AnnuAl RepoRt 2007
CO R PO RATE DIRECTORY
COnTEnTs
1
Directors
PJ Leonhardt (Chairman)
EP Jacobson (Chief Executive Officer)
NC Fearis (non-Executive Director)
KP Judge (non-Executive Director)
company secretary
RA Anderson
auDitors
WHK Horwath Perth Audit Partnership
Bankers
share registry
Computershare Investor services Pty Limited
Level 2, 45 st Georges Terrace
Perth, WA 6000 Australia
investor enquiries:
Within Australia
1300 557 010
Outside Australia +61 3 9415 4000
Facsimile:
+61 8 9323 2033
stock exchange Listing
securities of Carnarvon Petroleum Limited are listed
on AsX Limited.
Australia and new Zealand Banking Group Limited
asx coDe:
CVn - ordinary shares
registereD office
suite 3, Ground Floor
16 Ord street
West Perth WA 6005
Telephone: +61 8 9321 2665
Facsimile: +61 8 9321 8867
Email:
admin@carnarvonpetroleum.com
Website:
www.carnarvonpetroleum.com
Chairman’s Review
Chief Executive’s Review
Operating and Financial Review
Directors’ Report
Auditor’s Independence Declaration
Income statements
Balance sheets
statements of Changes in Equity
statements of Cash Flows
notes to the Financial statements
Directors’ Declaration
Independent Audit Report
Corporate Governance statement
Additional shareholder Information
2
3
4-15
16-25
26
27
28
29-30
31
32-56
57
58-59
60-63
64-65
2007 annual report
carnarvon petroleum limited
2
CHAI RmAn’s REVIEW
CHIEF EXEC uTIVE’s REVIEW
3
At this time last year I expressed confidence that Carnarvon’s new management team and the revitalisation of our Phetchabun Basin
Joint Venture in Thailand had established a strong platform for future growth. This year the pace of activity has accelerated and there
have been significant achievements.
The last 2 years has seen considerable growth in the Carnarvon share price from around 3 cents to the current 32 cents, a 10
fold increase. This has resulted from the establishment of a new operator, Pan Orient Energy, and an improved joint venture in our
Thailand assets, as well as the recruitment of highly experienced technical managers and staff by both Pan Orient and Carnarvon.
under Ted Jacobson’s excellent leadership we have continued to build our small but high quality technical team and significantly
improve our understanding of the Thai assets, as well as provide the capability to pursue new ventures with confidence.
The Company’s productive working relationship with its joint venture partner in Thailand, Pan Orient Energy Inc., a Canadian
TsX listed oil and gas company, is borne out by the extensive programme delivered in a relatively short time frame and success
in the field.
A two phase exploration, evaluation, and development drilling programme commenced in July 2006 based on reprocessed 2D and
a new 245 km2 3D seismic programme. This resulted in 12 wells being drilled by year end of which 7 are currently producing oil. The
scale of the success can be measured by a Joint Venture production rate under 80 bopd in July 2006 now having increased to over
2500 bopd at the date of this report.
One of the highlights of the year was the successful POE 9 discovery of a fractured volcanic play. Fractured volcanic prospects
have been identified in a number of discovered and potential structures and these will be targeted with comprehensive drilling in the
coming year.
The Phase 2 programme will continue into 2008 and comprise up to 37 wells, some of which will be positioned on the basis of a
new 100 km2 3D seismic survey that has just been completed over the Bo Rang gas field. significant new contingent resources have
been identified and data from the 3D seismic surveys and drilled wells will enable Carnarvon to update reserves for its Phetchabun
Basin interests having regard for the new information.
The Company has actively pursued new ventures and was successful in its bid for a 50% interest in a new permit in the Carnarvon
Basin. In onshore Thailand, Carnarvon has a 50% interest and, in conjunction with its joint venture partner, sole bidder status in an
application for concession rights for Block L20/50 to the west of its existing permits.
The achievements of the new management team in meeting development milestones have provided support in the market to raise
almost $16 million of equity for Phase 2 and new ventures by way of placements to both new and existing shareholders, including $1
million from an oversubscribed share Purchase Plan. At the same time we have strengthened our institutional shareholder base.
It is particularly pleasing to report a significant increase in the Company’s market capitalisation and share price which reflects the
progress made during the year.
On behalf of shareholders, I thank Ted and his team for their outstanding contributions during the year which are reflected in
Carnarvon now being recognised for its success in the field and as a desirable participant in new ventures. It is with much anticipation
that I and my fellow directors look forward to another exciting year of growth in 2008.
During this period our Phetchabun Basin Joint Venture has recorded a total of 365 km2 of 3D seismic and drilled a total of 17 wells,
bringing the Wichian Buri oilfield back to life. It has also resulted in the discovery of new oil fields at na sanun East and at na sanun
within a new reservoir of fractured volcanic rocks, previously not on production in the permits.
Total production during these two years has gone from less than 100 barrels of oil per day to over 2,500 barrels of oil per day, a 25
fold increase. At this new flow rate Carnarvon can now fully fund, without going back to the market, continuous drilling with the two
contracted rigs and one workover rig and release some funds for new venture opportunities. This is an important milestone for the
Company.
Our two exploration permits in Thailand are large (8,000 sq kms), covering almost the entire Phetchabun Basin. It is management’s
view that these permits have a lot more to deliver, with 28 more wells planned or underway for 2007/2008.
Carnarvon management is carefully looking at additional ways to grow in other areas both within and outside Thailand. Our company
has applied for a new, large (4,000 sq kms) permit onshore Phitsanulok Basin west of Carnarvon’s existing permits in Thailand. This
is an interesting area with similar geology to that of our Phetchabun Basin permits, and located 40 kms south of the very large sirikit
Oil Field. We will know the success of this application in the next few months.
The Carnarvon technical team has significant experience in the various Australian basins and in particular the Australian north West
shelf. With this knowledge Carnarvon, as operator, applied for and was awarded a new offshore permit in the Carnarvon Basin
of Western Australia (WA-399-P), 35 kms southeast and downdip of the large Pyrenees/macedon oil and gas fields. Carnarvon
has identified a prospect in this permit with the potential to contain approximately 50 mmbbls of recoverable oil. seismic data are
currently being reprocessed with a view to drilling as soon as possible.
Carnarvon is reviewing a number of other international opportunities and is currently in two separate study groups. On completion
of these studies in the next few months, Carnarvon has the right to enter into production sharing agreements with the respective
Governments. Expenditure on these projects is minimal upfront, so that they will provide Carnarvon with the means to expand at the
right time as funds become available from existing production.
Carnarvon has managed to attract some highly experienced scientists and managers to its team, due to the quality of our assets and
a supportive and innovative work environment. Our people are our greatest asset. They provide the means to grow our company and
I thank them for their hard work and enthusiasm. I also thank shareholders and my co-directors for their support.
As a shareholder of the company I am very pleased at our past progress and I firmly believe we have the right fundamentals for
growing the company substantially again over the next 12 months.
peter Leonhardt
Chairman
ted Jacobson
Chief Executive Officer
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
4
OPER ATI nG AnD FInAnCIAL REV IEW
5
company performance
key performance indicators
Carnarvon tracks several key performance indicators to provide a relative measure of the Company’s growth, as shown below.
Wells Drilled
Period:
measure:
Period Change:
1 July 2006 – 30 June 2007
12 Wells
n/A
share price
Period:
measure:
Period Change:
30 June 2007
A$0.24
+ 362%
s
l
l
e
W
14
12
10
8
6
4
2
0
0.3
0.25
0.2
0.15
0.1
0.05
0
)
e
r
a
h
s
/
$
A
(
e
c
i
r
P
2003-2004
2004-2005
2005-2006
2006-2007
2004
2005
2006
2007
Financial Year
Financial Year
Date
Date
annual net oil sales
Period:
measure:
Period Change:
1 July 2006 – 30 June 2007
59,161 Bbls
+ 300%
market capitalisation
Period:
measure:
Period Change:
30 June 2007
A$158 million
+ 550%
l
)
s
b
b
(
l
s
e
a
S
l
i
O
t
e
N
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2003-2004
2004-2005
2005-2006
2006-2007
Financial Year
Financial Year
p
a
C
t
e
k
r
a
M
)
n
o
i
l
l
i
m
$
A
(
180
160
140
120
100
80
60
40
20
0
2004
2005
2006
2007
Date
Date
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
6
OPER ATI nG AnD FInAnCI AL REV IEW
7
financiaL summary
proDuction anD financiaL summary
The consolidated entity’s loss after income tax for the year ended 30 June 2007 was $1,542,210, (2006: $758,150 loss), however
its share of the cash operating profit of the Phetchabun Basin Joint Venture in Thailand increased to $881,616 (2006: $343,151) as
a result of significantly improved production.
Corporate and administration costs for the year were $966,343 excluding share-based payments (2006: $920,418). The increase
primarily reflects staff and consultant costs associated with increasing the Company’s technical capability to extract full value from
both its current assets and new ventures.
PHETCHABUN BASIN JOINT VENTURE, THAILAND
(carnarvon petroleum Ltd 40%; Pan Orient Energy Corp. 60%)
Carnarvon has a 40% interest in the Phetchabun Basin Joint Venture (“Joint Venture”), which includes the Wichian Buri Oilfield,
si Thep Oilfield, na sanun Oilfield and exploration blocks L44/43 and L33/43.
The consolidated entity’s revenue from continuing operations for the year ended 30 June 2007, being its share of the Joint Venture
operations in Thailand, was $3,673,595 (2006: $1,090,213).
The higher A$ oil revenue resulted from higher Joint Venture oil sales of 147,904 bbls (2006: 42,554 bbls) complemented by an
improvement in the achieved oil sale price to us$50.24 per bbl (2006: us$47.73). These factors were offset by an appreciation
in the A$ to the us$ from 73 cents to 85 cents over the reporting period.
The increase in oil sales resulted from new production from the Phase 1 and initial part of the Phase 2 drilling programmes, as well
as improved production resulting from the workover programme applied to some of the older wells.
The high start up costs associated with the new drilling programme incurred in the first half of the year restricted the full year cash
profit per bbl sold to us$15.65 (2006: $20.36). However, increased production in the final quarter meant a us$26.92 cash profit
per bbl sold for the 3 months to June 2007.
At financial year end the Joint Venture had produced at a gross rate of 1,080 bopd (432 bopd net to Carnarvon). This rate had
been choked back from around 1,400 bopd gross earlier in the year due to changes in the ongoing well testing programme.
Currently the Joint Venture is producing at a gross rate in excess of 2,500 bopd. A significant portion of this production is from
well testing operations. It is anticipated that production will vary significantly over the coming months as individual wells are varied
to determine optimum flow rates, further exploration and appraisal wells are drilled and a development plan for the na sanun East
oil field is approved. Full field development of the na sanun East field is not anticipated until 2008.
Thailand Permits – Location Map
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
8
OPER ATI nG AnD FInAnCIAL REV IEW
9
operations
In 2006 the Joint Venture embarked on a 2 phase work programme incorporating an intensive exploration, appraisal and
development programme for 2006 through 2008.
In the first half of 2006 the Joint Venture reprocessed previously recorded 2D seismic data within the L33/43 and L44/43
concessions. Based on these new data, a Phase 1 drilling programme of 6 wells was designed to substantially increase oil
production from the existing Wichian Buri Oil Field.
Also in 2006 a 245 km2 3D seismic survey was acquired over the Wichian Buri, si Thep and na sanun fields, and surrounding
areas. Initial results from the processing of this new seismic data became available during the drilling programme which was then
extended to drill 8 wells in total. The Phase 1 drilling programme ultimately comprised 6 appraisal / development wells (including
1 redrill and 2 wells free-carried for Carnarvon by Pan Orient up to a total of us$350,000 each on a dry hole basis), and 2
exploration wells, entirely within the existing production licences. At the Wichian Buri Oil Field, the drilling resulted in improved oil
production from the new wells, the successful appraisal of a new fault compartment with additional oil reserves and the successful
completion and production of new oil reserves from the “G” and “H” reservoir intervals as well as the “F” reservoir interval. In
addition, the last well in the programme, POE-9, resulted in a significant oil flow from a new exploration concept within fractured
volcanics. The drilling was completed over a six month period from July through to December 2006.
Production testing of the Phase 1 drilling programme commenced in October 2006. Of the eight wells drilled during Phase 1,
seven were successfully completed after indications of oil and gas shows during drilling. Five wells are currently undergoing
extended production testing at rates between 30 and 300 bopd each; two of the wells are shut-in post initial well testing with
sub-commercial flow rates and one well did not encounter a hydrocarbon column.
Based on the results of the Phase 1 drilling and the newly acquired 3D seismic survey, a 37 well Phase 2 programme and a further
120 km2 3D seismic survey was approved by the joint venture to be carried out during 2007 and 2008. Drilling commenced in
march 2007 and drilling capacity was increased with the contracting of an additional drilling rig.
There are currently two drilling rigs operating simultaneously for the joint venture, with a further workover rig available for testing
and completions, allowing continuous drilling and testing operations. It is anticipated that at least 10 wells from the Phase 2 drilling
campaign will be completed and tested by the end of 2007 and the additional wells of the Phase 2 37 well programme will be
completed and tested in 2008.
Drilling so far in Phase 2 has focused on appraising the na sanun and na sanun East oil fields. The remainder of the programme
will comprise wells over the Bo Rang and si Thep structural complexes and several newly mapped structures elsewhere in the
L33/43 and L44/43 concessions, as well as further appraisal and development wells on the na sanun East structure.
In the third quarter of 2007 the 120 km2 3D seismic survey was completed over the Bo Rang structure and over the northern
extent of the na sanun East structure.
DeveLopment upDate
na sanun Oil Field
The na sanun Oil Field was discovered in 1994 with the drilling of ns-1 and was appraised in 2007 with the successful ns-4
well and with unsuccessful ns-3 and ns-1RD wells. Production from na sanun is currently limited to well testing of the upper
volcanic of ns-4.
na sanun East Oil Field
The na sanun East Oil Field was discovered in 2006 with the drilling of POE-9, and appraised with the successful ns3-D1 and
L44H wells. Production from this field is limited to the upper volcanics and is subject to ongoing well testing.
na sanun East consists of three main fault blocks comprising the south, central and north compartments.
The southern block has been appraised by the two successful wells POE-9 and ns3-D1, with a sustained production history
of over 6 months.
The central block has been appraised by L44-H.
The northern block, mapped only on sparse 2D seismic data, has been penetrated by L44G and L44G-D1 which are being
prepared for testing at the time of writing this report. The recently acquired 3D over the Bo Rang gas discovery encompasses
this area and processed data will be available by year end to assist in further evaluating this area.
The na sanun East Oil Field will be the focus of significant appraisal and development drilling through to the end of 2007 and
into 2008.
Wichian Buri Oil Field
The Wichian Buri Oil Field has been in production since 1995 and is currently producing around 350 bopd from 8 wells,
including both original wells and the POE appraisal wells drilled in 2006. These wells all produce from sandstone reservoirs.
upcoming wells will appraise the northern extent of the Wichian Buri Oil Field as well as the potential for production from the
volcanic zones identified in this area by previous drilling.
si Thep Oil Field
si Thep is producing from one well, si Thep-1, within a single sandstone reservoir at a modest rate of 10-15 bopd. Appraisal
of this area in the Phase 2 drilling programme will include the examination of different reservoirs within the sandstone, as well
as potential production from several volcanic zones intersected in si Thep-1.
Bo Rang Gas Discovery
Bo Rang was discovered in 1990 and was suspended as a gas discovery in fractured volcanic reservoir, after successful
production testing. Appraisal of this area will confirm the extent of the gas discovery and also the oil shows and lost circulation
in deeper volcanic zones. Discussions concerning development options for commercialising the gas discovery are ongoing
within the Joint Venture.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
10
OPER ATI nG AnD FInAnCIAL REV IEW
11
reserve assessment
Petroleum Resource Classification, Categorisation and Definitions
Carnarvon is in the process of adopting the sPE/WPC/AAPG/sPEE (note 1 below) Petroleum Resource management system
(“sPE-PRms”). The sPE-PRms uses the sPE/WPC reserves categorisation systems that have been developed over many years.
The system categorises reserves according to the reserves commerciality (or maturity) and uncertainty and is shown thus:
)
P
I
I
P
(
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C
A
L
P
-
N
I
-
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-
B
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P
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D
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R
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V
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S
D
N
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I
PRODUCTION
RESERVES
1P
1P
2P
2P
3P
3P
Proved
Proved
Probable
Probable
Possible
Possible
CONTINGENT
RESOURCES
1C
1C
2C
2C
3C
UNRECOVERABLE
UNRECOVERABLE
PROSPECTIVE
RESOURCES
y
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Low
Low
Estimate
Estimate
Best
Estimate
High
High
Estimate
Estimate
UNRECOVERABLE
UNRECOVERABLE
Range of Uncertainty
Reserves / Resources classification framework
Not to scale
Reserves are defined as “those quantities of hydrocarbons which are anticipated to be commercially recovered from known
accumulations from a given date forward” (note 2 below).
Resources are defined as hydrocarbon volumes that have been discovered but have development approval pending, development
unclarified or on hold or are not economically viable under current conditions, and hence cannot be booked as reserves.
Reserve estimates are necessary to determine appropriate development strategies and for accounting purposes. Resource estimates
are used in appraisal and early development planning.
Carnarvon undertakes probabilistic and deterministic reserves assessments in order to provide an estimate of the uncertainty in
reserves.
Carnarvon generally communicates and uses reserves at the Proved and Probable (2P) confidence level. The use of 2P confidence
levels gives a balanced view to the stated reserves as it generally indicates that the actual production volume is expected to have
a 50% probability of being either equal to or greater than the stated reserves estimate. Carnarvon may also report the uncertainty
range if it is required to demonstrate the uncertainty in an evaluation – this is especially relevant for exploration prospects and leads,
which are classed as Prospective Resources.
Reserves/Resource Certification and Regulation
Currently all of Carnarvon’s reserves are from the Thailand operations. According to Thai government regulations, an annual independent
end of year reserve certificate is required. A 31 December 2006 assessment of reserves for the L33/43 and L44/43 permits was
prepared for the operator by Gaffney, Cline and Associates (“GCA”), an independent petroleum consulting company based in
singapore who follow the sPE/WPC classifications and definitions for the reporting of Petroleum Reserves and Resources.
As the current certificate was issued as of 31 December 2006, it does not take into account successful drilling and well testing since
that date, particularly in the na sanun and na sanun East structures.
The next Reserves Certificate will include the current drilling and testing, however it is not anticipated this will be released until Q1
2008.
Carnarvon reports reserves in accordance with AsX listing rules, using calculations based on sPE/WPC classification and
definitions.
Reserves
All reserves attributable to Carnarvon are predominantly the Wichian Buri and si Thep sandstone reservoirs, which have been
producing since 1995 and were further appraised / developed with the 2006 drilling programme encompassing the POE wells.
Note 1: Society of Petroleum Engineers (“SPE”); World Petroleum Council (“WPC”); American Association of Petroleum Geologist
Note 2: “SPE / WPC Petroleum Resources Definition”, (1997)
(“AAPG”) & Society of Petroleum Evaluation Engineers (“SPEE”)
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
12
OPER ATI nG AnD FInAnCIAL REV IEW
13
Reserve Estimates
Contingent Resource Estimates
The following tables detail Carnarvon’s reserve estimates at 31 December 2006. All reserves are Carnarvon share.
Based on the results of drilling and testing to date, the following net to Carnarvon contingent resource estimates are provided.
Proved
1P
Net Carnarvon Reserves
Proved + Probable
2P
(million bbls)
(million bbls)
GCA 31 Dec 2006 (i)
0.34
2.83
Proved + Probable +
Possible
3P
(million bbls)
30.4(ii)
Proved
1C
(million bbls)
Carnarvon 30 June 2007(iii)
8.12
Net Carnarvon Contingent Resource
Proved + Probable
2C
(million bbls)
11.68
Proved + Probable +
Possible
3C
(million bbls)
16.12
(i) 31 December 2006 assessment of reserves for the L33/43 and L44/43 permits, prepared for the operator by GCA and as
previously reported, does not take into account drilling and testing activities post that date.
(iii) This report is based on information which has been compiled by the Company’s Principal Petroleum Engineer, mr Philip Huizenga (BE,
m.PetEng.), who is a full-time employee of the Company and a person competent to report on reserves according to AsX requirements.
(ii) Although not addressed in their 31 December 2006 report, based on previous work by GCA, proven, probable and possible oil
reserves are in excess of 30 million bbls net to CVn.
Contingent Resources
Contingent resources describe hydrocarbon volumes that have been discovered but are not yet economic or do not yet have an
approved field development plan, and hence cannot be booked as reserves.
For Carnarvon’s Thai assets this includes the majority of the na sanun East oil field, the na sanun Oil field and the Bo Rang gas
discovery. Carnarvon has no Contingent Resources outside of Thailand.
The na sanun East oil field was discovered with POE-9, and has to date been successfully appraised with the ns-3D1, L44-G,
L44G-D1 and L44-H wells. These wells were all drilled post the Dec 2006 GCA reserves assessment, and are currently undergoing
production testing as of september 2007. It is anticipated that final well test results will be available at year end. At that time an
updated reserves assessment will be carried out by GCA, which will in turn be used to formulate a field development plan. As several
exploration / appraisal wells are anticipated to be drilled in the vicinity within the next 12 months, Carnarvon is still evaluating the
extent of the resource and methods of commercialisation.
The next Reserves Certificate will include the current drilling and testing results, however this is not anticipated to be released until
Q1 2008.
Prospective Resource Estimates
Prospective resources describe hydrocarbon volumes
that may be produced in the event that they are discovered
by an exploration well. Carnarvon has a significant and
increasing international leads and prospects portfolio.
in
the estimated
For Carnarvon’s Thailand assets,
prospective
this portfolio exceeds
resource
approximately 50 million barrels of oil net to Carnarvon
on an unrisked basis at a 2P confidence level. There are
multiple leads and prospects in this portfolio that will be
tested in the 2007 / 2008 drilling programme.
Carnarvon’s Thailand exploration and appraisal drilling prospects
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
14
OPER ATI nG AnD FInAnCIAL REV IEW
15
CARNARVON BASIN (WESTERN AUSTRALIA)
EP 110 AND EP 424
(carnarvon petroleum 35% / strike Oil 40% / Pancontinental Oil & Gas 25%)
Carnarvon has a 35% interest in the permits EP 110 and EP 424 in the Carnarvon Basin, offshore northwest of Western Australia.
strike Oil is the operator of both permits.
seismic attribute analysis, to determine hydrocarbon potential of the Baniyas prospect within EP 424, has been undertaken and
results are expected soon.
The Department of Industry and Resources (DOIR) has agreed to a variation in the work programme, whereby the drilling of a well
has been delayed until the permit year commencing April 2008. This will give sufficient time to evaluate the AVO analysis and prepare
Baniyas for drilling.
The Baniyas prospect lays 6 km to the southeast and updip of the Chevron-operated saladin Oil Field. success at Baniyas could be
rapidly tied into existing infrastructure.
CARNARVON BASIN (WESTERN AUSTRALIA)
WA-399-P
(carnarvon petroleum 50% / Rialto Energy Limited 50%)
During the reporting period Carnarvon was awarded a 50% interest in, and operatorship of, a new exploration permit (WA-399-P) in
the Carnarvon Basin offshore Western Australia.
The Permit covers an area of 50 km² and is located midway between the Pyrenees and macedon oil and gas fields, 25 kilometres to
the north-west, and the Leatherback oil accumulation, 30 kilometres to the south-east.
On 3 July 2007, BHP Billiton announced approval of the Pyrenees/macedon oil and gas development project. This has significantly
improved the economics of developing a discovery within WA-399-P which could be readily tied back to this close-by development.
One significant prospect (“Black Tom Prospect”) has been identified on existing seismic with the potential to contain more than
50 million bbls of recoverable oil at the prospective upper Barrow geological level. As operator, Carnarvon has commenced the
reprocessing of all available seismic in the Permit to help plan the forward programme.
The joint venture has committed to a minimum work programme in the first 3 years of the Permit term of geological and geophysical
studies and the acquisition of 315 km of 2D seismic. Following interpretation of the seismic data in year 3, the joint venture has
indicated it may elect to drill an exploration well in each of years 4 and 5 of the permit. However, if the current seismic reprocessing
is encouraging, it is likely the drilling of a well would be brought forward.
GROWTH AND NEW VENTURES STRATEGY
Carnarvon has achieved significant growth from continued exploration and development success in the previously undervalued and
underexplored concessions L33/43 and L44/43 in Thailand. The new Carnarvon management recognised the potential in these
areas which have been the primary focus of the Company’s activities. Following the successful exploration programme over the last
18 months Carnarvon is confident that the concessions have all the ingredients to deliver further significant growth for shareholders.
For this reason Carnarvon and its operating partner Pan Orient have committed to an extensive work programme going forward.
Carnarvon is currently on the threshold of achieving sustainable production from these Thailand concessions at a level where the
operations and the 2 drilling rigs currently contracted are fully funded out of cash flow. Further growth in production would enable
Carnarvon to more actively pursue other opportunities with similar high exploration potential to grow the company.
Finding and negotiating new venture opportunities generally involves long lead times. Accordingly Carnarvon has maintained an
active new ventures programme seeking out both exploration and appraisal/production opportunities. One new permit in onshore
Thailand has been applied for, one new exploration permit has been acquired in Australia, and two more opportunities have been
progressed to an advanced stage.
Carnarvon’s new Venture strategy is to concentrate on potential exploration and/or appraisal blocks which have the following
characteristics:
• On trend with commercial oil discoveries
• Ability to acquire 3D seismic at nominal cost
• necessary infrastructure in place or readily available
• Oil and/or gas markets defined and accessible
Carnarvon places emphasis on producing fields with potential upside, from either infill drilling, near field exploration or workover.
In this respect the Company is reviewing several prospective opportunities to increase overall shareholder value with minimal initial
capital outlay.
TECHNICAL CAPABILITY
Carnarvon operates with a small but highly experienced technical team, encompassing all facets of the oil and gas exploration and
production disciplines.
Through ongoing education and training and investment in the latest technical innovations, Carnarvon is able to provide in-depth
technical analysis and assessment across a range of geological and geographical areas.
Carnarvon’s technical expertise includes, but is not limited to:
• Geophysical acquisition
• Geophysical interpretation
• Geological interpretation
• Reservoir engineering
• Drilling
• Development and production
Carnarvon staff have been involved in projects in all oil production continents and in numerous sedimentary basins worldwide.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
16
DIR ECTORs’ R EPOR T
17
The directors present their report together with the financial report of Carnarvon Petroleum Limited (“Company”) and of the Group,
being the Company, its subsidiaries, and the Group’s interest in jointly controlled entities and operations for the financial year ended
30 June 2007, and the auditor’s report thereon.
Carnarvon Petroleum Limited is a listed public company incorporated and domiciled in Australia.
kenneth p JuDge, non-executive Director
B.Com, LL.B
Age 52. Appointed as a director on 1 April 2005.
Directors
The names and details of the Company’s directors in office at any time during or since the end of the financial year are as follows.
Directors were in office for this entire period unless otherwise stated.
peter J LeonharDt, chairman
FCA, FAICD (Life)
Age 60. Appointed as a director on 17 march 2005 and appointed Chairman in April 2005.
mr Leonhardt is an independent company director and adviser with extensive business, financial and corporate experience. He is
a Chartered Accountant and a former senior Partner with PricewaterhouseCoopers and managing Partner of Coopers & Lybrand in
Western Australia.
During the past three years mr Leonhardt has served as a director of the following listed companies: Centrepoint Alliance Limited
(from may 2002); CTI Logistics Limited (from August 1999); Voyager Energy Limited (from march 2001 to september 2005); Titan
Resources Limited (from June 2005 to June 2006). He is also a director of the Western Australian Institute for medical Research and
a member of the Advisory Board of the Perth International Arts Festival.
mr Leonhardt is Chairman of the Audit Committee.
eDWarD (teD) p JacoBson, chief executive officer
B.sc (Hons Geology)
Age 58. Appointed as a director on 5 December 2005.
mr Jacobson is a petroleum geophysicist with 38 years’ experience in petroleum exploration principally in the European north
sea, south East Asia, south America and Australia. Within Australia he has been responsible for initiating a number of petroleum
discoveries within the Cooper Basin, Barrow sub Basin and Timor sea. Prior to joining Carnarvon, Ted was co-founder of Discovery
Petroleum nL and more recently since 1996 co-founder and technical director of Tap Oil Ltd which grew to a market capitalisation
of over $400 million under his technical leadership. Ted is a member of the Australian Institute of Geoscientists.
During the past three years mr Jacobson has served as director of the following listed companies: Rialto Energy Limited (from July
2006); Tap Oil Ltd (from 1996 to september 2005). mr Jacobson is also a director of smart Rich Energy Finance (Holdings) Ltd (from
2006), listed on the Hong Kong stock Exchange.
neiL c fearis, non-executive Director
LL.B (Hons), mAICD, F Fin
Age 56. Appointed as a director on 30 november 1999.
mr Fearis has 30 years’ experience as a commercial lawyer in the uK and Australia.
During the past three years mr Fearis has served as a director of the following listed companies: Kresta Holdings Limited (from 1997);
Perseus mining Limited (from 2004); Liberty Resources nL (from 25 June 2007). mr Fearis is also a member of several professional
bodies associated with commerce and law.
mr Fearis is a member of the Audit Committee.
mr. Judge has extensive legal and business management experience having held a number of public company directorships and has
been engaged in the establishment or corporate restructure of technology, mining, and oil and gas companies in Australia, united
Kingdom, usA, Brazil, Argentina, mexico and the Philippines.
mr. Judge is a director and Chairman of Brazilian Diamonds Limited (from February 2001), which is listed on both the Toronto stock
Exchange and the AIm market of the London stock Exchange Plc.
He is a director of Block shield Corporation (from February 2004), director and Chairman of Hidefield Gold Plc (from October 2003)
and a director of Gulf sands Petroleum Plc. (from October 2006), all of which are listed on AIm.
He is also a director and Chairman of Alto Ventures Ltd (from April 2004), Columbus Gold Corporation (from september 2004) and
Empire mining Ltd (from January 2005), all of which are listed on the TsX Venture Exchange.
company secretary
mr Robert Anderson was appointed Company secretary in november 2005. mr Anderson is a Chartered Accountant who has
previously held company secretarial positions in both AsX-listed companies and private entities.
Directors’ meetings
The number of directors’ meetings and the number of meetings attended by each of the directors of the Company during the
financial year are as follows:
Peter Leonhardt
Ted Jacobson
Neil Fearis
Ken Judge
(a)
7
7
7
7
(b)
7
7
7
7
(a) number of meetings held during period of office
(b) number of meetings attended
auDit committee
Names and qualifications of Audit Committee members:
The Committee is to include at least 2 members. Current members of the committee are mr Peter Leonhardt and mr neil Fearis.
Qualifications of Audit Committee members are provided in the Directors section of this directors’ report.
auDit committee meetings
The number of Audit Committee meetings and the number attended by each of the members during the reporting period were as follows:
Peter Leonhardt
Neil Fearis
(a)
4
4
(b)
4
4
(a) number of meetings held during period of office
(b) number of meetings attended
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
18
DIR ECTORs’ R EPOR T
19
remuneration committee
The Board considers that the Company is not currently of a size to justify the existence of a Remuneration Committee and therefore
there were no Remuneration Committee meetings during the reporting period.
The Board as a whole is responsible for the remuneration arrangements for directors and executives of the Company. If the Company’s
activities increase in size, scope and/or nature the formation of a Remuneration Committee will be reviewed by the Board and
implemented if appropriate.
The Board considers remuneration packages and policies applicable to the executive directors, senior executives, and non-executive
directors. It is also responsible for share option schemes, the Employee share Plan, incentive performance packages, and retirement
and termination entitlements.
principaL activities
During the course of the 2007 financial year the consolidated entity’s principal activities continued to be directed towards oil and gas
exploration, development and production.
remuneration report
The Board determines remuneration policies and practices, evaluates the performance of senior management, and considers
remuneration for those senior managers. The Board assesses the appropriateness of the nature and amount of remuneration
on an annual basis by reference to industry and market conditions, and with regard to the Company’s financial and operational
performance.
Total non-executive directors’ fees are approved by shareholders and the Board is responsible for the allocation of those fees
amongst the individual members of the Board.
The value of remuneration is determined on the basis of cost to the Company and consolidated entity.
Principles of compensation (audited)
Remuneration of directors and executives is referred to as compensation, as defined in AAsB 124.
Compensation levels for key management personnel of the Company and consolidated entity are competitively set to attract and
retain appropriately qualified and experienced directors and senior executives. The directors obtain, when required, independent
advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally.
Compensation arrangements include a mix of fixed and performance based compensation. A component of share-based
compensation is awarded at the discretion of the Board, subject to shareholder approval when required.
Compensation structures take into account the overall level of compensation for each director and executive, the capability and
experience of the directors and senior executives, the executive’s ability to control the financial performance of the relative business
segment, the consolidated entity’s performance (including earnings and the growth in share price), and the amount of any incentives
within each executive’s remuneration.
In considering the consolidated entity’s performance and benefits for shareholder wealth, the Board have had regard to the
following indices in respect of the current financial year and the previous three years. no dividends have been paid or declared
during this period.
Share price
Consolidated net (loss) from
continuing operations
30 June 2004
30 June 2005
30 June 2006
30 June 2007
$0.015
$0.018
$0.052
$0.24
($1,417,044)
($1,007,325)
($1,246,332)
($1,542,210)
The directors believe the increase in share price since June 2004 reflects a number of corporate changes, including the appointment
of Ted Jacobson as Chief Executive Officer in February 2006. The development of the consolidated entity’s oil and gas interests
in Thailand since his appointment has resulted in a substantial increase in operational revenues, from which improved profitability
should flow to the Phetchabun Basin Joint Venture in the 2008 year.
Fixed compensation (audited)
Fixed compensation consists of base compensation as well as employer contributions to superannuation funds. Base compensation
may be supplemented by an element of share-based compensation.
There was no share-based compensation in the period under review, other than that set out in the Employee share Plan section of
this Remuneration report.
non-executive directors (audited)
Total remuneration for all non-executive directors, last voted upon by shareholders at a General meeting in november 2005, is not
to exceed $200,000 per annum.
A non-executive director’s base fee is currently $45,000 per annum. The Chairman receives $75,000 per annum. non-executive
directors do not receive any performance related remuneration. Directors’ fees cover all main Board activities and membership of
Board committees. The Company does not have any terms or schemes relating to retirement benefits for non-executive directors.
service contracts (audited)
The contract duration, period of notice, and termination conditions for key management personnel are as follows:
(i)
Ted Jacobson, Chief Executive Officer, is engaged through a rolling 12 month Consultancy Agreement. Termination by the
Company is with 12 months notice or payment in lieu thereof. Termination by the consultant is with 3 months notice.
(ii) Robert Anderson, Company secretary and Chief Financial Officer, is engaged through a rolling 12 month Consultancy
Agreement. Termination by the Company is with 6 months notice or payment in lieu thereof. Termination by the consultant is
with 3 months notice.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
20
DIR ECTORs’ R EPOR T
Employee share Plan (audited)
shares are issued under an Employee share Plan (“EsP”), which has been approved by shareholders in Annual General meeting
(“AGm”).
The purpose of the EsP is to attract, retain and motivate those who have been invited to participate in the EsP and thereby align
their interests with those of other shareholders as a means of encouraging them to ensure that Company performance increases
shareholder wealth through long term growth. shares are issued based upon the assessed performance of each person against
their job specifications and the recommendations of the Chief Executive Officer, and in the case of directors, with the approval of
shareholders.
The following EsP shares were issued to directors and key management personnel during the period under review:
Directors
EP Jacobson
PJ Leonhardt
Number of
shares issued
6,000,000
3,000,000
Issue date
30 April 2007
30 April 2007
Issue price
per share ($)
$0.09
$0.09
Loan($)
$540,000
$270,000
These issues were not subject to a performance condition. The issue price was calculated based on the 5 day weighted average
closing price prior to the date of offer. The purchases were funded by interest-free loans with a limited recourse security over the plan
shares and subject to the detailed rules of the EsP.
mr Leonhardt’s share issue, approved by shareholders on 30 April 2007, recognised his active day-to-day role in the management
of the Company in support of Ted Jacobson in his role as Chief Executive Officer, over and above the normal role of non-executive
Chairman on which his cash remuneration is based.
mr Jacobson’s share issue, approved by shareholders on 30 April 2007, provides an incentive to him in the role of Chief Executive
Officer and recognises that his level of cash remuneration is significantly below market levels for an executive in the oil and gas
industry with his standing and experience.
Directors’ and executive officers’ remuneration, Company and consolidated (audited)
Details of the nature and amount of each major element of the remuneration of each director of the Company and each of the named
Company executives receiving the highest remuneration are set out on the following page.
The fair value of options, including EsP shares treated in principle as an option over the Company’s shares, is calculated at the date
of grant using the Black-scholes Option Pricing model.
shares issued under the EsP vest immediately and their fair value recognised as an expense in the current period. The following factors
and assumptions were used in determining the fair value of EsP shares at grant date, being the date of shareholder approval:
Grant date
Assumed
expiry date
Fair value
per option
Exercise
price
Share price
at grant date
Expected
volatility
Risk free
interest rate
Dividend
yield
30 April 2007
30 April 2010
$0.074
$0.09
$0.135
55%
5.5%
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www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
22
DIR ECTORs’ R EPOR T
Equity instruments (audited)
(i) shares
There were no shares in the Company granted as compensation to key management personnel during the reporting period, other
than the EsP shares treated in principle as an option over the Company’s shares as described under (ii) below.
iDentification of inDepenDent Directors
The independent directors are identified in the Corporate Governance statement section of this Annual Report as set out on pages
60 to 63.
23
(ii) options
non-auDit services
There were no options over shares in the Company granted as compensation during the reporting period. no options have been
granted since the end of the financial year.
share issues under the Company’s EsP are treated in principle as an option over the Company’s shares and are included in the
option tables below. These options are assumed to have a life of 3 years.
Details of options granted and vested to directors and executive officers during the reporting period are as follows. All options were
issued for nil cash consideration, vest immediately, and have been recognised as an expense in the current period.
Directors
EP Jacobson
PJ Leonhardt
Number of
options granted
6,000,000
3,000,000
Grant date
30 April 2007
30 April 2007
Fair value per
option at grant date
Exercise price
per option
$0.074
$0.074
$0.09
$0.09
Assumed
Expiry date
30 April 2010
30 April 2010
The auditors have not performed any non-audit services over and above their statutory duties during the current reporting period.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is set out on page 26.
Details of the amounts paid or payable to the auditor of the consolidated entity for audit and non-audit services provided during the
year are set out below:
Audit Services
Auditors of the Company:
Consolidated 2007 ($)
Audit and review of financial reports
48,005
Directors’ interests
During the reporting period the following shares were issued on the exercise of options granted as compensation in prior periods:
At the date of this report, the relevant interests of the directors in securities of the Company are as follows:
Director
nC Fearis
Number of shares
2,000,000
Amount paid per share
$0.07
There are no amounts unpaid on shares issued as a result of the exercise of options in the reporting period.
During the reporting period there was no forfeiture or vesting of options granted in previous periods. At the end of the reporting period
there were no unvested options on issue. All options expire on the expiry date but do not expire as a result of the termination of the
holder’s engagement with the Company.
The movement during the reporting period, by value, of options over ordinary shares, including shares issued under the Company’s
EsP, for each company director and company executive and granted as part of remuneration is detailed below:
Name
PJ Leonhardt
EP Jacobson
nC Fearis
KP Judge
Ordinary Shares
11,900,000
24,613,793
6,316,186
15,068,596
Options over
ordinary Shares
6,000,000
8,000,000
2,000,000
4,000,000
shares issued under the Company’s EsP are included under the heading Ordinary shares.
Value of Options
LikeLy DeveLopments
Directors
EP Jacobson
PJ Leonhardt
NC Fearis
Granted in year ($)
Exercised in year ($)
Forfeited in year ($)
444,527
222,263
-
-
-
300,000
-
-
-
Total option value
in year ($)
444,527
222,263
300,000
The value of options granted in the year is the fair value of the options at grant date using the Black-scholes Option Pricing model.
The value of options exercised during the year is calculated as the market price of shares of the Company on the Australian securities
Exchange as at close of trading on the date the options were exercised, after deducting the price paid to exercise the options
The likely developments for the 2008 financial year are contained in the Operating and Financial Review as set out on pages 4 to 15.
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.
operating anD financiaL revieW
An operating and financial review of the consolidated entity for the financial year ended 30 June 2007 is set out on pages 4 to 15
and forms part of this report.
DiviDenDs
no dividends were paid during the year and the directors do not recommend payment of a dividend in respect of the current financial year.
LeaD auDitor’s inDepenDence DecLaration
The lead auditor’s independence declaration under section 307C of the Corporations Act is set out on page 26 and forms part of
the directors’ report for the financial year ended 30 June 2007.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
24
DIR ECTORs’ R EPOR T
25
share options
Options granted to directors and officers of the Company
significant changes in state of affairs
A number of significant events occurred in the year under review:
There were no options over shares in the Company granted as compensation to key management personnel during the reporting
period. no options have been granted since the end of the financial year.
share issues under the Company’s EsP are treated in principle as an option over the Company’s shares and are included in the table
below. These options are assumed to have a life of 3 years.
Details of EsP shares issued to directors and executive officers during the reporting period, and treated as options for valuation
purposes, are as follows. These shares were issued for nil cash consideration, vest immediately, and have been recognised as an
expense in the current period.
Directors
EP Jacobson
PJ Leonhardt
shares under option
Number of shares granted
Exercise price per share
Assumed expiry date
6,000,000
3,000,000
$0.09
$0.09
30 April 2010
30 April 2010
The following unissued ordinary shares of the Company are under option. These exclude share issues made under the Company’s
EsP.
•
•
•
On 11 July 2006 development drilling commenced at the first well of a two-phase drilling programme at Carnarvon’s 40%-
owned Phetchabun Basin Joint Venture in Thailand. Twelve wells were drilled during the year, together with the acquisition
of the majority of a new 120 km2 3D seismic survey being shot over the Bo Rang gas field and the northern section of na
sanun East Oil Field.
On 2 August 2006 the Company placed 50 million shares at 5 cents per share, raising $2,500,000, in conjunction with
an issue under a share Purchase Plan of 20 million shares at 5 cents per share to raise $1,000,000. The share Purchase
Plan closed oversubscribed on 30 August 2006. Funds raised from the issues were applied to accelerate the Phase 1 and
Phase 2 drilling programmes, evaluation and assessment of new opportunities, and for working capital purposes.
On 30 April 2007, pursuant to shareholder approval, the Company completed a two tranche placement of 160 million
shares at 7.7 cents per share to raise $12,320,000, to fund the expanded Phase 2 work programme within the Phetchabun
Basin Joint Venture in Thailand, evaluation and assessment of new opportunities, and working capital.
environmentaL reguLation anD performance
The consolidated entity’s oil and gas exploration and development activities are concentrated in Thailand and Western Australia.
Environmental obligations are regulated under both state and Federal Law in Western Australia and under the Department of mineral
Fuels regulations in Thailand.
no significant environmental breaches have been notified by any government agency during the year ended 30 June 2007.
Expiry Date
31/03/2008
31/03/2009
Exercise price
1 July 2006
$0.07
$0.10
11,000,000
11,000,000
22,000,000
Issued
-
5,000,000
5,000,000
Number
Exercised
2,000,000
-
2,000,000
Expired
30 June 2007
inDemnification anD insurance of Directors anD officers
-
-
-
9,000,000
16,000,000
25,000,000
During the financial year the Company paid a premium to insure the directors and officers of the Company and its controlled entities.
The policy prohibits the disclosure of the nature of the liabilities covered and the amount of the premium paid.
All options expire on the expiry date but do not expire as a result of the termination of the holder’s engagement with the Company.
Option holders do not have any right, by virtue of the option, to vote or to participate in any share issue of the Company or any
related body corporate.
Hartleys Limited was issued with 5 million options during the year in lieu of part of the capital raising fees associated with a share
placement.
During or since the end of the financial year, the following shares were issued as a result of the exercise of options:
Number of shares
2,000,000
Amount paid per share
$0.07
There are no amounts unpaid on the shares issued as a result of the exercise of options in the reporting period.
During the reporting period there was there no forfeiture or vesting of options granted in previous periods. At the end of the reporting
period there were no unvested options on issue. All options expire on the expiry date but do not expire as a result of the termination
of the holder’s engagement with the Company.
events suBsequent to reporting Date
no matter or circumstance has arisen since 30 June 2007 that in the opinion of the directors has significantly affected, or may
significantly affect in future financial years:
(i)
the consolidated entity’s operations, or
(ii) the results of those operations, or
(iii) the consolidated entity’s state of affairs
signed in accordance with a resolution of the directors.
pJ Leonhardt
Director
Perth, 27 september 2007
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2007 annual report
carnarvon petroleum limited
26
AuDITOR’s InDEP EnDEnCE DECLARAT IOn
InCOmE sTATEmEnTs
27
for the year ended 30 June 2007
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
Sales revenue from continuing
operations
3,673,595
1,090,213
Other income
Cost of sales
4
5
247,205
189,582
239,688
(3,161,782)
(799,130)
-
-
184,277
-
-
Administrative expenses
Directors’ fees
Employee benefits expense
Legal fees
unrealised foreign exchange (loss) / gain
Exploration expenditure written off
new ventures
share based payments
Finance costs
(670,361)
(156,250)
(101,005)
(18,460)
53,636
(74,752)
(379,950)
(933,819)
(20,267)
(559,497)
(235,805)
(74,660)
(36,639)
(670,361)
(156,250)
(101,005)
(18,460)
(559,497)
(235,805)
(74,660)
(36,639)
6,935
(1,415,794)
166,394
(107,242)
(10,507)
(706,272)
(3,310)
(74,752)
(107,242)
(379,950)
(933,819)
(1,388)
(10,507)
(706,272)
(2,357)
(Loss) before income tax
(1,542,210)
(1,246,332)
(3,512,091)
(1,382,308)
Income tax expense
10
-
-
-
-
(Loss) from continuing operations
(1,542,210)
(1,246,332)
(3,512,091)
(1,382,308)
Profit on sale of discontinued operation
(Loss) attributable to members
of the parent entity
Basic (loss) per share from continuing
operations (cents per share)
Diluted (loss) per share from continuing
operations (cents per share)
Basic and diluted profit per share from
discontinued operations (cents per share)
8
9
9
9
-
488,182
-
488,182
(1,542,210)
(758,150)
(3,512,091)
(894,126)
(0.3)
(0.3)
-
(0.4)
(0.4)
0.1
The income statements should be read in conjunction with the accompanying notes to the financial statements.
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2007 annual report
carnarvon petroleum limited
28
BALAnCE s HEETs
sTATEmEnTs OF C HAnGEs In EQuIT Y
29
as at 30 June 2007
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Total current liabilities
Non-current liabilities
Provisions
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
19(b)
8,927,018
1,897,846
6,520,307
1,558,676
11
12
13
11
14
15
16
22
1,684,019
1,110,661
639,298
175,482
235,138
18,153
123,516
47,118
-
-
33,646
18,153
12,360,996
2,326,619
6,677,469
1,623,947
-
-
53,400
13,024,341
5,403,342
-
1,482,962
1,482,962
12,233,722
6,996,586
70,074
70,364
12,233,722
7,049,986
14,577,377
6,956,668
24,594,718
9,376,605
21,254,846
8,580,615
3,027,539
602,640
4,280
-
297,228
4,280
145,131
-
3,031,819
602,640
301,508
145,131
Total non-current liabilities
105,440
67,675
17
105,440
67,675
-
-
-
-
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
3,137,259
670,315
301,508
145,131
21,457,459
8,706,290
20,953,338
8,435,484
65,040,943
50,219,815
65,040,943
50,219,815
(1,895,658)
(1,367,909)
1,486,928
278,111
(41,687,826)
(40,145,616)
(45,574,533)
(42,062,442)
21,457,459
8,706,290
20,953,338
8,435,484
The balance sheets should be read in conjunction with the accompanying notes to the financial statements.
consolidated entity
for the year ended 30 June 2007
Issued
capital
$
Accumulated
losses
$
Available-for-
sale asset
revaluation
reserve
$
Translation
reserve
$
Share based
payments
reserve
$
Total
$
Balance at 1 July 2005
45,438,074
(39,387,466)
86,740
(1,890,975)
(9,811)
4,236,562
shares issued, net of
transaction costs
Exchange differences
on translation of foreign
operations
Available-for-sale financial
assets
share based payments
Loss attributable to
members of parent entity
4,781,741
-
-
-
-
-
-
-
-
(758,150)
Balance at 30 June 2006
50,219,815
(40,145,616)
shares issued, net of
transaction costs
Exchange differences
on translation of foreign
operations
Available-for-sale financial
assets
14,777,945
-
-
share based payments
43,183
-
-
-
-
Loss attributable to
members of parent entity
-
(1,542,210)
Balance at 30 June 2007
65,040,943
(41,687,826)
(86,740)
-
-
-
-
-
-
-
-
-
-
-
-
244,955
-
-
-
287,922
(1,646,020)
278,111
-
-
-
-
-
-
-
4,781,741
244,955
(86,740)
287,922
(758,150)
8,706,290
14,777,945
(1,736,566)
-
-
(1,736,566)
-
-
-
1,208,817
1,252,000
-
(1,542,210)
(3,382,586)
1,486,928
21,457,459
The statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
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2007 annual report
carnarvon petroleum limited
30
sTATEmEnTs OF CHAnGEs In EQuIT Y
sTATEmEnTs OF CAsH FLOWs
31
parent entity
for the year ended 30 June 2007
Issued capital
$
Accumulated
losses
$
Available-
for-sale asset
revaluation
reserve
$
Share based
payments
reserve
$
Total
$
Cash flows from operating activities
Receipts from customers and GsT
recovered
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
2,782,458
1,133,371
139,467
77,738
for the year ended 30 June 2007
Balance at 1 July 2005
45,438,074
(41,168,316)
86,740
(9,811)
4,346,687
shares issued, net of transaction
costs
Available-for-sale financial assets
share based payments
Loss attributable to members of
parent entity
4,781,741
Balance at 30 June 2006
50,219,815
shares issued, net of transaction
costs
Available-for-sale financial assets
14,777,945
share based payments
43,183
Loss attributable to members of
parent entity
-
-
-
(894,126)
(42,062,442)
-
-
-
(3,512,091)
-
-
-
-
-
Balance at 30 June 2007
65,040,943
(45,574,533)
-
(86,740)
-
-
-
-
-
-
-
-
-
-
287,922
4,781,741
(86,740)
287,922
-
(894,126)
278,111
8,435,484
-
-
14,777,945
-
1,208,817
1,252,000
Payments to suppliers and employees
(3,794,436)
(1,697,075)
(1,345,181)
(1,010,843)
Interest received
Interest paid
212,742
(1,388)
45,345
(2,357)
205,707
(1,388)
45,345
(2,357)
Net cash flows (used in) operating activities
19(a)
(800,624)
(520,716)
(1,001,395)
(890,117)
Cash flows from investing activities
Exploration and development expenditure
(7,187,965)
(2,747,147)
(333,894)
net proceeds from discontinued operation
Proceeds from sale of property, plant and
equipment
-
-
488,182
100
-
-
Acquisition of property, plant and equipment
(86,855)
(120,280)
(25,926)
Proceeds from sale of equity investments
net (advances to) controlled entities
-
-
90,759
-
-
(8,829,294)
(2,437,805)
net cash flows (used in) investing activities
(7,274,820)
(2,288,386)
(9,189,114)
(2,090,590)
(159,775)
488,182
100
(72,051)
90,759
-
(3,512,091)
Cash flows from financing activities
1,486,928
20,953,338
Proceeds from issue of share capital
15,960,000
4,719,077
15,960,000
4,719,077
Payment of share issue costs
(880,874)
(320,836)
(880,874)
(320,836)
The statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
Proceeds from repayment of Employee
share Plan loans
77,000
-
77,000
-
Net cash flows from financing activities
15,156,126
4,398,241
15,156,126
4,398,241
Net increase in cash and cash equivalents
7,080,682
1,589,139
4,965,617
1,417,534
Cash and cash equivalents at the beginning
of the financial year
Effect of exchange rate fluctuations on cash
and cash equivalents
Cash and cash equivalents at the end of
the financial year
1,897,846
301,454
1,558,676
134,102
(51,510)
7,253
(3,986)
7,040
19(b)
8,927,018
1,897,846
6,520,307
1,558,676
The statements of cash flows should be read in conjunction with the accompanying notes to the financial statements.
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2007 annual report
carnarvon petroleum limited
32
nO TE s TO THE FInAnCIAL sTATE mEnTs
33
1. reporting entity
3. significant accounting poLicies
The consolidated financial report of the Company for the financial year ended 30 June 2007 comprises the Company and its
subsidiaries (the “consolidated entity”) and the consolidated entity’s interest in jointly controlled entities and operations . The financial
report was authorised for issue by the directors on 27 september 2007.
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report.
The accounting policies have been applied consistently by all entities in the consolidated entity.
Certain comparative amounts have been reclassified to conform with the current year’s presentation.
2. Basis of preparation of the financiaL report
statement of compLiance
The financial report is a general purpose financial report prepared in accordance with Australian Accounting standards (“AAsBs”)
(including Australian Accounting Interpretations), as adopted by the Australian Accounting standards Board (“AAsB”), and the
Corporations Act 2001.
The consolidated financial report is prepared in accordance with International Financial Reporting standards (“IFRss”) and
interpretations adopted by the International Accounting standards Board. The Company’s financial report does not comply with
IFRs in its entirety as the Company has elected to apply the relief provided to parent entities by AAsB 132 Financial Instruments:
Presentation and Disclosure in respect of certain disclosure requirements.
Basis of measurement
The financial report is prepared on a historical cost basis, except for available-for-sale financial assets which are measured at fair value.
functionaL anD presentation currency
The consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency.
use of estimates anD JuDgements
The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised and in any future periods affected.
key estimate – impairment
The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the group that may lead
to the impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use
calculations performed in assessing recoverable amounts incorporate a number of key estimates. There was not considered to be
any impairment trigger over the carrying value of the consolidated entity’s interest in the Phetchabun Basin Joint Venture at the date
of this report.
(a) Basis of consolidation
suBsiDiaries
The consolidated financial report comprises the financial statements of the Company and its controlled entities. A controlled entity
is any entity controlled by the Company whereby the Company has the power to control the financial and operating policies of an
entity so as to obtain benefits from its activities. All inter-company balances and transactions between entities in the economic entity,
including any unrealised profits or losses, have been eliminated on consolidation.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those applied by the parent entity.
Where controlled entities enter or leave the economic entity during the year, their operating results are included or excluded from the
date control was obtained or until the date control ceased.
Investments in subsidiaries are carried at cost in the Company’s financial statements.
Joint venture operations anD assets
The consolidated entity’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the financial
statements under the appropriate headings.
(b) income tax
The charge for current income tax expense is based on the result for the year adjusted for any non-assessable or disallowed items.
It is calculated using tax rates that have been enacted or are substantively enacted by balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. no deferred income tax will be recognised from the initial
recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled.
Deferred tax is recognised in the income statement except where it relates to items recognised directly in equity, in which case it is
recognised in equity. Deferred income tax assets are recognised for deductible temporary differences and unused tax losses only if
it is probable that future taxable amounts will be available to utilise those temporary differences and tax losses. Deferred tax assets
and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company / group intends to
settle its current tax assets and liabilities on a net basis.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will
occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable
the benefit to be realised and comply with the conditions of deductibility imposed by the law. The carrying amount of deferred tax assets is
reviewed at each balance date and only recognised to the extent that sufficient future assessable income is expected to be obtained.
tax consoLiDation
Carnarvon Petroleum Limited and its wholly-owned Australian resident subsidiaries formed a tax-consolidated group with effect
from 1 July 2003 and are therefore taxed a single entity from that date. Carnarvon Petroleum Limited is the head entity of the tax-
consolidated group.
At reporting date the consolidated entity has not recognised any tax assets or tax liabilities in respect of any wholly-owned entity
within the consolidated group. In future periods the members of the group will, if required, enter into a tax sharing agreement
whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before
tax of the tax consolidated group.
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2007 annual report
carnarvon petroleum limited
34
nO TE s TO THE FInAnCIAL sTATE mEnTs
35
3. significant accounting poLicies (continued)
(e) intangible assets
(c) property, plant and equipment
recognition anD measurement
All property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost of an item also
includes the initial estimate of the costs of dismantling and removing an item and restoring the site on which it is located.
subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are
incurred.
mining property and development assets include costs transferred from exploration and evaluation assets once technical feasibility
and commercial viability of an area of interest are demonstrable, together with subsequent costs to develop the asset to the
production phase. Where the directors decide that specific costs will not be recovered from future development, those costs are
charged to the income statement during the financial period in which the decision is made.
impairment
The carrying amount of property, plant and equipment is reviewed at each balance date to determine whether there are any objective
indicators of impairment that may indicate the carrying values may not be recoverable in whole or in part. Impairment testing is
carried out in accordance with note 3(f).
Where an asset does not generate cash flows that are largely independent it is assigned to a cash generating unit and the recoverable
amount test applied to the cash generating unit as a whole.
If the carrying value of the asset is determined to be in excess of its recoverable amount, the asset or cash generating unit is written
down to its recoverable amount.
Depreciation
expLoration anD evaLuation expenDiture
Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only
carried forward to the extent that the consolidated entity’s rights of tenure to the area are current and that the costs are expected
to be recouped through the successful development of the area, or where activities in the area have not yet reached a stage that
permits reasonable assessment of the existence of economically recoverable reserves.
Each area of interest is assessed for impairment to determine the appropriateness of continuing to carry forward costs in relation to
that area of interest. Impairment testing is carried out in accordance with note 3(f).
Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon
the area is made.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable,
exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from
intangible assets to mining property and development assets within property, plant and equipment.
(f) recoverable amount of assets and impairment testing
Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment by estimating their
recoverable amount.
Assets that are subject to depreciation are reviewed annually to determine whether there is any indication of impairment. Where such
an indicator exists, a formal assessment of recoverable amount is then made. Where this is in excess of carrying amount, the asset
is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of the future cash
flows expected to be derived from the asset or cash generating unit. In estimating value in use, a pre-tax discount rate is used which
reflects the current market assessments of the time value of money and the risks specific to the asset. Any resulting impairment loss
is recognised immediately in the income statement.
Depreciation on plant and equipment is calculated on a straight line basis over expected useful life to the economic entity commencing
from the time the asset is held ready for use. The major depreciation rates used for each class of depreciable assets are:
(g) trade receivables
Plant and equipment:
20% to 33%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at least annually.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are
included in the income statement.
Depreciation of mining property and development costs is calculated on a unit of production basis so as to write off the costs in
proportion to the depletion of the estimated recoverable reserves.
(d) inventories
Inventories are stated at the lower of cost and net realisable value. net realisable value is the estimated selling price in the ordinary
course of business less any estimated selling costs.
Cost includes those costs incurred in bringing each component of inventory to its present location and condition.
Trade receivables are stated at fair value and subsequently measured at amortised cost, less impairment losses. Impairment testing
is carried out in accordance with note 3(f).
(h) provisions
Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it
is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are determined by
discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the liability.
restoration costs
The amount of the provision for future restoration and rehabilitation costs is capitalised and depreciated in accordance with the policy
set out in note 3(c). The unwinding of the effect of discounting on the provision is recognised as a finance cost.
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2007 annual report
carnarvon petroleum limited
36
nO TE s TO THE FInAnCIAL sTATE mEnTs
37
3. significant accounting poLicies (continued)
(k) foreign currency
(i) investments and other financial assets
functionaL anD presentation currency
The consolidated entity determines the classification of its financial instruments at initial recognition and re-evaluates this designation
at each reporting date.
Fair value is the measurement basis, with the exception of held-to-maturity investments and loans and receivables which are measured
at amortised cost. Fair value is inclusive of transaction costs. Changes in fair value are either taken to the income statement or to an
equity reserve (refer below).
Fair value is determined based on current bid prices for all quoted investments. If there is not an active market for a financial asset
fair value is measured using established valuation techniques.
The consolidated entity assesses at each balance date whether there is objective evidence that a financial asset or group of financial
assets are impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value
of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists the cumulative
loss is removed from equity and recognised in the income statement.
(i) financiaL assets at fair vaLue through profit anD Loss
A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by
management. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the
income statement in the period in which they arise.
(ii) Loans anD receivaBLes
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market
and are stated at amortised cost using the effective interest rate method, less any impairment losses.
(iii) heLD-to-maturity investments
The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which
that entity operates (the “functional” currency). The consolidated financial statements are presented in Australian dollars which is the
parent entity’s functional and presentation currency.
transactions anD BaLances
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction.
Foreign currency monetary assets and liabilities are translated at the exchange rate at balance sheet date. non-monetary items
measured at historical cost continue to be carried at the exchange rate at the date of the transaction.
Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in
equity as a qualifying cash flow or net investment hedge.
Translation differences arising on non-monetary items, such as equities held at fair value through profit and loss, are reported as part
of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial
assets, are included in the fair value reserve in equity.
foreign operations
The financial performance and position of foreign operations whose functional currency is different from the consolidated entity’s
presentation currency are translated as follows:
• assets and liabilities are translated at exchange rates prevailing at balance sheet date.
•
income and expenses are translated at average exchange rates for the period
Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation
reserve as a separate component of equity. These differences are recognised in the income statement upon disposal of the foreign
operation.
These investments have fixed maturities, and it is the group’s intention to hold these investments to maturity. Held-to-maturity
investments are stated at amortised cost using the effective interest rate method.
(l) Leases
(iv) avaiLaBLe-for-saLe financiaL assets
Available for sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated
in this category or not included in any of the above categories. Available-for-sale financial assets are reflected at fair value. unrealised
gains and losses arising from changes in fair value are taken directly to equity in an available-for-sale investments revaluation reserve.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the
income statement as gains and losses from investment securities.
(j) segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and
returns that are different to those of other business segments.
A geographical segment is engaged in providing products or services within a particular economic environment and is subject to
risks and returns that are different from those of segments that are operating in other economic environments.
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
A lease where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments in relation to operating leases are charged to the income statement on a straight-line basis over the period of the lease.
(m) share capital
Incremental costs directly attributable to an equity transaction are shown as a deduction from equity, net of any recognised income
tax benefit.
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2007 annual report
carnarvon petroleum limited
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nO TE s TO THE FInAnCIAL sTATE mEnTs
39
3. significant accounting poLicies (continued)
(p) cash and cash equivalents
(n) employee benefits
Wages anD saLaries, annuaL Leave
Provision is made for the consolidated entity’s liability for employee benefits arising from services rendered by employees to balance
date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid
when the liability is settled, plus related on-costs.
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid
investments.
(q) revenue
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the
buyer.
share BaseD payments – shares anD share options
(r) goods and services tax
The fair value of shares and share options granted is recognised as an expense with a corresponding increase in equity. Fair value
is measured at grant date and recognised over the period during which the grantees become unconditionally entitled to the shares
or share options.
The fair value of share grants at grant date is determined by the share price at that time.
The fair value of share options at grant date is determined using a Black-scholes option pricing model that takes into account the
exercise price, the term of the option, any vesting and performance criteria, the share price at grant date, the expected price volatility
of the underlying share, the expected dividend yield and the risk free rate for the term of the option.
Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GsT”), except where the amount of
GsT incurred is not recoverable from the Australian Tax Office. In these circumstances the GsT is recognised as part of the cost of
acquisition of the asset or as part of the expense. Receivables and payables in the balance sheet are shown inclusive of GsT.
Cash flows are presented in the cash flow statement on a gross basis, except for the GsT component of investing and financing
activities, which are disclosed as operating cash flows.
(s) trade and other payables
share based payments – Employee share Plan
Trade and other payables are stated at amortised cost. The amounts are unsecured and usually paid within 60 days of recognition.
share based compensation has been provided to eligible persons via the Carnarvon Employee share Plan (“EsP”), financed by
means of interest free limited recourse loans. under AAsB 2 “share-based Payment”, the EsP shares are deemed to be equity
settled, share based remuneration and treated as an in-substance grant of options.
For limited recourse loans issued to eligible persons on or after 1 January 2005, the consolidated entity is required to recognise
within the income statement a remuneration expense measured at the fair value of the “share option” inherent in the issue to the
eligible person, with a corresponding increase to a share-based payments reserve in equity. The fair value is measured at grant date
and recognised when the eligible person become unconditionally entitled to the shares, effectively on grant. A loan receivable is not
recognised.
(t) finance income and expenses
Interest revenue on funds invested is recognised as it accrues, using the effective interest rate method.
Finance expenses comprise interest expense on borrowings and the unwinding of the discount on provisions.
(u) comparative figures
When required by Accounting standards, comparative figures have been adjusted to conform to changes in presentation for the
current financial year.
The fair value at grant date is determined using a pricing model that factors in the share price at grant date, the expected price
volatility of the underlying share, the expected dividend yield, and the risk free rate for the assumed term of the “option”.
(v) new standards and interpretations not yet adopted
upon the exercise of the “option”, the balance of the share-based payments reserve relating to the “options” is transferred to share
capital.
(o) earnings per share
The consolidated entity presents basic and diluted earnings per share (“EsP”) for its ordinary shares.
Basic EPs is calculated by dividing the profit attributable to equity holders of the Company by the weighted number of shares
outstanding during the period.
Diluted EPs is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding for the effects of all potential ordinary shares, which comprise share options granted.
The AAsB has issued a number of AAsBs and amendments to AAsBs which are available for early adoption.
The Company and consolidated entity have not early adopted any of these accounting standards or amendments as they are
not expected to have a material impact on the financial results of the Company or consolidated entity. They may have an effect
on the disclosures of the Company and consolidated entity, however a detailed assessment of the potential impact has not been
undertaken at the date of this report.
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40
nO TE s TO THE FInAnCIAL sTATE mEnTs
41
4. other income
Reversal of provision for non-recovery of
Employee share Plan loans
Finance income
net gain on disposal of property, plant and
equipment
net (loss) from sale of equity investments
Other
5. cost of saLes
Production
Royalty and excise
Transportation
Depreciation of production assets and
development costs
selling, general and administration
6. other expenses
Depreciation – plant & equipment
Rental premises – operating lease
7. auDitors’ remuneration
Audit services:
Auditors of the Company
Other services:
Auditors of the Company:
Taxation services
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
8. DiscontinueD operation
On 28 October 2005 the Company announced that it had accepted a $500,000 unconditional offer from a third party to acquire
the Company’s interest in Petroleum Retention Licences (“PRLs”) 4 and 5 in Papua new Guinea. Other joint venture partners
subsequently exercised their pre-emptive rights in respect of the sale.
The Company and consolidated entity’s financial performance and cash flow information for these licences is as follows:
6,600
240,123
134,520
50,258
6,600
233,088
134,520
50,258
-
-
482
100
(715)
5,419
-
-
-
100
(715)
114
Revenue
Expenses
(Loss) before tax
Income tax expense
247,205
189,582
239,688
184,277
(Loss) after tax, but before gain on sale of discontinued operation
(1,385,511)
(409,693)
(168,249)
(306,896)
(891,433)
(3,161,782)
(251,208)
(173,593)
(47,491)
(46,763)
(280,075)
(799,130)
-
-
-
-
-
-
-
-
-
-
-
-
(28,097)
(60,319)
(5,219)
(43,442)
(28,097)
(60,319)
(5,219)
(43,442)
48,005
31,983
48,005
31,983
-
48,005
36,025
68,008
-
48,005
36,025
68,008
Gain on sale of discontinued operation, net of tax expense
Profit for the period
net cash flows from investing activities
net increase in cash from discontinued operation
9. earnings per share
Basic (loss)/ profit per share (cents per share)
From continuing operations
From discontinued operations
Diluted earnings / (loss) per share (cents per share)
From continuing operations
From discontinued operations
Issued ordinary shares at 1 July
Effect of shares issued
Effect of options exercised
Weighted average number of ordinary shares 30 June (basic)
Effect of share options on issue
Weighted average number of ordinary shares 30 June (diluted)
2007 $
-
-
-
-
-
-
-
-
-
2006 $
-
(11,818)
(11,818)
-
(11,818)
500,000
488,182
488,182
488,182
2007
2006
(0.3)
-
(0.3)
-
(0.4)
0.1
(0.4)
0.1
Number
411,787,134
272,312,513
95,027,860
67,630,141
98,630
13,108
506,913,624
339,955,762
22,750,685
5,183,562
529,664,309
345,139,324
Loss used in calculating basic and diluted loss per share from continuing operations
($1,542,210)
($1,246,332)
Profit used in the calculation of basic and diluted earnings per share from
discontinued operations
-
$488,182
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2007 annual report
carnarvon petroleum limited
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nO TE s TO THE FInAnCIAL sTATE mEnTs
43
Consolidated
Company
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
Notes
2007 $
2006 $
2007 $
2006 $
10. income tax expense
Numerical reconciliation between pre-tax loss and
income tax expense:
11. traDe anD other
receivaBLes
Current
Trade and other receivables
1,533,825
175,482
123,516
47,118
Owing by Phetchabun Basin Joint Venture partner
150,194
-
-
-
1,684,019
175,482
123,516
47,118
Prima facie income tax benefit on pre-tax loss
462,663
227,445
1,053,627
268,238
Tax effect of:
Foreign sourced income
Exempt gain on sale of discontinued foreign
operation
unrealized foreign exchange gains / (losses)
non-assessable income
non-deductible expenditure
Current year tax benefit not brought to account
166,752
88,631
-
146,455
16,092
1,980
(294,936)
(352,551)
2,081
40,356
(235,793)
(269,175)
-
-
(424,737)
1,980
(294,936)
(335,934)
-
146,455
49,919
40,356
(235,793)
(269,175)
Non-Current
Amounts receivable from controlled entities
Provision for non-recovery
Employee share Plan loans
Provision for non-recovery
Income tax expense on pre-tax loss
-
-
-
-
Unrecognised net deferred tax assets
Deferred tax assets have not been recognised in
respect of the following items (refer note 3(b)):
Deductible temporary differences
Tax losses
tax consoLiDation
287,757
1,070,275
1,358,032
16,200
1,036,761
824,212
840,412
1,053,657
2,090,418
16,200
824,212
840,412
Effective 1 July 2003, for the purposes of Australian income taxation, Carnarvon Petroleum Ltd (“Carnarvon”) and its 100% owned
subsidiaries formed a tax consolidated group. The head entity of the tax consolidated group is Carnarvon.
The impact of consolidating for tax purposes is that Carnarvon’s Australian subsidiaries are treated as divisions of Carnarvon rather
than as separate entities for tax purposes. The members of the group will, if required, enter into a tax sharing arrangement in order
to allocate group tax related liabilities to contributing members on a reasonable basis. The agreement will provide for the allocation
of income tax liabilities between entities should the head entity default on its tax payment obligations.
12. inventories
Current
Raw materials and consumables
13. other assets
Current
Deposits and prepayments
-
-
-
-
-
-
-
-
-
-
13,717,690
6,043,291
(693,349)
(693,349)
13,024,341
5,349,942
60,000
(6,600)
53,400
53,400
-
-
-
60,000
(6,600)
53,400
13,024,341
5,403,342
1,110,661
1,110,661
235,138
235,138
-
-
-
-
639,928
18,153
33,646
18,153
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2007 annual report
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nO TE s TO THE FInAnCIAL sTATE mEnTs
45
Consolidated
Company
2007 $
2006 $
2007 $
2006 $
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
14. other financiaL assets
Non-current
Investments in controlled entities – at cost
-
-
1,482,962
1,482,962
The consolidated entity has the following interests in joint venture operations:
Joint venture
principal activities
ownership interest %
Thailand
Phetchabun Basin Concession, Exploration Blocks
L44/43 and L33/43
Exploration, development,
production and marketing of
crude oil
Western Australia
EP 110 & 424 (Carnarvon Basin)
Western Australia
WA-399-P (Carnarvon Basin)
Exploration for hydrocarbons
Exploration for hydrocarbons
40%
35%
50%
summary financial information for the Phetchabun Basin Joint
Venture is included in the financial statements as follows:
Consolidated
2007 $
2006 $
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
non-current assets
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Payables
Total current liabilities
non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
net assets
Income
Expenses
net profit
2,406,711
1,594,086
1,110,661
572,069
339,170
128,364
235,138
-
5,683,527
702,672
12,163,648
6,926,222
12,163,648
6,926,222
17,847,175
7,628,894
2,730,311
2,730,311
105,440
105,440
2,835,751
14,657
14,657
67,675
67,675
82,332
15,011,424
7,546,562
3,681,112
1,095,518
(3,125,271)
(800,083)
555,841
295,435
Expenditure on joint ventures other than the Phetchabun Basin Joint Venture is expensed as incurred. Expenditure written off in
respect of the current reporting period was $74,752 (2006: $107,242).
Capital expenditure commitments and contingent liabilities in respect of the joint ventures are disclosed in notes 20 and 21 respectively.
15. property, pLant anD equipment
Plant and Equipment
Cost:
Balance at beginning of financial year
Additions
Disposals
Transfers
Effects of movements in foreign exchange
Balance at end of financial year
Depreciation and impairment losses:
Balance at beginning of financial year
Disposals
Transfers
Depreciation charge for year
Balance at end of financial year
327,279
105,740
-
(110,807)
(28,803)
293,409
147,933
-
(22,161)
63,246
189,018
203,658
120,280
(2,726)
-
6,067
327,279
120,114
(2,726)
-
30,545
147,933
80,641
27,807
-
-
-
11,316
72,051
(2,726)
-
-
108,448
80,641
10,277
-
-
28,097
38,374
7,784
(2,726)
-
5,219
10,277
Carrying amount
104,391
179,346
70,074
70,364
Mining property and development
Cost:
Balance at beginning of financial year
Additions
Transfers
7,167,531
6,676,220
110,807
4,279,320
2,639,906
Effects of movements in foreign exchange
(1,181,028)
248,305
Balance at end of financial year
12,773,530
7,167,531
Depreciation and impairment losses:
Balance at beginning of financial year
Transfers
Depreciation charge for year
Balance at end of financial year
350,291
22,161
271,747
644,199
328,854
21,437
350,291
Carrying amount
12,129,331
6,817,240
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total carrying amount
12,233,722
6,996,586
70,074
70,364
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2007 annual report
carnarvon petroleum limited
46
nO TE s TO THE FInAnCIAL sTATE mEnTs
47
16. traDe anD other
payaBLes
Current
Trade payables
non-trade payables and accrued expenses
Owing to Phetchabun Basin Joint Venture partner
Owing to related parties
Consolidated
Company
Notes
2007 $
2006 $
2007 $
2006 $
954,888
2,072,651
-
-
3,027,539
43,962
107,907
429,151
21,620
602,640
205,903
91,325
-
-
297,228
29,305
94,206
-
21,620
145,131
Company trade payables denominated in currencies other than the functional currency comprise $83,502, denominated in us$
(2006: $nil).
share BaseD payments reserve
movements in the share based payments reserve are set out in the statements of Changes in Equity on pages 29 and 30.
This reserve represents the fair value at grant of share options issued, including the value of shares issued under the Company’s
EsP. This reserve is reversed against share capital when shares are issued on exercise of the options, or, in the case of the shares
issued under the EsP, the loan is repaid.
19. reconciLiation of cash fLoWs from operating activities
Consolidated
Company
notes
2007 $
2006 $
2007 $
2006 $
(a) cash flows from operating
activities
Loss for the period
Adjustments for:
(1,542,210)
(758,150)
(3,512,091)
(894,126)
Equity settled share based payment expense
933,819
706,272
933,819
Reversal of provision for impairment losses
(6,600)
(134,520)
17. provisions
Non-current
site restoration:
Balance at beginning of financial year
Provision made / (reversed) during the year
Balance at end of financial year
67,675
37,765
105,440
77,984
(10,309)
67,675
-
-
-
-
-
-
18. capitaL anD reserves
Issued capital
Balance at beginning of financial year
Issued for cash
Equity settled compensation
Employee share Plan issues
Exercise of options
Balance at end of financial year
Company and consolidated
2007
2006
Number of shares
411,787,134
272,312,513
230,000,000
128,733,333
-
10,000,000
13,750,000
2,000,000
715,000
26,288
657,537,134
411,787,134
Ordinary shares have the right to one vote per share at meetings of the Company, to receive dividends as declared and, in the event
of a winding-up of 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.
Depreciation
Loss on disposal of property plant & equipment
Finance costs associated with rehabilitation
provisions
Exploration expenditure written off
Foreign exchange losses / (gains)
Loss on disposal of available-for-sale financial
assets
Operating loss before changes in working
capital and provisions:
Changes in assets and liabilities:
(Increase) in trade and other receivables
(Increase) in inventories
(Increase) / decrease in other assets
Increase in trade and other payables
Increase / (decrease) in provisions and employee
benefits
Cash flows from operating activities after
changes in working capital and provisions:
(Gain) on sale of discontinued operations net of
income tax
334,993
-
18,879
74,752
(53,636)
51,982
(100)
-
(6,600)
28,097
-
-
107,242
74,752
(6,935)
1,415,794
706,272
(134,520)
5,219
(100)
-
107,242
(166,394)
-
715
-
715
(240,003)
(33,494)
(1,066,229)
(375,692)
(1,291,801)
(908,470)
(682,647)
2,318,017
(54,802)
(156,176)
8,938
224,899
(76,398)
(44,230)
-
(15,493)
152,445
-
(5,394)
34,971
4,280
(21,899)
4,280
(11,590)
(800,624)
(32,534)
(1,001,395)
(401,935)
The Company does not have authorised capital or par value in respect of its issued shares.
Net cash flows (used in) operating activities
(800,624)
(520,716)
(1,001,395)
transLation reserve
movements in the translation reserve are set out in the statement in Changes in Equity on page 29.
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations where their functional currency is different to the presentation currency of the reporting entity.
avaiLaBLe-for-saLe asset revaLuation reserve
movements in the available-for-sale asset revaluation reserve are set out in the statements of Changes in Equity on pages 29 and 30.
This reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised.
(b) reconciliation of cash and
cash equivalents
Cash at bank and at call
8,927,018
1,897,846
6,520,307
1,558,676
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2007 annual report
carnarvon petroleum limited
8
-
(488,182)
-
(488,182)
(890,117)
48
nO TE s TO THE FInAnCIAL sTATE mEnTs
49
20. capitaL anD other commitments
contingent LiaBiLities consiDereD remote
Consolidated
Company
2007 $
2006 $
2007 $
2006 $
(a) Joint venture commitments
share of capital commitments of the joint venture
operations:
Within one year
203,953
1,389,531
-
share of capital commitments to the joint venture
operations:
Within one year
1,949,624
-
1,949,624
-
-
(b) exploration expenditure commitments
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, or by farming out portions of the entity’s equity.
Exploration expenditure commitments forecast but not provided for in the financial statements are as follows:
Consolidated
Company
Less than one year
Between one and five years
2007 $
568,553
212,500
781,053
2006 $
427,006
-
427,006
2007 $
132,553
212,500
345,053
(c) capital expenditure commitments
Data licence commitments
106,785
-
106,785
21. contingencies
contingent LiaBiLities not consiDereD remote
2006 $
152,985
152,985
-
-
(a) under the terms of an Investment Agreement the consolidated entity is required to pay a percentage of sales proceeds
from specified zones within the Wichian Buri Production Licences I and II in Thailand to Gemini Oil and Gas Limited,
an independent oil and natural gas investment fund. The percentage is 12.5% to a maximum cumulative payment
of us$800,000, after which the percentage falls to 7.5%.
Payments of us$184,408 (2006: us$91,073) have been expensed. Cumulative amounts estimated paid and payable at balance
date under the terms of this agreement are us$527,828.
(a) 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.
(b) During the previous year the Company sold its interests in Production Retention Licences (“PRLs”) 4 and 5 in Papua new
Guinea for $500,000. under the terms of the sale, if approval and registration of the Deeds and Transfer Instruments is not
obtained within 12 months of the date the documents are lodged for approval and registration, the sale proceeds shall be
refunded to the purchasers.
At the date of this report the 12 month period has expired, however, despite the Company’s strenuous efforts, approval and
registration of the Deeds and Transfer Instruments has not been obtained. The PRL assignees have granted the Company
an extension to 30 november 2007 to obtain these approvals.
(c) The Phetchabun Basin Joint Venture operation, in which the consolidated entity has a 40% interest, has issued bank
guarantees for an amount of 40 million Thai Baht as security in lieu of Customs Bonds. The consolidated entity’s cash
balances include A$598,600 of restricted cash held by the bank as security for theses guarantees.
22. empLoyee Benefits
Current:
Liability for annual leave
Consolidated
Company
2007 $
2006 $
2007 $
2006 $
4,280
-
4,280
-
share BaseD payments - empLoyee share pLan
under the terms of the Carnarvon Employee share Plan (“EsP”), as approved by shareholders, the Company may, in its absolute
discretion, make an offer of ordinary fully paid shares in Carnarvon Petroleum Limited to any eligible person, to be funded by a limited
recourse loan granted by the Company.
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 date of offer. Eligible persons receive an interest free advance to acquire the shares. The
Company is empowered to sell, as agent, any shares held under the EsP by an eligible person upon the cessation of employment,
and to apply the net sale proceeds in discharging the eligible person’s loan from the Company.
The movements in the EsP during the financial year were as follows:
number of shares
Loan
Average issue price per share
1 July 2006
4,700,000
$203,742
$0.043
Issued
13,750,000
$1,447,250
$0.105
Repaid
30 June 2007
2,200,000
$77,000
$0.035
16,250,000
$1,573,992
$0.097
The EsP shares on issue at 1 July 2006 included 200,000 shares held by a director, mr neil Fearis. These shares were all issued prior
to 1 July 2004. The corresponding loan was repaid during the current period.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
50
nO TE s TO THE FInAnCIAL sTATE mEnTs
51
22. empLoyee Benefits (continued)
23. reLateD party DiscLosures
In accordance with AAsB 2 the issue of shares under the EsP is accounted for as an in principle option.
uLtimate parent
The fair value of services received in return for options for both the Company and consolidated entity, including shares issued under
the EsP and valued as options, is measured by reference to the fair value of share options granted using the Black-scholes model,
as set out below.
Carnarvon Petroleum Limited is the ultimate parent company.
WhoLLy-oWneD group transactions
Fair value of share options and related
assumptions
Fair value at measurement date (cents)
share price at date of issue (cents)
Exercise price (cents)
Expected volatility
Key management
personnel
Key management
personnel
2007
7.4
13.5
9.0
55%
2006
1.6 to 2.0
5.1 to 6.3
5.1 to 10.0
51.5%
Actual / assumed option life
3 years
2 to 3 years
Expected dividends
Risk-free interest rate
nil
5.5%
nil
5.5%
Other
employees
2007
5.1 to 6.0
12.2 to 14.3
12.2 to 14.3
55%
3 years
nil
5.5%
share based expense recognised
$666,790
$412,667
$267,029
Other
employees
2006
2.0
5.1
5.1
51.5%
3 years
nil
5.5%
$10,105
Current year volatility is based on prorating the historic volatility over a 100 day period for the Company, the AsX small Ords Index,
and the AsX 300 Resources Index. This methodology is intended to reflect the movement of the Company’s share price volatility
towards its peers as its oil and gas interests mature.
Further details of shares and options issued to directors are set out in note 26, and in the Remuneration Report set out on pages
18 to 22.
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.
During the financial year ended 30 June 2007 loans to controlled entities totalled $9,088,435 (2006: $2,437,805).
The carrying value of loans to controlled entities at 30 June 2007 was $13,024,341 (2006: $5,349,942) after provisions of $693,349
(2006: $693,349). These loans are unsecured, non-interest bearing, and have no fixed terms of repayment.
other reLateD party BaLances
At 30 June 2007 an amount of $nil (2006: $21,620) is included in Company and consolidated trade and other payables for
outstanding director fees and expenses.
24. operating Leases
Leases as Lessee
non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
more than five years
Consolidated
Company
2007 $
232,342
148,758
-
2006 $
86,962
77,022
44,013
2007 $
119,472
63,820
-
2006 $
86,962
77,022
44,013
381,100
207,997
183,292
207,997
During the reporting period $240,245 was recognised as an expense in the consolidated income statement in respect of operating
leases (2006: $18,022).
25. segment information
segment information is presented in respect of the consolidated entity’s business and geographical segments. The primary format,
geographical segments, is based on the consolidated entity’s management and internal reporting structure.
segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers, and segment assets are based on the geographical location of the assets.
The consolidated entity operated predominantly in oil and gas exploration, development and production in Australia and Thailand
during the reporting period.
www.carnarvonpetroleum.com
2007 annual report
carnarvon petroleum limited
52
nO TE s TO THE FInAnCIAL sTATE mEnTs
53
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26. key management personneL DiscLosures
(a) key management personnel
The following were key management personnel of the consolidated entity at any time during the reporting period and, unless
otherwise indicated, were key management personnel for the entire period.
non-executive Directors
PJ Leonhardt (Chairman)
nC Fearis
KP Judge
mr Leonhardt is currently acting in a part time executive capacity to support the Chief Executive Officer. mr Leonhardt’s fulfillment of
this role going forward will be monitored relative to the Company’s stage of development.
executive Directors
EP Jacobson – Chief Executive Officer
executives
RA Anderson - Chief Financial Officer and Company secretary
(b) key management personnel compensation
Key management personnel compensation included in employee benefits expense, directors emoluments, share based payments
and administration expenses are as follows:
short term employee benefits
Post-employment benefits
Termination benefits
share based payments
Consolidated
Company
2007 ($)
534,936
-
-
666,790
2006 ($)
423,774
34,488
26,070
696,167
2007 ($)
534,936
-
-
666,790
2006 ($)
423,774
34,488
26,070
696,167
1,201,726
1,180,499
1,201,726
1,180,499
Information regarding individual directors and executives compensation is provided in the Remuneration Report section of the
directors’ report as set out on pages 18 to 22.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the consolidated entity
since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year end.
(c) other key management personnel transactions
Amounts payable to key management personnel at reporting date in respect of outstanding fees and expenses are as follows:
Current
Trade and other payables
Consolidated
Company
2007($)
2006($)
2007($)
2006($)
-
21,620
-
21,620
An amount of $928 was paid or payable during the year to an entity associated with mr Fearis in respect of office accommodation
and outgoings. These charges were calculated on an arms’ length basis.
mr Fearis repaid a $17,000 loan during the year in respect of 200,000 EsP shares on issue to him at 1 July 2006.
www.carnarvonpetroleum.com
2007 annual report carnarvon petroleum limited
54
nO TE s TO THE FInAnCIAL sTATE mEnTs
55
26. key management personneL DiscLosures (continued)
(d) movements in shares
(e) options and rights over equity instruments
The movement during the reporting period in the number of ordinary shares in Carnarvon Petroleum Limited held, directly, indirectly
or beneficially, by each key management person, including their related parties, is as follows:
The movement during the reporting period in the number of options over ordinary shares in Carnarvon Petroleum Limited held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 July 2006
Net
acquired/
(sold)
Granted as
compensation
7,510,504
1,389,496
13,189,307
5,124,486
5,871,400
(1,555,214)
14,168,596
900,000
Award under
Employee
Share Plan
3,000,000
6,000,000
-
-
-
Received on
exercise of
options
Held at
30 June 2007
-
-
11,900,000
24,313,793
2,000,000
6,316,186
-
15,068,596
-
4,443,490
-
-
-
-
-
RA Anderson
3,464,998
978,492
Held at
1 July 2005
(or when
appointed)
2,010,504
4,166,555
4,871,400
Net
acquired/
(sold)
Granted as
compensation
Award under
Employee
Share Plan
Received on
exercise of
options
Held at
30 June 2006
(or on retirement)
4,000,000
1,500,000
6,022,752
3,000,000
1,000,000
11,168,596
3,000,000
9,208,906
1,569,127
-
-
-
1,464,998
-
-
5,500,000
-
-
-
-
-
-
-
-
2,000,000
-
-
-
-
-
-
-
7,510,504
13,189,307
5,871,400
14,168,596
14,708,906
1,569,127
3,464,998
Directors
PJ Leonhardt
EP Jacobson
nC Fearis
KP Judge
Executive
Directors
PJ Leonhardt
EP Jacobson
nC Fearis
KP Judge
AG shelton
DJ Orth
Executive
RA Anderson
Directors
PJ Leonhardt
EP Jacobson
nC Fearis
KP Judge
Directors
PJ Leonhardt
EP Jacobson
nC Fearis
KP Judge
AG shelton
Held at
1 July 2006
Granted as
compensation
Acquired/
(sold)
Exercised
Held at
30 June 2007
6,000,000
8,000,000
4,000,000
4,000,000
-
-
-
-
-
-
-
-
Held at
1 July 2005
(or when appointed)
Granted as
compensation
Acquired/
(sold)
589,128
-
3,693,700
-
1,600,703
6,000,000
8,000,000
4,000,000
4,000,000
-
-
-
(3,693,700)
-
-
-
-
(2,000,000)
-
Expired
(589,128)
-
-
-
(1,600,703)
6,000,000
8,000,000
2,000,000
4,000,000
Held at
30 June 2006
(or on retirement)
6,000,000
8,000,000
4,000,000
4,000,000
-
Options granted as compensation vest immediately. During the financial year there was no forfeiture or vesting of options granted in
previous periods. There were no options on issue that were still to vest at the end of the reporting period.
27. non-key management personneL DiscLosures
iDentity of reLateD parties
The consolidated entity has a related party relationship with its subsidiaries (see note 28), joint venture operations (see note 14), and
with its key management personnel (see note 26).
28. consoLiDateD entities
All named directors and the named executive participated in a share placement, as approved by shareholders on 30 April 2007. Their
participation was on the same terms as other placees, at an issue price of 7.7 cents per share.
shares allotted under the EsP were funded by interest-free loans with a limited recourse security over the plan shares and subject
to the detailed rules of the EsP.
In accordance with AAsB 2 the issue of shares under the EsP is accounted for as an in principle option. The fair value of share
options, including EsP shares issued and valued as options, and their valuation assumptions are set out in note 22.
Information regarding individual directors’ and executives’ compensation, including company loans used to finance the purchase of
the EsP shares, is provided in the Remuneration Report section of the directors’ report as set out on pages 18 to 22.
name
Parent entity
Carnarvon Petroleum Ltd
Subsidiaries
Carnarvon Thailand Ltd
Lassoc Pty Ltd
sRL Exploration Pty Ltd
Country of Incorporation
2007
2006
Ownership interest
British Virgin Islands
Australia
Australia
100%
100%
100%
100%
100%
100%
Investments in subsidiaries are measured at cost in the financial statements of the Company
www.carnarvonpetroleum.com
2007 annual report carnarvon petroleum limited
56
nO TE s TO THE FInAnCIAL sTATE mEnTs
DIRECTORs’ DECLARAT IOn
57
29. financiaL instruments
(a) interest rate risk
The consolidated entity’s exposure to interest rate risk is considered minimal. The effective interest rates of income-earning financial
assets at the reporting date are as follows. There were no interest-bearing financial liabilities.
Variable rate
instruments at call
Weighted
average effective
interest rate
Variable rate
instruments at call
Weighted
average effective
interest rate
2007 ($)
2007
2006 ($)
2006
Financial assets
Cash and cash
equivalents
(b) foreign currency risk
8,927,018
5.16%
1,897,846
4.47%
and payable.
The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the
A$. The currency primarily giving rise to this risk is the us$. The consolidated entity considers that us$ sales and purchases provide
a natural hedge and that the net exposure is kept to an acceptable level.
(c) credit risk
(1) In the opinion of the directors of Carnarvon Petroleum Limited:
(a) the financial statements and notes of the company and of the consolidated entity (including the audited remuneration
disclosures contained in the Remuneration Report contained in the Directors’ Report) set out on pages 27 to 56 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 2007 and of their
performance, as represented by the results of their operations and their cash flows, for the financial year ended on
that date; and
(ii) complying with Australian Accounting standards (including the Australian Accounting Interpretations) and the
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
(2)
This declaration has been made after receiving the declarations required to be made to the directors in accordance with
section 295A of the Corporations Act 2001 for the financial period ending 30 June 2007.
signed in accordance with a resolution of the directors.
Exposure to credit risk is considered minimal but is monitored on an ongoing basis. At balance date there were no significant
concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in
the balance sheet.
pJ Leonhardt
Director
Perth, 27th september 2007
(d) fair values
All financial assets and financial liabilities have been recognised in the balance sheets at balance date at their fair values.
Trade and other
receivables
Cash and cash
equivalents
Trade and other payables
Consolidated
Carrying amount
2007($)
Fair Value
2007 ($)
Carrying amount
2006 ($)
Fair Value
2006 ($)
1,684,019
1,684,019
228,882
228,882
8,927,018
(3,027,539)
7,583,498
8,927,018
(3,027,539)
7,583,498
1,897,846
(602,640)
1,524,088
1,897,846
(602,640)
1,524,088
All trade and other receivables / payables have a life of less than one year, and therefore their notional amount is deemed to reflect
their fair value.
www.carnarvonpetroleum.com
2007 annual report carnarvon petroleum limited
58
InDEPEnDEnT A uDIT R EPOR T
59
www.carnarvonpetroleum.com
2007 annual report carnarvon petroleum limited
60
COR POR ATE GOVERnAnCE sTAT EmEnT
61
introDuction
expLanations for Departures from Best practice recommenDations
Carnarvon Petroleum Limited (“Carnarvon”) is a small company with an uncomplicated corporate structure and relatively simple
financial and management control requirements. It adheres to the ten Essential Corporate Governance Principles as published by
the AsX Corporate Governance Council and has adopted those of the Best Practice Recommendations which the Board considers
to be relevant and essential for the efficient management of the Company and its business whilst safeguarding shareholder assets.
From 1 July 2006 to 30 June 2007 (the “Reporting Period”) the Company complied with each of the Ten Essential Corporate
Governance Principles (note 1 below) and the corresponding Best Practice Recommendations (note 2 below) as published by
the AsX Corporate Governance Council (“AsX Principles and Recommendations”), other than in relation to the matters specified
below:
The following additional information about the Company’s corporate governance practices is set out on the Company’s website at
www.carnarvonpetroleum.com:
principle
reference
recommendation
reference
notification of Departure
explanation for Departure
• Corporate governance disclosures and explanations;
• statement of Board and management functions;
• Composition of the Board and new appointments;
• Committees of the Board;
• summary of code of conduct for directors;
• summary of policy on securities trading;
• Audit Committee Charter;
• summary of policy and procedure for compliance with AsX Listing Rule disclosure requirements;
• summary of arrangements regarding communication with and participation of shareholders;
• summary of Company's risk management policy and internal compliance and control system; and
• Corporate code of conduct.
skiLLs, experience, expertise anD term of office of each Director
A profile of each director containing the applicable information is set out in the directors’ report.
statement concerning avaiLaBiLity of inDepenDent professionaL aDvice
If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office
as a director then, provided the director first obtains approval for incurring such expense from the chairman, the Company will pay
the reasonable expenses associated with obtaining such advice.
numBer of auDit committee meetings anD names of attenDees
The number of Audit Committee meetings and names of attendees is set out in the directors’ report.
names anD quaLifications of auDit committee memBers
The names and qualifications of Audit Committee members are set out in the directors’ report.
2
2
2
2.1
2.2
2.4
The Board did not comprise a majority of
independent directors. The Board currently
consists of two independent and two non-
independent directors.
The Chairman
director.
is not an
independent
A separate nomination Committee has not
been formed.
mr Peter Leonhardt, the Chairman, is
currently acting in a part time executive
capacity as a non-independent
director to support the Chief Executive
Officer. mr Leonhardt’s fulfilment of this
role going forward will be monitored
relative to the Company’s stage of
development.
mr Peter Leonhardt, the Chairman, is
currently acting in a part time executive
capacity as a non-independent
director to support the Chief Executive
Officer. mr Leonhardt’s fulfilment of this
role going forward will be monitored
relative to the Company’s stage of
development.
The Board considers that the Company
is not currently of a size to justify the
formation of a nomination Committee.
The Board as a whole undertakes the
process of reviewing the skills base
and experience of existing directors
to enable identification or attributes
required in new directors. Where
appropriate independent consultants
are engaged to identify possible new
candidates for the Board.
(1) A copy of the Ten Essential Corporate Governance Principles are set out on the Company’s website under the section entitled
“Corporate Governance”.
(2) A copy of the Best Practice Recommendations are set out on the Company’s website under the section entitled “Corporate
Governance”.
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2007 annual report carnarvon petroleum limited
62
COR POR ATE GOVERnAnCE sTAT EmEnT
63
Explanations for departures from best practice recommendations (continued)
principle
reference
recommendation
reference
4
8
9
4.3
8.1
9.2
notification of Departure
explanation for Departure
The Company does not have any terms or schemes relating to retirement benefits for non-executive directors.
existence anD terms of any schemes for retirement Benefits for non-executive Directors
since February 2006 the Audit Committee
has comprised two directors, one of
whom is non-independent and is the
Chairman of the Board. This does not
meet the criteria set out in Best Practice
Recommendation 4.3.
A formal performance evaluation of the
Board was not carried out during the
Reporting Period
A separate Remuneration Committee has
not been formed.
In accordance with Listing Rule
12.7, the Company is not required to
comply with Recommendation 4.3.
A review of the functioning of the
Board in general did occur by way of
an informal review by the Chairman
during the regular Board meetings.
that
The Board considers
the
Company is not currently of a size to
justify the formation of a Remuneration
Committee. The Board as a whole
is responsible for the remuneration
arrangements
for directors and
executives of the Company. If the
Company’s activities increase in size,
scope and/or nature the appointment
of a Remuneration Committee will
be reviewed by
the Board and
implemented if appropriate.
company’s remuneration poLicies
The Company’s remuneration policies are set out in the Remuneration Report on pages 18 to 22.
The Company has separate remuneration policies for executive and non-executive directors.
non-executive directors receive a fixed fee and, when appropriate, share options or participation in the Employee share scheme.
Executive directors receive a salary or fee and, when appropriate, shares, share options, or participation in the Employee share
scheme.
iDentification of inDepenDent Directors
The Company’s two independent directors are considered to be mr neil Fearis and mr Ken Judge.
neither of these directors was considered to have a material relationship with the Company or another group member during the
Reporting Period as professional advisor, consultant, supplier, customer, or through any other contractual relationship, nor did they
have any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability
to act in the best interests of the Company.
The Board considers “material” in this context to be where any director related business relationship represents the lesser of at least
5% of the Company’s or the director-related business’s revenue.
9
9.3
The Chairman was allocated shares under
the Company’s Employee share Plan, as
approved by shareholders, in April 2007.
to
issue
the Chairman
The
recognised the executive duties he
had undertaken, over and above his
normal non-executive role, during
the Reporting Period. In addition, the
satisfaction of remuneration in part by
Employee share Plan issues results in
lower cash compensation and helps
maintain the entity’s cash reserves.
Recommendations 1 to 10 state that the Company should make publicly available a number of its corporate governance documents
and procedures, ideally by posting it to the Company’s website in a clearly marked corporate governance section. This occurred in
the first quarter of the Reporting Period.
www.carnarvonpetroleum.com
2007 annual report carnarvon petroleum limited
64
ADDITI OnAL sHA REHOLDE R InFORmATI On
65
Additional information required by the AsX Limited (“AsX”) Listing Rules and not disclosed elsewhere in this report is set out below.
DistriBution of equity security hoLDers
a) shareholdings as at 17 september 2007
suBstantiaL sharehoLDers
There are no substantial shareholder notices lodged with the Company.
voting rights
The voting rights attaching to Ordinary shares are governed by the Constitution. On a show of hands every person present who is a
member or representative of a member shall have one vote and on a poll, every member present in person or by proxy or by attorney
or duly authorised representative shall have one vote for each share held. no options have any voting rights.
size of Holding
1
1,001
5,001
10,001
to
to
to
to
100,001 and over
1,000
5,000
10,000
100,000
number of
shareholders
number of
fully paid shares
104
342
626
2,550
788
4,410
41,195
1,192,430
5,503,724
108,781,160
542,018,625
657,537,134
tWenty Largest sharehoLDers
Name of Shareholder
HsBC Custody nominees (Australia) Limited
HsBC Custody nominees (Australia) Limited
AnZ nominees Limited (Cash Income A/C)
mr Edward Patrick Jacobson
macquarie Bank Limited
national nominees Limited
macquarie Bank Limited
Arne Investments Pty Ltd
mr Peter James Leonhardt
Citicorp nominees Pty Limited (Cwlth Bank Off super A/C)
Citicorp nominees Pty Limited
RBC Dexia Investor service Australia nominees Pty Ltd (Bkcust A/C)
mr Edward Patrick Jacobson
Arne Investments Pty Ltd
Pendomer Investments Pty Ltd (Law settlements Fund A/C)
Kaymac nominees (mcmullen super Fund A/C)
mr Gregory John munyard and mrs maria Anne munyard and miss Carmen Helene
munyard (Riviera super Fund A/C)
Dalkeith Resources Pty Ltd
mr Lawrence Addison Brown and mrs Jill Brown
Wickham Holdings sA
Number of Shares
% held
b) unlisted option holdings as at 17 september 2007
The number of shareholders holding less than a marketable parcel of ordinary shares is 154.
33,335,438
29,548,050
26,632,957
14,000,000
12,000,000
9,298,666
9,060,000
8,916,906
8,000,000
7,528,026
7,483,735
7,200,000
6,817,903
6,710,493
6,316,186
6,000,000
5,400,000
5,374,921
5,182,303
4,333,333
5.07
4.49
4.05
2.13
1.82
1.41
1.38
1.36
1.22
1.14
1.14
1.09
1.04
1.02
0.96
0.91
0.82
0.82
0.79
0.66
219,138,917
33.32
number on issue
number of holders
Unlisted 7 cent Options
expiring 31 March 2008
Unlisted 10 cent Options
expiring 31 March 2009
9,000,000
3
16,000,000
5
Those holding more than 20% of the class:
Number held
Number held
EP Jacobson
PJ Leonhardt
KP Judge
Hartleys Limited
c) on-market buyback
There is no current on-market buyback.
d) schedule of permits
Location
Thailand
Thailand
Carnarvon Basin, Western Australia
Carnarvon Basin, Western Australia
Carnarvon Basin, Western Australia
4,000,000
3,000,000
2,000,000
4,000,000
5,000,000
Permit
Equity
L 44/43
L 33/43
EP 110
EP 424
WA-399-P
40%
40%
35%
35%
50%
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carnarvon petroleum limited
68
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carnarvon petroLeum
aBn 60 002 688 851
suite 3, Ground Floor
16 Ord street
West Perth WA 6005