COnTEnTS
Chairman’s Review
Chief Executive’s Review
Operating and Financial Review
Directors’ Report
Independence Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
Corporate Governance Statement
Additional Shareholder Information
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3
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CORPORATE DIRECTORY
Directors
PJ Leonhardt (Chairman)
EP Jacobson (Chief Executive Officer)
NC Fearis (Non-Executive Director)
KP Judge (Non-Executive Director) (retired 15 July 2010)
W Foster (Non-Executive Director) (appointed 17 August 2010)
Company Secretary
RA Anderson
Auditors
WHK Horwath Perth Audit Partnership
Bankers
Australia and New Zealand Banking Group Limited
National Australia Bank Limited
HSBC (Thailand)
Registered Office
Ground Floor
1322 Hay Street
West Perth WA 6005
Telephone:
Facsimile:
Email:
Website:
+61 8 9321 2665
+61 8 9321 8867
admin@cvn.com.au
www.carnarvon.com.au
Share Registry
Computershare Investor Services Pty Limited
Level 2, 45 St Georges Terrace
Perth, WA 6000 Australia
Investor Enquiries: 1300 557 010 (within Australia)
Investor Enquiries: +61 3 9415 4000 (outside Australia)
+61 8 9323 2033
Facsimile:
Stock Exchange Listing
Securities of Carnarvon Petroleum Limited are listed on ASX Limited.
ASX Code: CVN - ordinary shares
Last year we were pleased to report that Carnarvon
had experienced a period of significant growth in
operational and financial performance from its L44/43
Concession in Thailand. Last year was also a period
of severe turbulence in economic conditions in the
sense of the “Global Financial Crisis” or GFC. A year on
and we find the Company in a very strong position. We
have significantly upgraded our reserves, continued to
produce oil from the L44/43 Concession in Thailand, and
taken advantage of the difficulties of the GFC to position
the business for future growth in new exploration
acreage both within Thailand and in other regions.
At a strategic level the Carnarvon Board, with support from
its management, has carefully considered future growth
plans that are most likely to realise material benefits for
shareholders having regard to the risks and capital required
to find and develop new reserves. We have articulated the
Company’s intention to focus on direct holdings in onshore
and shallow offshore opportunities in the South East Asian
and Australasian regions. In this context, during the year
attractive new ventures were introduced into Carnarvon in
Thailand, Indonesia, Australia and New Zealand. These are
opportunities that are capable of providing material value
to shareholders while containing government and other
commitments to levels that are readily affordable by the
Company without putting it under undue financial strain.
While the GFC may now be history, the Carnarvon Board
remains wary of the risk of future adverse economic events
that could materially affect business confidence and global
liquidity. Accordingly, Carnarvon will continue to grow
its business in a prudent manner and position itself to be
capable of exploiting opportunities should they arise in any
difficult economic times in the future.
Your directors are very conscious of the disappointing
performance in the Company’s share price over the past
year. Certainly there have been a number of external factors
affecting this, including the unrest in Bangkok earlier this year,
the Australian Government’s intention to introduce a super
profits tax on the resources sector, and significant movements
in oil prices and exchange rates. Fundamentally though, the
key issue has been around the levels of production that we
expected a year ago compared with those that were ultimately
achieved. We acknowledge and thank Pan Orient Energy
CHAIRmAN’S REvIEW
Corp, the L44/43 Concession Operator, for its tremendous
efforts during the year in managing a challenging reservoir.
Despite a very effective drilling campaign, a number of the
wells unfortunately failed to produce at the levels we had
reasonably predicted. That said, we announced after the end
of the financial year a series of well results that have significantly
exceeded our expectations, including the WBEXTa well
that set a record for production rates onshore Thailand. I
will leave further explanation of the production issues to be
covered by Ted Jacobson in his Chief Executive’s Review.
Notwithstanding these issues, production from the L44/43
Concession continues to generate significant cash flows for
investment in other growth opportunities for shareholders.
For Carnarvon’s ongoing success we are aware of the need
to work closely with all stakeholders, including joint venture
partners, suppliers, our corporate advisers and shareholders.
I would like to thank all those who have supported us during
the year.
Carnarvon’s people have again made outstanding contributions
and the high calibre of our relatively small team is a key to
our future growth. I believe it is also important to recognise
the progress made in building the capabilities of our people.
On behalf of the Carnarvon Board I congratulate our Chief
Executive Officer Ted Jacobson and all of the staff. We all look
forward to another exciting year in 20 and beyond.
The Board was sorry to announce recently that Ken Judge
had decided to retire from the Board. Ken joined the Board
over 5 years ago and was an outstanding contributor to
the Company’s success over this period. His extensive
experience and global insights will be greatly missed. So,
thank you Ken and every best wish with your reduced
international commitments. Bill Foster was subsequently
appointed to the Board and brings to us extensive industry
experience. We look forward to working with him in growing
the Company in the future.
Peter Leonhardt
Chairman
Back to Contents
Carnarvon Petroleum Limited
CHIEF EXECUTIvE’S REvIEW
Carnarvon posted a substantial 48% increase in audited
oil reserves in its L44/43 Thailand concession as at
31 December 2009. Proven and probable recoverable
oil reserves were calculated to be 24.5mmbbls net to
Carnarvon. New oil pools were discovered and new
production licences were approved over the Bo Rang,
L44-W and NSE-F1 discoveries. This is an enviable
position for our company to be in.
Production declined over the year, partly the result of a
focus on appraisal drilling to better define the limits of the oil
reserves, but also due to natural decline of wells. However,
recent drilling has significantly reversed this trend.
At the end of the financial year the L33- well, which was
required to be drilled as part of the licence terms for the L33/43
concession, discovered a new pool of oil within fractured
volcanic rock with substantial flow rates of ,00 bopd. This
new discovery was followed up after the financial year end
with the drilling of L33-2 well which was flowed at 2,350 bopd.
A production licence has now been applied for. Production will
commence on approval of the production licence.
In addition, subsequent to year end, a new oil discovery
was made in fractured volcanic rock within the Wichian Buri
structure in the L44/43 concession, at WBEXT-. A follow
up well in the same structure, WBExt-A, flowed a record
5,300 bopd on clean-up. Further drilling is ongoing within
this structure.
Whilst production had declined at the end of the financial
year, production at year end improved dramatically with the
wells drilled in July and August 200.
Elsewhere the Company has been very busy building on its
assets. In Thailand, within the L20/50 permit, the seismic
acquisition of 550 kms of seismic data was completed,
processed and interpreted. Preparations are underway for
one firm well and two contingent wells to be drilled late this
calendar year, the timing being subject to weather conditions.
In addition, the new L52/50 and L53/50 concessions were
officially awarded and technical work has commenced.
Within Indonesia, Carnarvon acquired a 25 percent interest
in the Rangkas permit, onshore Indonesia. Numerous oil
seeps and oil shows in previous wells have been reported in
this permit and its close proximity to Jakarta and associated
infrastructure makes this a desirable location. A total of
,000 kms of existing seismic data has been re-processed
by Carnarvon with modern computer routines, and a further
474 kms of new seismic acquisition is underway.
In Australia, Carnarvon was awarded a 50% interest in four
permits covering the Phoenix gas discovery and surrounding
area in the Bedout Sub- Basin offshore from Dampier in Western
Australia. Carnarvon was later awarded a 00% interest in a
further permit adjacent to the Phoenix permits, resulting in the
Company having interests over a large area of 28,300 sq kms.
These permits are in water depths of around 00metres being
a mere 50 kms from the coast. Aeromagnetic data has been
acquired by Carnarvon over these permits, and ,00 sq kms
of 3D seismic plus regional 2D seismic lines will be acquired
later in 200. The Phoenix structure already contains two wells
which intersected large gas columns of approximately 700
metres which were not flow tested. Carnarvon plans to farm
out a portion of its interest to fund the drilling of two appraisal
wells. The timing of these wells will be late 20 / early 202.
The Company farmed into a new area offshore New Zealand
for 0% of the drilling of a well at Tuatara-. Although this
well did not find commercial deposits of hydrocarbons, it did
encounter gas and oil shows throughout the well which is
encouraging for further exploration in the permit.
Carnarvon also farmed out a portion of the WA-399-P permit
in the offshore Carnarvon Basin to Apache Energy and Jacka
Resources in return for funding the recording and processing
of new 3D seismic over the entire permit. Carnarvon retains a
3% interest in the permit. The farmout to Apache and Jacka
allows the introduction of a strong joint venture partner and
operator to facilitate the acquisition of 3D seismic at no cost
to Carnarvon and rationalises Carnarvon’s cash commitments
enabling it to seek other attractive opportunities.
The Carnarvon team has worked hard during the year to grow
the asset base of the Company. Reserves have been increased
substantially, oil field production capacity has increased, and
new opportunities have been acquired. I thank all our staff
for the hard work, loyalty and dedication they have shown
during the year and I look forward to another interesting year
in building a strong company.
2
200 Annual Report
Back to Contents
Ted Jacobson
Chief Executive Officer
OPERATING AND FINANCIAL REvIEW
OPERATING REVIEW
Summary
During the financial year 2009/200 Carnarvon produced
nearly 900,000 bbls of oil in its Thailand concessions and
acheived a significant 48% increase in reserves. In addition,
the Company completed entry into two new countries,
consolidated our acreage positions in Thailand and Australia
and prepared for an onshore drilling campaign in L20/50.
Carnarvon participated in the drilling of 38 individual boreholes
(including sidetracks) within the L33/43, L44/43 and SWA
group of permits, resulting in 23 completed wells and 6
wells testing at commercial rates.
Exploration and appraisal drilling over the year resulted in
several new oil pools being discovered within the L44/43
exploration concession, leading to the application and
approval of a new 20 year production license over the Bo
Rang, L44-W and NSE-F reserve areas. As a result of the
increase in audited oil reserves over the previous year in
its Thailand concessions, as at 3 December 2009 proven
and probable recoverable oil reserves were calculated to be
24.5mmbbls net to Carnarvon.
Elsewhere in Thailand, within the L20/50 permit, the
acquisition of 550 kilometres of new 2D seismic data was
completed. Planning has commenced on a multi-well
program drilling campaign, with three prospects highgraded
to drillable status.
Further in Thailand, the L52/50 and L53/50 concessions
were officially awarded and technical work by the operator
has commenced.
In Australia, Carnarvon concluded negotiations which resulted
in the acquisition of a 50% interest in four permits covering
the Phoenix gas discovery and surrounding area in the
Bedout Sub-Basin offshore approximately 50 kilometres
from Dampier in Western Australia. Subsequently, Carnarvon
consolidated its position in the basin with the award of a 00%
interest in a further permit adjacent to the Phoenix permits.
Also in Australia, Carnarvon farmed out a portion of the WA-
399-P permit to Apache Energy in return for the recording
and processing of new 3D seismic over the entire permit, and
to Jacka Resources for a cash payment.
During the financial year 2009/200 Carnarvon also acquired
a 25 percent interest in the Rangkas permit, onshore
Indonesia. Numerous oil seeps have previously been
reported in this permit and its close proximity to Jakarta and
associated infrastructure makes this a desirable location.
Subsequent to year end, the Company acquired a 0%
interest in PEP 38524, a new area offshore New Zealand
in return for contributing to the cost of drilling the Tuatara-
exploration well. Although this well did not find commercial
deposits of hydrocarbons, it did encounter gas and oil
shows throughout the well which is encouraging for further
exploration in the permit.
Permits
Permit
Thailand
SWA
Basin
Equity
Joint Venture Partner(s) Partner Interest
Indicative Forward Program
Phetchabun
L33/43
Phetchabun
L44/43
L20/50
L52/50
L53/50
Australia
WA-435-P
WA-436-P
WA-437-P
WA-438-P
WA-443-P
EP32
EP407
Phetchabun
Phitsanulok
Surat-Khiensa
Surat-Khiensa
Roebuck
Roebuck
Roebuck
Roebuck
Roebuck
Perth
Perth
40%
40%
40%
50%
50%
50%
50%
50%
50%
50%
00%
2.50% of 38.25% (i)
2.50% of 42.5% (i)
WA399P
Carnarvon
3%
Indonesia
Rangkas
West Java
25%
New Zealand
PEP38524
Taranaki
0%
Pan Orient Energy *
Pan Orient Energy *
Pan Orient Energy *
Sun Resources
Pearl Oil Resources*
Pearl Oil Resources*
Finder Exploration*
Finder Exploration*
Finder Exploration*
Finder Exploration*
Apache *
Rialto Energy
Jacka Resources
Lundin Petroleum *
Tap Oil
AWE*
ROC Oil
Kea Oil and Gas
60%
60%
60%
50%
50%
50%
50%
50%
50%
50%
60%
2%
5%
50%
24%
60%
20%
0%
Production, Appraisal
Development,
Appraisal, Exploration
Production, Appraisal, Exploration
Exploration
Exploration
Exploration
Seismic Acquisition, Exploration
Seismic Acquisition, Exploration
Seismic Acquisition, Exploration
Seismic Acquisition, Exploration
Seismic Acquisition, Exploration
Appraisal
Appraisal
Seismic Acquisition,
Exploration
Seismic Acquisition,
Exploration
Seismic Acquisition,
Exploration
Note:
(*) Denotes operator where Carnarvon is non-operator partner (i) Carnarvon has an overriding royalty interest in these assets
Back to Contents
Carnarvon Petroleum Limited
3
OPERATING AND FINANCIAL REvIEW
Thailand
L44/43, L33/43 &, SW1A Phetchabun Basin (“SW1A”)
(Carnarvon Petroleum 40%, Pan Orient 60% operator)
Carnarvon participated in the drilling of 38 individual boreholes
(including sidetracks) within the L33/43, L44/43 and SWA
group of permits throughout the reporting period resulting
in 23 completed wells and 6 wells testing at commercial
rates. Post year end several new oil discoveries were made,
including at WBExt-, WBExt-A and L33- & L33-2.
A production license and environmental approval were
granted over the Bo Rang “A” and “B” and NSE-F oil
reservoirs (“BRN”) allowing field development drilling to
commence. There are now a total of six production licenses
with a further two to be applied for. The existing licences are
Wichin Buri Licence I and II,Na Sanun, Si Thep, Na Sanun
East and Bo Rang North. Applications will be submitted for
licences to cover the recent discoveries at WBExt-, WBExt-
A, L33- and L33-2.
Figure 1. Permit map of Thailand.
Figure 2. Location of oilfields and prospects within L44/43 &
L33/43 Thailand – Phetchabun Basin.
* Size and shape of PL application areas for illustrative purposes only
4
200 Annual Report
Back to Contents
OPERATING AND FINANCIAL REvIEW
Daily Production
Water Rate
Oil Rate
18000.
16000.
14000.
12000.
10000.
8000.
6000.
4000.
2000.
0.
01-Jan-07
01-A pr-07
01-Jul-07
01-O ct-07
01-Jan-08
01-A pr-08
01-Jul-08
01-O ct-08
01-Jan-09
01-A pr-09
01-Jul-09
01-O ct-09
01-Jan-10
01-A pr-10
)
d
p
b
(
e
t
a
R
d
u
F
i
l
and appraisal upside, generating free cash that Carnarvon is
able to use for growth in other regions.
It is anticipated that drilling will continue within the L33/43,
L44/43 and SWA group of fields in the near future to fully
realize the value of the certified 2P reserves and unlock some
of the value in the 3P reserves, contingent resources and
prospective resources.
Figure 3. Daily production.
Total daily fluid production has remained relatively stable
over the past 24 months, however water production has
increased while oil production has decreased, as depicted
on the graph above. Produced water is re-injected down
non-producing wells and is moved between production wells
and non-producing water re-injection wells by truck. Higher
water handling volumes marginally increase operating costs
and volumes are currently at levels considered normal in the
oil and gas industry.
The majority of the production is from fractured reservoirs.
The geological setting of these volcanic oil reservoirs is
very complex, featuring rapid changes of lithofacies and
thicknesses, distributions of fractures and pores/vugs,
and different oil well productivities with neighbouring wells.
The heterogenous nature of the fracturing leads to varying
performance from individual wells, with initial rates ranging
from 00 to 4,000 bopd and ultimate recovery per well
estimated to be in the range of 00,000 bbls to .5 million
bbls. This results in a varying production profile. Higher field
rates are achievable with continued development drilling,
although prediction of individual well performance is variable
due to reasons outlined above.
However, fit for purpose operational procedures have
resulted in world class low cost operations, with well costs in
the order of US$ to US$.5 million per well and able to be
drilled at a rate of 3 per month. Ongoing operational costs,
including trucking, are in the order of US$ per bbl, with
depreciation and amortization currently estimated at US$7
/ bbl. This results in high margin production with exploration
Back to Contents
Carnarvon Petroleum Limited
5
OPERATING AND FINANCIAL REvIEW
Acquisition of 550 km of 2D seismic data by BGP was
completed on time and on budget by the end of August
2009. This seismic acquisition exceeds the concession work
commitment for L20/50 for the year. Processing of the new
2D seismic data was completed early in the December 2009
quarter.
Interpretation of all seismic data, combined with a geological
assessment of the exploration concession, was completed
in the march 200 quarter. Significant sedimentary section
and structuring are evident in the new data, and play types
include Sirikit style fans, Wichian Buri style sandstones and
Na Sanun style volcanics.
Three drillable prospects were identified from a seriatum of
over 20 leads, and work has progressed on government,
environmental and local permitting work. It is anticipated that
a minimum of well, and a maximum of 3 wells, will be drilled
in the permit commencing late 200 or early 20.
Figure 4. L20/50 Phitsanulok Basin outline.
L52/50 and L53/50 Surat-Khiensa Basin
(Carnarvon Petroleum 50%, Pearl Oil 50% operator)
L20/50 Phitsanulok Basin
(Carnarvon Petroleum 50% Operator, Sun Resources 50%)
The exploration concessions L52/50 and L53/50 onshore
Thailand were officially awarded to Carnarvon and Pearl in
the march 200 quarter.
Carnarvon, and partner Sun Resources, were granted the
L20/50 exploration concession in January of 2007. The L20/50
concession is situated approximately 30 kms to the southeast
and on trend with the largest onshore oil field in Thailand at Sirikit.
The permit is around 60 km to the west of Carnarvon’s 40%
owned Petchabun Basin producing assets. The concession
covers around 4,000 km2 and is lightly explored.
Previous drilling demonstrates that oil has been generated within
the L20/50 concession. Prior to the recording of new seismic
data, the only data available over the concession comprised
approximately ,000 km of 980’s vintage 2D seismic data in
paper format (now digitised) and six wells, also in paper format
(three shallow at around 500m and three deeper).
These blocks are situated in the Tertiary Surat-Khiensa Basin
in the isthmus of southern Thailand adjacent to the NNE-
oriented Ranong and Khlong marui Fault Zones. The basin
is of particular interest as it is on trend with the similar sized
Chumphon Basin in the Gulf of Thailand to the immediate
north. The Chumphon Basin has a proven oil kitchen and
4.3 mm bbls of oil was recovered from the Nang Nuan B
well from 994-997 at rates up to 0,000 bopd. Numerous
wells in the Chumphon Basin encountered oil shows.
Some leads have been identified on the limited 2D seismic
available, but significant geologic risks remain on source
presence, migration and seal.
6
200 Annual Report
Back to Contents
OPERATING AND FINANCIAL REvIEW
Australia
WA-435-P, WA-436-P. WA-437-P & WA-438-P Offshore
Northwest Shelf
(Carnarvon Petroleum 50%, Finder Exploration 50% operator)
Subsequent to being awarded 00% of exploration permit
WA-435-P, Carnarvon completed an agreement with private
exploration company Finder Exploration (“Finder”) to exchange
50% of Carnarvon’s WA-435-P for 50% of the three new
adjacent Finder permits WA-436-P, WA-437-P and WA-438-
P. Finder has assumed operatorship of all four permits.
The four permits are situated in the north-western part of the
Bedout Sub-basin within the greater Roebuck Basin, offshore
Western Australia. The blocks lie in an under-explored area
that has received little recent attention, between the prolific
Carnarvon Basin hydrocarbon province to the southwest and
the Browse Basin to the northeast. The town of Port Hedland
lies approximately 50 km to the south of the permits and
Broome lies 250 km to the northeast. Water depths range
from 35 to 265 metres and the permits cover a very large
area of more than 2,000 km² (268 graticular blocks).
Only six wells have been drilled in the permits to date. The
two wells, Phoenix- and Phoenix-2, drilled on the large
Phoenix structure in WA-435-P both intersected extensive
gas columns within lower-porosity, mid-Triassic reservoirs.
Figure 5. Basin location within Blocks L52/50 and L53/50.
Three oil and gas exploration wells have been drilled in Block
L52/50 in addition to two very shallow coalbed methane
wells. One well has been drilled in Block L53/50. One of
the wells drilled in Block L52/50 (PK-) is reported to have
encountered gas.
L52 covers an area of 3,085 km2 and L53 an area of 3,872 km2.
Figure 6. North West Shelf permit map.
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Carnarvon Petroleum Limited
7
OPERATING AND FINANCIAL REvIEW
Figure 7. North West Shelf leads and prospects.
In particular, Phoenix- recorded 0 metres of net gas-
bearing section. However, further work is required to
determine whether the gas discovery at Phoenix could flow
at commercial rates. A larger, untested structure in WA-435-
P lies directly on trend with the Phoenix structure, 5 to5
km to the southwest. Further to the southeast in WA-437-P
lies yet another large, untested structure. Regional geology
suggests that reservoir quality improves southward toward
these prospects, but this model will need to be confirmed by
drilling. These Triassic structures have significant potential,
of the order of several Tcf’s of recoverable gas, if exploration
and appraisal drilling are successful.
Other viable plays are recognised in these blocks, including
possible oil exploration potential at the shallower Cretaceous-
aged levels. Carnarvon and Finder intend to carry out a
number of studies to evaluate this potential.
The Government-approved work programme for these
permits, for the initial firm three-year term, comprises seismic
reprocessing, the recording of an aeromagnetic survey, and
technical studies, which will include a complete analysis of
the gas intersections in the Phoenix- and Phoenix-2 wells.
5,847 km2 of new aeromagnetic data has been acquired
and over 400 km of regional 2D and ,00 km3 of detailed
3D is in the acquisition stage.
WA-443-P Australia Offshore Northwest Shelf
(Carnarvon Petroleum 100% Operator)
In April 200 Carnarvon was successful in its bid for 00%
of a new permit gazetted by the Australian government,
WA-443-P, offshore Western Australia. This new exploration
permit is situated adjacent to Carnarvon’s four existing
permits WA-435-P, WA-436-P, WA-437-P and WA-438-P, in
which it holds a 50% interest, within the Bedout Sub-Basin.
The block covers an area of approximate 7,300 km2.
No previous drilling has taken place in the WA-443-P block.
The structural form and size of the prospect are comparable
to the Phoenix group of potentially large gas accumulations.
Carnarvon has secured this new permit with a firm programme
over three years to reprocess and interpret ,400 km of 2D
seismic. Geological and geophysical studies will also be carried
out in conjunction with similar work in the Phoenix permits.
8
200 Annual Report
Back to Contents
OPERATING AND FINANCIAL REvIEW
Figure 8. North West Shelf permit map.
WA-399-P – Australia Offshore Northwest Shelf
(Carnarvon Petroleum 13%, Apache Energy 60% and
Operator,Jacka Resources 15% and Rialto Energy 12%)
WA-399-P was awarded on 7 may 2007. The exploration
permit covers an area of 50km² and is situated offshore
Western Australia within the Exmouth Sub-basin. The block
is adjacent to the Pyrenees Oil development, a Joint venture
between BHP Billiton and Apache, which commenced
oil production in march 200. Nearby, there are several
producing oil fields including Enfield and vincent/van Gogh,
as well as macedon gas field and a number of other oil field
discoveries as set out below.
During the June 200 quarter, Carnarvon announced the
farm out of a proportion of its interest in the permit to Apache
Energy Limited (“Apache”) and Jacka Resources Limited
(“Jacka”).
The farmout to Apache involves Apache undertaking, at
its sole cost, a 3D seismic survey, which will fulfil the Years
2 and 3 work program obligations for the permit and in
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Carnarvon Petroleum Limited
9
OPERATING AND FINANCIAL REvIEW
consideration for which Apache will acquire a 60% working
interest in the permit and Operatorship.
processing of the new 3D seismic data will enable the Joint
venture to further de-risk a number of existing prospects that
have already been mapped within the permit.
Following the farm out to Apache, Rialto and Jacka will
complete their previously announced farm out. Carnarvon
and Jacka have also exchanged a 7% working interest
in consideration for Jacka making a cash payment to
Carnarvon.
Apache plans to acquire the 3D seismic data over the permit
in late 200. The 3D seismic data acquisition will exceed the
existing minimum exploration commitment obligation under
the exploration permit’s terms. The advanced acquisition and
EP 424 / EP 110 - Australia Offshore Northwest Shelf
(Carnarvon Petroleum withdrawal)
In light of Carnarvon’s current exploration portfolio and
commitment levels, it elected to withdraw from exploration
permits EP 424 and EP 0. Whilst they provided attractive
exploration prospects, the magnitude of any expected reward
is no longer considered material to Carnarvon’s operations.
Indonesia
Rangkas PSC Onshore Java
(Carnarvon Petroleum 25%, Lundin Petroleum 51% and
Operator, Tap Oil 24%)
In September 2009, Carnarvon successfully entered into the
Rangkas PSC onshore Indonesia. The proximity to Jakarta
ensures that even minor oil and gas accumulations can be
commercialized.
The exploration block covers an area of almost 4,000 km2
and, while containing direct evidence of live oil from seeps
in the block, has limited recent exploration, with the most
recent well drilled around 20 years ago.
The acquisition of around 500 km of new 2D seismic data
is scheduled for late 200, which will better delineate the 2
significant leads identified from the reprocessing of 000 km
of existing 2D data.
Following on from processing and interpretation of the new
data, drilling is anticipated in 20 to 202.
Figure 9. West Java permit map.
0
200 Annual Report
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OPERATING AND FINANCIAL REvIEW
New Zealand
PEP38524 Offshore Taranaki
(Carnarvon Petroleum 10%, AWE 60%
and Operator, ROC Oil 20%, Kea Oil
and Gas 10%)
Post financial year end, Carnarvon
successfully farmed into exploration
block PEP 38254 offshore New Zealand
in the southern Taranaki basin.
Subsequently the Tuatara- well was
drilled, targeting a significant structure.
While the well recorded strong gas and
oil shows over an extensive interval,
no zones of economic potential were
identified.
Figure 10. New Zealand permit map.
Back to Contents
Carnarvon Petroleum Limited
OPERATING AND FINANCIAL REvIEW
RESERVE ASSESMENT
Petroleum Resource Classification,
Categorisation and Definitions
Carnarvon calculates reserves and resources according
the SPE/WPC/AAPG/SPEE Petroleum Resource
to
management System (“SPE-PRmS”) definition of petroleum
resources. This definition was first published in 997 by the
SPE, and in an effort to standardise reserves reporting, has
been further clarified by the SPE-PRmS in 2007. Carnarvon
reports reserves in line with ASX listing rules.
1
Society of Petroleum Engineers (“SPE”); World Petroleum
Council (“WPC”); American Association of Petroleum Geologist
(“AAPG”) & Society of Petroleum Evaluation Engineers (“SPEE”)
Proved and Probable (2P) Reserves Thailand
Carnarvon’s reserves base has been certified by an
independent reserves auditor. Over the last few years
Gaffney, Cline and Associates (“GCA”) has performed
this service in line with end of calendar year requirements
for the Department of mineral Fuels (“DmF”) in Thailand.
GCA certified 24.5 million barrels of 2P oil reserves net to
Carnarvon as at 3 December 2009.
This report is based on information which has been compiled
by the Company’s Chief Operating Officer, mr Philip Huizenga,
who is a full-time employee of the Company. mr Huizenga is
qualified in accordance with ASX Listing Rule 5. and has
consented to the form and context in which this statement
appears.
Figure 11.
GCA 31 Dec 2009
Table 1.
31-Dec-09
NSE - Central
NSE-F
Bo Rang "B"
Bo Rang "A"
NSE-South
Wichian Buri
minor volcanics
minor Sandstone
Total
Table 2.
Net Carnarvon Reserves
Proved
1P
(million bbls)
6.4
Proved + Probable
2P
(million bbls)
Proved + Probable + Possible
3P
(million bbls)
24.5
57.0
Net Carnarvon Reserves
Proved + Probable
2P
(million bbls)
7.2
4.8
4.0
3.4
.5
.4
.5
0.6
24.5
Reservoir Type
volcanic
volcanic
volcanic
volcanic
volcanic
Sandstone
volcanic
volcanic
2
200 Annual Report
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OPERATING AND FINANCIAL REvIEW
A breakdown of the major reservoirs net to Carnarvon is
given in Table 2.
These reservoirs are schematically reproduced in Figure .
As discussed above, these reserves were certified by an
independent auditor in GCA as at 3 December 2009. Since
that time, several wells have been drilled into the NSE-F areas
resulting in a reduced gross rock volume and hence likely
negative impact on 2P and 3P reserves for that reservoir.
Similarly recent production performance of the NSE-Central
field has been below forecast for 2P reserves, which may result
in a negative revision to the 2P estimate as given in Table 2.
Contingent Resources Thailand
In addition to its certified reserves, Carnarvon has a number
of discovered oil and gas resources which currently do not
classify as reserves. The most significant of these is the
L33- and L33-2 discoveries in the L33/43 concession
and the WBExt- and WBExt-A discoveries in the L44/43
concession. These wells were drilled after the completion of
the reporting period and as at the date of writing this report
detailed assessment of the respective contingent resources
has yet to be calculated. Due to this fact, Carnarvon will not
list current contingent resources.
It is anticipated that the L33-, L33-2, WBExt- and WBExt-
A discoveries will be evaluated as reserves or resources
by year end 200 and these reserve additions will offset the
expected 2P negative revisions at NSE-Central and NSE-F.
Prospective Resources
Under the SPE-PRmS definitions prospective resources can
also be classified as exploration resources.
Carnarvon has an increasing number of exploration licences.
These exploration licences are evaluated using techniques
like gravity and magnetic surveys, geochemical surveys,
seismic surveys and basin analysis. This analysis results
in a long list of leads and drillable prospects. Only drillable
prospects which have been included on drilling schedules
are categorised as prospective resources by Carnarvon.
Leads are identified as potential hydrocarbon accumulations
L44 Shallow volcanics
L44 mid volcanics
L44 Deep volcanics
L20/50
Carnarvon 30 Jun 2010
Table 3.
Back to Contents
Figure 12. Map showing location of contingent resources.
that will require additional study before they are matured to
prospects and appear in drilling plans. It is important to realise
that prospects and leads carry exploration risks, which result
in a chance of not finding commercial hydrocarbons. These
risks are identified by Carnarvon and help management in
ranking exploration priorities.
At the time of writing this report Carnarvon has a seriatim of
leads in a number of exploration blocks, most notably in the
L20/50, L33/43 and L44/43 concessions in Thailand. Those
leads which have been upgraded to prospects and tentatively
placed within a drilling program, and for which prospective
(unrisked) volumes have been calculated, have been used
to generate the table below. While Carnarvon continues
to carry other leads with significant potential recoverable
hydrocarbon volumes within the other exploration blocks
in Thailand, Australia, Indonesia and New Zealand, none of
those have immediate drilling programs. Carnarvon continues
the process of undertaking additional work to progress those
leads to drillable prospects.
Net Carnarvon Prospective Resources
Best Estimate Recoverable
(million bbls)
4
3
3
40
79
Carnarvon Petroleum Limited
3
OPERATING AND FINANCIAL REvIEW
GROWTH AND NEW VENTURES
SUSTAINABILITY
Carnarvon has continued to achieve significant growth
from its successful exploration and development efforts in
the L44/43, L33/43 and SWA concessions. These areas
continue to be a primary focus for the Company and they
are now delivering significant sustained oil production and
revenues. Cash flow from these producing fields facilitates
Carnarvon’s pursuit of other new venture opportunities to
grow the Company.
Through the year Carnarvon has added two new country
entries via the Rangkas PSC onshore Indonesia and the PEP
38524 permit offshore New Zealand.
Carnarvon also completed
the previously announced
application of exploration concessions L52/50 and L53/50
in southern Thailand.
Finally, Carnarvon consolidated its position in the North West
Shelf with the addition of the 00% held exploration permit
WA-443-P.
Carnarvon continues to explore avenues of growth via
organic growth, new venture asset acquisitions and corporate
transactions.
Carnarvon is very aware of the effects of the oil and gas
industry on the environment and its communities. Carnarvon
takes all reasonable to steps mitigate any potential risk, as
well as providing several benefits to the local communities
that it operates in.
Carnarvon has recently developed an Integrated Safety
management System (ImS) that is designed to protect the
environment, its communities and all staff and contractors
that are directly or indirectly employed by Carnarvon. This
safety management system has the full support and backing
from all levels of management. All relevant projects are run
and operated by Carnarvon adhere to this safety system.
During the current financial year Carnarvon reported zero
LTI’s (Lost Time Incidents). Activities included the additional
activity of shooting a 500km seismic survey onshore Thailand,
with an additional staff of 387.
Environment
Carnarvon has recently completed an Environmental Impact
Assessment for an onshore drilling campaign in Thailand, this
assessment covered all aspects of the environment, waste
management through to local community involvement and
opinion. On completion of the seismic survey a mitigation
and monitoring report was submitted to the Thai authorities
reportting zero incidents.
4
200 Annual Report
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OPERATING AND FINANCIAL REvIEW
Community
Carnarvon endeavors to ensure that everywhere we operate
we are able to benefit the local community. Some examples
of this are our insistence on hiring local labour and awarding
contracts to local companies, where practical, to aid the
local economy. We have recently set up several different
schemes at local schools in Thailand. One such scheme
“grow your own lunch” saw Carnarvon providing schools
with the materials and skills to be able to grow their own
produce of mushrooms, fish and bananas. This project gave
the students the benefit of understanding the growing cycle
from planting to harvesting and then being able to sell any
remaining produce encouraging self sufficiency.
During any operational procedure we present the project to
members of the local community and actively encourage
questions and comments and ensure them that during the
project we will action any of their concerns. Carnarvon is
also a sponsor of the Curtin University Petroleum Engineering
department.
Health and Wellbeing
We value our staff as one of our greatest assets and have
recently put into place an annual medical assessment. The
nature of Carnarvon’s operations often requires staff to travel
overseas and all staff are required to have a pre-travel medical
for the specific region.
Safety
All staff have recently undergone a CPR (DRABCD) course
covered by the Australian Surf Lifesaving Academy. Further
to this Carnarvon has had zero lost time incidents reported in
the current financial year.
Economic
Carnarvon increased its 2P reserves over the year to 3
December 2009 by 48% to 24.5 million barrels. Ongoing
production of the L44/43 Concession in Thailand ensures the
Company has a sustainable economic outlook.
Carnarvon endeavors to ensure that
everywhere we operate we are able to
benefit the local community
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Carnarvon Petroleum Limited
5
OPERATING AND FINANCIAL REvIEW
FINANCIAL REVIEW
Three consecutive profitable years
The Group has been profitable for three consecutive financial years. Profit after tax for the year ended 30 June 200 was
$4,423,000. As development continues in the L44/43 Concession in Thailand, the Group is expected to remain profitable in
the foreseeable future, with retained profits being made available for the exploration of new assets.
Production (bbls)
Sales ($’000)
Cost of sales
2010
2009
Change
868,450
,353,42
65,230
2,473
00,758
27,847
36%
35%
23%
A decline in production is the main driver of the decrease in sales in the 30 June 200 financial year. A portion of cost of sales
is fixed and as a result, cost of sales did not decrease in line with sales.
No debt
Strong operating cash flows have meant exploration and development activities have continued while the Group remains in a
strong cash position with no debt.
Significant expenditure on development and exploration
The increase in the value of Carnarvon’s oil & gas assets to $70,76,000 is a direct result of the development of the L44/43
Concession in Thailand. Development has continued on the L44/43 Concession and will commence on the L33/43 Concession
in the 30 June 20 financial year in order to access oil reserves in each Concession.
With the increase in development costs carried forward, there has been an increase in deferred tax liabilities recognised. These
liabilities are due to temporary differences between income tax deductions and amortization with respect to the Company’s oil
and gas assets in Thailand. The deferred tax component of the income tax expense does not incur any cash obligation to the
Thai tax authorities.
New venture costs of $,24,000 and exploration & evaluation expenditure of $5,56,000 demonstrates Carnarvon’s continued
efforts to add producing assets to its portfolio. Further detail on Carnarvon’s new ventures and exploration can be found in the
operating review on page 3.
6
200 Annual Report
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DIRECTORS’ REPORT
The directors present their report together with the financial report of the Group, being the Company, its controlled entities, and
the Group’s interest in jointly controlled assets, for the financial year ended 30 June 2010, and the auditor’s report thereon.
Carnarvon Petroleum Limited is a listed public company incorporated and domiciled in Australia
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)
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: CTI Logistics Limited
(from August 1999); Centrepoint Alliance Limited (from May 2002 to June 2009). He is also a director of the Western Australian
Institute for Medical Research.
Mr Leonhardt is a member of the Audit Committee and the Remuneration Committee.
Edward (Ted) P Jacobson
Chief Executive Officer
B.Sc (Hons Geology)
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. In 1986, Ted established the consulting
company Exploration Study Projects Pty Ltd which advised companies on new venture opportunities in Australia and South
East Asia and assisted in capital raisings and corporate activity. In 1991 Ted was co-founder of Discovery Petroleum NL and
from 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 retired from Tap in September 2005.
During the past three years Mr Jacobson has served as director of the following listed companies: Rialto Energy Limited (from
July 2006 to November 2009). Mr Jacobson was also a director of Smart Rich Energy Finance (Holdings) Ltd (from January
2007 to November 2007), listed on the Hong Kong Stock Exchange.
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Carnarvon Petroleum Limited
17
DIRECTORS’ REPORT
Directors (continued)
Neil C Fearis
Non-Executive Director
LL.B (Hons), MAICD, F Fin
Appointed as a director on 30 November 1999.
Mr Fearis has over 32 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 to December 2009); Perseus Mining Limited (from 2004); Liberty Resources Limited (from June 2007 to November
2008); Magma Metals Limited (from October 2009). Mr Fearis is also a member of several professional bodies associated with
commerce and law.
Mr Fearis is Chairman of the Audit Committee and Chairman of the Remuneration Committee.
Kenneth P Judge
Non-Executive Director
B.Com, B. Juris, LL.B
Appointed as a director on 1 April 2005 (Retired 15 July 2010)
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 also Chairman of Hidefield Gold Plc (from
October 2003) and a director of Gulfsands Petroleum Plc (from October 2006), both of which are listed on AIM.
He is also a director and Chairman of Alto Ventures Ltd (from April 2004) which is listed on the TSX Venture Exchange.
Mr Judge was a member of the Audit Committee and the Remuneration Committee.
Mr Judge retired from the Board of Directors, Audit Committee and Remuneration Committee on 15 July 2010.
William (Bill) A Foster
Non Executive Director
BE (Chemical)
Appointed as a director on 17 August 2010.
Bill is an engineer with extensive technical, commercial and managerial experience in the energy industry over a 40 year period.
He has been an advisor to a major Japanese trading company for the last 20 years in the development of their global E&P and
LNG activities and has spent time prior to this working internationally in the development of a number of energy companies.
Bill was a former independent director of Tap Oil Ltd and of the E&P companies that were formed through his advisory services
to the Japanese trading company.
Mr Foster is a member of the Audit Committee and the Remuneration Committee.
18
2010 Annual Report
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DIRECTORS’ REPORT
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 held and attended by each of the directors during the reporting period was as follows:
Peter Leonhardt
Ted Jacobson
Neil Fearis
Ken Judge
(a)
(b)
7
7
7
7
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 3 members from 1 July 2009. Current members of the committee are Neil Fearis (Chairman
of the Audit Committee), Peter Leonhardt, and Bill Foster. Mr Judge retired as a member on 15 July 2010 and Mr Foster
was appointed on 17 August 2010.Qualifications of Audit Committee members are provided in the Directors section of this
directors’ report.
Audit Committee meetings
The number of Audit Committee meetings held and attended by the members during the reporting period was as follows:
Peter Leonhardt
Neil Fearis
Ken Judge
(a)
2
2
2
(b)
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
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Carnarvon Petroleum Limited
19
DIRECTORS’ REPORT
Remuneration Report (Audited)
Remuneration Committee
The Remuneration Committee currently comprises Neil Fearis (Chairman), Peter Leonhardt, and Bill Foster. Mr Judge retired
as a member on 15 July 2010 and Mr Foster was appointed on 17 August 2010.
Qualifications of Remuneration Committee members are provided in the Directors section of this directors’ report.
Remuneration Committee meetings
The number of Remuneration Committee meetings and the number attended by each of the members during the reporting
period were as follows:
Neil Fearis (Chairman)
Peter Leonhardt
Ken Judge
(a)
2
2
2
(b)
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
The Remuneration Committee is responsible for the compensation arrangements for directors and executives of the Company.
The Remuneration Committee considers compensation packages and policies applicable to the executive directors, senior
executives and non-executive directors fees. In certain circumstances these include incentive arrangements including employee
share plans, incentive performance packages, and retirement and termination entitlements.
Principles of compensation
Total non-executive directors’ fees are approved by shareholders and the Remuneration Committee is responsible for the
allocation of those fees amongst the individual members of the Board.
The Remuneration Committee assesses the appropriateness of the nature and amount of compensation on an annual basis
by reference to industry and market conditions, and with regard to individual performance and the Company’s financial and
operational results. Such assessments are also made after referring to the recommendations of specialist consultancy
firms, industry groups, government and shareholder bodies. The Board obtains, when required, independent advice on the
appropriateness of remuneration packages, given trends in comparative companies both locally and internationally.
The Remuneration Committee ultimately determines its compensation practices in terms of their effectiveness to attract, retain
and incentivize appropriately qualified and experienced directors and senior executives.
Remuneration arrangements are made having regard to the number and composition of staff in the business and the stage
of development of the Company. Remuneration arrangements include a mix of fixed and performance based remuneration.
Performance based remuneration comprises short term and long term incentive schemes. Short term incentive arrangements
are designed to incentivise superior individual achievement over a period of around twelve months and typically comprise cash
payments. Long term incentive arrangements are share-based and designed to be simple, clear and strongly aligned between
shareholder and executive interests over the medium to longer term.
Remuneration 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 Group’s performance (including earnings and share price), and the amount of any incentives within each
executive’s remuneration.
20
2010 Annual Report
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DIRECTORS’ REPORT
Remuneration Report (Audited) (continued)
Principles of compensation (continued)
On 1 August 2008 the Board adopted a policy that prohibits those that are issued share-based payments as part of their
remuneration from entering into other arrangements that limit their exposure to losses that would result from share price
decreases. The Company requires all executives and directors to sign annual statements of compliance with this policy
throughout the preceding year.
In considering the Group’s performance and impact on shareholder wealth, the Board has had regard to the following in
respect of the current financial year and the previous four years. No dividends have been paid or declared during this period.
30 June 2006
30 June 2007
30 June 2008
30 June 2009
30 June 2010
Share price as at 30 June
each year
Year on year change in the
share price
$0.052
174%
$0.24
362%
$0.53
121%
$0.815
$0.345
54%
(58%)
Consolidated net profit
/ (loss) from continuing
operations ($000)
Cumulative net profit / (loss)
from continuing operations
($000)
($1,246)
($1,542)
$15,651
$28,736
$14,423
($1,246)
($2,788)
$12,863
$41,599
$56,022
Non-executive directors
Total remuneration for all non-executive directors, last voted upon by shareholders at a General Meeting in November 2008,
is not to exceed $300,000 per annum.
With effect from 1 January 2010 a non-executive director’s base fee is $62,000 per annum and the Chairman receives
$105,000 per annum. These fees were reviewed on 18 June 2010 and were increased with effect from 1 January 2010 by
a nominal $1,500 per annum per director, broadly in line with inflation in the 2009 calendar year. 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 incentives or retirement benefits for non-executive
directors.
Fixed compensation
Fixed compensation consists of base compensation as well as employer contributions to superannuation funds.
Short term incentive scheme
Short term incentives are assessed by the Remuneration Committee at 31 December each year based on the individual
performances of each employee. The Remuneration Committee has regard to the business’s plans and targets set at
the commencement of each calendar year and each individual’s performance relative to those plans and targets. Short
term incentive payments are granted at the discretion of the Remuneration Committee and are not contractual obligations.
Accordingly, the Remuneration Committee is not obliged to make incentive payments regardless of changed circumstances.
Non-executive directors are not entitled to participate in the short term incentive scheme.
All short term incentives awarded during the period are included in remuneration, as set out on page 14, and fully vested to
each of the directors, named Company executives, and key management personnel during the period.
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Carnarvon Petroleum Limited
21
DIRECTORS’ REPORT
Remuneration Report (Audited) (continued)
Long term incentive scheme - Employee Share Plan
The Carnarvon Employee Share Plan (“ESP”) was implemented following shareholder approval at the 1997 Annual General
Meeting (“AGM”) and was last ratified by shareholders at the AGM on 27 November 2009.
The purpose of the ESP is to attract, retain and motivate those who have been invited by the Board to participate in the ESP
and align their interests with all other shareholders by encouraging performance that increases shareholder wealth through
long term growth.
The principal provisions of the Plan include:
•
•
•
•
•
•
•
the Plan is available to all directors, employees or consultants of the Company or any of its subsidiaries ("Eligible
Person");
the Company may at any time, in its absolute discretion, make an offer to an Eligible Person;
the number of Plan Shares issued to any Eligible Person and the issue price is to be determined by the directors of the
Company;
the issue price is to be no less than the weighted average market price of the Company's shares on the 5 trading days
prior to the proposed date of issue;
the offer may be accepted by an Eligible Person or an associate of that Eligible Person, within the given acceptance
period;
the person accepting the offer ("Participant") will be taken to have agreed to borrow from the Company on the terms of
the loan agreement referred to below an amount to fund the purchase of the Plan Shares;
the Plan Shares will rank pari passu with all issued fully paid ordinary shares in respect of voting rights, dividends and
entitlement to participate in any bonus or rights issues;
•
• Eligible Persons may not dispose of a third of their Plan Shares before the second year following their issue and may not
dispose of a third of their Plan Shares before the third year following their issue. These restrictions do not apply in the event
of redundancy or change of control.
until the loan to the Participant is fully repaid, the Company has control over the disposal of the Plan Shares. Once the
loan is repaid in full, the Participant may deal with the Plan Shares as he wishes;
the aggregate number of Plan Shares and other shares and options issued in the previous 5 years under any other
employee incentive scheme of the Company must not exceed 5% of the issued capital of the Company; and
applications will be made as soon as practicable after the allotment of the Plan Shares for listing for quotation on ASX.
•
•
The principal provisions of the loan agreement include:
•
•
the amount lent will be an advance equal to the issue price of the Plan Shares multiplied by the number of Plan Shares
issued;
the loan can be repaid at any time but the Participant must pay any amount outstanding to the Company within 30 days
of termination of the Eligible Person’s employment. All dividends declared and paid on the Plan Shares will be applied
towards the repayment of the advance and there is no interest on the advance;
the maximum liability in respect of the loan will be the value of the Plan Shares from time to time; and
•
• a holding lock will be placed on the Plan Shares until the loan is fully repaid.
•
loans made under the ESP involve no cash outlay by the Company.
A complete copy of the rules of the ESP (which incorporates the terms of the loan agreement) is available for inspection by
shareholders (free of charge) at the Company’s Registered Office or, upon request, from the Company Secretary.
Plan Shares are approved by the Remuneration Committee based upon the assessed performance of each person against his
job specifications and the recommendations of the Chief Executive Officer, and in the case of directors, with the approval of
shareholders. In the last 4 years the Company has issued 11.47 million Plan Shares to employees, being 1.67% of the issued
capital of the Company (compared to the Share Plan limit of 5%). In 2007 the Company also issued 12.0 million Plan Shares
(being 1.75% of the issued capital of the Company) to directors of the Company. As noted in the Company’s 2007 Annual
22
2010 Annual Report
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DIRECTORS’ REPORT
Report, the issue to the directors in 2007 was in recognition of the active day-to-day role of the Chairman over above the
normal role of a non-executive Chairman and in recognition of the Chief Executive Officer’s level of cash remuneration, which
was significantly below market levels. There have been no ESP shares issued to directors during the last three years.
The Remuneration Committee, having regard to recent changes in the taxation of certain long term incentive schemes and
current trends in structuring long term incentive plans, is of the view that the Company’s ESP is effectively structured to meet
its objectives in attracting, retaining and motivating appropriately qualified and experienced directors and senior executives.
During the current financial year the following Plan Shares were issued to Executive Officers of the Company:
Executive Officers
AC Cook
PP Huizenga
Number of shares
issued
1,425,000
200,000
Issue date
09/11/2009
23/12/2009
Issue price
per share
$0.526
$0.522
Loan
$750,000
$104,400
These share issues were made having regard to market advice on the relevant base packages of the recipients. The loan to
Mr Cook was made upon his commencement with the Company in November 2009 and the associated shares are subject to
the Share Plan restrictions outlined above. The issue price for each issue 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. The shares remain subject to the disposal restrictions contained
in the Plan Rules summarized above.
Directors’ and executive officers’ remuneration (Company and consolidated)
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 and Group executives receiving the highest remuneration are set out on the following page.
In order to determine the cost of Plan Shares issued in a period, the Company uses the Black-Scholes Option Pricing Model,
calculated at the date of issue of the Plan Shares, assuming a 3 year life and nil cash consideration. Plan shares are treated as
having vested immediately and the cost calculated under the Black-Scholes Option Pricing Model is recognised as an expense
entirely in the current period, notwithstanding restrictions on their disposal and the period over which the benefits arise. The
following factors and assumptions were used in determining the fair value of Plan Shares at grant date in the current reporting
period:
2010
Grant date
Assumed
expiry date
Fair value per
option
Exercise
price
Price of
shares at
grant date
Expected
volatility
Risk free
interest rate
Dividend
yield
09/11/2009
08/11/2012
23/12/2009
22/12/2012
$0.24
$0.24
$0.526
$0.522
$0.526
$0.522
62.5%
62.5%
3.25%
3.25%
0%
0%
Service contracts
The contract duration, period of notice and termination conditions for key management personnel are as follows:
(i)
(ii)
(iii)
Ted Jacobson, Chief Executive Officer, is engaged through a rolling 12 month Employment Agreement. Termination by
the Company is with 3 months’ notice (or payment in lieu thereof) and payment of 9 months’ remuneration. Termination
by Mr Jacobson is with 3 months’ notice.
Philip Huizenga, General Manager (Operations), is engaged as an employee. Termination by the Company is with 3
months’ notice (or payment in lieu thereof) and payment of 6 months’ remuneration. Termination by Mr Huizenga is with
3 months’ notice.
Adrian Cook, General Manager (Corporate), is engaged as an employee. Termination by the Company is with 3 months’
notice (or payment in lieu thereof) and payment of 6 months’ remuneration. Termination by Mr Cook is with 3 months’
notice.
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Carnarvon Petroleum Limited
23
DIRECTORS’ REPORT
Remuneration Report (Audited) (continued)
Equity instruments
(i) Shares
There were no shares in the Company issued 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.
(ii) Options
There were no options over shares or ESP shares in the Company issued as compensation to key management personnel
during the reporting period. No options have been issued since the end of the financial year.
There were no shares issued in 2010 on the exercise of options. The following shares were issued in 2009 on the exercise of
options issued as compensation in prior periods. These options were issued to Directors in 2006 at a time the Company had
no full-time employees, very limited cash resources, and recognised the unusual contribution of the Directors.
2009
Directors
EP Jacobson
PJ Leonhardt
NC Fearis
KP Judge
Number of shares
Amount paid per share
4,000,000
3,000,000
2,000,000
1,000,000
$0.10
$0.10
$0.10
$0.10
There are no amounts unpaid on shares issued as a result of the exercise of options. During the reporting period there was no
forfeiture, lapsing or vesting of options issued in previous periods.
At the end of the reporting period, other than Plan Shares (treated in principle as options), there were no unvested options on
issue.
24
2010 Annual Report
Back to Contents
DIRECTORS’ REPORT
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Back to Contents
Carnarvon Petroleum Limited
25
DIRECTORS’ REPORT
Non-audit services
The auditors have not performed any non-audit services over and above their statutory duties during the current reporting period.
Details of the amounts paid or payable to the auditor of the Group for audit services provided during the year are set out below:
Audit Services
Consolidated 2010 ($)
Auditors of the Company:
Audit and review of financial reports
122,000
Directors’ interests
At the date of this report, the relevant interests of the directors in securities of the Company are as follows:
Name
Ordinary Shares
Options over ordinary Shares
PJ Leonhardt
EP Jacobson
NC Fearis
WA Foster
17,000,000
31,037,335
8,400,000
-
-
-
-
-
Shares issued under the Company’s ESP are included under the heading Ordinary Shares.
Share options
Options issued to directors and executives of the Company
There were no options over shares issued as compensation to directors or named executives during or since the end of the
financial year.
Likely developments
The likely developments for the 2011 financial year are contained in the operating and financial review as set out on pages 3 to
15.The directors are of the opinion that further information as to the likely developments in the operations of the Group would
prejudice the interests of the Company and the Group and it has accordingly not been included.
Environmental regulation and performance
The Group’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 2010.
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.
Auditor’s independence declaration
The auditor’s Independence Declaration under Section 307C of the Corporations Act is set out on page 28 and forms part of
the directors’ report for the financial year ended 30 June 2010.
Principal activities
During the course of the 2010 financial year the Group’s principal activities continued to be directed towards oil and gas
exploration, development and production.
Identification of independent directors
The independent directors are identified in the Corporate Governance Statement section of this Annual Report as set out on
pages 74 to 76.
26
2010 Annual Report
Back to Contents
DIRECTORS’ REPORT
Significant changes in state of affairs
In the opinion of the directors no significant changes in the state of affairs of the Group occurred during the current financial
year other than as outlined in the operating and financial review as set out on pages 3 to 15.
Indemnification and insurance of directors and officers
During the period 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.
Proceedings on behalf of the Company
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of the
proceedings. The Company was not a party to any such proceedings during the year.
Operating and financial review
An operating and financial review of the Group for the financial year ended 30 June 2010 is set out on pages 3 to 15 and forms
part of this report.
Indemnity of directors and company secretary
Deeds of Access and Indemnity have been executed by the Company with each of the directors and Company Secretary. The
deeds require the Company to indemnify each director and Company Secretary against any legal proceedings, to the extent
permitted by law, made against, suffered, paid or incurred by the directors or Company Secretary pursuant to, or arising from
or in any way connected with the director or Company Secretary being an officer of the Company.
Events subsequent to reporting date
On July 5 2010 Carnarvon (NZ) Pty Limited, a wholly owned subsidiary of Carnarvon Petroleum Ltd, farmed into PEP38524,
offshore Taranaki Basin in New Zealand. Carnarvon contributed towards the cost of the Tuatara-1 exploration well to earn a
10% participating equity interest from AWE New Zealand Pty Ltd.
On 14 July 2010 the Company farmed out a proportion of its interest in the WA-399-P exploration permit to Apache Energy
Limited and Jacka Resources Limited. In consideration Apache will undertake at its sole cost, a 3D seismic survey, which will
fulfil the Year 2 and 3 work program obligations. In consideration for the farmout to Jacka, Jacka paid Carnarvon $350,000.
Following completion of the respective farm in obligations, the Company will have a 13% interest in the permit.
No other matters or circumstance has arisen since 30 June 2010 that in the opinion of the directors has significantly affected,
or may significantly affect in future financial years:
(i)
(ii)
(iii)
The Group’s operations; or
The results of those operations; or
The Group’s state of affairs
Rounding off
The Company is an entity to which ASIC Class Order 98/100 dated 10 July 1998 applies. In accordance with that Class Order
amounts in the financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.
Signed in accordance with a resolution of the directors.
PJ Leonhardt
Director
Perth, 26 August 2010
Back to Contents
Carnarvon Petroleum Limited
27
INDEPENDENCE DECLARATION
28
2010 Annual Report
Back to Contents
CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2010
Notes
4
5
Oil Sales
Other income
Cost of sales
Administrative expenses
Directors’ fees
Employee benefits expense
Travel related costs
Unrealised foreign exchange (loss) / gain
New venture costs
Exploration expenditure written off
14
Share-based payments
Finance costs
Profit before income tax
Taxes
Current income tax expense
Deferred income tax expense
Special remuneratory benefit
Total taxes
Profit for the year
Profit attributable to members of the Company
Basic earnings per share from continuing operations
(cents per share)
Diluted earnings per share from continuing operations
(cents per share)
9
8
8
Consolidated
2010
$000
2009
$000
(Restated)
65,230
100,758
82
896
(21,473)
(27,847)
(1,396)
(227)
(1,497)
(392)
(525)
(1,124)
(384)
(753)
(1)
(1,445)
(212)
(829)
(424)
2,305
(963)
-
(122)
(1)
37,540
72,116
10,616
8,790
19,406
3,711
23,117
14,423
14,423
2.1
2.1
16,357
13,462
29,819
13,561
43,380
28,736
28,736
4.3
4.3
The above consolidated income statements should be read in conjunction with the accompanying notes to the financial statements.
Back to Contents
Carnarvon Petroleum Limited
29
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2010
Profit for the year
Other Comprehensive income
Exchange differences arising in translation of foreign
operations
Exchange differences on change in functional currency
Total Comprehensive income for the year
Total Comprehensive income attributable to
members of the company
Consolidated
2010
$000
2009
$000
(Restated)
14,423
28,736
(1,482)
2,839
-
1,252
12,941
32,827
12,941
32,827
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the financial
statements.
30
2010 Annual Report
Back to Contents
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2010
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Notes
21(b)
10
12
13
2010
$000
30,255
7,780
4,090
440
Consolidated
2009
$000
(Restated)
31,099
11,904
3,865
677
2008
$000
28,281
12,443
1,586
299
Total current assets
42,565
47,545
42,609
Non-current assets
Property, plant and equipment
Exploration and evaluation
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Current tax
Provisions
Total current liabilities
Non-current liabilities
Deferred tax
11
14
15
17
24
18
19
635
6,351
70,176
353
1,219
49,701
172
379
22,078
77,162
51,273
22,629
119,727
98,818
65,238
5,621
91
6,165
2,172
6,901
49
5,656
3,122
3,368
13
9,304
14,848
14,049
15,728
27,533
23,306
14,516
3,215
Total non-current liabilities
23,306
14,516
3,215
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
37,355
30,244
30,748
82,372
68,574
34,490
68,240
(2,990)
17,122
68,090
(2,215)
2,699
66,738
(6,211)
(26,037)
82,372
68,574
34,490
The above consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements.
Back to Contents
Carnarvon Petroleum Limited
31
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2010
Issued
capital
$000
Retained
earnings
$000
(Restated)
Translation
reserve
$000
Share-based
payments
reserve
$000
Total
$000
Balance at 1 July 2008
66,738
(26,037)
(7,437)
1,226
34,490
Shares issued net of transaction
costs
Share based payments
Total comprehensive income
996
356
-
-
-
-
-
28,736
4,091
-
(95)
-
996
261
32,827
Balance at 30 June 2009
68,090
2,699
(3,346)
1,131
68,574
Shares issued net of transaction
costs
Share based payments
Total comprehensive income
104
46
-
-
-
-
-
14,423
(1,482)
-
707
-
104
753
12,941
Balance at 30 June 2010
68,240
17,122
(4,828)
1,838
82,372
The above statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
32
2010 Annual Report
Back to Contents
STATEMENT OF CASH FLOWS
For the year ended 30 June 2010
Notes
Consolidated
2010
$000
2009
$000
Cash flows from operating activities
Receipts from customers and GST recovered
Payments to suppliers and employees
Income tax and special remuneratory benefit paid
Interest received
Net cash flows generated from operating activities
21(a)
Cash flows from investing activities
Exploration and development expenditure
Joint venture cash assigned to subsidiary
Cash held as security
Acquisition of property, plant and equipment
Net cash flows (used in) investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Payment of share issue costs
Proceeds from repayment of Employee Share Plan loans
Net cash flows from financing activities
Net (decrease) in cash and cash equivalents
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
21(b)
71,274
(23,775)
(15,277)
82
32,304
114,083
(34,238)
(48,177)
973
32,596
(34,488)
(35,550)
-
2,153
(533)
-
(429)
(300)
(32,868)
(36,279)
-
(7)
111
104
1,000
(4)
140
1,136
(460)
(2,547)
31,099
(384)
30,255
28,281
5,365
31,099
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statements.
Back to Contents
Carnarvon Petroleum Limited
33
NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
The consolidated financial report of Carnarvon Petroleum Limited (‘Company’) for the financial year ended 30 June 2010
comprises the Company and its controlled entities (the “Group”) and the Group’s interest in jointly controlled assets.
On 28 June 2010, the Government announced the passage of the Corporations Amendment (Corporate Reporting
Reform) Bill 2010. The changes contained within the Bill have come into effect for the financial year ended 30 June
2010. A key change that impacted the financial report of Carnarvon Petroleum Limited is the abolition of the requirement
to prepare parent company financial statements in addition to consolidated financial statements. As a result of this, the
separate financial statements of the parent entity, Carnarvon Petroleum Limited have not been presented within this
group financial report. Certain disclosures required by the Corporations Act 2001 in relation to the parent entity are
detailed in Note 33 to the financial statements.
The financial report was authorised for issue by the directors on 26 August 2010.
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, other authoritative pronouncements of the Australian
Accounting Standards Board (“AASB”), and the Corporations Act 2001.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial
report containing relevant and reliable information about transactions, events and conditions to which they apply.
Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with
International Financial Reporting Standards (“IFRSs”). Material accounting policies adopted in the preparation of this
financial report are presented below. They have been consistently applied unless otherwise stated.
The Group has reviewed all new and revised accounting standards and interpretations issued by the Australian
Accounting Standards Board (“AASB”). It has been concluded that the Presentation of Financial Statements (AASB 101)
and Operating Segments (AASB 8) standards have had a disclosure impact on the financial report. However, there are
no new and revised standards that are relevant to and effective for the current reporting period and accordingly there
have been no changes to the Group’s accounting policies.
Basis of measurement
The financial report is prepared on a historical cost basis, except for available-for-sale financial assets and financial
instruments at fair value through profit and loss 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 and
presentation 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.
34
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
Key estimate – impairment
The Group 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 Group’s interest in exploration and
evaluation or oil and gas assets at the date of this report.
Key estimate – income and capital gains taxes
Judgement is required in determining any provision for income and capital gains taxes. The Group recognizes liabilities
of anticipated tax based on estimates of taxes due. Where the final tax outcome of these matters is different from the
amounts that were initially recognised, such differences will impact the income tax and deferred tax expenses, assets or
provisions in the year in which such determination is made.
Key estimate – special remuneratory benefit and income tax
The Group’s Phetchabun Basin Joint Venture is subject to Thai income tax at 50% and a special remuneratory benefit
(“SRB”) tax on profits, at sliding scale rates (0% - 75% per concession).
The SRB, which is tax deductible in the calculation of Thai income taxes, involves a highly detailed calculation done on
a concession by concession basis. The basis of the calculation is petroleum profits, adjusted for capital spent, being
subjected to a sliding scale SRB rate such that profits are not taxed until all capital has been recovered. The sliding scale
rate is principally driven by production and pricing but is subject to other adjustments such as changes in Thailand’s
consumer price index, wholesale price index, cumulative metres drilled on the concession, and, for certain concessions,
changes in the exchange rate between the Thai Baht and the USD.
The SRB calculation is performed and paid annually for each concession at the calculated annual rate at the end of each
calendar year. Judgement is required in determining provisions which are based on estimates of amounts due. Where
the final outcome of those matters is different from the amounts that were originally recognised, such difference may
impact those provisions in the period in which such a determination is made.
Key estimate – functional currency
The determination of the functional currency of the Company’s controlled entities requires consideration of a number of
factors. These factors include the currencies that primarily influence their sales and costs and the economic environment
in which the entities operate.
Key estimates – other
Other areas of judgement are in the determination of oil reserves, rehabilitation provisions, capitalisation of exploration
and evaluation costs, determination of areas of interest, and the units of production method of depreciation.
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Carnarvon Petroleum Limited
35
NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies
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 Group. Certain comparative
amounts have been reclassified to conform to the current year’s presentation.
(a) Basis of consolidation
Controlled entities
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 controlled entities have been changed where necessary to ensure consistency with those applied
by the Company.
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 controlled entities are
carried at cost in the Company’s financial statements.
Jointly controlled assets
The Group's share of the assets, liabilities, revenue and expenses of joint venture assets are included in the financial
statements under the appropriate headings.
(b) Income tax and special remuneratory benefit
Income tax (current tax & deferred 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.
Special remuneratory benefit
The Group’s Phetchabun Basin Joint Venture is subject to a special remuneratory benefit (“SRB”) tax on profits, at sliding
scale rates (0% - 75% per concession).
36
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
The SRB, which is tax deductible in the calculation of Thai income taxes, involves a detailed calculation done on a
concession by concession basis. The basis of the calculation is petroleum profits, adjusted for capital spent, being
subjected to a sliding scale SRB rate such that profits are not taxed until all capital has been recovered. The sliding scale
rate is principally driven by production and pricing but is subject to other adjustments such as changes in Thailand’s
consumer price index, wholesale price index, cumulative metres drilled on the concession, and, for certain concessions,
changes in the exchange rate between the Thai Baht and the USD. The SRB calculation is performed quarterly for each
concession at the calculated annual rate at the end of each quarter.
The SRB is considered, for accounting purposes, to be a tax on income.
Tax consolidation
Carnarvon Petroleum Limited and its wholly-owned Australian-resident controlled entities formed a tax-consolidated
group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. Carnarvon Petroleum Limited
is the head entity of the tax-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.
(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.
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
Depreciation on property 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 all
classes of depreciable assets are:
Property, plant and equipment: 10% 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.
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Carnarvon Petroleum Limited
37
NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(d) Oil and gas assets
Oil and gas assets include costs transferred from exploration and evaluation 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.
Depreciation of oil and gas assets is calculated on a unit of production basis so as to write off costs, including an element
of future costs, in proportion to the depletion of the estimated recoverable reserves.
(e) Exploration and evaluation
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 Group’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 costs attributable to that area of interest are first tested for impairment and
then reclassified from exploration and evaluation to oil and gas assets.
(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 less than
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.
For the purposes of impairment testing assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.
(g) Trade receivables
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).
38
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(h) Provisions
Provisions are recognised when the Group 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
Any 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.
(i) Investments and other financial instruments
The Group 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). Amortised cost is the amount measured at initial recognition,
less principal repayments, adjusted for the difference, if any, between initial measurement and the maturity amount
calculated using the effective interest method, less any reduction for impairment. The effective interest method is the rate
that discounts future expected cash flows through the expected life of the financial instrument to its net carting amount.
Revisions to expected cash flows will require an adjustment to the carrying value with a consequential recognition of an
income or expense in profit and loss.
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 Group 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) 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.
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Carnarvon Petroleum Limited
39
NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(j) Segment reporting
The Group reports one segment, oil and gas exploration, development and production, to the chief operating decision
maker, being the board of Carnarvon Petroleum Limited, in assessing performance and determining the allocation of
resources. The financial information presented in the statement of cashflows is the same basis as that presented to chief
operating decision maker.
Unless otherwise stated, all amounts reported to the chief operating decision maker are determined in accordance with
accounting policies that are consistent to those adopted in the annual financial statements of the Group.
This is the first reporting period in which AASB 8 Operating Segments has been adopted. Comparative information has
been restated to conform to the requirements of the standard.
(k) Foreign currency
Functional and presentation currency
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 Company’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 Group’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.
40
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(l) Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the
agreement so as to reflect the risks and benefits incidental to ownership.
Operating leases
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.
(n) 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.
(o) Employee benefits
Wages and salaries, annual leave
Provision is made for the Group’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.
Share based payments – Employee Share Plan
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 Payments”, the ESP shares are
deemed to be equity settled, share-based remuneration.
For limited recourse loans issued to eligible persons on or after 1 January 2005, the Group is required to recognise within
the income statement a remuneration expense measured at the fair value of the shares 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.
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
plan. Upon repayment of the ESP loans, the balance of the share-based payments reserve relating to the loan repaid is
transferred to issued capital.
(p) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) 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
issued.
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Carnarvon Petroleum Limited
41
NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(q) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid
investments.
(r) Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable.
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery
of the consideration is probable, and the amount of revenue can be measured reliably. For the sale of oil the transfer of
risks and rewards occurs on delivery of oil to the refinery.
(s) Goods and services tax
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.
(t) Trade and other payables
Trade and other payables are stated at amortised cost. The amounts are unsecured and usually paid within 60 days of
recognition.
(u) 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.
(v) Royalties
Royalties are treated as taxation arrangements when they have the characteristics of a tax. This is considered to be
the case when they are imposed under government authority and the amount payable is calculated by reference to
revenue derived (net of any allowable deductions) after adjustment for items comprising temporary differences. For such
arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation.
Obligations arising from royalty arrangements that do not satisfy these criteria are recognised as current provisions and
included in expenses.
(w) Comparative figures
When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation
for the current financial year.
42
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
3. Significant accounting policies (continued)
(x) New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those which may impact
the entity in the period of initial application. They are available for early adoption at 30 June 2010, but have not been
applied in preparing the financial report.
i. AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets
resulting from the first part of Phase 1 of the project to replace AASB 139 Financial instruments: Recognition
and measurement. AASB 9 will become mandatory for the Group’s 30 June 2014 financial statements. Retrospective
application is generally required, although there are some exceptions, particularly if the entity adopts the standard
for the year ended 30 June 2012 or earlier. The Group has not yet determined the potential affect of the standard.
ii. AASB 124 Related Party Disclosures (revised December 2009) simplifies and clarifies the intended meaning of the
definition of a related party and provides a partial exemption from the disclosure requirements for government-
related entities. The amendments, which will become mandatory for the Group’s 30 June 2012 financial statements,
are not expected to have any impact on the financial statements.
iii. AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements
Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement
purposes. The amendments, which become mandatory for the Group’s 30 June 2011 financial statements, are not
expected to have a significant impact on the financial statements.
iv. AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash – settled Share-based Payment
Transactions resolves diversity in practice regarding the attribution of cash-settled share-based payments between
different entities within a group. As a result of the amendments AI 8 Scope of AASB 2 and AI 11 AASB 2 – Group and
Treasury Share Transactions will be withdrawn from the application date. The amendments, which become
mandatory for the Group’s 30 June 2011 financial statements, are not expected to have a significant impact on the
financial statements.
v. AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issue [AASB 132]
(October 2010) clarify that rights, options or warrants to acquire a fixed number of an entity’s own equity instruments
for a fixed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro-rata to
all existing owners of the same class of its own non-derivative equity instruments. The amendments, which will
become mandatory for the Group’s 30 June 2011 financial statements, are not expected to have any impact on the
financial statements.
vi. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the accounting by an entity when
the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of
the entity to extinguish all or part of the financial liability. IFRIC 19 will become mandatory for the Group’s 30 June
2011 financial statements, with retrospective application required. The Group has not yet determined the potential
effect of the interpretation.
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Carnarvon Petroleum Limited
43
NOTES TO THE FINANCIAL STATEMENTS
4. Other income
Finance income on bank deposits
5. Cost of sales
Production expenses
Royalty and excise
Transportation
Depreciation - development costs and producing assets
Selling, general and administration
6. Other expenses
Consolidated
2010
$000
82
82
(5,438)
(4,118)
(2,283)
(6,928)
(2,706)
(21,473)
2009
$000
896
896
(3,892)
(7,331)
(3,827)
(10,057)
(2,740)
(27,847)
Depreciation – property, plant and equipment
Rental premises – operating leases
(251)
(204)
(162)
(234)
7. Auditors’ remuneration
Audit services:
Auditors of the Company
8. Earnings per share
122
108
The calculation of basic and diluted earnings per share was based on a weighted average number of shares calculated
as follows:
Issued ordinary shares at 1 July
Effect of shares issued
Effect of share options exercised
2010
2009
Number of shares
683,674,634
672,924,634
1,723,233
-
583,699
2,493,151
Weighted average number of ordinary shares 30 June (basic)
685,397,867
676,001,484
Effect of share options on issue
-
-
Weighted average number of ordinary shares 30 June (diluted)
685,397,867
676,001,484
Profit used in calculating basic and diluted earnings per share from
continuing operations
$14,423,000
$28,736,000
44
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
9.
Income tax expense
Numerical reconciliation between pre-tax profit and income tax expense:
Prima facie income tax expense on pre-tax profit at 30% (2009: 30%)
11,262
21,634
2010
$000
2009
$000
(Restated)
Tax effect of:
Special remuneratory benefit
Effect of higher overseas tax rate
Foreign exchange (gains) / losses
Non-deductible expenditure
Prior year losses recognised
Prior year temporary differences recognised
Current year tax benefit not brought to account
Income tax expense on pre tax profit
Current income tax
Deferred tax
(1,856)
6,843
303
581
-
1,166
1,107
19,406
10,616
8,790
19,406
(6,781)
12,988
(3,220)
350
(198)
4,253
793
29,819
16,357
13,462
29,819
Tax Consolidation
Effective 1 July 2003, for the purposes of Australian income taxation, Carnarvon and its 100%-owned controlled entities
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 controlled entities 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.
10. Trade and other receivables
Current
Trade and other receivables
Cash held as security
Consolidated
2010
$000
2009
$000
6,348
1,432
7,780
8,318
3,586
11,904
2008
$000
9,287
3,156
12,443
The Group’s exposure to credit and currency risks is disclosed in Note 32.
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Carnarvon Petroleum Limited
45
NOTES TO THE FINANCIAL STATEMENTS
11. Property, plant and equipment
Plant and equipment
Cost:
Balance at beginning of financial year
Additions
Transfers
Disposals
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
Carrying amount opening
Carrying amount closing
Fixtures and fittings
Cost:
Balance at beginning of financial year
Additions
Transfers
Disposals
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
Carrying amount opening
Carrying amount closing
2010
$000
Consolidated
2009
$000
2008
$000
42
405
-
-
-
447
32
-
-
84
116
10
331
626
96
-
-
(7)
715
334
-
-
147
481
292
234
74
-
(43)
-
11
42
67
-
(43)
8
32
7
10
319
271
43
(58)
51
626
191
(41)
43
141
334
128
292
89
56
-
(63)
(8)
74
56
(3)
-
14
67
33
7
204
121
-
-
(6)
319
133
-
-
58
191
71
128
46
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
11. Property, plant and equipment (continued)
Land and buildings
Cost:
Balance at beginning of financial year
Additions
Effects of movements in foreign exchange
Balance at end of financial year
Depreciation and impairment losses:
Balance at beginning of financial year
Depreciation charge for year
Balance at end of financial year
Carrying amount opening
Carrying amount closing
Total
Cost:
Balance at beginning of financial year
Additions
Disposals
Effects of movements in foreign exchange
Balance at end of financial year
Depreciation and impairment losses:
Balance at beginning of financial year
Disposals
Depreciation charge for year
Balance at end of financial year
Carrying amount opening
Carrying amount closing
2010
$000
65
38
-
103
14
19
33
51
70
733
540
-
(7)
1,266
380
-
251
631
353
635
Consolidated
2009
$000
2008
$000
38
21
6
65
1
13
14
37
51
431
292
(58)
69
733
259
(41)
162
380
172
353
-
38
-
38
-
1
1
-
37
293
215
(63)
(14)
431
189
(3)
73
259
104
172
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Carnarvon Petroleum Limited
47
NOTES TO THE FINANCIAL STATEMENTS
12. Inventories
Current
Raw materials and consumables
13. Other assets
Current
Deposits and prepayments
14. Exploration and evaluation
Cost:
Balance at beginning of financial year
Additions
Exploration expenditure written off
Assignment of joint venture to subsidiary
Balance at end of financial year
15. Oil and gas assets
Cost:
Balance at beginning of financial year
Additions
Effects of movements in foreign exchange
Balance at end of financial year
Depreciation and impairment losses:
Balance at beginning of financial year
Depreciation charge for year
Balance at end of financial year
Carrying amount opening
Carrying amount closing
2010
$000
Consolidated
2009
$000
2008
$000
4,090
3,865
1,586
440
677
299
1,219
5,516
(384)
-
6,351
379
915
-
(75)
1,219
62,914
28,087
(874)
90,127
13,213
6,738
19,951
49,701
70,176
25,340
31,233
6,341
62,914
3,262
9,951
13,213
22,078
49,701
-
379
-
-
379
12,773
14,475
(1,908)
25,340
644
2,618
3,262
12,129
22,078
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NOTES TO THE FINANCIAL STATEMENTS
16. Joint ventures
The Group has the following interests in joint venture assets:
Principal activities
Ownership interest %
Joint venture
Thailand
Phetchabun Basin Concession, Exploration Blocks
L44/43 and L33/43
3/2546/60 and 5/2546/62 Concessions
Exploration, development
and production of
hydrocarbons
Exploration Block L20/50
7/2551/98 Concession
Exploration for
hydrocarbons
Exploration Blocks L52/50 and L53/50 3/2553/105
concession
Exploration for
hydrocarbons
Western Australia
WA-435-P, WA-436-P, WA-437-P,
WA 438-P, Roebuck Basin
WA-443-P, Roebuck Basin
WA-399-P, Carnarvon Basin
Indonesia
Rangkas, West Java Basin
Exploration for
hydrocarbons
Exploration for
hydrocarbons
Exploration for
hydrocarbons
Exploration for
hydrocarbons
2010
40%
50%
50%
50%
100%
2009
40%
50%
-
-
-
50%
50%
25%
-
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Carnarvon Petroleum Limited
49
NOTES TO THE FINANCIAL STATEMENTS
16. Joint ventures (continued)
Summary financial information for joint venture assets, as included in the consolidated statement of financial position and
statement of comprehensive income, is shown below:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Exploration and evaluation
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Income
Expenses
Net profit after tax
2010
$000
2009
$000
Restated
7,497
7,097
4,090
318
19,002
531
6,176
70,176
76,883
95,885
4,926
8,338
13,264
23,306
23,306
36,570
59,315
27,758
9,176
3,865
384
41,183
238
1,189
50,401
51,828
93,011
5,889
6,643
12,532
14,516
14,516
27,048
65,963
65,275
(44,590)
20,685
100,758
(71,000)
29,758
Capital commitments and contingent liabilities for the joint ventures are disclosed in Notes 22 and 23 respectively.
50
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NOTES TO THE FINANCIAL STATEMENTS
17. Trade and other payables
Current
Trade payables
Non-trade payables and
accrued expenses
Owing to related parties
2010
$000
Consolidated
2009
$000
2008
$000
307
5,298
16
5,621
2,686
4,163
52
6,901
2,352
948
68
3,368
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 32.
18. Provisions
Current
Special Remuneratory Benefit - Thailand
2010
$000
Consolidated
2009
$000
(Restated)
2008
$000
2,172
2,172
3,122
3,122
14,848
14,848
There are no restoration provisions required in respect of the Group’s activities under current Thai Legislation.
19. Deferred tax
Recognised deferred tax assets and liabilities
The net deferred tax liability is attributable to the following:
Oil and gas assets
Tax value of losses carry forward
Net tax liability
25,267
(1,960)
23,306
16,784
(2,268)
14,516
5,395
(2,180)
3,215
The movement in the deferred tax liability during the reporting period has all been recognized in the income statement.
Unrecognised deferred tax assets and liabilities
Deferred tax assets have not been recognized in respect of the following items:
Deductible temporary differences
Australian tax loses
-
3,691
3,691
159
2,571
2,730
212
1,631
1,843
The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have
not been recognised in respect of these items because it is not probable that future taxable profit will be available against
which the Group can utilise the benefits.
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Carnarvon Petroleum Limited
51
NOTES TO THE FINANCIAL STATEMENTS
20. Capital and reserves
Issued capital
Balance at beginning of financial year
Employee Share Plan issues
Shares issued on exercise of share options
Balance at end of financial year
Issued capital
Balance at beginning of financial year
Employee Share Plan related movements
Employee Share Plan loans repaid
Shares issued on exercise of share options
Share issue transaction costs
Balance at end of financial year
Company and consolidated
2010
2009
2008
Number of shares
683,674,634
672,924,634
657,537,134
3,085,000
750,000
-
10,000,000
686,759,634
683,674,634
387,500
15,000,000
672,924,634
Company and consolidated
2009
$000
2008
$000
2010
$000
68,090
66,738
65,041
46
111
-
(7)
68,240
216
140
1,000
(4)
68,090
380
90
1,230
(3)
66,738
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.
Translation reserve
Movements in the translation reserve are set out in the Statement of Changes in Equity on page 32.
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.
Share based payments reserve
Movements in the share based payments reserve are set out in the Statements of Changes in Equity on page 32.
This reserve represents the fair value of shares issued under the Company’s ESP. This reserve is reversed against issued
capital when shares are issued on exercise of option issued under the previous employee option plan or the loan is
repaid under the current ESP.
52
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NOTES TO THE FINANCIAL STATEMENTS
21. Reconciliation of cash flows from operating activities
(a) Cash flows from operating activities
After tax profit for the period
Adjustments for:
Equity settled share based payment expense
Deferred tax expense
Depreciation
Loss on disposal of property, plant and equipment
Foreign exchange (gains) / losses
Operating profit before changes in working capital
and provisions:
Changes in assets and liabilities:
Decrease in trade and other receivables
(Increase) in inventories
Decrease / (increase) in other assets
(Decrease) / increase in trade and other payables
(Decrease) in provisions and employee benefits
Net cash flows generated from operating activities
(b) Reconciliation of cash and cash equivalents
Consolidated
2010
$000
2009
$000
(Restated)
14,423
28,736
753
8,790
6,930
-
525
122
11,301
10,114
16
(2,305)
31,421
47,984
2,550
(225)
237
(1,280)
(399)
32,304
2,682
(1,972)
(185)
150
(16,063)
32,596
Cash at bank and at call
30,255
31,099
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in
Note 32.
Restricted cash of $1,432,000 consolidated is included under trade and other receivables (2009: $3,586,000
consolidated), see Notes 10 and 23.
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Carnarvon Petroleum Limited
53
NOTES TO THE FINANCIAL STATEMENTS
22. Capital and other commitments
(a) Joint venture commitments
Share of capital commitments of joint venture
assets:
Within one year
Capital commitments of the Group to joint venture
assets:
Within one year
Consolidated
2010
$000
2009
$000
1,572
1,189
4,864
2,264
(b) Exploration expenditure commitments
Due to the nature of the Group's operations in exploring and evaluating areas of interest it is necessary to incur expenditure
in order to retain the Group’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 Group's equity.
Exploration expenditure commitments forecast but not provided for in the financial statements are as follows:
Less than one year
Between one and five years
(c) Capital expenditure commitments
Data licence commitments
23. Contingencies
Consolidated
2010
$000
5,500
4,500
10,000
2009
$000
4,100
1,700
5,800
231
126
The directors are of the opinion that provisions are not required in respect of these matters as it is not probable that a
future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Contingent liabilities not considered remote
a) Under the terms of an Investment Agreement the Group 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 current percentage is 7.5%.
The Group has expensed US$61,000 in the current period (2009: US$85,000). Cumulative amounts paid at balance
date under the terms of this agreement are US$966,000.
Contingent liabilities considered remote
a) The Phetchabun Basin Joint Venture operation, in which the Group has a 40% interest, has procured the issue of
bank guarantees for an amount of 40 million Thai Baht as security in lieu of bonds.
The L20/50 Joint Venture, in which the Group has a 50% interest, has procured the issue of bank guarantees for an
amount of 20 million Thai Baht as security in lieu of bonds.
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NOTES TO THE FINANCIAL STATEMENTS
23. Contingencies (continued)
The Company has provided a cash bond of US$450,000 to the Department of Mineral Fuels in Thailand in respect
of its obligations for its 50% interest in the L20/50 concession in Thailand. The bond is secured by a cash deposit
of US$450,000 held with Company’s Australian bank. The Company and its joint venture partner, who has provided
a similar guarantee to the Department of Mineral Fuels, have signed a Cross Deed of Indemnity in respect of their
respective rights and interests.
The restricted cash held by the banks as security for these bonds and guarantees totaling $1,432,000 (2009: $3,586,000)
is classified under “trade and other receivables”.
b)
In accordance with normal petroleum industry practice, the Group 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.
24. Employee benefits
Current:
Liability for annual leave
Consolidated
2010
$000
2009
$000
2008
$000
91
49
13
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 the Company to any Eligible Person, to be funded by a
limited recourse interest free 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 use the above-mentioned loan to
acquire plan shares.
The movements in the ESP during the financial year, including those held by Key Management Personnel, were as
follows:
1 July 2009
Issued
Repaid
30 June 2010
Number of shares
Loan
Average loan per share
14,457,500
3,085,000
914,301
16,628,199
$1,901,208
$1,654,770
$110,965
$3,445,013
$0.13
$0.54
$0.12
$0.21
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Carnarvon Petroleum Limited
55
NOTES TO THE FINANCIAL STATEMENTS
24. Employee benefits (continued)
Shares issued under the ESP are accounted for In accordance with the AASB 2.
The fair value of shares issued under the ESP is measured by reference to their fair value using the Black-Scholes model,
as set out below.
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
Actual / assumed option life
Expected dividends
Risk-free interest rate
Share-based expense recognised
Key
management
personnel
2010
Key
management
personnel
2009
Other
employees
2010
Other
employees
2009
23.7 to 24.2
54 to 66
54 to 55
62.5%
3 years
Nil
3.25%
$387,171
24.2 to 27.0
-
54 to 60.7
-
54 to 60.7
-
62.5%
-
3 years
-
-
Nil
- 3.25% to 3.75%
$365,997
-
11.2 to 20.8
26.1 to 48.5
26.1 to 48.5
60%
3 years
Nil
3.5%
$122,208
The current year volatility is intended to reflect the movement of the Company’s share price during the financial year.
Further details of shares and options issued to directors are set out in Note 28, and in the Remuneration Report set out
on pages 9 to 14.
25. Related party disclosures
Ultimate parent
Carnarvon Petroleum Limited is the ultimate parent company.
Wholly-owned group transactions
During the reporting period there have been transactions between the Company and its controlled entities and joint
ventures. 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 2010 net receipts from controlled entities totalled $22,093,000 (2009: net
repayment from controlled entities $6,366,000).
The carrying value of loans to controlled entities at 30 June 2010 was $8,420,000 (2009: $10,273,000) after provisions of
$693,000 (2009: $693,000). These loans are unsecured, non-interest bearing, and have no fixed terms of repayment.
Other related party balances
At 30 June 2010 an amount of $15,906 (2009: $52,070) is included in Company and consolidated trade and other
payables for outstanding director fees and expenses.
56
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NOTES TO THE FINANCIAL STATEMENTS
26. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
Consolidated
2010
$000
2009
$000
245
71
316
231
271
502
During the reporting period $325,000 was recognised as an expense in the consolidated income statement in respect
of operating leases (2009: $371,000).
27. Segment information
The Group reports one segment, oil and gas exploration, development and production, to the chief operating decision
maker, being the board of Carnarvon Petroleum Limited, in assessing performance and determining the allocation of
resources. The financial information presented in the statement of cash flows is the same basis as that presented to chief
operating decision maker.
Basis of accounting for purposes of reporting by operating segments
Unless otherwise stated, all amounts reported to the chief operating decision maker are determined in accordance with
accounting policies that are consistent to those adopted in the annual financial statements of the Group.
This is the first reporting period in which AASB 8 Operating Segments has been adopted. Comparative information has
been restated to conform to the requirements of the standard.
Revenue by geographical region
Revenue, including interest income, is disclosed below based on the location of the external customer:
Thailand
Australia
2010
$000
65,275
37
65,312
2009
$000
101,440
214
101,654
The Group derives 100% of its sales revenue from one customer in the oil and gas exploration, development and
production segment.
Assets by geographical region
The location of segment assets is disclosed below by geographical location of the assets:
Thailand
Australia
Indonesia
2010
$000
94,488
23,792
1,447
119,727
2009
$000
91,985
6,833
-
98,818
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Carnarvon Petroleum Limited
57
NOTES TO THE FINANCIAL STATEMENTS
28. Key management personnel disclosures
(a) Key management personnel compensation
Key management personnel compensation included in employee benefits expense, directors emoluments, share based
payments and administration expenses are as follows:
Short term employee benefits
Post-employment benefits
Share-based payments
Consolidated
2010 ($)
2009 ($)
1,598,385
1,157,213
87,633
387,171
68,997
-
2,073,189
1,226,210
Information regarding individual directors and executives’ compensation and some equity instruments disclosures, as
permitted by Corporations Regulation 2M.3.03, are provided in the Remuneration Report section of the directors’ report
as set out on pages 20 to 25.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
Group since the end of the previous financial year and there were no material contracts involving directors’ interests
existing at year end.
(b) Options and rights over equity instruments
The movement during the reporting period in the number of options over ordinary shares in the Company held, directly,
indirectly or beneficially, by each key management person, including their related parties, is as follows:
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
KP Judge
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
KP Judge
Held at
1 July 2009
Exercised
Held at
30 June 2010
-
-
-
-
-
-
-
-
-
-
-
-
Held at
1 July 2008
3,000,000
4,000,000
2,000,000
1,000,000
Exercised
(3,000,000)
(4,000,000)
(2,000,000)
(1,000,000)
Held at
30 June 2009
-
-
-
-
Options issued as compensation vest immediately. During the financial year there was no forfeiture or vesting of options
issued in previous periods. There were no options on issue that were still to vest at the end of the reporting period.
58
2010 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS
28. Key management personnel disclosures (continued)
(c) Loans to key management personnel and their related parties
Details of loans to key management personnel and their related parties, which are all interest free loans with limited
recourse security over the plan shares provided in accordance with the Company’s Employee Share Plan (“ESP”), are
set out below. The loans to directors were made in 2006 in lieu of normal remuneration at a time the Company had no
full time employees and limited cash resources.
Balance
1 July 2009
($)
Balance
30 June 2010
($)
Highest balance
in period
($)
Loaned
in period
($)
Repaid
in period
($)
270,000
540,000
253,100
81,065
-
270,000
540,000
357,500
70,100
750,000
270,000
540,000
357,500
81,065
750,000
-
-
104,400
-
750,000
Balance
1 July 2008
($)
Balance
30 June 2009
($)
Highest balance
in period
($)
Loaned
in period
($)
270,000
540,000
314,100
81,065
270,000
540,000
253,100
81,065
270,000
540,000
314,100
81,065
-
-
-
-
-
-
-
10,965
-
Repaid
in period
($)
-
-
61,000
-
Directors
PJ Leonhardt
EP Jacobson
Executives
PP Huizenga
RA Anderson
AC Cook
Directors
PJ Leonhardt
EP Jacobson
Executives
PP Huizenga
RA Anderson
Details regarding the aggregate of loans, all of which are interest-free, made by the Group to key management personnel
and their related parties, and the number of individuals in each group, are as follows:
2010
2009
Opening
balance ($)
Closing
balance ($)
Number in
group at 30 June
1,144,165
1,205,165
1,630,100
1,144,165
5
4
Mr Cook joined the Company on 2 November 2009 and was classified as a key management person on that date. Mr
Anderson is no longer is a key management personnel effective 31 May 2010.
(d) Other key management personnel transactions
Amounts payable to key management personnel or their related parties at reporting date in respect of outstanding
director and consulting fees and expenses are as follows:
Current
Trade and other payables
Consolidated
2010
$000
16
2009
$000
52
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Carnarvon Petroleum Limited
59
NOTES TO THE FINANCIAL STATEMENTS
28. Key management personnel disclosures (continued)
(e) Movements in shares
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:
Held at
1 July 2009
Net
acquired/ (sold)
Award under
Employee
Share Plan
Received on
exercise
of options
Held at
30 June 2010
17,000,000
30,917,335
8,400,000
-
120,000
-
10,932,855
(4,000,000)
-
-
-
-
1,600,000
1,485,000
-
50,000
(523,000)
169,839
200,000
-
1,425,000
-
-
-
-
-
-
-
17,000,000
31,037,335
8,400,000
6,932,855
1,850,000
962,000
1,594,839
Held at
1 July 2008
Net
acquired/ (sold)
Award under
Employee
Share Plan
Received on
exercise
of options
Held at
30 June 2009
14,900,000
28,613,793
6,316,186
(900,000)
(1,696,458)
83,814
15,568,596
(5,635,741)
2,100,000
3,104,441
(500,000)
(1,619,441)
-
-
-
-
-
-
3,000,000
4,000,000
2,000,000
1,000,000
17,000,000
30,917,335
8,400,000
10,932,855
-
-
1,600,000
1,485,000
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
KP Judge
Executives
PP Huizenga
RA Anderson
AC Cook
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
KP Judge
Executives
PP Huizenga
RA Anderson
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 using the Black-Scholes model, and their
valuation assumptions are set out in Note 24.
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
20 to 25.
60
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NOTES TO THE FINANCIAL STATEMENTS
29. Non-key management personnel disclosures
Identity of related parties
The Group has a related party relationship with its controlled entities (see Note 30), joint venture assets (see Note 16),
and with its key management personnel (see Note 28).
30. Consolidated entities
Name
Company
Carnarvon Petroleum Ltd
Controlled entities
Carnarvon Thailand Ltd
Lassoc Pty Ltd
SRL Exploration Pty Ltd
Carnarvon Petroleum (Indonesia) Pty Ltd
Carnarvon (NZ) Pty Ltd
Country of Incorporation
2010
2009
Ownership interest
British Virgin Islands
Australia
Australia
Australia
New Zealand
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
Investments in controlled entities are measured at cost in the financial statements of the Company.
31. Subsequent events
On July 5 2010 Carnarvon (NZ) Pty Limited, a wholly owned subsidiary of Carnarvon Petroleum Ltd, farmed into
PEP38524, offshore Taranaki Basin in New Zealand. Carnarvon contributed towards the cost of the Tuatara-1 exploration
well to earn a 10% participating equity interest from AWE New Zealand Pty Ltd.
On 14 July 2010 the Company farmed out a proportion of its interest in the WA-399-P exploration permit to Apache
Energy Limited and Jacka Resources Limited. In consideration Apache will undertake at its sole cost, a 3D seismic
survey, which will fulfil the Year 2 and 3 work program obligations. In consideration for the farmout to Jacka, Jacka paid
Carnarvon $350,000. Following completion of the respective farm in obligations, the Company will have a 13% interest
in the permit.
No other matters or circumstance has arisen since 30 June 2010 that in the opinion of the directors has significantly
affected, or may significantly affect in future financial years:
(i) The Group’s operations; or
(ii) The results of those operations; or
(iii) The Group’s state of affairs
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Carnarvon Petroleum Limited
61
NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management
The Group’s activities expose it to market risk (including currency risk, commodity price risk and interest rate risk), credit
risk and liquidity risk.
This note presents qualitative and quantitative information about the Group’s exposure to each of the above risks, their
objectives, policies and procedures for managing risk, and the management of capital. The Board of Directors has
overall responsibility for the establishment and oversight of the risk management framework.
The Group’s overall risk management approach focuses on the unpredictability of financial markets and seeks to minimize
the potential adverse effects on the financial performance of the Group. The Group does not currently use derivative
financial instruments to hedge financial risk exposures and therefore it is exposed to daily movements in the international
oil prices, exchange rates, and interest rates.
The Group uses various methods to measure different types of risk to which it is exposed. These methods include
sensitivity analysis in the case of interest rate, foreign exchange, and commodity price risk and ageing analysis for credit
risk.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence and to
sustain future development of the business. Given the stage of the Group’s development there are no formal targets set
for return on capital. There were no changes to the Group’s approach to capital management during the year. Neither
the Company nor any of its controlled entities are subject to externally imposed capital requirements.
(a) Commodity price risk
Commodity price risk is the risk of financial loss resulting from movements in the price of the Group’s commodity output,
being crude oil.
Revenues under the Group’s contractual arrangements with its customer are denominated in US$, linked to the US$
prices of a basket of oil products, and paid in Thai Baht at the average monthly exchange rate. The Group does not
currently use derivative financial instruments to hedge commodity price risk and therefore is exposed to daily movements
in the prices of these oil products.
Sensitivity analysis
An increase of 10% in the achieved monthly oil sale price would have increased equity and pre tax profit and loss by the
amounts shown below. This analysis assumes that all other variables other than royalties, which are directly related to oil
revenues, remain constant. The analysis is performed on the same basis for 2009:
30 June 2010
30 June 2009
Consolidated
Equity
$000
Profit and loss
$000
6,177
9,344
6,177
9,344
A decrease of 10% in the achieved monthly oil sale price would have decreased equity and pre tax profit and loss by the
amounts shown below. This analysis assumes that all other variables other than royalties, which are directly related to oil
revenues, remain constant. The analysis is performed on the same basis for 2009:
62
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NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
30 June 2010
30 June 2009
Consolidated
Equity
$000
Profit and loss
$000
(6,177)
(9,344)
(6,177)
(9,344)
(b) Interest rate risk
The significance and management of the risks to the Group is dependent on a number of factors including:
Interest rates (current and forward) and the currencies that are held;
•
• Level of cash and liquid investments and their term;
• Maturity dates of investments;
• Proportion of investments that are fixed rate or floating rate.
The Group manages the risk by maintaining an appropriate mix between fixed and floating rate investments.
At the reporting date the effective interest rates of variable rate interest bearing financial instruments of the Group were
as follows. There were no interest-bearing financial liabilities.
Carrying amount (A$000)
Financial assets – cash and cash
equivalents
Weighted average interest rate (%)
Financial assets – cash and cash
equivalents
Sensitivity analysis
All other financial assets are non interest bearing.
Consolidated
2010
2009
30,255
31,099
0.3%
0.4%
An increase in 50 basis points from the weighted average year-end interest rates at 30 June would have increased equity
and profit and loss by the amounts shown below. This analysis assumes that all other variables remain constant. The
analysis is performed on the same basis for 2009:
30 June 2010
30 June 2009
Consolidated
Equity
$000
Profit and loss
$000
188
140
188
140
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Carnarvon Petroleum Limited
63
NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
A decrease in 50 basis points from the weighted average year-end interest rates at 30 June would have decreased
equity and profit and loss by the amounts shown below. This analysis assumes that all other variables remain constant.
The analysis is performed on the same basis for 2009:
30 June 2010
30 June 2009
Consolidated
Equity
$000
Profit and loss
$000
(43)
(47)
(43)
47
(c) Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to
the Group, and arises principally from the Group’s receivables from customers and cash deposits.
The Group’s trade receivables at both June 2010 and June 2009 are all due from an entity located in Thailand and
controlled by its government. This entity has an appropriate credit history with the Group. There were no receivables at
30 June 2010 or 30 June 2009 that were past due.
Cash transactions are limited to financial institutions considered to have a suitable credit rating.
Credit risk further arises in relation to financial guarantees given to certain parties, refer to Note 23.
Exposure to credit risk is considered minimal but is monitored on an ongoing basis. The maximum exposure to credit
risk is represented by the carrying amount of each financial asset in the balance sheet.
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NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum
exposure to credit risk at the reporting date was:
Carrying amount:
Cash and cash equivalents
Trade and other receivables
The aging of the Group’s trade receivables at reporting date was:
Consolidated
2010
$000
2009
$000
30,255
7,780
38,035
31,099
11,904
43,003
Gross
2010
$000
Impairment
2010
$000
Gross
2009
$000
Impairment
2009
$000
Not past due
5,884
5,884
-
-
7,218
7,218
-
-
Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade
receivables.
(d) Currency risk
Currency risk arises from sales, purchases, assets and liabilities that are denominated in a currency other than the
functional currencies of the entities within the Group, being the A$, THB and US$.
The Group operates predominantly in Thailand and is exposed to currency risk arising from various foreign currency
exposures, mainly with respect to the US$ and Thai Baht (“THB”). The functional currency of its Thai operations changed
from US$ to THB from 1 January 2009, primarily because the trend in the source currency of the majority of its costs
from US$ to THB was not considered temporary.
Cash receipts from the Thai operations, which comprise 100% of the Group revenues, are received in Thai Baht. The
majority of the Group’s payments, including Thai SRB and income tax, are also payable in THB which effectively creates
a natural hedge. The Company’s foreign exchange risk predominantly resides in its US$ loan to one of its controlled
entities.
The Group does not currently use derivative financial instruments to hedge foreign currency risk and therefore is exposed
to daily movements in exchange rates. However, the Group intends to maintain sufficient THB cash balances to meet its
THB obligations, in particular its SRB and income tax liabilities.
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Carnarvon Petroleum Limited
65
NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
The Group’s exposure to foreign currency risk at balance date was as follows, based on carrying amounts.
Consolidated 2010
Cash and cash equivalents
Trade and other receivables
Trade payables and accruals
SRB and income tax provisions
Gross balance sheet exposure
Consolidated 2009
Cash and cash equivalents
Trade and other receivables
Trade payables and accruals
SRB and income tax provisions
Gross balance sheet exposure
THB
A$000
USD
A$000
6,878
5,884
(4,082)
(8,337)
343
27,405
8,208
(5,304)
(8,778)
21,531
16,333
-
(16)
-
16,317
48
-
(754)
-
(706)
The following significant exchange rates applied during the year:
AUD to:
1 Thai baht
1 USD
(d) Currency risk (continued)
Sensitivity analysis
Average rate
Reporting date spot rate
2010
0.034
1.14
2009
0.040
1.36
2010
0.036
1.17
2009
0.037
1.24
A 10% strengthening of the AUD against the THB for the 12 months to 30 June 2010, and against the US$ for the 6
months to 31 December 2008 and against the THB for the 6 months to 30 June 2009, reflecting the change in functional
currency of the Phetchabun Basin Joint Venture from 1 January 2009, would have decreased equity and pre tax profit
and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates and the
exchange rate between the Thai Baht and USD, remain constant:
30 June 2010
THB
30 June 2009
THB and USD
Consolidated
Equity
$000
Profit and loss
$000
(10,389)
(3,167)
(7,752)
(5,077)
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NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
A 10% weakening of the AUD against the THB for the 12 months to 30 June 2010, and against the US$ for the 6
months to 31 December 2008 and against the THB for the 6 months to 30 June 2009, reflecting the change in functional
currency of the Phetchabun Basin Joint Venture from 1 January 2009, would have increased equity and pre tax profit
and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates and the
exchange rate between the Thai Baht and USD, remain constant:
30 June 2010
THB
30 June 2009
THB and USD
Consolidated
Equity
$000
Profit and loss
$000
12,675
3,746
9,412
6,206
(e) Fair values
The fair values of financial assets and financial liabilities, together with their carrying amounts shown in the balance sheet,
are as follows:
Consolidated
Loans and receivables
Cash and cash equivalents
Trade and other payables
Carrying
amount
2010
$000
7,780
30,255
(5,621)
32,414
Fair
Value
2010
$000
7,780
30,255
(5,621)
32,414
Carrying
amount
2009
$000
11,904
31,099
(6,901)
36,102
Fair
Value
2009
$000
11,904
31,099
(6,901)
36,102
The basis for determining fair values is disclosed in Note 3(i).
(f) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The
Group’s approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet
its liabilities when due under a range of financial conditions. The net cashflows arising from its Thai assets are considered
to generate sufficient working capital to adequately address this risk.
The Group currently does not have any available lines of credit.
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Carnarvon Petroleum Limited
67
NOTES TO THE FINANCIAL STATEMENTS
32. Financial risk management (continued)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding
the impact of any netting agreements:
Consolidated 2010
Non-derivative financial liabilities
Trade and other payables
SRB and income tax provisions
Consolidated 2009
Non-derivative financial liabilities
Trade and other payables
SRB and income tax provisions
33. Parent Information
Carrying
amount
$000
Contractual
cashflows
$000
6 months
or less
$000
6 to 12
months
$000
5,621
8,337
13,958
5,621
8,337
13,958
5,621
6,165
11,786
6,901
8,778
15,679
6,901
8,778
6,901
5,656
15,679
12,557
-
2,172
2,172
-
3,122
3,122
The following information has been extracted from the books and records of the parent and has been prepared in
accordance with the accounting standards:
Balance Sheet
Current Assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued Capital
Accumulated losses
Reserves
Total equity
Statement of comprehensive income
Total profit / (loss)
Total comprehensive income
2010
$000
2009
$000
23,717
9,439
33,156
418
-
418
68,240
(37,340)
1,838
32,738
6,525
12,309
18,834
1,066
-
1,066
68,090
(51,453)
1,131
17,768
14,011
(1,023)
14,011
(1,023)
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NOTES TO THE FINANCIAL STATEMENTS
33. Parent Information (continued
Parent Contingencies
The Company has provided a cash bond of US$450,000 to the Department of Mineral Fuels in Thailand in respect
of its obligations for its 50% interest in the L20/50 concession in Thailand. The bond is secured by a cash deposit
of US$450,000 held with Company’s Australian bank. The Company and its joint venture partner, who has provided
a similar guarantee to the Department of Mineral Fuels, have signed a Cross Deed of Indemnity in respect of their
respective rights and interests.This restricted cash held by the banks as security for these bonds and guarantees is
classified under “trade and other receivables”.
In accordance with normal petroleum industry practice, the Group 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.
Parent
2010
$000
2009
$000
Parent capital and other commitments
(a) Joint venture commitments
Capital commitments of the Group to joint venture assets:
Within one year
4,864
2,264
(b) Exploration expenditure commitments
Due to the nature of the Company's operations in exploring and evaluating areas of interest it is necessary to incur
expenditure in order to retain the Company’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 Company's equity.
Exploration expenditure commitments forecast but not provided for in the financial statements are as follows:
Less than one year
Between one and five years
(c) Capital expenditure commitments
Data licence commitments
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
5,500
4,500
10,000
4,100
1,700
5,800
230
126
149
14
163
163
-
163
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Carnarvon Petroleum Limited
69
NOTES TO THE FINANCIAL STATEMENTS
34. Prior period error
The year ended 30 June 2009 financial statements included a deferred tax liability of $8,964,000 and current income
tax liability of $3,521,000 in respect of the Group’s interest in the Phetchabun Basin Joint Venture (“Joint Venture”) in
Thailand, of which the Group is non-operator. The calculation of these liabilities include as an input the tax written down
value of Joint Venture expenditure and associated tax depreciation.
In February 2010 the Company was advised by the Joint Venture operator that there was an error in the calculation
of the tax written down value of Joint Venture expenditure and tax depreciation as at and for the 6 months ending 30
June 2009. As a result the consolidated financial statements for the year ended 30 June 2009 require restatement as
follows:
Balance Sheet:
Income tax provision
Current liabilities
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Accumulated profits
Total equity
Statement of Comprehensive Income:
Income tax expense
Net profit from continuing operations
Net profit attributable to members of the Company
Basic and diluted earnings per share from continuing operations
Understated by
Understated by
Understated by
Understated by
Understated by
Overstated by
Overstated by
Overstated by
Understated by
Overstated by
Overstated by
$000
2,135
2,135
5,552
5,552
7,687
7,687
7,687
7,687
7,687
7,687
7,687
Cents per share
Previously
stated
5.4
Restated
4.3
The 30 June 2009 comparatives in these financial statements have been restated to reflect the above.
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DIRECTORS’ DECLARATION
(1)
In the opinion of the directors of Carnarvon Petroleum Limited:
(a) the financial statements and notes of the Group set out on pages 29 to 70 are in accordance with the Corporations
Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2010 and of its performance, as represented
by the results of its operations and its 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) the financial statements comply with International Financial Reporting Standards as set out in Note 2; and
(c) the remuneration disclosures that are contained in the Remuneration Report in the Directors Report comply with
Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the
Corporations Regulations 2001; and
(d) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
(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 2010.
Signed in accordance with a resolution of the directors.
PJ Leonhardt
Director
Perth, 26 August 2010
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Carnarvon Petroleum Limited
71
INDEPENDENT AUDIT REPORT
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INDEPENDENT AUDIT REPORT
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Carnarvon Petroleum Limited
73
CORPORATE GOVERNANCE STATEMENT
Introduction
The Company's directors are fully cognisant of the Corporate Governance Principles and Best Practice Recommendations
published by the ASX Corporate Governance Council (“CGC”) and have adopted those recommendations where they are
appropriate to the Company's circumstances.
However, a number of those principles and recommendations are directed towards listed companies considerably larger than
Carnarvon, whose circumstances and requirements accordingly differ markedly from the Company's. For example, the nature
of the Company's operations and its low direct employee count mean that a number of the board committees and other
governance structures recommended by the CGC are not only unnecessary in Carnarvon's case, but the effort and expense
required to establish and maintain them would, in the directors' view, be an unjustified diversion of shareholders' funds.
Carnarvon's directors are aware that according to one school of thought listed companies will be rated by the investment
community according to their compliance with the CGC's Best Practice Recommendations. However, in the directors' view
that approach is not soundly based, particularly where unquestioning compliance with the recommendations would produce
marginal or no benefit to shareholders.
In discharging its functions Carnarvon's board of directors receives competent legal and other professional advice. Based on
that advice the board is satisfied that, notwithstanding non-compliance with the Best Practice Recommendations (to the extent
noted below), the Company's governance structures are appropriate for its circumstances and the board acts at all times in
the best interests of the Company and its shareholders.
The following additional information about the Company's corporate governance practices is set out on the Company's
website at www.carnarvon.com.au:
• 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 procedures 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
• 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.
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CORPORATE GOVERNANCE STATEMENT
Explanations for departures from best practice recommendations
From 1 July 2009 to 30 June 2010 (the “Reporting Period”) the Company complied with each of the 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:
Principle
Reference
Recommendation
Reference
2
2.4
Notification of Departure
Explanation for Departure
A separate Nomination
Committee has not been
formed.
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.
Notes
(1) A copy of the Ten Essential Corporate Governance Principles is set out on the Company’s website under the section entitled "Corporate
Governance". (2) A copy of the Best Practice Recommendations is set out on the Company’s website under the section entitled "Corporate
Governance".
Existence and terms of any schemes for retirement benefits for non-executive directors
The Company does not have any terms or schemes relating to retirement benefits for non-executive directors.
Company’s remuneration policies
The Company’s remuneration policies are set out in the Remuneration Report on pages 20 to 25.
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.
Material business risks
Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks.
Performance evaluation of the Board, its committees and senior executives
The Board reviews and evaluates the performance of the Board and its committees, which involves consideration of all the
Board’s key areas of responsibility.
A performance evaluation of senior executives was undertaken during the year, in the case of the Chief Executive by the Board,
and in all other cases by the Chief Executive Officer and the Chairman.
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Carnarvon Petroleum Limited
75
CORPORATE GOVERNANCE STATEMENT
Identification of independent directors
The Company’s independent directors are considered to be Peter Leonhardt, Neil Fearis, and Bill Foster.
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.
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.
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ADDITIONAL SHAREHOLDER INFORMATION
Additional information required by the ASX Limited (“ASX”) Listing Rules and not disclosed elsewhere in this report is set out below.
a)
Shareholdings as at 24 August 2010
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.
Twenty Largest Shareholders
Name of Shareholder
J P Morgan Nominees Australia Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
ANZ Nominees Limited
AMP Life Limited
Mr Edward Patrick Jacobson
Citicorp Nominees Pty Limited
Macquarie Bank Limited (Metals & Energy Cap Div A/C)
Pendomer Investments Pty Ltd
Jacobson Geophysical Services Pty Ltd
Mr Peter James Leonhardt
Arne Investments Pty Ltd
Geolyn Pty Ltd
Mr Edward Patrick Jacobson
Mr Gregory John Munyard + Mrs Maria Ann Munyard + Miss Carmen
Helene Munyard
Athol Steel Pty Ltd
Cogent Nominees Pty Ltd
Seawell Super Pty Ltd (Seawell S/F A/C)
Arne Investments Pty Ltd
Nefco Nominees Pty Ltd
Distribution of equity security holders
Size of Holding
1
1,001
5,001
10,001
100,001
to
to
to
to
1,000
5,000
10,000
100,000
and over
Number of
shares
54,321,131
36,507,339
30,143,692
19,073,702
17,419,033
12,917,903
12,840,119
11,294,046
8,400,000
8,000,000
7,700,000
6,710,493
6,000,000
6,000,000
5,750,000
5,200,000
5,032,092
4,120,000
3,991,906
3,733,000
%
held
7.91
5.32
4.39
2.78
2.54
1.88
1.87
1.64
1.22
1.16
1.12
0.98
0.87
0.87
0.84
0.76
0.73
0.60
0.58
0.54
265,154,456
38.61
Number of
shareholders
Number of
fully paid shares
561
2,420
2,100
4,141
655
9,877
363,177
7,658,924
17,808,544
144,888,288
516,040,701
686,759,634
The number of shareholders holding less than a marketable parcel of ordinary shares is 704.
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Carnarvon Petroleum Limited
77
ADDITIONAL SHAREHOLDER INFORMATION
b) Option holdings as at 24 August 2010
There were no share options on issue.
c) On-market buyback
There is no current on-market buyback.
d)
Schedule of permits
Basin/country
Joint Venture Partners
Equity
%
Operator
Permit
SW1A
Phetchabun / Thailand
L33/43
Phetchabun / Thailand
L44/43
Phetchabun / Thailand
L20/50
Phitsanulok / Thailand
L52/50 & L53/50
Surat-Khiensa / Thailand
Rangkas PSC
West Java / Indonesia
Carnarvon
Pan Orient Energy
Carnarvon
Pan Orient Energy
Carnarvon
Pan Orient Energy
Carnarvon
Sun Resources
Carnarvon
Pearl Oil
Carnarvon
Lundin Petroleum
Tap Oil
Pan Orient Energy
Pan Orient Energy
Pan Orient Energy
Carnarvon
Pearl Oil
Lundin Petroleum
40%
60%
40%
60%
40%
60%
50%
50%
50%
50%
25%
51%
24%
EP321 & EP407
Perth / Australia
Carnarvon
2.5% ORRI
Latent Petroleum
WA-399-P
Carnarvon / Australia
WA-435-P, WA-
436-P, WA-437-P,
WA-438-P
Roebuck /
Australia
Carnarvon
Apache
Rialto Energy
Jacka
Carnarvon
Finder Exploration
13%
60%
12%
15%
50%
50%
Apache
Finder Exploration
WA-443-P
Roebuck / Australia
Carnarvon
100%
Carnarvon
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