CARNARVON PETROLEUM LTD
A B N 6 0 0 0 2 6 8 8 8 5 1
A N N U A L R E P O RT 2 0 0 3
CORPORATE DIRECTORY
DIRECTORS
AG Shelton (Non-Executive Chairman)
Dr KC Tregonning (Managing Director and Chief
Executive Officer)
DJ Orth (Executive Director and Chief Operating Officer)
NC Fearis (Non-Executive Director)
COMPANY SECRETARY
T Irwin
MBA, CPA, AACD, AFAIM
AUDITORS
Ernst & Young
SOLICITORS
Freehills
LEGAL COUNSEL
Agricola, Wunderlich & Associates
BANKERS
Australian and New Zealand Banking Group Limited
REGISTERED OFFICE
Level 50, 120 Collins Street
Melbourne Victoria 3000
Telephone: +61 3 9225 5400
Facsimile: +61 3 9225 5050
Internet:
Email:
http://www.carnarvonpetroleum.com
admin@carnarvonpetroleum.com
SHARE REGISTRY – AUSTRALIA
Computershare Investor Services Pty Limited
Level 2,
45 St. George’s Terrace
Perth Western Australia 6000
Telephone: +61 8 9323 2000
Facsimile: +61 8 9323 2033
SHARE REGISTRY – NEW ZEALAND
Computershare Registry Services Limited
Private Bag 92119
Auckland 1020
Telephone: +64 9488 8700
+64 9488 8787
Facsimile
STOCK EXCHANGE LISTING
Carnarvon Petroleum Limited is listed on both the
Australian and New Zealand Stock Exchanges.
ASX Code:
NZSE Code:
CVN
CVN
C O N T E N T S
Wichian Buri, Thailand
Milestones Achieved in 2002/03
Chairman’s Report
Review of Operations
Directors Statutory Report
Board and Governance
Statement of Financial Performance
Statement of Financial Position
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
ASX Additional Information
Shareholder Information
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3
5
11
16
23
24
25
26
47
48
50
51
The 2003 Annual General Meeting of Carnarvon Petroleum Ltd will be held at
The Toorak Room, Mezzanine Level, Como Melbourne, 630 Chapel Street,
South Yarra, Victoria on 28 November 2003 at 9:30am.
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M I L E S T O N E S
A C H I E V E D I N 2 0 0 3
Carnarvon’s vision is to be a successful niche participant in the oil and gas
exploration and production industry in South East Asia and Australia.
VISION:
Carnarvon’s mission is to establish and maintain an innovative, technically competent,
and fiscally responsible organisation that effectively and efficiently achieves the highest standards
in safety and the environment in the persuit of profitable oil and gas exploration and production.
MISSION:
Carnarvon’s objectives are to identify and access high quality oil and gas projects capable
of making an immediate positive contribution to the bottom line and to amalgamate
those projects into a portfolio that will allow strong corporate growth thereby
creating wealth for our shareholders in the medium to long term.
OBJECTIVES:
MAJOR MILESTONES FOR THE YEAR ENDING 30TH JUNE 2003
Operational
•
•
•
•
The SW1A Joint Venture drilled three wells all of which encountered hydrocarbons
The SW1A Joint Venture completed the Wichian Buri Oil Field Phase II development in Thailand in January.
Phase ll development confirmed an increase in P50 estimates of recoverable oil from 11 MMBO to 23 MMBO.
In June 2003, the Joint Venture partners were formally awarded Exploration Block L44/43 surrounding the existing
production licenses
•
The SW1A Joint Venture agrees in principle to Phase III Field Development Program of the Wichian Buri Oil Field.
Corporate
• Corporate overhead cost base going forward has been reduced which is expected to lead to a 50 per cent reduction in
overheads for fiscal year 2004
•
Shareholders approved certain capital raising initiatives at an Extraordinary General Meeting in September 2002, namely:
a) The issue to existing shareholders of up to 18,750,000 ordinary shares at 4.2 cents per share pursuant to a share
purchase plan
b) The issue of up to 30,000,000 ordinary shares at 4.2 cents per share to professional investors pursuant to a placement
Overall, the Company raised a net $1,830,501 from these issues after allowing for costs associated with the capital raising.
•
The Company obtained funding for Phase II development of the SWIA Joint Venture by entering an agreement with
Gemini Oil and Gas Limited for US$2 million to the Joint Venture in exchange for future payments from oil proceeds from
the F Sandstone in production licenses 1 and 2.
• At the Company’s Annual General Meeting in November 2002, shareholders approved the conversion of the Company
to a company limited by shares, approved the change in the name of the Company to ‘Carnarvon Petroleum Limited’,
and approved the adoption of a modernised constitution.
2
C H A I R M A N ’ S
R E P O RT
This last year has been challenging. During the year the Company
has solidified its presence in Thailand and refocused its energies
towards achieving satisfactory returns to shareholders.
The Phase ll Development of the Wichian Buri Oil Field was
completed in January 2003 further proving up an extensive oil
accumulation that confirmed an increase in P50 estimates of
recoverable oil from 11 MMBO to 23 MMBO.
Completion of the Phase II wells took longer than expected resulting in delayed production, higher than expected costs, and
delayed cash flows. The upside from these difficulties is that we now have a greater understanding of the reservoir
characteristics from testing and seismic surveys undertaken, and consequently a firmer view as to the field’s potential and how
best to extract maximum value.
In June 2003, the Joint Venture partners were formally awarded Exploration Block L44/43 surrounding the existing production
licenses. This area covers nearly 4,000 square kilometers containing numerous leads and prospects.
Carnarvon Petroleum Limited and its controlled entities recorded a loss for the year ended 30th June 2003 of $1,508,169 and a
net cash decrease of $109,481. Net proceeds from the issue of shares during the year were $1,830,501. The Company invested
$1,920,397 in Exploration and Development activities, predominantly in the SW1A Concession in Thailand in which the Company
has a 40% interest. The amount of $1,473,704 was raised through an innovative royalty arrangement to fund Phase ll
development. The Company’s profit from investments, including the SW1A Joint Venture, was $286,351.
Corporate overhead incurred in 2003 is considered to be unsustainable while the Company continues to rely heavily on the SW1A
Joint Venture for cash flow to fund its corporate operations. As previously announced, The Board has acted to reduce corporate
overhead on an ongoing basis. An intensive review of our cost base has lead to all non-core expenditure being cut, leading to a
50 per cent reduction of corporate overhead costs going forward into the 2004 fiscal year. As a result of this review, the Company’s
Perth Office has now closed with administrative functions being relocated to one site in Melbourne. A further reduction in
overhead will be achieved with the impending retirement of the Managing Director and Chief Executive Officer, Dr Ken Tregonning.
The Company continues to have access to a wide range of expertise as required through its network of consultants.
Reducing the Company’s corporate overhead by 50 per cent will bring the Company to a position of being cash flow positive
and profitable with only a nominal increase in SW1A Joint Venture production. Further drilling in Thailand is part of a long
term plan in which Carnarvon intends to establish itself as a player in Asia through building a balanced portfolio of high
quality production and exploration assets. The Board is of the view, as is the oil and gas industry generally, that the Company’s
asset in Thailand has significant growth potential and the Company’ share of the Wichian Buri oil field continues to be a
valuable asset. Further investment in the Wichian Buri Oil Field promises positive cash flow to be reinvested for further
growth. As joint venture costs are largely fixed, any increase in production should flow through to the bottom line. The
Company looks forward to continuing good relations and alignment of interests with its SW1A joint venture partner Pacific
Tiger Energy Inc. as it exploits the full potential of this region.
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C H A I R M A N ’ S
R E P O RT
To evaluate and exploit the reserves identified during completion of Phase ll development, the SW1A Joint Venture has agreed
in principle to the Phase III Field Development Program. Phase III involves an aggressive field development campaign over the
course of this financial year to bring on stream a number of wells in order to bolster oil production. There are a number of
low risk prospects adjacent to the existing producing fields that are included in the expanded production license that will be
investigated. The first of these to be drilled will be Huai Phai, as announced on 25th September 2003.
The Company obtained funding for Phase ll development of the SW1A joint venture by entering an agreement with Gemini
Oil & Gas Limited to contribute funding of US$2 million to the joint venture in exchange for future payments from oil sales
proceeds from the F Sandstone in Production Licenses 1 & 2. On 7th October 2003, the Company issued 13,513,514 ordinary
shares at a price of 3.7 cents per share raising $500,000 to fund working capital commitments.
The Company will continue to seek innovative funding solutions, together with its Joint Venture partner and separately, on
the most attractive terms for shareholders. The Company is currently reviewing funding alternatives for Phase lll development
and will keep shareholders informed of developments as they occur. The Company can fund each Phase separately. This
allows the Company to identify the best option at the lowest cost to shareholders.
In recognition of the "Principles of Good Corporate Governance and Best Practice Recommendations" released by the ASX
Corporate Governance Council in March and reflecting the Board’s desire to improve its risk minimization measures and
overall effectiveness, the Company has reviewed its governance practices and has expanded its Remunerations Committee to
also include ‘Nominations’. The Company has also established a Governance Committee, as noted on pages 16 to 20 of this
report.
I’d like to take this opportunity to thank employees for their support and dedication. In particular, I would like to take this
opportunity to thank Dr Tregonning on behalf of the Board and shareholders for his contribution in bringing the Company
to its current level of promise.
Following the transfer of Head Office activities to Melbourne, Mr Len Troncone, Chief Financial Officer and Company
Secretary, left the Company. I would like to take this opportunity to thank Mr Troncone on behalf of the Board and
shareholders for his contribution over the last three years. I would also like to welcome Mr Trevor Irwin who replaced Mr
Troncone beginning with the Company on 1st July 2003. He brings a wealth of experience gained in the oil and gas, IT and
diversified engineering industries.
I believe the Company is positioned to take the next step towards achieving a level of return expected by its shareholders and
moves into the new year with a sense of purpose and positive expectations.
Your Board thanks you for your continued support.
Andrew Shelton
Chairman
4
R E V I E W
O F O P E R AT I O N S
COMPLETION BY THE SW1A JOINT VENTURE OF PHASE II DEVELOPMENT OF THE
WICHIAN BURI OIL FIELD
(Pacific Tiger Energy Inc. 60%/Carnarvon Petroleum Limited 40%)
The SW1A Joint Venture in total produced 86,324 barrels of oil during the year. The average price achieved per barrel sold
was US$24.32. Carnarvon’s 40% share of Joint Venture revenue was $1,366,253.
Completion of the Phase II development of the Wichian Buri Oil Field occurred in January. The drilling of wells WB-N4, N5,
and N6, which successfully completed the Phase ll development, proved up the existence of an extensive accumulation that
allowed Carnarvon to confirm an estimate of increase in P50 recoverable oil from 11 MMBO to 23 MMBO. These latest
resource estimates, which have been independently verified by Helix RDS covering the Concession area, are as follows:
PL1 & PL2
Approx 8 km2
P90
(PROVEN)
11 MMBO
P50
(PROVEN PLUS PROBABLE)
P10
(POSSIBLE)
23 MMBO
45 MMBO
Phase II confirmed the northern extension of the field but also highlighted the variable nature of the reservoir.
Wells WB-N4 and N6 both had significant initial flow rates but have experienced decline since coming on stream, a steeper
decline than had been anticipated. Unfortunately well WB-N5 has not produced at the expected rate despite confirming the
presence of oil in an expanded area, the Wichian Buri 3 fault block immediately adjacent to the main Wichian Buri structure.
The operational problems encountered in the field have been addressed by the Operator. The Wichian Buri Field continues to
produce approximately 250 BOPD from seven wells. Wells WB-N4 and N6 are producing at a combined rate of 90 to 100
BOPD. Well WB-N5 is not producing. Well WB-N2 is currently producing at about 30 BOPD after being stimulated via hydraulic
fracturing. The currently producing wells will continue to experience normal decline in production. However, this decline will
be more than offset by production from additional wells to be drilled in the planned Phase lll Development (noted below).
WELL NAME
WB-N4
WB-N5
WB-N6
PERMIT
SW1A
SW1A
SW1A
BASIN
Thailand
Thailand
Thailand
INTEREST
40%
40%
40%
METERS
1131 tvd
1090 tvd
1091 tvd
COMMENT
Discovery
Discovery
Discovery
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R E V I E W
O F O P E R AT I O N S
Northern L44/43 Leads and Prospects.
Wichian Buri Oilfield and Huai Phai & WB3 Prospects.
REVIEW OF GREATER WICHIAN BURI OILFIELD
indicated
Following completion of Phase ll development of the Wichian Buri oilfield, a detailed study of the geology and engineering
of the Field and the surrounding exploration area, Block L44/43, was undertaken. The study incorporated results from the
recent Phase I and Phase II development programs for the Oil Field. The review supported announcements by the Company
which
significant
volumes of producible oil
remain at Wichian Buri and that
the resource is presently under-
developed. Key results of the
review are:
in the area and
Oil is ubiquitous – Oil has
been found in all ‘valid’ wells
drilled
is
extensive throughout Greater
Wichian Buri. To date 19 wells
have been drilled in the Wichian
Buri sub-basin, of which all 15
drilled on valid structures have
found oil or gas.
6
R E V I E W
O F O P E R AT I O N S
A large resource – The most likely size of the resource is estimated to be in the order of 200 million barrels of oil in place.
The Estimated Ultimate Recovery (EUR) of oil over the life of the Field has a most likely or ‘P50’ value of some 23 million barrels
of oil (MMBO). The EUR ranges from a Proved volume of 11 MMBO (P90) to a Possible 45 MMBO (P10). To date
approximately 0.6 MMBO has been produced from the Field so that the most likely remaining volume of oil that can be
recovered from the Field is approximately 22 MMBO. Oil
production will increase with further drilling.
Development Potential – The engineering studies
indicate that the key to successful development of
Wichian Buri is to drill wells quickly and inexpensively, on
a continuous basis, so as to reduce unit cost and offset
normal production decline. The actual recovery of oil
over the life of the Field will depend on a variety of
factors including the scale of the development and in
particular the number of wells drilled. The volume of
recoverable oil can sustain a much higher level of oil
production which can only be achieved by drilling many
wells to build production.
AWARD OF EXPLORATION BLOCK L44/43
3D image of Wichian Buri and Huai Phai at F Sandstone Level.
During the course of the year Production License 2 was awarded and the long awaited award of Exploration License L44/43 was
granted by the Thailand government to the Joint Venture partners in June 2003. The Block covers 3935 sq km and encompasses
all of the southern part of the Wichian Buri sub-basin portion of the Phetchabun Basin. The graphical representation of F
Sandstone indicates a number of structural features such as at Wichain Buri and Huai Phai as shown in the 3D image above.
L44/43 surrounds the 8 sq km of the existing producing areas of the Wichian Buri Oil Field in Production Licenses PL 1 and
PL 2. To date 580,000 barrels of oil have been produced from PL 1 and PL 2. Oil appears ubiquitous in the Wichian Buri sub-
basin and, by extension, is expected throughout L44/43. The area is however under-explored and to date only 19 wells have
been drilled in the Wichian Buri sub-basin. Nonetheless
all 15 wells drilled on valid structures have found oil or
gas. Block L44/43 has both existing oil and gas
discoveries with current production as well as
exploration potential. The Block has demonstrated all
the elements needed for oil discoveries including source,
reservoir, seal and structure.
In addition to the Wichian Buri Oil Field, L44/43
encompasses the existing oil discoveries at the producing
Si Thep Oil Field and the Na Sanun Oil Field as well as the
gas discovery at Bo Rang. Consideration is currently being
given to developing the Bo Rang Gas Field for the local
energy market and both Si Thep and Na Sanun have
adjoining structures with potential for further discoveries.
There are also eight identified leads and prospects in the
relatively small area of approximately 100 sq km within
the Block that has been reviewed to date. Substantial
additional exploration potential exists in the Block as has
been demonstrated by the oil discoveries.
Deutag T48 during Phase II development.
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R E V I E W
O F O P E R AT I O N S
Exploration will commence in this Block during the latter part of this year and will continue into next year with the acquisition
of a 3D seismic survey and the drilling of at least one well. Drilling this exploration well will entitle the Joint Venture to apply
for Production License 3, which will enable the Joint Venture to further expand its production base. Several additional
prospects within L44/43 were delineated this year by 2D seismic acquisition. The award of L44/43 has significantly expanded
the Joint Venture’s area and exploration potential.
THE SW1A JOINT VENTURE AGREES IN PRINCIPLE TO A PHASE III FIELD DEVELOPMENT
PROGRAM OF THE WICHIAN BURI OIL FIELD.
To evaluate and exploit the reserves identified during completion of Phase ll development, the SW1A Joint Venture has agreed
in principle to the Phase III Field Development Program. Phase III involves an aggressive field development campaign over the
course of the next financial year to bring on stream a number of wells to bolster oil production and the resultant cash flow.
There are a number of low risk prospects adjacent to the existing production fields included in the expanded production
license that will be investigated. The first of these to be drilled will be Huai Phai, as announced 25 September 2003.
WELL NAME
PERMIT
BASIN
INTEREST
WB-N7
WB-N8
WB-N9
Huai Phai
HP-2
HP-3
HP-4
L44/43
PL2
PL2
PL2
PL2
PL2
PL2
Thailand
Thailand
Thailand
Thailand
Thailand
Thailand
Thailand
40%
40%
40%
40%
40%
40%
40%
EST.
SPUD DATE
DEPTH IN
METERS
COMMENT
Q1 04
Q1 04
Q1 04
OCT 03
Q2 04
Q2 04
Q2 04
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Extension
Development
Development
Exploration
Development
Development
Development
Development wells HP 2, 3 & 4 will now be drilled Qtr 2, 2004 due to rig availability contraints.
Huai Phai is a four way dip closed anticlinal structure delineated by a 2D and 3D seismic grid and lies two kilometers
immediately to the west of the producing Wichian Buri Oil Field. The well will be drilled to approximately 1050 meters to
test the regionally extensive F Sandstone as the primary target, with the G Sandstone providing a secondary target. A mature
hydrocarbon source is known to exist in the
adjacent fault block and oils shows have been
encountered up dip from Huai Phai suggesting that
it is within the migration fairway. Huai Phai has an
areal closure of 2.2 square kilometers (550 acres)
and the Operator has indicated that Huai Phai
could contain some 14 MMBO in place based on
locally derived reservoir parameters with 2.5
MMBO recoverable. If correct, this would increase
the size of the overall resource and the inherent
value of the Company’s investment in Thailand.
The Huai Phai-1 site location is fully constructed
consumables have been purchased.
and
Discussions are ongoing with drilling and service
contractors but it is likely that the well will be
spudded early November 2003 and will take about
11 days to drill plus additional time to test.
8
R E V I E W
O F O P E R AT I O N S
OTHER EXPLORATION INTERESTS
Over the past 18 months the Company has been pursuing its strategy of creating a balanced portfolio of production and
exploration assets. This will involve building a new portfolio of assets capable of being brought into production in the short
term and with upside potential through the introduction of technological enhancements. The corporate objective is for a well
balanced spread of assets in terms of the nature of the projects, the number of countries in which they reside, and their upside
potential both for the hydrocarbon potential and the access to additional projects.
PAPUA NEW GUINEA
(Santos 35%/InterOil 20%/AWE 15%/TransOrient 7.5%/Horizon 7.5%/Carnarvon Petroleum Limited 15%)
Petroleum Retention Licenses (PRLs) 4 & 5 have been retained by the Joint Venture partners in Papua New Guinea. These PRLs
have been excised from the original PPL 157 area which was relinquished. The PRLs are located in the foreland of the Papuan
Basin in Papua New Guinea, near the port town of Kiunga on the Fly River. The Joint Venture partners have recently conducted
an economic study on the feasibility of commercializing one or more of the three gas and condensate discoveries in the area of
the licenses. Reaching a definitive conclusion as to the most appropriate means of commercialising one or more these
discoveries relies on additional seismic reinterpretation, which will be ongoing throughout the next twelve months. One option
being considered is to reinject the gas with transportation of the condensate to the coast via truck and barge.
PRLs 4 & 5, Western Papua New Guinea.
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R E V I E W
O F O P E R AT I O N S
CARNARVON BASIN
EP 110
(Carnarvon 51.7%/PanPacific 37.9%/PanContinental 10.4%)
This permit is located onshore/offshore near Onslow, Western Australia, and is adjacent to the Tubridgi Gas Field. Discussions
are under way with the Joint Venture partners as to how best to progress the exploration of the block. The minimum work
requirements of the permit renewal conditions require one well to be drilled in 2005.
EP110, Western Australia.
PERTH BASIN
Carnarvon owns 6.7% of AusAm Resources Limited and retains a royalty of 2.5% by virtue of a sale agreement completed
in 2000 over a number of Perth Basin blocks. AusAm Resources Limited’s interests are shown below:
EP 413
EP 407
EP 23
EP 321
EP 414
10
9.44%
42.50%
14.38%
38.25%
18.89%
D I R E C T O R S
S TAT U T O RY R E P O RT
Your directors submit their report for the year ended 30 June 2003.
DIRECTORS
The names of the directors of the Company in office during the financial year and until the date of this report
are shown below:
The details of the directors of the Company are:
AG Shelton
Non-Executive Chairman
Bachelor of Arts (Economics and Politics), Master of Arts (Cantab)
Age 56. Appointed Director and Chairman on 1 April 2002. Chairman of the Audit Committee,
Remuneration and Nominations Committee, and Governance Committee. Independent corporate finance
adviser specializing in strategic and corporate finance advice, capital raisings, mergers and acquisitions,
valuations and financial analysis. Principal and Director of Andrew Shelton & Co Pty Limited, Non-Executive
Director of Capricorn Development Fund Limited, Fellow of the Australian Institute of Company Directors,
past President & CEO of JP Morgan Canada.
Dr KC Tregonning
Managing Director and Chief Executive Officer
Bachelor of Science (Hons), Ph.D.
Age 51. Appointed Managing Director 14 December 2000. He has 22 years' experience in the oil and gas
industry in Europe, where he worked with Shell, as well as in Australia, Asia and North America as a
consultant. He is a member of the Australian Institute of Company Directors, the Society of Petroleum
Engineers (SPE) and the South East Asian Petroleum Exploration Society (SEAPEX).
DJ Orth
Executive Director and Chief Operating Officer
Bachelor of Science, Diploma of GeoSci.
Age 54. Appointed Executive Director 14 December 2000. Appointed Chief Operating Officer July 2003.
A geologist with in excess of 25 years’ industry experience having worked for Amoco and BHP Petroleum as well
as a number of independent oil companies throughout North America, Europe, Africa, the Middle East and
Australasia. Member of American Association of Petroleum Geologists (AAPG) and member of the Australian
Institute of Company Directors.
NC Fearis
Non-Executive Director
Bachelor of Laws (Hons)
Age 52. Appointed a Director 30 November 1999. Member of the Audit Committee, Remuneration and
Nominations Committee, and Governance Committee. A commercial lawyer with 26 years' experience of
legal practice in London, Sydney and Perth. Principal of the Western Australian-based law firm, Fearis Salter
Power Shervington. Chairman of Kresta Holdings Ltd and a non-executive director of Capital Growth Corp
Limited. Member of the Australian Institute of Company Directors and the Securities Institute of Australia.
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D I R E C T O R S
S TAT U T O RY R E P O RT
Interests in shares and options issued by the Company or related bodies corporate
Relevant interest in shares and options issued by the Company as at the date of this report:
DIRECTORS
ORDINARY SHARES
AG Shelton
Dr KC Tregonning
DJ Orth
NC Fearis
4,567,421
6,388,067
2,858,067
1,771,400
20 CENTS OPTIONS
31/12/2003
-
5,000,000
5,000,000
-
CORPORATE INFORMATION
Corporate structure
Carnarvon Petroleum Ltd is a limited liability company incorporated and domiciled in Australia. Carnarvon Petroleum Ltd has
prepared a consolidated financial report incorporating the following entities:
ENTITY NAME
% OWNERSHIP
Carnarvon Petroleum Ltd
S.R.L. Exploration Pty Ltd
Lassoc Pty Ltd
Strategic Exploration (Asia) Limited
Principal activities
100
100
100
100
The principal activity during the year was exploration, development and production of oil and gas. There was no significant
change in the nature of this activity during the financial year.
Employees
The consolidated entity employed 2 employees as at 30 June 2003 (2002: 2 employees).
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
DIVIDENDS
CENTS
(0.9)
(0.9)
The directors have recommended that no dividend be paid in respect of the financial year ending 30 June 2003. No dividends
were declared or paid during the financial year.
REVIEW OF OPERATIONS
A review of the operations during the financial year of the consolidated entity is contained in pages 5 to 10 of this Annual
Report and the directors adopt and endorse that review which is to be regarded as incorporated herein.
OPERATING RESULTS
The loss of the consolidated entity after providing for income tax was
This included exploration costs written off amounting to
The loss of the parent entity after providing for income tax was
This included exploration costs written off amounting to
$(1,508,169)
$ (62,526)
$(2,364,956)
$ (62,526)
12
D I R E C T O R S
S TAT U T O RY R E P O RT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the consolidated entity during the financial year.
SIGNIFICANT EVENTS AFTER BALANCE DATE
The Company announced to the Australian Stock Exchange and New Zealand Stock Exchange on 7th October 2003 a share
issue of 13,513,514 ordinary shares at a price of 3.7 cents per share raising $500,000 to fund working
capital requirements.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
The Review of Operations outlines likely developments in the operations of the consolidated entity. The directors are not
presently in a position to predict the results of those developments.
The directors are of the opinion that further information as to the likely developments in the operations of the consolidated
entity would prejudice the interests of the Company and the consolidated entity and it has accordingly not been included.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The consolidated entity’s oil and gas exploration and development activities are concentrated in Western Australia, Thailand
and Papua New Guinea. Environmental obligations are regulated under both State and Federal law in Western Australia,
under Department of Mineral Resources regulations in Thailand, and under the Oil and Gas Act in Papua New Guinea. No
significant environmental breaches have been notified by any government agency during the year ended 30 June 2003.
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D I R E C T O R S
S TAT U T O RY R E P O RT
SHARE OPTIONS
Unissued shares
As at the date of this report, there were 10,000,000 options to subscribe for shares in the Company exercisable at 20 cents
and expiring on 31 December 2003.
Option holders are entitled to participate in any new pro-rata issue of securities of the Company only on the prior exercise of
the options.
Shares issued as a result of exercise of options
There have been no options exercised during or since the end of the financial year.
Expiry of options
On 31 July 2002, 43,953,645 options exercisable at 20 cents each expired.
On 31 December 2002, 37,485,577 options exercisable at 20 cents each expired.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has arranged Directors and Officers insurance to cover losses or liabilities incurred by officers of the Company
or of a related body corporate acting in that capacity, to the extent permitted by law. Full details of the cover and premium
are not disclosed as the insurance policy prohibits disclosure. The amount of the premium however is included as part of
directors’ remuneration in note 20 to the financial statements.
DIRECTORS' BENEFITS
Disclosure of benefits provided to directors during the financial year is made in notes 20 and 23 to the financial statements.
Directors are eligible to participate in the Company’s Employee Share Plan, details of which are disclosed in note 17(a) to the
financial statements.
DIRECTORS’ AND OTHER OFFICERS’ EMOLUMENTS
The Remuneration and Nominations Committee, established August 2003, advises the Board on remuneration policies and
practices, evaluates the performance of senior management against pre-agreed goals, and makes recommendations to the Board
on remuneration for senior management. Details regarding the function of this Committee can be found on page 20 of this report.
EMOLUMENTS OF DIRECTORS OF CARNARVON PETROLEUM LTD
Details of the nature and amount of each element of the emolument of each director and each of the executive officers of
the Company are as follows:
Non-Executive Directors
AG Shelton
NC Fearis
Executive Directors
Dr KC Tregonning
DJ Orth
EMOLUMENTS
PAID
BASE FEE
$
LONG TERM
EMOLUMENTS
SUPERANNUATION
$
34,002
24,900
200,004
117,096
3,498
2,415
25,007
24,997
TOTAL
$
37,500
27,315
225,011
142,093
There are no performance bonus plans offered to directors of the Company.
14
D I R E C T O R S
S TAT U T O RY R E P O RT
EMOLUMENTS OF EXECUTIVE OFFICERS OF CARNARVON PETROLEUM LTD
L Troncone
EMOLUMENTS
PAID
BASE SALARY
$
206,000
LONG TERM
EMOLUMENTS
SUPERANNUATION
$
19,263
TOTAL
$
225,263
The terms ‘director’ and ‘officer’ have been treated as mutually exclusive for the purposes of this disclosure.
The elements of emoluments have been determined on the basis of cost to the Company and consolidated entity.
Executive officers are those directly accountable and responsible for the operational management and strategic direction of
the Company and the consolidated entity.
DIRECTORS' MEETINGS
During the year 11 Board meetings were held with all directors in attendance.
DIRECTOR
AG Shelton
Dr KC Tregonning
NC Fearis
DJ Orth
NUMBER OF BOARD
MEETINGS HELD WHILE IN OFFICE
NUMBER OF BOARD
MEETINGS ATTENDED
11
11
11
11
11
11
11
11
The Audit Committee was established in September 2002 and has met once with all members and invitees present to consider
and approve the 2003 financial statements. The Remuneration and Nomination Committee met twice with all members and
invitees present. The Governance Committee has met once with all members present.
CORPORATE GOVERNANCE
In recognising the need for the highest standards of corporate governance and accountability, the Directors of Carnarvon
Petroleum Limited support the Principles of Good Corporate Governance and Best Practice Recommendations of the ASX
Corporate Governance Council. The Company’s corporate governance statement is contained on pages 16 to 20 of
this report.
Signed in accordance with a resolution of the directors.
AG Shelton
Director
Melbourne
23 September, 2003
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B O A R D
A N D G O V E R N A N C E
The Board’s primary responsibility is to oversee the
Company’s business interests and management for
the benefit of Carnarvon shareholders.
CORPORATE GOVERNANCE STATEMENT
This statement is a summary of the Board’s
governance practices in place during the year.
Shareholders
The Directors are subject to election by shareholders at general meetings of the Company. All Directors, apart from the
Managing Director, are subject to re-election by rotation within every three years. A fundamental right of shareholders is to
vote on the election of Directors.
The Board aims to ensure that shareholders are kept informed of all major developments affecting Carnarvon. Information
is communicated to shareholders through:
• Annual and half yearly reports to Shareholders
•
The Chairman’s Address delivered at the Annual General Meeting
• Notice of all meetings of shareholders and explanatory notes of proposed resolutions
•
Shareholder Mailing list allowing each ASX release to be forwarded directly to every shareholder on the list
• Company website www.carnarvonpetroleum.com offering shareholders access to ASX releases, company media
releases and other company data.
Shareholders are encouraged at Annual General Meetings to ask questions of Directors and senior management and also the
Company’s external auditors, who are required to be in attendance.
Information Disclosure
In accordance with the disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules, Carnarvon follows
the following three main forms of information disclosure:
• Continuous disclosure – which is its core disclosure obligation and primary method of informing the market and
shareholders
Periodic disclosure – in the form of full-year, half-year and quarterly reporting
Specific information disclosure – as and when required, of administrative and corporate details, usually in the form of
ASX releases.
•
•
16
B O A R D
A N D G O V E R N A N C E
Directors are committed to the promotion of investor confidence by ensuring that trade in the Company’s securities takes
place in an efficient, competitive and informed market. In compliance with ASX continuous disclosure requirements,
Carnarvon has procedures in place to ensure that all price sensitive information is identified, reviewed by senior management
and disclosed to the ASX in a timely manner and that all information provided to the ASX is immediately available to
shareholders and the market on the Company’s website.
Board Responsibilities
The Board’s primary responsibility is to oversee Carnarvon’s business activities and management for the benefit of Carnarvon
shareholders. The Board also recognises its responsibilities to Carnarvon’s employees, the community and environs within
which Carnarvon operates and, where appropriate, other stakeholders.
The key responsibilities of the Board include:
• Developing long-term corporate objectives and strategy with management and approving plans, new investments,
major capital and operating expenditures and major funding activities proposed by management;
• Defining and setting performance expectations for the Company and monitoring actual performance;
• Appointing and reviewing the performance of senior management;
• Assuring itself that there are effective health, safety, environmental and operational procedures in place. Carnarvon’s
Health and Safety Policy can be found on the Company’s website;
•
•
Satisfying itself that there are effective reporting systems that will assure the Board that proper financial, operational,
compliance, risk management and internal control processes are in place and function appropriately;
Satisfying itself that the annual financial statements of the Company fairly and accurately set out the financial position
at year end, and the financial performance for the year;
•
Reporting to and advising shareholders.
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B O A R D
A N D G O V E R N A N C E
Board Workings
External Auditor Policy
The Board’s objective is to ensure that Carnarvon’s financial reporting complies with applicable standards and reflects a true
and fair view of the Company’s financial performance and position; further, that the external auditor adds value beyond
merely compliance auditing and acts, and is seen to act, free from bias, conflict and compromise.
Meetings
The Board held eleven scheduled meetings during the year ended June 2003. Directors are expected to bring independent
judgment to bear on matters being considered and are encouraged to participate in debate.
Conflict of Interest
The Board has approved ‘Conflict-of-Interest Guidelines’ which apply if there is, or may be, a conflict between the personal
or other interests of a Director and the business of Carnarvon. In that event, the Director does not receive the Board papers
relating to the matter involving actual or potential conflict, and when the matter comes before the Board for discussion, the
Director withdraws from the meeting for the period the matter is considered and takes no part in the discussions or decision-
making process.
Independent Professional Advice
The Directors may, in carrying out their duties to the Company, seek external professional advice. They are entitled to re-
imbursement of all reasonable costs where such requests for advice have been approved by the Chairman.
Risk Management
The Board has as one of its main objectives, the oversight of the management of areas where risk to Carnarvon is perceived
to be significant. Board papers and management presentations routinely address the risks associated with proposals
submitted to the Board for approval.
Standard of Conduct and Business Ethics
The Company has a Standard of Conduct and Business Ethics, which applies to all Directors and employees within the
Company.
18
B O A R D
A N D G O V E R N A N C E
Directors and Employee Share Dealings
The Company has a share trading policy, binding on Directors and employees, designed to assist Directors and employees to
avoid insider trading, and to provide guidelines for trading in Carnarvon securities. The policy stipulates that the only
appropriate time for a Director or employee to acquire or sell Carnarvon securities is when he or she is not in possession of
price-sensitive information that is not generally available to the market. Directors or employees wishing to buy or sell
Carnarvon securities in accordance with the policy may only do so after first having advised the Chairman of his or her
intention. In the case of employees, there is a correspondence notification requirement.
Audit Committee
The Audit Committee is the custodian of the external audit relationship and assists the Board to assure itself that there are
effective accounting, auditing, internal control, business risk management, compliance and reporting systems, processes and
practices in place. Members of the Audit Committee are Mr. A Shelton (Chairman) and Mr. N Fearis. The external auditors,
the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer attend Committee meetings by
invitation. The Committee was formed in September 2002.
Andrew Shelton, David Orth and Trevor Irwin at Carnarvon’s Melbourne offices.
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B O A R D
A N D G O V E R N A N C E
Remuneration and Nominations Committee
The Remuneration and Nominations Committee advises the Board on remuneration polices and practices, evaluates the
performance of senior management against pre-agreed goals, and makes recommendations to the Board on remuneration
for senior managers. The Committee considers independent advice on policies and practices to attract, motivate, reward
and retain strong performers. It is also the Committee’s role to consider the appropriate size and composition of the Board,
criteria for Board membership, candidates for Board membership, and the terms and conditions of appointment to and
retirement from the Board.
The Composition of the Board is determined in accordance with the following principles and guidelines:
•
•
•
•
the Board should comprise a majority of non-executive directors;
the chairperson should be a non-executive director;
the Board should comprise directors with an appropriate range of qualifications and expertise; and
the Board should meet at least bi-monthly and follow meeting guidelines set down to ensure all directors are made
aware of, and have available all necessary information, to participate in an informed discussion of all agenda items.
Members of the Remuneration and Nominations Committee are Mr. A Shelton (Chairman) and Mr. N Fearis. The Chief
Financial Officer attends Committee meetings by invitation. The Remuneration Committee was established in December 2002
and its brief was expanded in August 2003 to include Board nominations.
Governance Committee
The Governance Committee has two roles. It advises on and monitors Carnarvon’s governance practices and assists the Board
to assure itself that there is an appropriate and effective process for the direction and control of the Company. In particular it:
• monitors the management systems and processes in place for compliance with laws and regulatory requirements, and
• monitors the management systems in place for addressing significant business risks and the framework of internal
management controls.
Members of the Governance Committee are Mr. A Shelton (Chairman) and Mr. N Fearis. The Chief Financial Officer attends
Committee meetings by invitation. The Committee was formed in August 2003.
20
C O N T E N T S
2 0 0 2 / 0 3 F I N A N C I A L
R E S U LT S
Statement of Financial Performance
Statement of Financial Position
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
ASX Additional Information
Shareholder Information
23
24
25
26
47
48
50
51
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22
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
1,366,253
986,763
(1,079,902)
(847,450)
Carnarvon
Petroleum Ltd
2003
$
–
–
2002
$
–
–
37,937
233,231
37,937
233,231
(62,526)
(111,686)
(62,526)
(111,686)
(68,815)
(154,088)
(639,251)
(152,737)
(1,701,116)
(1,570,671)
(1,701,116)
(1,569,725)
(1,508,169)
(1,463,901)
(2,364,956)
(1,600,917)
2(a)
2(b)
2(c)
2(e)
2(d)
3
–
–
–
–
(1,508,169)
(1,463,901)
(2,364,956)
(1,600,917)
–
–
(146,574)
(146,574)
–
–
(146,574)
REVENUES FROM ORDINARY ACTIVITIES
Cost of sales
Other revenues from ordinary activities
Exploration expenses
Unrealised foreign exchange gain/(loss)
Other expenses from ordinary activities
LOSS FROM ORDINARY ACTIVITIES
BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE RELATING
TO ORDINARY ACTIVITIES
LOSS FROM ORDINARY ACTIVITIES
AFTER INCOME TAX EXPENSE
ATTRIBUTABLE TO MEMBERS OF
CARNARVON PETROLEUM LTD
TOTAL REVENUES, EXPENSES
AND VALUATION ADJUSTMENTS
ATTRIBUTABLE TO MEMBERS OF
CARNARVON PETROLEUM LTD
AND RECOGNISED DIRECTLY IN EQUITY
TOTAL CHANGES IN EQUITY OTHER
THAN THOSE RESULTING FROM
TRANSACTIONS WITH OWNERS AS
OWNERS ATTRIBUTABLE TO MEMBERS
OF CARNARVON PETROLEUM LTD
Share Issue Costs
(146,574)
(1,654,743)
(1,463,901)
(2,511,530)
(1,600,917)
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
26(a)
26(b)
(0.9)
(0.9)
(1.4)
(1.4)
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STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2003
CURRENT ASSETS
Cash assets
Receivables
Inventories
Prepayments and other assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables
Other financial assets
Plant and equipment
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
357,112
140,603
73,359
68,806
466,928
107,963
65,558
55,495
321,383
498,593
16,164
32,226
–
7,000
–
14,931
639,880
695,944
344,547
545,750
158,160
212,697
171,950
222,565
2,029,285
2,232,725
282,876
1,695,659
1,765,838
90,007
19,399
13,096
4
5
6
4
7
9
Deferred exploration evaluation and
development costs
10
4,387,531
3,964,997
–
–
TOTAL NON-CURRENT ASSETS
4,930,338
4,560,445
3,744,343
4,011,659
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Provisions
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Accumulated losses
TOTAL EQUITY
5,570,218
5,256,389
4,088,890
4,557,409
369,798
399,099
205,784
160,646
25,812
395,610
395,610
5,014
404,113
404,113
25,812
231,596
231,596
5,014
165,660
165,660
5,174,608
4,852,276
3,857,294
4,391,749
42,124,094
40,293,593
42,124,094
40,293,593
(36,949,486)
(35,441,317)
(38,266,800)
(35,901,844)
5,174,608
4,852,276
3,857,294
4,391,749
11
12
13
14
24
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
1,318,422
1,019,602
–
–
Payments to suppliers and employees
(2,641,243)
(2,690,923)
(1,506,000)
(1,685,291)
Interest received
Exploration costs
NET CASH FLOWS FROM/(USED IN)
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
10,740
(62,526)
28,413
(111,686)
10,740
(62,526)
27,377
(111,686)
15(a)
(1,374,607)
(1,754,594)
(1,557,786)
(1,769,600)
Payment for purchase of interests in permits
(19,075)
–
(19,075)
Payments for exploration and development
expenditure
Contributions for development expenditure
Proceeds from sale of permits
Purchase of plant & equipment
Proceeds from sale of plant & equipment
NET CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
–
–
–
(1,920,397)
(854,921)
–
1,473,704
–
(126,804)
–
–
1,473,704
204,828
(93,250)
7,094
–
(17,831)
–
204,828
(8,951)
7,094
(592,572)
(736,249)
1,436,798
202,971
Advances to controlled entities
–
–
(1,913,920)
(557,445)
Proceeds from issue of shares & options
1,977,075
2,294,278
1,977,075
2,294,278
Capital raising costs
(146,574)
(134,810)
(146,574)
(134,810)
Proceeds from sale of employee shares
disposed of by the company agent
NET CASH FLOWS FROM/(USED IN)
FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH HELD
Add opening cash brought forward
Effects of foreign exchange rate
changes on cash
27,197
–
27,197
–
1,857,698
2,159,468
56,222
1,602,023
(109,481)
466,928
(331,375)
788,519
(177,210)
498,593
35,394
463,199
(335)
9,784
–
–
CLOSING CASH CARRIED FORWARD
15(b)
357,112
466,928
321,383
498,593
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NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of accounting
The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of
the Corporations Act 2001 including applicable Accounting Standards. Other mandatory professional reporting requirements
(Urgent Issues Group Consensus Views) have also been complied with.
The financial report has been prepared in accordance with the historical cost convention.
Going concern
The consolidated financial report has been prepared on a going concern basis, which contemplates continuity of normal
business activities and realisation of assets and discharge of liabilities in the ordinary course of business.
The consolidated entity has incurred an operating loss of $1,508,169 for the financial period ended 30 June 2003. The ability
of the consolidated entity to continue as a going concern, including the ability of the consolidated entity to pay its debts as
and when they fall due, is dependent upon:
•
•
•
oil sales revenue derived from the SW1A Joint Venture;
generation of future profits from the SW1A Joint Venture; and
injection of capital
Without the generation of future profits and the injection of capital, there is significant uncertainty as to whether the
consolidated entity will be able to continue as a going concern and therefore whether it will be able to realise its assets and
extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.
It is on the basis that the consolidated entity will generate profits in the future from oil sales derived from the SW1A Joint
Venture and an injection of capital will occur to cover future exploration and development expenditure, that the directors have
prepared the financial report on a going concern basis. Consequently, no adjustments have been made relating to the
recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be
necessary should the consolidated entity not continue as a going concern.
(b) Changes in accounting policies
The accounting policies adopted are consistent with those of the previous year except for accounting policies with respect to
the provision for employee benefits.
Employee benefits
The consolidated entity has adopted the revised Accounting Standard AASB 1028 "Employee Benefits", which has resulted
in a change in the accounting policy for the measurement of employee benefit liabilities. Previously, the consolidated entity
measured the provision for employee benefits based on remuneration rates at the date of the recognition of the liability. In
accordance with the revised requirements of the Standard, the provision for employee benefits is now measured based on
the remuneration rates expected to be paid when the liability is settled. The effect of the revised policy on the financial report
is immaterial for the year ended 30 June 2003.
(c) Cash and cash equivalents
Cash on hand and in banks and short-term deposits are stated at nominal value.
For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks, and money market investments
at call readily convertible to cash.
(d) Recoverable amount
Non-current assets measured using the cost basis are not carried at an amount above their recoverable amount, and where
carrying values exceed this recoverable amount, the asset is written down. In determining recoverable amount, the expected
net cash flows have not been discounted to their present value, except where specifically stated.
(e) Investments
Non-current investments are carried at the lower of cost and recoverable amount.
26
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Plant and equipment
Cost and valuation
All classes of plant and equipment are measured at cost.
Depreciation
Depreciation is provided on a straight-line basis on all plant and equipment. Major depreciation periods for plant and
equipment are between 2 and 5 years (2002: 2 and 5 years).
(g) Joint ventures
Interest in the joint venture operation is recognised by including in the respective classifications, the share of individual assets
employed and share of liabilities and expenses incurred.
(h) Exploration, evaluation and development costs
Costs carried forward
Costs arising from exploration and evaluation activities are carried forward provided such costs are expected to be recouped
through successful development, or by sale, or where exploration and evaluation activities have not, at reporting date,
reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves.
Amortisation
Costs on productive areas are amortised over the life of the area of interest to which such costs relate on the production
output basis.
(i) Employee benefits
Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date.
These benefits include wages and salaries and annual leave and long service leave. Sick leave is not accrued as it is not of a
material nature and any entitlement is not vested on termination of employment.
Liabilities arising in respect of wages and salaries, annual leave and any other employee entitlements expected to be settled
within twelve months of the reporting date are measured at their nominal amount based on remuneration rates which are
expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of
the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In
determining the present value of future cash outflows, the market yield as at reporting date on national government bonds,
which have terms to maturity approximating the terms of the related liability, are used.
Employee benefit expenses and revenues arising in respect of the following categories:
• wages and salaries, non-monetary benefits, annual leave, long service leave and other leave entitlements; and
•
other types of employee benefits
are recognised against profits on a net basis in their respective categories.
The value of the employee share scheme described in note 17 is not being charged as an employee benefits expense.
In respect of the consolidated entity’s defined benefits superannuation plans, any contributions made to the superannuation
plans by entities within the consolidated entity are recognised against profits when due.
(j) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can
be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Sale of goods
Control of the goods has passed to the buyer.
Interest
Control of the right to receive the interest payment.
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NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Comparatives
Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.
(l) Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the
agreement so as to reflect the risks and benefits incidental to ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits
of ownership of the leased item, are recognised as an expense on a straight-line basis.
(m)Principles of consolidation
The consolidated financial statements are those of the consolidated entity, comprising Carnarvon Petroleum Ltd (the parent
company) and all entities that Carnarvon Petroleum Ltd controlled from time to time during the year and at reporting date.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent
accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been
eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.
(n) Foreign currencies
Translation of foreign currency transactions
Transactions in foreign currencies of entities within the consolidated entity are converted to local currency at the rate of
exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at reporting date are
translated using the spot rate at the end of the financial year.
All exchange differences arising from the translation of assets and liabilities are recognised as revenues and expenses for the
financial year.
Translation of financial reports of overseas operations
Strategic Exploration (Asia) Limited ("SEAL"), a wholly owned subsidiary, is accounted for in its functional currency being the
US dollar. SEAL is an integrated operation with its financial report being translated using the temporal rate method and any
exchange differences are taken directly to the Statement of Financial Performance.
(o) Taxes
Income taxes
Tax effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on
the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items
are recognised in the financial statements and when items are taken into account in determining taxable income, the net
related taxation benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for
deferred income tax. The net future income tax benefit relating to tax losses and timing differences is not carried forward as
an asset unless the benefit is virtually certain of being recognised.
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except:
• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case
the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
•
receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables
in the Statement of Financial Position.
Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing
and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
28
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Earnings per share
Basic EPS is calculated as net profit or loss attributable to members, adjusted to exclude costs of servicing equity (other than
dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted EPS is calculated as net profit or loss attributable to members, adjusted for:
•
•
•
costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised
as expenses; and
other non-discretionary changes in revenue or expenses during the period that would result from the dilution of potential
ordinary shares
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
(q) Contributed equity
Issued and paid up capital is recognised at the fair value of the consideration received by the company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share
proceeds received.
(r) Payables
Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in
the future for goods and services received, whether or not billed to the consolidated entity.
Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an
expense on an accrual basis.
(s) Receivables
Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate
for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred.
Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an
accrual basis.
(t) Provision for rehabilitation
The provision for rehabilitation is recognised when the liability arises from production. The directors believe that the
rehabilitation provision is not material at this stage of production and therefore a provision for rehabilitation has not been
recorded in the financial statements.
(u) Employee share loans
The carrying value of advances made to eligible employees is the lower of the equivalent market value of the shares from
time to time or the price of the shares at the time the shares were issued to eligible employees.
(v) Inventories
Inventories relate to warehouse stores and materials. These represent consumable supplies and maintenance spares expected to
be used in production and are valued at weighted average cost. Cost comprise purchase, inspection and transportation costs.
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29
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
2. REVENUES FROM ORDINARY
ACTIVITIES
Loss from ordinary activities before
income tax is arrived at after taking
into account:
(a) Revenues from oil and gas
operations
Sales revenue
Oil-SW1A Concession
Total revenues from oil and gas operations
(b) Cost of sales
Production
Royalty and excise
Transportation
Depreciation of production assets
Amortisation
1,366,253
1,366,253
986,763
986,763
(354,225)
(355,055)
(224,538)
(95,204)
(33,333)
(15,342)
(49,106)
(80,321)
(20,000)
(24,529)
Selling, general and administration
(357,260)
(318,439)
Total cost of sales
(1,079,902)
(847,450)
(c) Other revenues from ordinary
activities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Interest – other persons/corporations
10,740
Proceeds from sale of exploration permits
Other
Proceeds from the sale of employee
shares disposed of by the company agent
Total other revenues from ordinary activities
–
–
27,197
37,937
27,375
205,828
28
–
233,231
10,740
–
–
27,197
37,937
27,375
205,828
28
–
233,231
30
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
2. REVENUES FROM ORDINARY
ACTIVITIES (continued)
(d) Other expenses from ordinary
activities
Corporate administration costs
Administration
(584,262)
(546,692)
(584,262)
(545,746)
Depreciation – plant & equipment
(11,528)
(8,032)
(11,528)
(8,032)
Rental premises – operating lease
(133,544)
(139,243)
(133,544)
(139,243)
Provision for Diminution of investments
(70,179)
–
(70,179)
–
Directors fees
Legal fees
Salaries
(442,160)
(447,507)
(442,160)
(447,507)
(132,915)
(156,768)
(132,915)
(156,768)
(227,858)
(212,879)
(227,858)
(212,879)
Carrying value of employee loans sold
(42,500)
–
(42,500)
–
Provision for non-recovery of:
Employee share loans
(56,170)
(59,550)
(56,170)
(59,550)
Total other expenses from
ordinary activities
(e) Gains/(Losses)
Unrealised foreign exchange loss on:
(1,701,116)
(1,570,671)
(1,701,116)
(1,569,725)
Translation of integrated subsidiary
(68,815)
(154,088)
–
–
Loan to subsidiary
Total losses
–
–
(639,251)
(152,737)
(68,815)
(154,088)
(639,251)
(152,737)
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31
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
3. INCOME TAX
The prima facie income tax on operating
loss differs from the income tax provided
in the financial statements as follows:
Prima facie income tax benefit on operating loss
452,451
439,170
709,487
480,275
Tax effect of permanent differences
Foreign-sourced income
Foreign-sourced exploration expenditure
Receipt from Gemini
Provision for diminution of investment
85,905
(5,603)
(409,347)
(21,054)
41,510
–
(16,382)
(5,603)
(16,382)
–
–
(409,347)
(21,054)
–
–
Expenditure of a capital nature
(40,468)
(39,384)
(40,468)
(39,384)
Current year tax benefit not brought to account
(61,884)
(424,914)
(233,015)
(424,509)
Income tax benefit attributable to operating loss
–
–
–
–
Income tax losses
Future income tax benefit arising from
tax losses of a controlled entity not brought
to account at balance date as realisation of
the benefit is not regarded as virtually certain
1,406,902
1,345,018
1,577,628
1,344,613
This future income tax benefit will only be obtained if:
(a) future assessable income is derived of a nature and an amount sufficient to enable the benefit to be realised;
(b) the conditions for deductibility imposed by tax legislation continue to be complied with; and
(c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit.
Tax Consolidation
For the purposes of printing this report, Carnarvon Petroleum Ltd Group have not yet decided whether it will be consolidating for
tax purposes in the following income year.
Based on a high level review to date of the tax consolidation regime for the Carnarvon Petroleum Ltd Group, it is expected that
there will not be a significant impact on the carrying tax timing balances of the Carnarvon Petroleum Group as a result of entering
into tax consolidation.
32
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
4. RECEIVABLES
CURRENT
Trade debtors
Other debtors
Employee share loans
Provision for non-recovery
NON-CURRENT
Permit security deposits
Amounts receivable from controlled entities
Provision for non-recovery
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
4(a)
4(a)
17(a)
17(a)
116,466
24,137
140,603
–
–
–
64,374
28,399
92,773
177,800
(162,610)
15,190
–
16,164
16,164
–
–
–
140,603
107,963
16,164
–
17,036
17,036
177,800
(162,610)
15,190
32,226
50,565
31,490
50,565
31,490
–
–
–
–
–
–
2,564,474
2,703,509
(693,349)
(693,349)
1,871,125
2,010,160
Employee share loans
Provision for non-recovery
17(a)
17(a)
478,900
343,600
478,900
343,600
(371,305)
(152,525)
(371,305)
(152,525)
107,595
158,160
191,075
107,595
191,075
222,565
2,029,285
2,232,725
(a) Terms and Conditions
Terms and conditions relating to the above financial instruments
(i) Trade debtors are generally settled in the month after invoicing.
(ii) Details of the terms and conditions of related party receivables are set out in note 23.
5. INVENTORIES
CURRENT
Production materials – at cost
73,359
65,558
–
–
6. PREPAYMENTS AND OTHER
CURRENT ASSETS
Prepayments and other current assets
68,806
55,495
7,000
14,931
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33
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
7. OTHER FINANCIAL ASSETS
NON-CURRENT
Shares in controlled entities – at cost
Shares in AusAm Resources Limited
– at cost
Provision for diminution of investment
25
(i)
–
–
1,482,962
1,482,962
282,876
(70,179)
212,697
282,876
–
282,876
(70,179)
282,876
–
282,876
1,695,659
1,765,838
(i) AusAm Resources Limited ("AusAM") is an unlisted public company. Its main activity is the exploration and development of
oil and gas. Carnarvon Petroleum Ltd holds a 6.7% (2002: 7.7%) ownership interest in AusAM.
8. JOINT VENTURES
The economic entity has the following interests in joint venture operations:
Joint Venture
Principal Activities
Ownership
Interest
%
Related
Party
%
Thailand
SW1A Concession
Exploration, development, production
and marketing of crude oil
40%
Western Australia (Carnarvon Basin)
EP110
Exploration for hydrocarbons
51.7%
Papua New Guinea (Papuan Basin)
PRLs 4 & 5 (ex PPL157) including the
Stanley, Elevala and Ketu discoveries
Exploration for hydrocarbons
15%
–
–
–
34
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
8. JOINT VENTURES (continued)
Assets and liabilities in the joint ventures
are included in the financial statements
as follows:
CURRENT ASSETS
Cash assets
Receivables
Inventories
Prepayments and other
35,729
124,440
73,359
61,806
919
75,737
65,558
40,565
TOTAL CURRENT ASSETS
295,334
182,779
NON-CURRENT ASSETS
Plant and equipment
Exploration, evaluation and
development costs
150,556
96,911
4,387,531
1,555,868
TOTAL NON-CURRENT ASSETS
4,538,087
1,652,779
TOTAL ASSETS
CURRENT LIABILITIES
Payables
TOTAL LIABILITIES
NET ASSETS
4.833,421
1,835,558
92,635
92,635
111,811
111,811
4,740,786
1,723,747
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Capital expenditure commitments and contingent liabilities in respect of the joint venture are disclosed in Notes 16 and 18
respectively.
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35
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
9. PLANT AND EQUIPMENT
Plant and equipment at cost
Accumulated depreciation
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
257,483
(85,533)
171,950
130,679
(40,672)
90,007
51,599
(32,200)
19,399
33,768
(20,672)
13,096
9(a)
Consolidation
2003
Consolidated
2002
(a) Reconciliation
Reconciliation of the carrying amount of
plant and equipment at the beginning
and end of the current financial year
Plant and equipment
Carrying amount at beginning
Additions
Disposals
Depreciation expense
10.DEFERRED EXPLORATION,
EVALUATION AND
DEVELOPMENT EXPENDITURE
Exploration, evaluation and development costs
carried forward in respect of the SW1A Concession:
Pre-production
90,007
126,804
–
(44,861)
171,950
31,903
93,250
(7,114)
(28,032)
90,007
Exploration & development phases
4,387,531
3,964,997
The ultimate recoupment of costs carried forward
for exploration and evaluation phases is dependent
on the successful further development and
commercial exploitation or sale of the SW1A Concession.
11.PAYABLES
CURRENT
Trade creditors
Other creditors
Payables to controlled entities
Cash calls payable to SW1A JV
11(a)
11(a)
25,865
283,933
–
60,000
22,575
376,524
–
–
–
–
–
–
145,784
60,000
–
160,646
–
–
(a) Terms and Conditions
Terms and conditions relating to the above financial instruments:
(i) Trade and other creditors are non-interest bearing and are normally settled on 30 day terms
369,798
399,099
205,784
160,646
36
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
12.PROVISIONS
CURRENT
Employee leave entitlements
17
25,812
5,014
25,812
5,014
13.CONTRIBUTED EQUITY
(a) Issued and paid up capital
Ordinary shares fully paid
42,124,094
40,293,593
42,124,094
40,293,593
(b) Movements in shares on issue
2003
$
Number
of Shares
2002
$
Number
of Shares
Beginning of the financial year
124,518,423
40,293,593
80,532,846
38,111,125
Issued during the year
– employee share scheme
–
–
500,000
23,000
– public equity raising
less transaction costs
47,073,200
1,977,075
43,485,577
2,294,278
–
(146,574)
–
(134,810)
End of the financial year
171,591,623
42,124,094
124,518,423
40,293,593
(c) Share options
No options over ordinary shares were issued during the financial year.
Unissued ordinary shares of the Company under option:
Expiry Date
Grant Date
31 July 2002 (since expired)
7/12/2000
31 December 2002 (since expired)
7/12/2000
31 December 2003
7/12/2000
(d) Terms and conditions of contributed equity
Ordinary Shares
Exercise Price
$
0.25
0.20
0.20
Number of Options
2003
2002
–
–
43,953,645
37,485,577
10,000,000
10,000,000
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate
in the proceeds from the sale of all surplus assets in proportion to the number of, and amounts paid up on, shares held.
14.ACCUMULATED LOSSES
Balance at the beginning of the year
(35,441,317)
(33,977,416)
(35,901,844)
(34,300,927)
Operating loss attributable to members
of Carnarvon Petroleum Ltd
(1,508,169)
(1,463,901)
(2,364,956)
(1,600,917)
Balance at the end of the year
(36,949,486)
(35,441,317)
(38,266,800)
(35,901,844)
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37
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
15.STATEMENT OF CASH FLOWS
(a) Reconciliation of the operating
loss after tax to the net cash
flows used in operations
Loss from ordinary activities after tax
(1,508,169)
(1,463,901)
(2,364,956)
(1,600,917)
Provision for diminution
– employee share loans
Write down of employee loans
Amortisation of deferred exploration
evaluation and development costs
Depreciation – plant & equipment
Unrealised foreign exchange (gain)/loss
56,170
15,303
15,342
44,861
68,815
59,550
–
24,529
28,032
56,170
15,303
–
59,550
–
–
11,528
8,032
–
639,251
152,737
Profit on sale of exploration permits
–
(204,778)
–
(204,778)
Provision for diminution of investment
70,179
–
70,179
–
Changes in assets and liabilities:
Receivables
Inventories
Prepayments
Accounts payable
Employee entitlements
(47,831)
(7,801)
(13,311)
103,336
(65,558)
(22,815)
872
–
28,743
–
7,931
(8,029)
(88,963)
(207,467)
(14,862)
(199,416)
20,798
(5,522)
20,798
(5,522)
Net cash flows used in operating activities
(1,374,607)
(1,754,594)
(1,557,786)
(1,769,600)
(b) Reconciliation of cash
Cash balance comprises:
Cash at bank and at call
Closing cash balance
(c) Financing facilities available
357,112
357,112
466,928
466,928
321,383
321,383
498,593
498,593
At reporting date, the following financing facilities has been negotiated and were available:
Bank overdraft
Letter of credit facility
30,000
60,000
30,000
60,000
30,000
60,000
30,000
60,000
All facilities are unused at balance date.
(d) Non-cash financing and investment activities
Issue of shares under the employee
share scheme
–
23,000
–
23,000
38
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
16.EXPENDITURE COMMITMENTS
(a) Capital expenditure commitments
Estimated capital expenditure contracted for
at balance date, but not provided for, payable:
Not later than one year
Joint venture
(b) Lease expenditure commitments
Operating leases (non cancellable)
–
89,205
–
–
Not later than one year
33,600
69,272
33,600
69,272
Aggregate lease expenditure
contracted for at balance date
Aggregate expenditure commitments comprise:
Amounts not provided for at balance date
33,600
69,272
33,600
69,272
Rental commitments
33,600
69,272
33,600
69,272
Due to the nature of the consolidated entity's operations in exploring and evaluating areas of interest, it is difficult to
accurately forecast the nature or amount of future expenditure, although it will be necessary to incur expenditure in order
to retain the entity's present permit interests. Expenditure commitments on exploration permits can be reduced by
selective relinquishment of exploration tenure, by the renegotiation of expenditure commitments and by farming out
portions of the entity's equity. The Company forecasts its exploration commitments for its Australian and PNG
commitments for 2003/04 to be approximately $30,000 (actual 2002/03: $30,000).
17.EMPLOYEE ENTITLEMENTS
Aggregate employee entitlements,
including on-costs
The aggregate employee entitlement
liability is comprised of:
Provisions (Current)
12
25,812
5,014
25,812
5,014
(a) Employee share plan
At the Annual General Meeting held on 16 October 1997 the shareholders approved the Carnarvon Employee Share Plan and
a loan arrangement scheme to assist in funding the acquisition of Plan Shares.
Under the terms of the Plan:
(i)
the Company may, in its absolute discretion, make an offer of ordinary fully paid shares in Carnarvon Petroleum Ltd to
any eligible employee;
(ii) an eligible employee is any person who is a director or employee of Carnarvon Petroleum Ltd or any of its subsidiaries;
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39
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
17.EMPLOYEE ENTITLEMENTS (continued)
(iii) the issue price is determined by the directors and is not to be less than the weighted average market price of the
Company’s shares on the five trading days prior to the proposed date of offer;
(iv) transfer of shares is limited within the first two years;
(v) eligible employees receive an interest free advance to acquire the shares;
(vi) the maximum liability of the advance is the market value of the shares from time to time;
(vii) the carrying value of advances made to eligible employees is the lower of the equivalent market value of the shares from
time to time or the price of the shares at the time the shares were issued to eligible employees;
(viii) the eligible employee is the legal owner of the shares subject to the provisions of the loan agreement between the
Company and the eligible employee; and
(ix) Australian Stock Exchange Listing Rules require the Company to obtain shareholder approval for the issue of shares to
directors.
At balance date there were 10 (2002: 9) eligible participant employees.
During the financial year, no (2002: 500,000) shares were issued under the loan arrangement scheme with the Company.
In respect to the eligible employees who ceased employment during the year, no (2002: Nil) shares were disposed of by the
Company Secretary as agent. During last year, no amount (2002: $Nil) was used to repay the advances under the loan
arrangement scheme. During the year no (2002: 310,000) shares being held by the Company Secretary as agent for
employees who have ceased employment with a market value of nil (2002: $15,190).
During the year the Company Secretary as agent sold 500,000 shares (2002: Nil) on market for employees who ceased
employment in previous years. These were disposed of on market for a consideration of $27,197.
At balance date, there were 3,985,000 (2002: 4,485,000) shares on issue in respect to eligible employees with a market value
of $107,595 (2002: $219,765).
The advances in respect to the shares on issue or being held have been written down to market value as at balance date.
The following amounts were recognised in the financial statements in relation to shares issued during the financial year under
the Carnarvon Employee Share Plan:
Notes
Consolidated
2003
$
2002
$
–
23,000
Carnarvon
Petroleum Ltd
2003
$
–
2002
$
23,000
Share capital
(b) Superannuation Commitments
Employees make contributions to employee superannuation plans based on various percentages of their salary and wage.
The consolidated entity has a legal obligation to contribute to the plans to the extent of the superannuation guarantee
legislation and the specific terms of individual employment contracts.
Notes
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
Employer contributions to the plans
55,917
55,510
55,917
55,510
40
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
18.CONTINGENT ASSETS AND CONTINGENT LIABILITIES
Controlled Entities
(a) Carnarvon Petroleum Ltd has agreed not to recall the loans owing by its controlled entities where it would result in
the controlled entity not being able to meet its debts and commitments as they fall due.
(b) In accordance with normal petroleum industry practice, the consolidated entity has entered into joint ventures and
farmin agreements with other parties for the purpose of exploring and developing its petroleum permit interests. If
a party to a joint venture defaults and does not contribute its share of joint venture obligations, then the other joint
venturers are liable to meet those obligations. In this event, the interest in the permit held by the defaulting party may
be redistributed to the remaining joint venturers.
(c) Securities have been placed in favour of the Independent State of Papua New Guinea in respect of the compliance
with the conditions of Petroleum Prospecting Licences (PPL’s) granted to the Company and its joint venturers, totalling
$31,490 (2002: $31,490).
(d) If a discovery is made within an exploration permit in which a Native Title claim has been made and a production
licence is sought in respect of that exploration permit, the issue of the production licence may be subject to the right
to negotiate procedures set out in the Native Title Act. If no agreement is reached with the claimants, the National
Native Title Tribunal will conduct a hearing to determine whether the licence can be granted, and if so on what
conditions. A condition of the grant may be the payment of compensation.
(e) During June, the operator of the SWIA joint venture, Pacific Tiger Inc. made a cash call to Carnarvon for $218,000
which represents the unbudgeted cost over runs associated with the Phase II development costs. The directors believe
this is outside the guidelines of the joint venture operating agreement. Therefore Carnarvon have only booked
$60,000 of this amount which represents 5% of the total Phase II development budgeted costs which is consistent
with the Joint Venture Operating Agreement. Resolution is expected shortly.
C A R N A R V O N P E T R O L E U M L T D |
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41
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
19.SEGMENT INFORMATION
Geographical Segments
Australia
Thailand
2003
$
2002
$
2003
$
2002
$
Papua New Guinea
2003
$
2002
$
Consolidated
2003
$
2002
$
Revenue
Sales to customers
outside the
consolidated entity
–
–
1,366,253
986,763
Other revenue from
customers outside
the consolidated
entity
37,937
233,231
–
–
Total segment
revenue
37,937
233,231
1,366,253
986,763
Results
Segment
result
Assets
Exploration and
(1,692,372)
(1,583,229)
184,203
138,367
development costs
–
–
4,327,531
3,964,997
–
–
–
–
–
–
1,366,253
986,763
–
–
37,937
233,231
1,404,190
1,219,994
(19,039)
(1,508,169)
(1,463,901)
–
4,327,531
3,964,997
Other
630,905
1,032,797
501,217
227,105
50,565
31,490
1,182,687
1,291,392
Total segment
assets
630,905
1,032,797
4,828,748
4,192,102
50,565
31,490
5,510,218
5,256,389
Liabilities
Total segment
liabilities
171,596
165,660
164,014
238,453
Other segment information:
Acquisition of
property, plant
and equipment
and other
non-current assets
17,831
8,951
108,973
939,220
Depreciation
11,528
8,032
33,333
20,000
Amortisation
–
–
15,342
24,529
Other non-cash
expenses
126,349
59,550
–
–
–
–
–
–
–
–
335,610
404,113
–
–
–
–
126,804
948,171
44,861
28,032
15,342
24,529
126,349
59,550
The consolidated entity operated predominantly in the development and exploration for oil and gas in Australia, Thailand and
Papua New Guinea.
42
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
20.REMUNERATION OF DIRECTORS
Income paid or payable, or otherwise made available, in
respect of the financial year, to all directors of each entity
in the consolidated entity, directly or indirectly, by the
entities of which they are directors or any related party.
Income paid or payable, or otherwise made available, in
respect of the financial year, to all directors of Carnarvon
Petroleum Ltd, directly or indirectly, from the entity or
any related party.
431,919
434,346
The number of directors of Carnarvon Petroleum Ltd whose income
(including superannuation contributions) falls within the following bands is:
$
0 – 9,999
10,000 – 19,999
20,000 – 29,999
30,000 – 39,999
140,000 – 149,999
150,000 – 159,999
210,000 – 219,999
220,000 – 229,999
21.REMUNERATION OF EXECUTIVES
Remuneration received or due and receivable by executive
officers of the consolidated entity whose remuneration is
$100,000 or more, from entities in the consolidated entity
or a related party, in connection with the management of
the affairs of the entities in the consolidated entity
whether as an executive officer or otherwise.
Remuneration received or due and receivable by executive
officers of the Company whose remuneration is $100,000
or more, from the Company or any related party, in
connection with the management of the affairs of the
Company or any related party whether as an executive
officer or otherwise.
The number of executive officers of Carnarvon Petroleum
Ltd whose income (including superannuation contributions)
falls within the following bands is:
$
140,000 – 149,999
150,000 – 159,999
210,000 – 219,999
220,000 – 229,999
592,367
580,259
431,919
434,346
2003
No
–
–
1
1
1
–
–
1
2002
No
3
1
1
–
–
1
1
–
592,367
580,259
2003
No
1
–
–
2
2002
No
–
1
2
–
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NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
22.REMUNERATION OF AUDITORS
Amounts received or due and receivable by the auditors of
Carnarvon Petroleum Ltd and the consolidated entity for
an audit and review of the financial report of the Company
and any other entity in the consolidated entity.
Other services in relation to the entity and any other
entity in the consolidated entity.
Audit of overseas operations by an overseas branch of
the auditors of Carnarvon Petroleum Ltd.
Consolidated
2003
$
2002
$
Carnarvon
Petroleum Ltd
2003
$
2002
$
41,500
52,874
41,500
52,874
59,150
17,750
59,150
17,750
9,000
109,650
9,000
79,624
–
–
100,650
70,624
Other services relate to taxation and other accounting assistance.
23.RELATED PARTY DISCLOSURES
(a) The directors of Carnarvon Petroleum Ltd during the financial year were:
AG Shelton
Dr KC Tregonning
DJ Orth
NC Fearis
(b) Carnarvon Petroleum Ltd is the ultimate parent entity.
(c) Equity instruments of directors
Interests in the equity instruments of entities in the consolidated entity held by directors of the reporting entity and their
director-related entities at balance date are as follows:
Notes
1 July
2002
Acquired/
(Sold, Cancelled,
Disassociated)
Employee
Share
Plan
30 June
2003
Ordinary shares
AG Shelton
Dr KC Tregonning
NC Fearis
DJ Orth
TOTAL
31 July 2003 Options (since expired)
Dr KC Tregonning
TOTAL
31 December 2003 Options
Dr KC Tregonning
DJ Orth
TOTAL
All directors shares were purchased on market.
2,796,021
5,516,667
1,200,000
2,666,667
1,771,400
1,071,400
571,400
191,400
12,179,335
3,605,600
100,610
(100,610)
100,610
(100,610)
5,000,000
5,000,000
10,000,000
–
–
–
–
–
–
–
–
–
–
–
–
4,567,421
6,588,067
1,771,400
2,858,067
15,784,955
–
–
5,000,000
5,000,000
10,000,000
The above holdings are calculated according to the provisions of the Corporations Act 2001. Under that Act, a shareholder
may have a relevant interest in, or an entitlement to, certain shares without having any beneficial interest in those shares.
44
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
23.RELATED PARTY DISCLOSURES (continued)
(d) Wholly owned group
The following related party transactions occurred during the financial year within the wholly owned group.
During the reporting period there have been transactions between the Company and its controlled entities. The Company
provided accounting and administrative services to its controlled entities for which it did not charge a management fee.
The Company also provided interest free funding for exploration and development expenditure to its controlled entities during
the year amounting to $1,913,920 (2002: $557,445). The outstanding balance of loans made by Carnarvon Petroleum Ltd
to its controlled entities at 30 June 2003 was $3,978,178 (2002: $2,703,509) of which $639,349 (2002: $693,349) has been
provided for. These loans are unsecured and have no fixed terms of repayment.
(e) Other transactions
Mr AG Shelton is a director of Andrew Shelton & Co Pty Ltd. That company provided financial consulting services to the
consolidated entity in relation to the SW1A Concession in Thailand. The total value of consulting fees paid or payable was
$42,000 (2002: $45,000).
Mr NC Fearis is a director of Pendomer Investments Pty Ltd. That company provided services to the consolidated entity in
relation to general corporate matters. The total value of fees paid was $1,200 (2002: $16,362).
Dr KC Tregonning is a director of Winlen Pty Ltd. That company provided a Melbourne based fully serviced office to the
consolidated entity. The total value of licence fees paid was $79,700 (2002: $82,787).
The terms and conditions of the above transactions were no more favourable than those available, or which might reasonably
be expected to be available, on similar transactions to non-director related entities on an arms length basis.
24.FINANCIAL INSTRUMENTS
(a) Interest rate risk
The consolidated entity’s exposure to interest rate risk is considered minimal. The only financial asset or financial liability
subject to fluctuations in interest rates is the cash balance, which is at a floating interest rate of 4.5% (2002: 4.75%)
(b) Net fair values
The aggregate net fair value of financial assets and financial liabilities, at balance date, is the same as or approximates the
carrying amount disclosed in the statement of financial position.
(c) Credit risk exposures
The consolidated entity’s maximum exposures to credit risk at reporting date in relation to each class of recognised financial
assets, is the carrying amount of those assets as indicated in the statement of financial position.
Concentrations of credit risk
The company considers its exposure to credit risk as minimal. Amounts receivable by the Company relate to either:
(i)
costs charged to related entities for which the Company awaits reimbursement; or
(ii) amounts advanced to employees, which are repayable under the terms of the Carnarvon Employee Share Plan, which
requires repayment on sale of the shares.
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NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2003
25.CONTROLLED ENTITIES AND CONTRIBUTION TO CONSOLIDATED ENTITY PROFIT/(LOSS)
Name
Country of
Incorporation
% held by
parent entity
Book value of
shares held
2003
2002
2003
$
2002
$
Contribution to
consolidated entity
profit/(loss)
2003
$
2002
$
(1,692,372)
(1,602,268)
Carnarvon Petroleum Ltd
Controlled entities of
Carnarvon Petroleum Ltd:
Lassoc Pty Ltd
Australia
SRL Exploration Pty Ltd
Australia
Strategic Exploration
(Asia) Ltd
Australia
26.EARNINGS PER SHARE
100
100
100
100
100
20
10
20
10
–
–
–
–
100
1,482,932
1,482,932
184,204
138,367
1,482,962
1,482,962 (1,508,168)
(1,463,901)
(a) Basic earnings per share (cents per share)
(b) Diluted earnings per share (cents per share)
(c) Weighted average number of ordinary shares on issue
used in the calculation of earnings per share
(d) Earnings used in calculating basic and diluted earnings per share
2003
2002
(0.9)
(0.9)
(1.4)
(1.4)
162,305,169 107,429,976
$(1,508,169) $(1,463,901)
Details of share issues made subsequent to the end of the financial year are contained in note 27 to the financial statements.
27.SUBSEQUENT EVENTS AFTER BALANCE DATE
The Company announced to the Australian Stock Exchange and New Zealand Stock Exchange on 7th October 2003 a share issue of
13,513,514 ordinary shares at a price of 3.7 cents per share raising $500,000 to fund ongoing working capital commitments.
46
DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Carnarvon Petroleum Ltd, we state that:
In the opinion of the directors:
(a) the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2003 and of their
performance for the year ended on that date; and
(ii) complying with Accounting Standards and Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
On behalf of the Board
AG Shelton
Director
Melbourne, 30 September 2003
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INDEPENDENT AUDIT REPORT
TO THE MEMBERS OF CARNARVON PETROLEUM LIMITED
SCOPE
The financial report and directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows,
accompanying notes to the financial statements, and the directors’ declaration for Carnarvon Petroleum Limited and the consolidated
entity, for the year ended 30 June 2003. The consolidated entity comprises both the company and the entities it controlled during
that year.
The directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position
and performance of the company and the consolidated entity, and that complies with Accounting Standards in Australia, in
accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and
internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates
inherent in the financial report.
Audit approach
We conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our
audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the
financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional
judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive
evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the
Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial reporting
requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial
position, and of their performance as represented by the results of their operations and cash flows.
We formed our audit opinion on the basis of these procedures, which included:
•
•
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting
estimates made by the directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and
extent of our procedures, our audit was not designed to provide assurance on internal controls.
We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report.
These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business
plans or strategies adopted by the directors and management of the company.
Independence
We are independent of the company, and have met the independence requirements of Australian professional ethical
pronouncements and the Corporations Act 2001. In addition to our audit of the financial report, we were engaged to undertake the
services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
48
INDEPENDENT AUDIT REPORT
TO THE MEMBERS OF CARNARVON PETROLEUM LIMITED
Audit opinion
In our opinion, the financial report of Carnarvon Petroleum Limited is in accordance with:
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of Carnarvon Petroleum Limited and the consolidated entity at 30 June
2003 and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory financial reporting requirements in Australia.
Inherent uncertainty regarding going concern
Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described
in Note 1 of the financial report relating to going concern, there is significant uncertainty whether Carnarvon Petroleum Limited will
be able to continue as a going concern without obtaining further funds to continue its exploration and development activities and
therefore whether it will realise its assets and extinguish its liabilities in the normal course of business at the amounts stated in the
financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset
amounts or to the amounts and classification of liabilities that might be necessary should the entity not continue as a going concern.
Ernst & Young
JP Dowling
Partner
Perth
30 September 2003
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ASX ADDITIONAL INFORMATION
Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The
information is made up to 22nd September 2003.
1. Analysis of shareholdings
Size of Holdings
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,000 – and over
Total number of holders
Number of
Shareholders
1,886
1,397
439
854
289
4,865
2. The number of shareholders holding less than a marketable parcel was 3,774
3. Voting Rights – no restriction apply. On a show of hands every member or by proxy shall have one vote and upon a poll each
share shall have one vote
4. The names of the twenty largest holders of securities.
Shareholders
Hamilton Capital Partners Limited
Oasis International General Trading LLC
John Lyndon Usmar
Arne Investments Pty Ltd
Jeffrey Frank Fradd
Dr Kenneth Tregonning & Brenda Leung Tregonning
Resource Management Associates Pty Ltd
Alakor Corporation Inc
Upora Pty Ltd
CNW (Explorations) Pty Ltd
Desmond Joseph Keegan
Lawrence Crowe Consulting Pty Ltd
John Bernard Porteous
William Douglas Goodfellow
ANZ Nominees Limited
Robyn Fitzgerald
Massif Limited
Commodity Traders (NZ) Limited
Pendomer Investments Pty Ltd
Dolly Viona Thom
Bruce Birnie Pty Ltd
No. of Shares
9,175,250
5,333,205
4,681,143
4,567,421
4,500,000
3,650,000
2,738,067
2,487,703
2,178,190
2,049,282
1,993,039
1,900,000
1,861,500
1,771,400
1,714,217
1,600,000
1,600,000
1,500,000
1,500,000
1,004,732
1,000,000
Option Holder (31 December 2003)
No. of Options
Dr KC Tregonning
DJ Orth
Total
5,000,000
5,000,000
10,000,000
%
5.35
3.11
2.73
2.66
2.62
2.12
1.60
1.45
1.27
1.19
1.16
1.11
1.08
1.03
1.00
0.93
0.93
0.87
0.87
0.59
0.58
%
50.0
50.0
100.0
50
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
Annual General Meeting
Notice is given that the Annual General Meeting of Carnarvon Petroleum Ltd will be held in the Toorak Room, Mezzanine Level,
Como Melbourne, 630 Chapel Street, South Yarra, Victoria, on Friday 28th November 2003 at 9.30am.
Full details of the meeting are contained in the Notice of Annual General meeting sent with this Report.
Shareholder Enquiries
All enquiries should be directed to the Company’s Share Registry at the following contact address:
Share Registry – Australia
Share Registry – New Zealand
Computershare Investor Services Pty Limited
Computershare Registry Services Limited
Level 2, 45 St. George’s Terrace
Perth Western Australia 6000
Telephone: +61 8 9323 2000
Facsimile: +61 8 9323 2033
Internet Services For Shareholders
Private Bag 92119
Auckland 1020
Telephone: +64 9 522 0022
Facsimile: +64 9 522 0058
Our internet site, www.carnarvonpetroleum.com, is an important means of keeping shareholders continuously informed about the
Company, including announcements to the ASX. The site also offers you regular updates of our share price as well as copies of news
releases, financial presentations, half yearly and annual reports to shareholders.
Carnarvon’s Annual Report
The 2003 Annual Report is available online in adobe acrobat PDF format.
Change of Address
It is very important that shareholders notify the Share Registry immediately in writing, of any change to their registered address.
Lost Holding statements
Shareholders should inform the Share registry immediately, in writing, so that a replacement statement can be arranged.
Change of Name
Shareholders should notify the Share Registry, in writing, and attach a certified copy of a relevant marriage certificate or deed poll.
Shareholders who do not wish to receive a Annual Report
Shareholders who no longer wish to receive an Annual Report should notify the Share Registry, Computershare… in writing.
Privacy
Carnarvon respects the privacy of individuals. A copy of our privacy policy is available on our internet site,
www.carnarvonpetroleum.com
Information about Carnarvon
Requests for specific information on the Company can be directed to the Company Secretary at the following address:
Carnarvon Petroleum Limited
Level 50, 120 Collins Street
Melbourne Victoria 3000
Australia
Telephone: +61 3 9225 5400
Facsimile: +61 3 9225 5050
Email: admin@carnarvonpetroleum.com
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52
Photography courtesy of Pacific Tiger Energy Inc.
Design: Jaz Creative +61 8 9386 8596