued during the FY18 financial year Shares issued on vesting of unlisted performance and CEO rights Rights issue (3 for 14 pro-rata entitlement offer, net of costs) Repayment of employee loans and sale of employee shares Issued and fully paid ordinary shares at 30 June 2018 Number of Shares $million 1,860,704,532 1,548.7 643,536 8,151,724 4,312,692 – – 5.7 2.3 1.8 1,873,812,484 1,558.5 1,213,891 401,543,843 – – 297.3 3.3 2,276,570,218 1,859.1 In accordance with changes to applicable corporations legislation effective from 1 July 1998, the shares issued do not have a par value as there is no limit on the authorised share capital of the Company. All shares issued under the Company’s employee incentive plan are accounted for as a share-based payment (refer Note 4 and 19 for further details). Shares issued under the Company’s dividend reinvestment plan and employee incentive plan represent non-cash investing and financing activities. On a show of hands, every person qualified to vote, whether as a member or proxy or attorney or representative, shall have one vote. Upon a poll, every member shall have one vote for each ordinary share held. Details of shares and rights issued and outstanding under the Employee Incentive Plan and Executive Incentive Plan are provided in Note 4. Dividend Reinvestment Plan The Board suspended the operation of the Dividend Reinvestment Plan on 21 August 2017 on the basis that this form of capital management is not currently required at this time. Capital management Management is responsible for managing the capital of the Group, on behalf of the Board, in order to maintain an appropriate debt to equity ratio, provide shareholders with adequate returns and ensure the Group can fund its operations with secure, cost-effective and flexible sources of funding. The Group debt and capital includes ordinary shares, borrowings and financial liabilities including derivatives supported by financial assets. Management effectively manages the capital of the Group by assessing the financial risks and adjusting the capital structure in response to changes in these risks and in the market. The responses include the management of debt levels, dividends to shareholders and share issues. Debt repayment is currently a key priority for the Group in order to bring net gearing levels in line with market guidance. The Group net gearing ratio is 25.9% (2017: net cash). Net gearing has been calculated as financial liabilities (including borrowings and unsecured bank guarantees) less cash and cash equivalents, as a proportion of these items plus shareholder’s equity. 106 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 19. Reserves The Share based payments reserve is used to recognise the fair value of shares, options and rights issued to employees of the Company. The Available-for-sale reserve is used to recognise changes in the fair value of available for sale financial assets. Amounts are recognised in the profit or loss when the associated assets are sold or impaired. The Foreign currency translation reserve is used to record foreign exchange differences arising from the translation of the financial statements of subsidiaries with functional currencies other than Australian dollars. The Profit distribution reserve represents an amount allocated from retained earnings that is preserved for future dividend payments. The Hedging reserve is used to capture the effective portion of the mark to market movement of instruments designated in a hedge relationship. Share based payments reserve Available-for-sale reserve Foreign currency translation reserve Profit distribution reserve Hedging reserve Total reserves CONSOLIDATED 2018 $million 2017 $million 30.6 – 17.4 172.4 (10.1) 210.3 29.1 14.9 15.8 172.4 – 232.2 20. Dividends A provision is recognised for dividends when they have been announced, determined or publicly recommended by the directors on or before the reporting date. Final dividend of 1.0 cent (2017: 0.5 cents) Interim dividend of 1.0 cent (2017: 1.0 cent) Total dividends paid or payable Franking credits available in subsequent financial years based on a tax rate of 30% (2017 – 30%) CONSOLIDATED 2018 $million 2017 $million 18.7 22.8 41.5 47.5 9.3 18.7 28.0 51.6 Annual Report 2018 107 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 21. Subsidiaries Name of Company Beach Energy Limited 1,2 Beach Petroleum (NZ) Pty Ltd Beach Oil and Gas Pty Ltd Beach Production Services Pty Ltd Beach Petroleum (Cooper Basin) Pty Ltd Beach Petroleum (CEE) s.r.l Beach (Tanzania) Pty Ltd Beach Petroleum (Tanzania) Limited Beach (USA) Inc 3 Beach Petroleum (NT) Pty Ltd Territory Oil & Gas Pty Ltd Adelaide Energy Pty Ltd Australian Unconventional Gas Pty Ltd Deka Resources Pty Ltd Well Traced Pty Ltd Australian Petroleum Investments Pty Ltd 1,2 Delhi Holdings Pty Ltd Delhi Petroleum Pty Ltd 1,2 Impress Energy Pty Ltd 1,2 Impress (Cooper Basin) Pty Ltd 1,2 Springfield Oil and Gas Pty Ltd 1,2 Mazeley Ltd Mawson Petroleum Pty Ltd Claremont Petroleum (PNG) Ltd Drillsearch Energy Pty Ltd 1,2 Circumpacific Energy (Australia) Pty Ltd Drillsearch Gas Pty Ltd Drillsearch (Field Ops) Pty Ltd Drillsearch (Finance) Pty Ltd 4 Drillsearch Energy (PNG) Ltd Kun Yick International Ltd 4 Drillsearch (513) Pty Ltd Drillsearch (Central) Pty Ltd Ambassador Oil & Gas Pty Ltd Ambassador (US) Oil & Gas LLC Ambassador Exploration Pty Ltd Acer Energy Pty Ltd Great Artesian Oil & Gas Pty Ltd 1,2 Lattice Energy Limited 2 Lattice Energy Resources (Perth Basin) Pty Ltd 2 Lattice Energy Resources (Bonaparte) Pty Ltd Lattice Energy Resources (Bass Gas) Limited Lattice Energy Services Pty Ltd Lattice Energy Finance Pty Ltd Beach Energy Resources NZ (Holdings) Limited 5 Beach Energy Resources NZ (Kupe) Limited 6 Beach Energy (Kupe) Limited 7 Kupe Mining (No.1) Limited Beach Energy Resources NZ (Tawn) Limited 8 Lattice Energy Resources (Otway) Limited 9 Place of incorporation South Australia South Australia New South Wales South Australia Victoria Romania Victoria Tanzania USA Victoria Northern Territory South Australia South Australia South Australia South Australia Victoria Victoria South Australia Western Australia Victoria Western Australia Liberia Queensland Papua New Guinea Victoria New South Wales Queensland New South Wales Victoria Papua New Guinea Hong Kong New South Wales Victoria Victoria USA Victoria Queensland New South Wales South Australia Australian Capital Territory South Australia UK Victoria Victoria New Zealand New Zealand New Zealand New Zealand New Zealand UK PERCENTAGE OF SHARES HELD % 2018 % 2017 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – – All shares held are ordinary shares, other than Mazeley Ltd which is held by a bearer share. 1. Company in Closed Group in FY17 (refer Note 22). 2. Company in Closed Group in FY18 (refer Note 22). 3. Voluntary dissolution of Beach USA Inc. authorized on 11 February 2016, to be finalized 11 February 2019. 4. Company liquidated and deregistered/dissolved during FY18. 5. Changed from Lattice Energy Resources NZ (Holdings) Ltd on 21 March 2018. 6. Changed from Lattice Energy Resources NZ (Kupe) Ltd on 21 March 2018. 7. Changed from Kupe Development Ltd on 21 March 2018. 8. Changed from Lattice Energy Resources NZ (Tawn) Ltd on 21 March 2018. 9. Changed from Toyota Tsusho Gas E&P Otway Ltd on 26 June 2018. 108 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 22. Deed of cross guarantee Pursuant to ASIC (wholly-owned companies) Instrument 2016/785, certain wholly-owned subsidiaries can be relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Beach and each of the subsidiaries that opted for relief during the year (the Closed Group) entered into a Deed of Cross Guarantee (Deed). The effect of the Deed is that Beach has guaranteed to pay any deficiency in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. The Subsidiaries have also given a similar guarantee in the event that Beach is wound up. Those companies in the Closed Group for each year are referred to in Note 21. The consolidated statement of profit or loss and other comprehensive income, summary of movements in retained earnings/(accumulated losses) and statement of financial position of the Closed Group are as follows: Consolidated Statement of Profit or Loss and Other Comprehensive Income Sales revenue Cost of sales Gross profit Other revenue Other income Other expenses 1 Operating profit before financing costs Interest income Finance expenses Profit before income tax expense Income tax benefit/(expense) Profit after tax for the year Other comprehensive income/(loss) Net change in fair value of available for sale financial assets Net change in hedging reserves Tax effect relating to components of Other Comprehensive Income Other comprehensive income/(loss) net of tax Total comprehensive income/(loss) after tax Summary of movements in the Closed Group’s retained earnings/(accumulated losses) Accumulated losses at beginning of the year Net profit for the year 1 Change in Closed Group entities Dividends paid to shareholders Accumulated losses at end of the year 1. Includes adjustment to 2017 impairment reversal of $1.8 million. CLOSED GROUP 2018 $million 2017 $million 1,147.3 (714.4) 432.9 13.6 22.3 (375.0) 93.8 6.6 (40.7) 59.7 (19.4) 40.3 (17.2) (14.4) 6.6 (25.0) 15.3 (261.7) 40.3 – (41.5) (262.9) 639.6 (460.5) 179.1 25.0 – 69.7 273.8 6.8 (20.2) 260.4 81.3 341.7 13.8 – (2.2) 11.6 353.3 (1,156.8) 341.7 572.1 (18.7) (261.7) Annual Report 2018 109 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 22. Deed of cross guarantee continued Consolidated Statement of Financial Position Current assets Cash and cash equivalents Receivables Inventories Derivative financial instruments Other Assets held for sale Total current assets Non-current assets Receivables Available-for-sale financial assets Other property, plant and equipment Petroleum assets 1 Exploration and evaluation assets Goodwill Deferred tax assets Derivative financial instruments Other financial assets Total non-current assets Total assets Current liabilities Payables Provisions Current tax liability Derivative financial instruments Liabilities held for sale Total current liabilities Non-current liabilities Payables Provisions Interest bearing liabilities Derivative financial instruments Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 1. Includes adjustment to 2017 impairment reversal of $1.8 million. 110 Beach Energy Limited | ABN 20 007 617 969 CLOSED GROUP 2018 $million 2017 $million 193.5 265.5 90.4 19.0 6.4 21.2 596.0 – – 5.5 2,426.2 357.3 37.2 110.4 – 372.1 3,308.7 3,904.7 263.4 20.9 62.3 47.0 – 393.6 152.5 643.8 925.7 – 1,722.0 2,115.6 1,789.1 347.5 125.0 49.6 0.6 5.5 1.6 529.8 59.2 44.4 413.0 555.6 187.7 – 84.4 0.2 109.5 1,454.0 1,983.8 70.0 41.6 10.1 0.6 0.4 122.7 – 199.3 148.0 0.5 347.8 470.5 1,513.3 1,859.1 192.9 (262.9) 1,789.1 1,558.5 216.5 (261.7) 1,513.3 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 23. Parent entity financial information Selected financial information of the parent entity, Beach Energy Limited, is set out below: Financial performance Net (loss)/profit after tax Other comprehensive (loss)/income, net of tax Total comprehensive (loss)/income after tax Total current assets Total assets Total current liabilities Total liabilities Issued capital Share based payments reserve Available-for-sale reserve Profits distribution reserve Hedging reserve Retained earnings Total equity PARENT 2018 $million (38.2) (14.9) (53.1) 154.1 2,344.4 201.1 1,168.3 1,859.1 30.6 – 172.4 (10.1) (875.9) 1,176.1 2017 $million 207.4 11.5 218.9 528.6 1,223.7 67.2 245.0 1,558.5 29.1 14.8 172.4 0.0 (796.1) 978.7 Expenditure Commitments The Company’s contracted expenditure at the end of the reporting period for which no amounts have been provided for in the financial statements. Capital expenditure commitments Minimum exploration commitments Operating commitments 0.4 14.2 0.2 1.5 29.1 0.1 Contingent liabilities and guarantees Details of contingent liabilities for the Company in respect of service agreements, bank guarantees and parent company guarantees are disclosed in Note 27. Beach Energy Limited and a number of its wholly owned subsidiaries are parties to a Deed of Cross Guarantee as disclosed in Note 22. The effect of the Deed is that Beach Energy Limited has guaranteed to pay any deficiency in the event of winding up of any of the listed subsidiary companies under certain provisions of the Corporations Act 2001. Parent entity financial information has been prepared using the same accounting policies as the consolidated financial statements. Investments in controlled entities are included in other financial assets and are initially recorded in the financial statements at cost. These investments may have subsequently been written down to their recoverable amount determined by reference to the net assets of the controlled entities at the end of the reporting period where this is less than cost. Annual Report 2018 111 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 24. Related party disclosures Transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Remuneration for Key Management Personnel Short term benefits Share based payments Other long term benefits Total Subsidiaries Interests in subsidiaries are set out in Note 21. CONSOLIDATED 2018 $ 2017 $ 7,020,807 1,778,536 (28,649) 7,323,732 658,164 140,481 8,770,694 8,122,377 Transactions with other related parties During the financial year ended 30 June 2018, Beach used the legal services of DMAW Lawyers, a legal firm of which the Chairman, Mr Davis is a principal. Beach paid $48,231 during the financial year (FY17: $64,742) to DMAW lawyers for legal services. Directors fees payable to Mr Davis for the year ended 30 June 2018 of $275,000 (FY17: $250,000) were also paid directly to DMAW Lawyers. During the current financial year Beach paid $16,500 (FY17: $33,000) to Energy Insights (a company owned by Mr Rayner, a former Beach executive) for office rental in Brisbane. During the current financial year Beach paid USD $1,973,472 to Central Petroleum Mereenie Pty Ltd, an entity of which director, Peter Moore is also a director, for the purchase of crude oil on commercial terms. Beach also paid $227,905 to Coates Hire Operations Pty Ltd, an entity of which Ryan Stokes is also a director, for the hire of equipment on arms length commercial terms. Entities controlled by Seven Group Holdings Limited (SGH) agreed to sub-underwrite the institutional and retail tranches of Beach’s 3 for 14 Entitlement Offer in September 2017 for up to 68,260,311 New Shares (“Sub-Underwriting Cap”). SGH received an arm’s length fee for its sub-underwriting commitment which is materially the same as paid by the Underwriters to other institutional sub-underwriters 25. Disposal group held for sale The head office building was shown as held for sale at 30 June 2018 with its carrying value impaired by $1.2 million down to the sale price less costs to sell of $21.2 million. The sale completed on 12 July 2018. Beach also entered into a sale agreement in FY18 for exploration permit EP 126 in the Bonaparte basin. This transaction is expected to be completed in FY19. In July 2017 Beach entered into a sale agreement in relation to certain Queensland gas permits (PL184 and ATP932). During the prior year the carrying value of these permits was impaired down to the expected sale price less costs to sell and reclassified as an asset held for sale. The sale was completed during FY18. Assets and liabilities of disposal groups held for sale BONAPARTE QUEENSLAND GAS CORPORATE TOTAL Jun 2018 $million Jun 2017 $million Jun 2018 $million Jun 2017 $million Jun 2018 $million Jun 2017 $million Jun 2018 $million Jun 2017 $million Property, plant and equipment Exploration Assets held for sale Provisions Liabilities held for sale – – – 2.6 2.6 – – – – – – – – – – – 1.7 1.7 0.4 0.4 21.2 – 21.2 – – – – – – – 21.2 – 21.2 2.6 2.6 – 1.7 1.7 0.4 0.4 112 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 In the previous financial year, Beach completed the sale of Beach Petroleum (Egypt) Pty Ltd (Beach Egypt), whose core asset was a 22% interest in the Abu Sennan Concession, to Rockhopper. Beach received cash consideration of US$20.5 million and also received a post completion adjustment of US$6.7m. The disposal had the following effect on the consolidated entity: Profit on sale Cash consideration Receivables Post completion adjustment Total consideration received Less assets and liabilities disposed Assets held for sale Liabilities held for sale Net assets disposed Release of cumulative gain on historic translation of Beach Egypt included in OCI Transaction costs and other adjustments Profit on sale Cash flow on disposal Net cash disposed with the subsidiary Cash consideration (excluding deposit received in prior year) Post completion adjustment Cash received from outstanding receivable on sale Cash outflows paid prior to sale Net cash flow on disposal 2017 $million 15.6 9.8 8.9 34.3 (39.4) 0.8 (38.6) 53.7 (2.5) 46.9 – 14.0 8.9 1.6 (1.6) 22.9 26. Business combination The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments issued or liabilities incurred or assumed at the date of exchange. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Transaction costs incurred in relation to the business combination are expensed as incurred to the Statement of Profit or Loss. The excess of the cost of acquisition over the fair value of the consolidated entity’s share of the identifiable net assets acquired is recorded as goodwill. During the financial year, Beach acquired the Lattice Energy Group, Benaris’ interest in the Otway Gas Project and Toyota Tsusho corporations interest in the Otway Gas Project and the BassGas project. Beach acquired these interests for $1,532 million in consideration with an effective accounting acquisition date of 1 January 2018. Lattice was Origin’s conventional upstream oil and gas business that has interests in the offshore Victorian (OGP and BassGas), onshore Cooper Basin (SACB JV and SWQ JVs), onshore Perth Basin (Waitsia development project and Beharra Springs) and offshore New Zealand (Kupe) operations, as well as exploration exposure in the Bonaparte (offshore Western Australia) and Canterbury basin (New Zealand). Lattice also has ownership interests in a number oil and gas processing facilities, transportation flowlines and trunklines that deliver product to the Australian East Coast, West Coast and New Zealand gas markets. The Lattice acquisition included the acquisition of Benaris’ 27.77% interest in OGP for which Origin had entered into a binding purchase agreement and the Toyota Tsusho transaction increased Beach’s ownership in OGP to 100% and BassGas Project to 53.75%. Annual Report 2018 113 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 26. Business combination continued These acquisitions have transformed Beach from a Cooper Basin oil and gas producer and explorer to a multi-basin producer and explorer with significant development potential and had the following effect on the consolidated entity: Purchase consideration Fair value of net assets acquired Goodwill on acquisition Fair Value of assets acquired Assets and liabilities held at acquisition date: – Cash – Receivables – Inventory – other current assets – Petroleum assets – Exploration and evaluation assets – Current payables – Current provisions – Non current payables – Restoration liabilities – Deferred tax liabilities – Other non-current provisions Net assets Cash consideration Less cash acquired on acquisition Net cashflow on acquisition $million 1,532.0 1,448.1 83.9 79.0 93.8 57.7 4.8 1,594.5 436.3 (163.6) (17.6) (46.6) (501.1) (83.8) (5.3) 1,448.1 (1,532.0) 79.0 (1,453.0) The Statement of Profit or Loss includes acquisition and integration costs incurred during the period of $50.1 million for both acquisitions. In the full year to 30 June 2018, Lattice and Toyota Tsusho interests acquired contributed $457 million to group revenues and $119 million profit to the consolidated profit before tax. Had the acquisition occurred on 1 July 2017 the Lattice and Toyota Tsusho interests acquired would have contributed $880 million to group revenues and $233 million profit to the consolidated profit before tax. Goodwill arising from the acquisition has been recognised as the excess of the consideration paid above the fair value of the assets acquired and liabilities assumed as a part of the business combination. The goodwill is attributable to the deferred tax liability recognised on the acquisition. None of the goodwill recognised is expected to be deductible for tax purposes. Due to the size and complexity of this acquisition, the acquisition accounting is not yet complete and accordingly the assets acquired and liabilities assumed are measured on a provisional basis. If new information obtained within twelve months from the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the accounting for the acquisition will be revised. 114 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 OTHER INFORMATION Additional information required to be disclosed under Australian Accounting Standards. 27. Contingent liabilities The directors are of the opinion that the recognition of a provision is not required in respect of the following matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Service agreements Service agreements exist with other executive officers under which termination benefits may, in appropriate circumstances, become payable. The maximum contingent liability at 30 June 2018 under the service agreements for the other executive officers is $1,761,500 (2017: $2,360,437). Bank guarantees As at 30 June 2018, Beach has provided $52.5 million of bank guarantees or letters of credit as security predominantly for our environmental obligations and work programs. Beach has been provided with a $75 million letter of credit facility, of which $48.3 million had been utilised by way of bank guarantees (refer Note 15 for further details on the corporate debt facility) with the remaining $4.2 million of bank guarantees being provided by an unsecured facility. Joint Venture Operations In the ordinary course of business, the Group participates in a number of joint ventures which is a common form of business arrangement designed to share risk and other costs. Failure of the Group’s joint venture partners to meet financial and other obligations may have an adverse financial impact on the Group. Tax obligations In the ordinary course of business, the Group is subject to audits from government revenue authorities which could result in an amendment to historical tax positions. Parent Company Guarantees Beach has provided parent company guarantees in respect of performance obligations for certain exploration interests. Annual Report 2018 115 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION 28. Remuneration of auditors Audit services Amounts received or due and receivable by Ernst & Young for: – auditing or reviewing the financial statements of the group – auditing the financial statements for subsidiaries – auditing of joint operation financial statements and royalty returns Amounts received or due and receivable by KPMG and other firms for: – auditing or reviewing the financial statements of the group – auditing of joint operation financial statements and royalty returns – auditing the financial statements for subsidiaries Total audit services Other services Amounts received or due and receivable by KPMG for: – tax services Australia – tax and other services for overseas subsidiaries Amounts received or due and receivable by Ernst & Young for: – transaction services for Lattice acquisition before their appointment as auditor – transaction services for Lattice acquisition after their appointment as auditor – other services before their appointment as auditor Total other services CONSOLIDATED 2018 $000 2017 $000 768 115 62 945 100 59 23 1,127 – – 1,360 115 51 1,526 – – – – 488 62 127 677 22 88 – – – 110 29. Subsequent events There has not arisen in the interval between 30 June 2018 and up to the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years, unless otherwise noted in the financial report. 116 Beach Energy Limited | ABN 20 007 617 969 NOTES TO THE FINANCIAL STATEMENTSNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 INDEPENDENT AUDITOR’S REPORT Ernst & Young 121 King William Street Adelaide SA 5000 Australia GPO Box 1271 Adelaide SA 5001 Tel: +61 8 8417 1600 Fax: +61 8 8417 1775 ey.com/au Independent Auditor's Report to the Members of Beach Energy Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Beach Energy Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Annual Report 2018 117 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION INDEPENDENT AUDITOR’S REPORT 1. Acquisition of Lattice Energy Limited Why significant How our audit addressed the key audit matter On 1 January 2018 the Group completed the acquisition of Lattice Energy Limited (“Lattice”) and Toyota Tsusho (“Toyota”) interest in the Otway Gas Project and BassGas project. As disclosed in Note 26 of the financial report, the Group acquired total assets of $2,266 million, assumed total liabilities of $818 million and recognised total goodwill of $84 million. As at 30 June 2018, as out lined in Note 26, the acquisition accounting balances remains provisional as permitted under Australian Accounting Standards. The accounting for the acquisition was considered a key audit matter due to the magnitude of the assets acquired and consideration paid and the judgement required by the Group to measure the fair values of the following assets acquired and liabilities assumed: Our audit procedures included the following: • • • • Considered the accounting acquisition date applied with reference to achievement of control over the acquired business interests. Evaluated the Group’s determination of the purchase consideration paid with reference to the underlying share sale agreements and cash consideration paid. Evaluated the qualifications, competence and objectivity of external experts used by the Group to determine the fair value of Property Plant and Equipment, Petroleum Assets and Restoration Liabilities. Assessed the fair value of petroleum assets, property, plant and equipment assets and exploration and evaluation assets, with the assistance of our valuation specialists, including: • • • • • • • Property, plant and equipment; Petroleum assets; Exploration and evaluation Assets; Restoration liabilities; Contingent liabilities and commitments; Deferred tax assets and liabilities; Stamp duty liabilities; and • Working capital balances. • • • • • Considered whether the modelling methodology applied was in accordance with the requirements of Australian Accounting Standards; Assessed the property plant and equipment valuations for surface assets in accordance with a replacement cost methodology appropriate to the industry; Performed valuation cross checks on the acquired exploration and evaluation assets with reference to resource multiples; Assessed the assumptions used by comparing key assumptions such as oil and gas prices, discount rates, inflation rates, and foreign exchange rates to gas sales agreements and external market data, and performed sensitivity analysis using a range of assumptions; Assessed the operating cost forecasts and capital expenditure forecasts against costs incurred to date and trend analysis. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 118 Beach Energy Limited | ABN 20 007 617 969 Why significant How our audit addressed the key audit matter • Assessed restoration provision fair values, with the assistance of our restoration specialists, as follows: • • • • Examined third party restoration cost estimates; Assessed the cost estimate methodologies adopted and contingency rates included; Assessed legislative regulatory requirements; Assessed the discount rate applied with reference to long term bond rates. • • • Involved our taxation specialists in the assessment of the fair value calculations as follows: • • Considered the calculation of stamp duty payable on acquisition; Considered the accounting for the tax effects on the acquisition accounting. Assessed the identification and measurement of acquired contingent liabilities and onerous contracts. Agreed the working capital balances acquired, and corresponding fair value adjustments, to bank statements, invoices, operator statements and information provided by the vendor. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Annual Report 2018 119 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION INDEPENDENT AUDITOR’S REPORT 2. Carrying value of petroleum assets Why significant How our audit addressed the key audit matter At 30 June 2018 the Group had oil and gas petroleum assets of $2,710 million. Australian Accounting Standards require the Group to assess throughout the reporting period whether there is any indication that an asset may be impaired. If any indication exists, the Group must estimate the recoverable amount of the asset. At year end, the Group has concluded, based on this assessment, that there were no indicators of impairment or reversal of previous impairment for any of its Cash Generating Units (CGUs). As a result no impairment or reversal of impairment was recognised during the year. The assessment of indicators of impairment and reversal of impairment is complex and highly judgmental, and includes modelling a range of assumptions and estimates that are affected by expected future performance and market conditions. Accordingly, this matter was considered to be a key audit matter. Key assumptions, judgements and estimates used in the Group’s assessment of impairment and reversal of impairment of non-current assets are set out in the financial report in notes 9 and 12. Our audit procedures included the following: • • • • • Evaluated the assumptions, methodologies and conclusions used by the Group in assessing for indicators of impairment, in particular, those relating to the determination of CGUs, forecast cash flows and inputs used to formulate them. This included assessing, in conjunction with our valuation specialists, the discount rates, foreign exchange rates and commodity prices with reference to market prices (where available), market research, market practice, market indices, broker consensus and historical performance. Used the work of the Group’s internal and external experts with respect to the hydrocarbon reserve assumptions used in the cash flow forecasts. This included understanding the reserve estimation processes carried out, and assessing the qualifications, competence and objectivity of the Group’s experts, the scope and appropriateness of their work. Analysed cost assumptions against historical performance and the latest approved budgets and forecasts. Considered the Group’s market capitalisation. Considered the carrying value of producing assets against recent comparable market transactions and the market value of comparable companies, where available. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 120 Beach Energy Limited | ABN 20 007 617 969 3. Impairment assessment of capitalised exploration and evaluation expenditure Why significant How our audit addressed the key audit matter During the period ended 30 June 2018, the Group recorded an impairment charge of $87 million in respect of capitalised exploration and evaluation assets, leaving the Group with remaining capitalised exploration and evaluation expenditure of $479 million at 30 June 2018. The carrying value of exploration and evaluation assets is impacted by the Group’s ability, and intention, to continue to explore its areas of interest. The Group is required to assess whether any indicators of impairment are present. Given the magnitude of the impairment charge and the complex and judgmental nature of impairment indicator assessments, this was considered a key audit matter. Disclosure regarding this matter can be found in Note 10 of the financial report. Our audit procedures included the following: • Assessed the Group’s definition of area of interest in accordance with Australian Accounting Standards. • • • • Considered the Group’s right to explore in the relevant exploration area which included obtaining and assessing supporting documentation such as license agreements and correspondence with relevant government agencies. Considered the Group’s intention to carry out significant exploration and evaluation activities in relevant exploration areas, or plans to transfer the assets to oil & gas properties. This included the review of budgets and enquiries with executive and operational management. Inquired of the Group as to their intention and capacity to continue to explore areas of interest with capitalised expenditure at 30 June 2018. For each area of interest impaired, agreed exploration permit values to the accounting records of the Group. • Assessed the Group’s ability to finance any planned future exploration and evaluation activity. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Annual Report 2018 121 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION INDEPENDENT AUDITOR’S REPORT Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2018 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 122 Beach Energy Limited | ABN 20 007 617 969 • • • • • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 60 to 74 of the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Beach Energy Limited for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Annual Report 2018 123 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION INDEPENDENT AUDITOR’S REPORT Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Anthony Jones Partner Adelaide 20 August 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 124 Beach Energy Limited | ABN 20 007 617 969 Australian Securities Exchange Ex PEL 91 Contingent resource high estimate1 Delhi Delhi Petroleum Pty Ltd GLOSSARY OF TERMS A$ or $ Australian dollars 1C 2C 3C 3D 1P 2P 3P AASB AGM AOI ASX ATP BassGas Project bbl Bcf Beach Contingent resource low estimate 1 Contingent resource best estimate1 Three dimensional Proved reserve estimate 1 Proved and probable reserve estimate 1 Proved, probable and possible reserve estimate1 Australian Accounting Standards Board Annual General Meeting Area of interest Authority To Prospect (QLD) Includes the producing Yolla field, the BassGas pipeline and Lang Lang gas plant as well as separate retention leases over the Trefoil, Rockhopper and White Ibis discoveries Barrels Billion cubic feet Beach Energy Limited and its subsidiaries Consists of the Beharra Springs, Redback Terrace and Tarantula gas fields and the Beharra Springs gas processing facilities Benaris assets or interests Refers to 27.77% of OGP, acquired by Lattice, as announced by Origin on 11 September 2017 boe Barrels of oil equivalent – the volume of hydrocarbons expressed in terms of the volume of oil which would contain an equivalent volume of energy Board Board of Directors of Beach Bridgeport Bridgeport (Cooper Basin) Pty Ltd CAGR CGU Compounded annual growth rate Cash generating unit Company Beach and its subsidiaries Cooper Energy Cooper Energy Ltd Cooper Basin Includes both Cooper and Eromanga basins Cooper Basin JV The various joint venture interests owned by Beach’s wholly owned subsidiaries Delhi and Lattice in the SACB JVs and SWQ JVs Drillsearch Drillsearch Energy Pty Ltd DTA EBITDA Deferred tax assets Earnings before interest, tax, depreciation and amortisation EIP Executive Incentive Plan Entitlement offer $301 million 3 for 14 pro-rata Ex PEL 104 / 111 PRLs 15, 136 to 150 and various production licences EP EPS Ex PEL 92 Ex PEL 106 Ex PEL 513 Ex PEL 632 FY(18) Genesis Group GSA GJ HBWS accelerated non-renounceable entitlement offer Exploration Permit (NT) Earnings per share PRLs 151 to 172 and various production licences PRLs 85 to 104 and various production licences PRLs 129 and 130 and various production licences PRLs 191 and 206 and various production licences PRLs 131 to 134 and various production licences Operating cash flow less investing cash flow (excluding acquisitions and divestitures) Financial year (2018) Genesis Energy Limited Beach and its subsidiaries Gas sales agreement Gigajoule Halladale / Black Watch / Speculant fields in the offshore Otway Basin in licenses VIC/L1(v) and VIC/P42(v) H(1) (FY18) (First) half year period (of FY18) IFRS kbbl kboe km KMP KPI International Financial Reporting Standards Thousand barrels of oil Thousand barrels of oil equivalent Kilometre Key management personnel Key performance indicator Beach Egypt Beach Petroleum (Egypt) Pty Ltd Beharra Springs Beach 67% and operator, Mitsui 33%. Free cash flow 1. Complete definitions for Reserves and Contingent Resources can be sourced from “Guidelines for Application of the Petroleum Resources Management System” November 2011 – better known as SPE PRMS. Annual Report 2018 125 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION GLOSSARY OF TERMS kt Kupe Thousand tonnes Kupe Gas Project. Beach 50% and operator, Genesis 46%, NZOG 4%. Consists of offshore Kupe gas field in the Taranaki Basin, the Kupe offshore platform, Kupe gas plant and associated infrastructure Lattice Lattice Energy Limited Liquefied natural gas Liquefied petroleum gas Long term incentive PRMS PRRT Petroleum Resources Management System Petroleum Resource Rent Tax Q(1) (FY19) (First) quarter (FY19) ROC Return on capital Rockhopper Rockhopper Exploration plc SACB JVs South Australian Cooper Basin Joint Ventures South Australian Cooper Basin Joint Ventures The Fixed Factor Area (Beach 33.4%, Santos 66.6%) and the Patchawarra East Block (Beach 27.68%, Santos 72.32%) LNG LPG LTI LTIFR Mitsui MMbbl MMboe MMscf MMscfd Lost time injury frequency rate, calculated as lost time injuries per million hours worked (Beach employees and contractors) Mitsui &Co., Ltd Million barrels of oil Million barrels of oil equivalent Million standard cubic feet of gas Santos SAWA Senex SGH SPE STI Santos Limited South Australia Western Australia reporting segment Senex Energy Limited Seven Group Holdings Limited Society of Petroleum Engineers Short term incentive Million standard cubic feet of gas per day SWQ JVs South West Queensland Joint Ventures Net Gearing The ratio of net debt/(cash) to the sum of net debt / (cash) and total book equity NPAT NZ NZOG Origin OGP PACE pcp PEL PEP PL PPL PJ PRL Net profit after tax New Zealand New Zealand Oil & Gas Limited Origin Energy Ltd Otway Gas Project. Beach 100% and operator. Consists of offshore gas fields Thylacine and Geographe, the Thylacine Well Head Platform, Otway Gas Plant and associated infrastructure The South Australian Plan for Accelerating Exploration gas grant scheme Prior corresponding period Petroleum Exploration Licence (SA) Petroleum Exploration Permit (Victoria and NZ) Petroleum Lease (QLD) Petroleum Production Licence (SA) Petajoule Petroleum Retention Licence (SA) South West Queensland Joint Ventures Includes the SWQ Gas Unit and exploration and oil production licences – various equity interests (Beach 30-52.2%) Tcf TCFD TFR TJ TJ/d Trillion cubic feet Task force on climate-related financial disclosures Total fixed remuneration Terajoule Terajoules per day Toyota Tsusho Toyota Tsusho Corporation and related parties Toyota Tsusho assets or interests TRIFR TSR US$ Waitsia Refers to 5% of OGP and 11.25% of the BassGas Project. Refer Beach’s ASX release #098/17 of 21 December 2017 for further information. Total recordable injury frequency rate Total shareholder return United States $ Beach 50%, Mitsui 50% and operator. The project consists of the Waitsia Gas Project, an interest in the Xyris production facility and other in-field pipelines 126 Beach Energy Limited | ABN 20 007 617 969 SCHEDULE OF TENEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Subsidiary Company Tenement % Subsidiary Company Tenement % 38.5% 47.5% 45% 52.2% 30% 30% 38.8% 40% 0% 39.9375% 0% 40% 75% 75% 50% 100% 75% 75% 100% 40% 40% Cooper/Eromanga – Queensland Maw 6.50% Delhi 32% Delhi 22.5% LEL 25% Delhi 20% LEL 25% Delhi 25.2% LEL 27% Delhi ATP 1189 ex ATP 259 (Naccowlah Block and PLs) 1 ATP 1189 ex ATP 259 (Aquitaine A Block) 2 ATP 1189 ex ATP 259 (Aquitaine B Block) 3 ATP 1189 ex ATP 259 (Aquitaine C Block) 4 ATP 1189 ex ATP 259 (Innamincka Block) 5 ATP 1189 ex ATP 259 (Total 66 Block) 6 ATP 1189 ex ATP 259 (Wareena Block) 7 PL 55 (50/40/10) PL 184 (Thylungra Gas Discovery) 8 SWQ Gas Unit 9 Delhi Delhi 28.8% LEL 10% Delhi BPT 0% Maw 0% Delhi 23.2% LEL 16.7375% DLS 0% Circumpacific 0% Circumpacific ATP 932 8 ATP 940 Cooper/Eromanga – South Australia BPT BPT BPT BPT 40% DLS 30% GAOG 30% BPT PPL 204 (Sellicks Oil Field) PPL 205 (Christies Oil Field) PPL 210 (Aldinga Oil Field) PPL 212 (Kiana Oil Field) BPT BPT 50% GAOG 50% Springfield 15% Impress (CB) 25% Springfield 15% Impress (CB) 25% Springfield 15% Impress (CB) 25% BPT BPT BPT BPT BPT BPT BPT 40% GAOG 60% BPT 40% GAOG 60% BPT 40% GAOG 60% BPT 40% GAOG 60% BPT 50% GAOG 50% Springfield 15% Impress (CB) 25% BPT 40% GAOG 60% BPT 40% GAOG 60% PPL 220 (Callawonga Oil Field) PPL 224 (Parsons Oil Field) PPL 239 (Middleton/ Brownlow Fields) PPL 240 (Snatcher Oil Field) PPL 242 (Growler Oil Field) PPL 243 (Mustang Oil Field) 40% PPL 245 (Butlers Oil Field) PPL 246 (Germein Oil Field) PPL 247 (Perlubie Oil Field) PPL 248 (Rincon Oil Field) PPL 249 (Elliston Oil Field) PPL 250 (Windmill Oil Field) PPL 253 (Bauer/Bauer-North/ Chiton/Arno Oil Fields) PPL 254 (Congony/Kalladeina Oil Fields) PPL 255 (Hanson/Snelling Oil Fields) PPL 256 (Sceale Oil Field) PPL 257 (Canunda/ Coolawang Fields) PPL 258 (Spitfire Oil Field) 75% 75% 75% 75% 75% 75% 100% 100% 100% 100% 100% 40% PPL 260 (Stunsail Oil Field) 100% PPL 261 (Pennington Oil Field) 100% BPT 40% GAOG 60% Springfield 15% Impress (CB) 25% BPT 40% GAOG 60% BPT BPT BPT BPT BPT Acer Acer Acer Acer Acer Acer Springfield 15% Impress (CB) 25% Springfield 15% Impress (CB) 25% BPT 50% GAOG 50% BPT 50% GAOG 50% BPT 40% DLS 20% GAOG 40% BPT Springfield 15% Impress (CB) 25% Acer Acer BPT BPT BPT 23.33% ADE 10% Deka 5.03% Well Traced 5.03% Springfield 15% Impress (CB) 25% DLS (513) Ambassador BPT GAOG LEL LEL Delhi 12.86% LEL 7.902% BPT 25% DLS Gas 30% GAOG 45% BPT 25% DLS Gas 30% GAOG 45% Delhi 17.14% LEL 10.536% Delhi Delhi 20.21% LEL 13.19% PPL 262 (Balgowan Oil Field) 100% PEL 87 ex PEL 91 10 GSEL 648 (ex PEL 91) ex PEL 92 11 GSEL 634 (ex PEL 92) PEL 94 PEL 95 ex PEL 101 12 GSEL 652 (ex PEL 101) 12 ex PEL 103 13 GSEL 659 (ex PEL 103) 13 ex PEL 103A (Avery Block) 14 GSEL 660 (ex PEL 103A) 14 ex PEL 104 17 PRL 15 (Growler Block) ex PEL 106 15 GSEL 646 (ex PEL 106) ex PEL 107 16 GSEL 653 (ex PEL 107) ex PEL 111 17 PEL 182 ex PEL 182 18 ex PEL 218 (Permian) 19 GSEL 633 (ex PEL 218 Permian) ex PEL 218 (Post Permian) 20 PEL 424 ex PEL 513 21 PEL 570 PEL 630 ex PEL 632 22 ex PEL 637 23 ex PEL 638 24 Reg Sprigg West Unit PRL 26 (Udacha Unit) 40% 100% 40% 75% 75% 50% 50% 100% 100% 100% 100% 0% 0% 40% 40% 100% 100% 100% 40% 40% 43% 43% 100% 70% 43.39% 40% 40% 47.5% 50% 40% 0% 0% 20.8% 100% GSEL 645 (ex Udacha Unit) 100% Patchawarra East 25 27.676% Fixed Factor Agreement 26 SA Unit 20.21% 33.4% Annual Report 2018 127 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION SCHEDULE OF TENEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Subsidiary Company Tenement % Subsidiary Company Tenement Otway (Offshore) – Tasmania LEL T/30P T/L2 (Thylacine) 28 LEL 95% LEROL 5% LEL 95% LEROL 5% T/L3 (Thylacine South) 28 Bass Basin – Tasmania LEL 37.5% LERBGL 5% BPT 11.25% T/L1 (Yolla) 31 LEL 39% BPT 11.25% LEL 39% BPT 11.25% LEL 39% BPT 11.25% LEL 39% BPT 11.25% TR/L2 32 TR/L3 32 TR/L4 32 TR/L5 32 Carnarvon – Western Australia BPT WA-359-P 33 Perth Basin – Western Australia LERPBPL EP 320 LERPBPL LERPBPL L11 (Beharra Springs) L1/L2 (Waitsia Excluding Dongara, Mondarra and Yardarino) Bonaparte – Northern Territory BPT (NT) 55% TOAG 45% EP 126 LEL LEL LERBPL NT/P84 NT/P85 NT/RL1 Canterbury – New Zealand BPT (NZ) PEP 52717 BERNZHL PEP 38264 Northern Taranaki Graben – New Zealand BPT (NZ) PEP 57080 Taranaki Basin – New Zealand BERNZKL Kupe Mining No.1 Ltd PML 38146 (Kupe) Otway – South Australia ADE PEL 494 ADE ADE ADE ADE ADE ADE ADE ADE ADE GSEL 654 PPL 62 (Katnook) PPL 168 (Redman) PPL 202 (Haselgrove) PRL 1 (Wynn) PRL 2 (Limestone Ridge) PRL 13 (Killanoola Field) PRL 32 (ex PEL 255) GSRL 27 Arrowie – South Australia BPT GEL 156 Otway – Victoria BPT 10% LEL 90% BPT 10% LEL 90% PPL 6 (McIntee Gas Field) PPL 9 (Lavers Gas Field) LEL LEL LEL LEL LEL LEL LEL LEL 95% LEROL 5% LEL LEL Maw BPT BPT PPL 4 PPL 5 PPL 7 PPL 10 PPL 12 Vic/P42(V) Vic/P43 Vic/L23 27 Vic/P69 28 Vic/L1(V) PEP 150 29 PEP 168 PEP 171 30 Browse – Western Australia BPT WA-281-P BPT WA-80-R Bonaparte Basin – Western Australia LEL WA-454-P LERBPL LERBPL NT/RL1 (Petrel) WA-6-R (West Petrel) 70% 70% 100% 100% 100% 100% 100% 100% 70% 100% 21% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 0% 50% 0% 7.34% 7.34% 100% 5% 5% 128 Beach Energy Limited | ABN 20 007 617 969 % 100% 100% 100% 53.75% 50.25% 50.25% 50.25% 50.25% 21% 67% 67% 50% 100% 50% 50% 5% 50% 65% 50% 50% 1. The Naccowlah Block consists of ATP 1189 ex ATP 259 (Naccowlah) and PLs 23-26, 35, 36, 62, 76-79, 82, 87, 133, 149, 175, 181, 182, 189, 287, 302, 495, 496, PLA 1026. Note sub-leases of PLs (gas) to SWQ Unit. 2. The Aquitaine A Block consists of ATP 1189 ex ATP 259 (Aquitaine A) and PLs 86, 131, 146, 177, 208 and 254. Note sub-leases of part PLs (gas) to SWQ Unit. 3. The Aquitaine B Block consists of ATP 1189 ex ATP 259 (Aquitaine B) and PLs 59 – 61, 81, 83, 85, 108, 111, 112, 132, 135, 139, 147, 151, 152, 155, 205, 288, PL 508, 509, 1013, PLA 1014, PLA 1035. Note sub-leases of part of PLs (gas) to SWQ Unit. 4. The Aquitaine C Block consists of ATP 1189 ex ATP 259 (Aquitaine C) and PLs 138 and 154. 5. The Innamincka Block consists of ATP 1189 ex ATP 259 (Innamincka) and PLs 58, 80, 136, 137, 156, 159 and 249. Note sub-leases of part PLs (gas) to SWQ Unit. 6. The Total 66 Block consists of ATP 1189 ex ATP 259 (Total 66) and PLs 34, 37, 63, 68, 75, 84, 88, 110, 129, 130, 134, 140, 142 – 144, 150, 178, 186, 193, 241, 255, 301, 502 PLA 497 and PLA 513. Note sub-leases of part of PLs (gas) to SWQ Unit. 7. The Wareena Block consists of ATP 1189 ex ATP 259 (Wareena) and PLs 113, 114, 141, 145, 148, 153, 157, 158, 187, 188, 411 and PL 1016. Note sub-leases of part of PLs (gas) to SWQ Unit. 8. PL 184 and ATP 932 are subject to regulatory approval. 9. The SWQ Gas Unit consists of subleases of PLs within the gas production area of Naccowlah Block, Aquitaine A Block, Aquitaine B Block, Innamincka Block, Wareena Block and Total 66 Block. 10. ex PEL 91 consists of PRLs 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171 and 172. 11. ex PEL 92 consists of PRLs 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103 and 104. 12. ex PEL 101 consists of PRLs 173 and 174. Registered interest 80%, acquisition of further 20% subject to regulatory approval. 13. ex PEL 103 consists of PRLs 14, 17, 18, 180 and 181. 14. ex PEL 103A consists of PRL 182. Subject to conditions precedent and regulatory approval. 15. ex PEL 106 consists of PRLs 129 and 130. 16. ex PEL 107 consists of PRLs 175, 176, 177, 178 and 179. 17. ex PEL 104/111 consists of PRLs 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149 and 150. 18. ex PEL 182 consists of PRLs 135, 238, 239, 240, 241, 242, 243 and 244. 19. ex PEL 218 (Permian) consists of Permian section of PRLs 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48 and 49. 20. ex PEL 218 (Post Permian) consists of Post Permian section of PRLs 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48 and 49. Registered interest is 66.67%. Assignment to a third party of 23.28% subject to completion of assignment documentation and regulatory approval. 21. ex PEL 513 consists of PRLs 191 and 206. 22. ex PEL 632 consists of PRLs 131, 132, 133 and 134. 23. ex PEL 637 consists of PRLs 106 and 210 – 220 subject to regulatory approval. 24. ex PEL 638 consists of PRLs 221 – 230 subject to regulatory approval. 25. Patchawarra East consists of PPLs 26, 76, 77, 118, 121 – 123, 125, 131, 136, 147, 152, 156, 158, 167, 182, 187, 194, 201 and 229. 26. The Fixed Factor Agreement consists of PPLs 6 – 20, 22 – 25, 27, 29 – 33, 35 – 48, 51 – 61, 63 – 70, 72 – 75, 78 – 81, 83, 84, 86 – 92, 94, 95, 98 – 111, 113 – 117, 119, 120, 124, 126 – 130, 132 – 135, 137 – 140, 143 – 146, 148 – 151, 153 – 155, 159 – 166, 172, 174 – 180, 189, 190, 193, 195, 196, 228 and 230 – 238. 27. T/L2, T/L3, VIC/L23. Registered interest is 95%, acquisition of a further 5% subject to regulatory approval. 28. VIC/P69 subject to regulatory approval. 29. PEP 150 subject to regulatory approval. 30. PEP 171 subject to regulatory approval. 31. T/L1. Registered interest is 10%, acquisition of a further 11.25% subject to regulatory approval. 32. T/RL2, T/RL3, T/RL4 and T/RL5. Registered interest is 39%, acquisition of a further 11.25% subject to regulatory approval. 33. Farm in to WA-359-P is subject to satisfaction of conditions precedent and regulatory approval. Beach also has an option to farmin to a 7.5% interest in adjoining permit (WA-409-P), the exercise of which is also subject to the satisfaction of conditions precedent and regulatory approval. Annual Report 2018 129 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION SCHEDULE OF TENEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Subsidiary Company Acer Ambassador ADE AUG BPT (NT) BPT (NZ) BPT Acer Energy Pty Ltd Ambassador Exploration Pty Ltd Adelaide Energy Pty Ltd Australian Unconventional Gas Pty Ltd Beach Petroleum (NT) Pty Ltd Beach Petroleum (NZ) Pty Ltd Beach Energy Limited Circumpacific Circumpacific Energy (Australia) Pty Ltd Deka Delhi DLS (513) DLS DLS Gas GAOG Impress (CB) LEL LERBPL LEROL LERPBPL BERNZKL BERNZHL LERBGL Maw Springfield TOAG Well Traced Deka Resources Pty Ltd Delhi Petroleum Pty Ltd Drillsearch (513) Pty Ltd Drillsearch Energy Ltd Drillsearch Gas Pty Ltd Great Artesian Oil & Gas Pty Ltd Impress (Cooper Basin) Pty Ltd Lattice Energy Limited Lattice Energy Resources (Bonaparte) Pty Limited Lattice Energy Resources (Otway) Limited Lattice Energy Resources (Perth Basin) Pty Limited Beach Energy Resources NZ (Kupe) Limited Beach Energy Resources NZ (Holdings) Limited Lattice Energy Resources (Bass Gas) Limited Mawson Petroleum Pty Ltd Springfield Oil and Gas Pty Ltd Territory Oil and Gas Pty Ltd Well Traced Pty Ltd Tenements Acquired WA-80-R, WA-359-P, PRLs 210 – 220, PRL 106, PRLs 221 – 230, PPL, 6, PPL 9, PPL 4, PPL 5, PPL 7,PPL 10, PPL 12, Vic/P42(V), Vic/P43, Vic/L23, Vic/P69, Vic/L1(V), T/30P, T/L2, T/L3, T/L1, TRL2 – 5, EP 320, L11, L1, L2, WA-454-P, NT/RL1, WA-6-R, NT/ P84, NT/P85, PML 38146, PEP 38264 Tenements Divested ATP 539, ATP 549C, ATP 549W, ATP 633, ATP 783, ATP 920, ATP 924, ATP 299, PEP 150, PEP 171, PEL 103, GSEL 659 (ex PEL 103), ex PEL 103A (Avery Block), GSEL 660 (ex PEL 103A), ex PEL 637, ex PEL 638, VIC/P69 130 Beach Energy Limited | ABN 20 007 617 969 SHAREHOLDER INFORMATION Share details – Distribution as at 1 October 2018 Range of shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 Over Total Shareholders with non-marketable parcels Number of shareholders Fully paid ordinary shares 5,230 8,046 4,031 6,494 541 24,342 2,019 Voting rights – fully paid ordinary shares On a show of hands, every person qualified to vote, whether as a member or proxy or attorney or representative, shall have one vote. Upon a poll, every member shall have one vote for each share held. Substantial shareholders as disclosed by notices received by Beach as at 1 October 2018 Name Number of voting shares held Date of notice Seven Group Holdings Limited and others 582,554,052 25 October 2017 Australian Capital Equity Pty Ltd, Wroxby Pty Ltd, North Aston Pty Ltd and others (ACE Group); Ashblue Holdings Pty Ltd, Tiberius (Seven Investments) Pty Ltd, Tiberius Pty Ltd and others (Tiberius Group Entities); Mr Kerry Matthew Stokes AC and Kemast Investments Pty Ltd Dimensional Fund Advisors LP and others 582,554,052 25 October 2017 134,559,639 12 October 2017 Twenty largest shareholders as at 1 October 2018 Rank Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NETWORK INVESTMENT HOLDINGS PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED NETWORK INVESTMENT HOLDINGS PTY LTD BNP PARIBAS NOMINEES PTY LTD UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS PTY LTD NETWORK INVESTMENT HOLDINGS PTY LTD NETWORK INVESTMENT HOLDINGS PTY LTD CITICORP NOMINEES PTY LIMITED AMP LIFE LIMITED MR ROBERT LEE PETERSEN BRISPOT NOMINEES PTY LTD CS THIRD NOMINEES PTY LIMITED AYERSLAND PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 20. BNP PARIBAS NOMS PTY LTD Top 20 holders of fully paid ordinary shares Remaining Holders Balance Total Fully paid ordinary shares 492,535,507 488,667,776 335,298,609 252,834,339 106,355,246 34,127,698 32,890,979 26,843,311 19,810,727 18,929,471 18,742,950 14,172,317 13,203,761 7,908,033 6,038,276 5,192,282 4,664,610 4,595,110 4,313,158 4,267,518 1,891,391,678 385,638,799 2,277,030,477 % of Units 21.63 21.46 14.73 11.10 4.67 1.50 1.44 1.18 0.87 0.83 0.82 0.62 0.58 0.35 0.27 0.23 0.20 0.20 0.19 0.19 83.06 16.94 100 Annual Report 2018 131 OVERVIEWFULL YEAR REPORTADDITIONAL INFORMATION CORPORATE INFORMATION Annual meeting The annual meeting will be held as follows: Place Date Time Adelaide Convention Centre North Tce, Adelaide SA 5000 Friday 23 November 2018 10.30 am CORPORATE DIRECTORY Chairman Glenn Stuart Davis LLB, BEc, FAICD Independent non-executive Deputy Chairman Colin David Beckett FIEA, MICE, GAICD Independent non-executive Directors Philip James Bainbridge BSc (Hons) (Mechanical Engineering), MAICD Independent non-executive Joycelyn Cheryl Morton BEc, FCA, FCPA, FIPA, FCIS, FAICD Independent non-executive James David McKerlie BEc, Dip Fin Mgt, FCA FAICD Independent non-executive Peter Stanley Moore PhD, BSc (Hons), MBA, GAICD Independent non-executive Richard Joseph Richards BComs/Law (Hons), LLM, MAppFin Non-executive Ryan Kerry Stokes BComm, FAIM Non-executive Company Secretary Peter Kupniewski LL.B/LP 132 Beach Energy Limited | ABN 20 007 617 969 Registered Office 25 Conyngham Street Glenside SA 5065 (08) 8338 2833 Telephone: (08) 8338 2336 Facsimile: Email: info@beachenergy.com.au Share Registry – South Australia Computershare Investor Services Pty Ltd Level 5, 115 Grenfell St Adelaide SA 5000 Telephone: Facsimile: (08) 8236 2300 (08) 8236 2305 Auditors Ernst & Young Level 12/121 King William Street Adelaide SA 5000 Securities Exchange Listing Beach Energy Limited shares are listed on the ASX Limited (ASX Code: BPT) Beach Energy Limited ABN 20 007 617 969 Website www.beachenergy.com.au The 2018 Corporate Governance Statement can be viewed on our website at: Sustainability at Beach/Corporate Governance B e a c h E n e r g y L i m i t e d A n n u a l R e p o r t 2 0 1 8 www.beachenergy.com.au