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www.carnarvon.com.au
For the financial year ended June 30, 2011
ABN 60 002 688 851
Directors
PJ leonhardt (Chairman)
aC Cook (Chief executive officer)
eP Jacobson (non-executive director)
nC Fearis (non-executive director)
Wa Foster (non-executive director)
company secretary
ra anderson
auDitors
Crowe Horwath Perth
CorPorate direCtory
share registry
link market Services limited
Ground Floor
178 St Georges terrace
Perth, Wa 6000 australia
investor enquiries: 1300 554 474 (within australia)
investor enquiries: +61 2 8280 7111 (outside australia)
+61 2 9287 0303
Facsimile:
stock exchange Listing
Securities of Carnarvon Petroleum limited are listed on
aSX limited.
Bankers
australia and new Zealand Banking Group limited
national australia Bank limited
HSBC
asx coDe:
Cvn - ordinary shares
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.carnarvonpetroleum.com
CONTENTS
Chairman’s review .................................................................................................................................................... 2
Chief executive’s review ........................................................................................................................................... 3
operating and Financial review ..........................................................................................................................4-16
directors’ report ................................................................................................................................................17-27
auditor’s independence declaration ...................................................................................................................... 28
Consolidated income Statement ............................................................................................................................ 29
Consolidated Statement of Comprehensive income .............................................................................................. 30
Consolidated Statement of Financial Position ....................................................................................................... 31
Consolidated Statement of Changes in equity ....................................................................................................... 32
Statement of Cash Flows ....................................................................................................................................... 33
notes to the Financial Statements ...................................................................................................................34-69
directors’ declaration ............................................................................................................................................. 70
independent audit report ..................................................................................................................................71-72
Corporate Governance Statement .....................................................................................................................73-74
additional Shareholder information ..................................................................................................................75-76
Carnarvon Petroleum limited 1
CHairman’S revieW
We are pleased to report that our operational results have enabled us to record an after tax profit of
$2.2 million for the 2011 financial year after writing off exploration expenditure totalling $11.2 million.
the $13.4 million profit before exploration expenditure written off is slightly less than the equivalent
2010 financial year result of $14.8 million. over the last five reporting periods, Carnarvon has reported
accumulated net profits after tax in excess of $58 million and generated cash to sustain a very active
field and development programme together with our exploration activities. Carnarvon has achieved
this result by carefully managing its exploration commitments and conservatively carried only $6.0
million for exploration assets on its balance sheet at 30 June 2011.
initiatives to improve the stability and predictability of
production in the future will involve focusing on increasing
the proportion of production from sandstone reservoirs that
typically flow at more stable rates for longer periods than
production from volcanic reservoirs. a key characteristic
of the sandstone reservoirs is that they do not provide the
rapid pay back enjoyed from the volcanic reservoirs, which
flow at higher initial rates. Consequently we have consumed
capital on this endeavor during the year and plan to continue
this investment in 2012 as we pursue this re-weighting in
the production mix in the short to medium term.
during the year Gaffney, Cline & associates endorsed the
operator’s 2P reserve estimates at over 20 million barrels
net to Carnarvon. this was a 16% decline on the previous
year’s estimate, but nonetheless represents a substantial
reserve position for the Company.
We again offer our thanks to Pan orient energy Corp, the
operator of our production asset in thailand, for their
ongoing efforts in what has been a challenging year.
during the year Carnarvon, as operator, completed two
exploration wells in the l20/50 Concession in thailand which
did not, however, encounter hydrocarbons in commercial
quantities. after a period of significant effort acquiring and
interpreting new seismic data and then undertaking these
exploration wells we were naturally disappointed not to
have obtained a more encouraging result. However, since
completing the wells we have received some encouraging
new information in relation to geochemical analysis of
drill samples and new discoveries in the region that has
the Carnarvon team re-assessing their previous leads
and prospects in this Concession. i would like to thank
the Carnarvon team for their efforts this year in diligently
pursuing and safely executing this and several other projects.
of undertaking drilling activities in 2012 and 2013. the
Phoenix asset situated 150km north of Port Hedland has
created particular excitement within the Carnarvon team
as the preliminary 3d data supports several multi tCF
recoverable prospects and well log data and regional field
assessments also suggest potential for condensate.
in my last review i referred to the Board changes that
actually occurred during the 2011 financial year in terms
of the retirement of Ken Judge and the appointment of Bill
Foster. this year Bill has made a considerable contribution
to the Board and brings to us extensive and invaluable
industry experience.
the Board was sorry to announce in June 2011 the
retirement of ted Jacobson, who has been central to the
growth of the Company since joining some five years ago.
However, we have been fortunate to retain his services as a
non-executive director and to have secured his continuing
technical support of the Carnarvon management team on a
consultancy basis.
Clearly the current year has been difficult for Carnarvon’s
shareholders and the Board acknowledges their concerns.
However the outlook for Carnarvon is more optimistic. We
have an excellent portfolio of development and exploration
opportunities including the exciting Phoenix asset. i can
assure you that our entire team is fully committed to the
development of stable sandstone production in thailand
and the continued exploration programs.
We also advanced a number of other assets toward the
testing of their prospectivity. of particular note is the
work undertaken in preparing for and acquiring seismic in
permits in australia, indonesia and thailand, in anticipation
peter Leonhardt
Chairman
2
2011 annual rePort
BaCK to ContentS
CHieF eXeCutive’S revieW
Carnarvon’s strategy is to build a profitable company, from
a diversified portfolio of exploration and production assets,
which create value for shareholders over the long term.
in the near term the Company is focussed on the delivery of
production and steady cashflow from its onshore thailand
assets.
We are also focussed on advancing Carnarvon’s exploration
portfolio within and outside of thailand. in this regard we
have made significant progress on several fronts this year,
including the work undertaken over the series of Phoenix
blocks in the Carnarvon Basin, offshore Western australia
and the rangkas block, onshore in indonesia.
We continue to seek attractive acquisition opportunities
in prolific oil and gas basins in South east asia and
australia. our focus is on conventional hydrocarbons
that are either onshore or in shallow offshore waters and
include exploration opportunities and producing assets with
production appraisal or exploration upside.
during the 2011 financial year Carnarvon conducted its
first operated drill program with the completion of the
tapao Kaew and Krai thong exploration wells in the l20/50
Concession, onshore thailand. We are currently studying
the results of these wells and considering the results of
recent geochemical analysis from well samples. We are also
incorporating this work into reprocessed seismic data before
determining the forward exploration plans for this region.
in addition to the l20/50 Concession wells, Carnarvon was
involved in the continuous drilling and production operations
at the non-operated l33/43 and l44/43 Concessions in
thailand and the drilling of the tuatara-1 well offshore
new Zealand.
Carnarvon was also actively engaged in seismic exploration
activities through the financial year, commencing or
completing seismic acquisition in australia, indonesia and
thailand.
overall, during the 2011 financial year Carnarvon:
• participated in the drilling of 25 wells;
• acquired 1,250 km of 2D seismic;
• acquired 1,160 km2 of 3D seismic;
• produced 731,544 bbls of oil.
BaCK to ContentS
Carnarvon Petroleum limited 3
oPeratinG and FinanCial revieW
permit summary
permit
Basin
equity
Joint Venture
partner(s)
partner
interest
indicative forward
program
thailand
SW1a
Phetchabun
40%
Pan orient energy *
l33/43
Phetchabun
40%
Pan orient energy *
l44/43
Phetchabun
40%
Pan orient energy *
l20/50
Phitsanulok
l52/50
l53/50
Surat-Khiensa
Surat-Khiensa
australia
Wa-435-P
roebuck
Wa-436-P
roebuck
Wa-437-P
roebuck
Wa-438-P
roebuck
50%
50%
50%
50%
50%
50%
50%
Sun resources
raisama
Pearl oil resources*
Pearl oil resources*
Finder exploration*
Finder exploration*
Finder exploration*
Finder exploration*
Wa-443-P
roebuck
100%
eP321
Perth
eP407
Perth
2.50% of
38.25% (i)
2.50% of
42.5% (i)
Wa399P
Carnarvon
13%
apache *
rialto energy
Jacka resources
indonesia
rangkas
West Java
25%
lundin Petroleum
tap oil
new Zealand
PeP38524
taranaki
10%
aWe*
roC oil
Kea oil and Gas
note: (*) denotes operator where Carnarvon is non-operator partner
(i) Carnarvon has an overriding royalty interest in these assets
60%
60%
60%
42.5%
7.5%
50%
50%
50%
50%
50%
50%
60%
12%
15%
50%
24%
60%
20%
10%
Production, development,
appraisal
Production, appraisal,
exploration
Production, development,
appraisal, exploration
Post well G&G studies
Seismic planning
Seismic acquisition and interpretation
Seismic acquisition and interpretation
interpretation,
Farmout
G & G Studies
interpretation,
Farmout
G & G Studies
G & G Studies
appraisal
appraisal
interpretation
interpretation
Post well review
4
2011 annual rePort
BaCK to ContentS
oPeratinG and FinanCial revieW
thaiLanD
L44/43, L33/43 &, sW1a phetchaBun Basin (“Wichian Buri proJect”)
(Carnarvon Petroleum 40%, Pan Orient 60% operator)
Wichian Buri summary
as outlined in the following table, Carnarvon participated in
the drilling of 22 individual boreholes (excluding sidetracks)
within the l33/43, l44/43 and SW1a Concessions during
the reporting period, resulting in 13 wells producing at
commercial rates and several new oil pool discoveries.
new discoveries were found in volcanic reservoirs at l33-1,
l33-2, WBeXt WBv1 and WBeXt WBv2 and in sandstone
reservoirs at WBeXt “d”, “e” and “F”.
new production licenses were also granted over the l33-1 &
2 discoveries (“l33 Pl”) and the WBeXt discoveries (“WBeXt
Pl”). there are now a total of eight production licenses. the
pre-existing licences are Wichin Buri licence i and ii, na
Sanun, Si thep, na Sanun east and Bo rang north.
Figure 1. Permit map of Thailand.
Figure 2. Location of oilfields and prospects within the Wichian
Buri Project – Phetchabun Basin.
BaCK to ContentS
Carnarvon Petroleum limited 5
oPeratinG and FinanCial revieW
Well
Q1
l33-1
l33-2
field
l33
l33
fy 2010/11 ave.
production rate
(bbl/d)
spud Date
new volcanic field discovery and first production from the l33/43 concession. tested at up to 1,100 bopd
from the WBv1 volcanic.
7/4/2010
new volcanic field discovery in l33/43 concession, approximately 1.8 km south of l33-1. tested at rates up
to 2,400 bopd from the WBv1 volcanic. at the completion of the 90 day production test, the well was shut-in
and sidetracked to evaluate the WBv1 volcanic in the l33-2 area. Production recommenced in april 2011.
7/28/2010
372
109
tuatara-1
nZ
drilled to a total measured depth of 1,911 metres, during which minor oil shows were intermittently reported
over the interval 1,790 – 1,850 metres. Wireline logs were run, but no zones of economic potential were
identified.
7/28/2010
0
WBeXt-1
WBeXt-1a
WBeXt-1B
WBeXt-2
WBeXt-2a
Q2
WBeXt-1C
WBeXt Concession l44 new field discovery producing from the WBv1 volcanic reservoir. the well was tested at rates
up to 2,500 bopd under a 90 day production test which expired in november 2010. the well recommenced
production when the production licence was granted in February 2011.
7/14/2010
1471
WBeXt new pool discovery in the WBv2 volcanic in the WBeXt field. Well produced up to 5,300 bopd during a 90
day production test period until december. the well was shut in until the production licence was granted in
February 2011. Well production was choked back as a result of water incursion.
8/7/2010
WBeXt new pool discovery (sandstone reservoir) in the WBeXt field. Well produced up to 550 bopd during a 90
day production test period until mid december 2010. the well was shut in until the production licence was
granted in February 2011.
8/31/2010
WBeXt exploration / appraisal well initially tested gas at rates up to 3.0 million cubic feet per day from the WBv2
volcanic. the well was deepened to target a potential oil leg but failed to encounter quality reservoir. the
well was sidetracked and subsequent testing of the WBv2 volcanic resulted in a brief oil flow. the well is
currently suspended.
9/16/2010
WBeXt exploration well targetting the WBv3 lower volcanic zone in the WBeXt area. the original wellbore and
subsequent sidetrack both encountered reasonable thickness reservoir with good oil shows but testing
indicated both zones were tight.
9/27/2010
984
239
0
0
WBeXt appraisal well for the WBv1 volcanic reservoir. initially tested at 3,500 bopd but water incursion in January
2011 reduced the production rate. Subsequently shallower sandstone reservoir sections were perforated and
the well is now on production as a sandstone development well.
11/2/2010
940
WBeXt-3
WBeXt WBv1 volcanic zone tested and found to be tight. the shallower sandstone zones produced water on test.
11/14/2010
WBeXt-4
WBeXt exploration well encountered a sandstone approximately 14 metres thick at a shallow depth of around 400 m
tvd. Subsequent testing resulted in low flows due to the waxy crude and low temperature from this shallow
reservoir.
12/7/2010
WBeXt-4a
WBeXt exploration well and subsequent sidetrack targeting the as yet unproven WBv3 volcanic which was found to
12/14/2010
be tight. the well also tested a sandstone section and is on production at low rates.
WBeXt-1d
WBeXt appraisal well targetting multiple sandstone zones in the WBeXt area. the well tested both gas and oil from
the “d” and “e” sands. Commingling of several reservoir sections has resulted in cyclic production of up to
75 bopd.
18/12/2010
Q3
nSe-e4
nSe
tapao
Kaew-1
l44-F
l20/50
l44
l44-e
l44
exploration well targetting a potential volcanic reservoir below the main nSe Central reservoir. a 30 metre
thick volcanic was encountered with good oil shows but subsequent testing resulted in minor oil with
significant formation water.
1/27/2011
Several sands were intersected in the shallower sections however analysis of wireline logs, cutting samples,
gas readings and other data indicates the sands are not hydrocarbon bearing.
exploration well targeting both sandstone and volcanic reservoirs encountered sands without an effective top
seal resulting in only water bearing sands. the presence of good quality sandstone reservoir is encouraging
for future exploration in this area.
exploration well six kilometres north of l44-F was targetting multiple stacked sandstones but the drilling
was halted early to test a shallow volcanic reservoir with high gas readings and mud losses. the zone was
tested but only produced water. the well is currently suspended and will be re-entered to test the original
deeper sandstone targets at a later date.
1/31/2011
2/12/2011
2/23/2011
Krai-thong-1
l20/50 Wireline testing of several zones of potential hydrocarbon bearing intervals have proved water as the mobile
2/28/2011
fluid and led the joint venture to the decision to plug and abandon the well.
Si thep-3
Si thep exploration well for sandstone target failed to encounter reservoir quality sand and was abandoned.
3/17/2011
Q4
l33-4
l33
exploration well targetting the WBv1 volcanic around 2.2 km north of the l33-2 oil well. the well is currently
suspended as a sub commercial oil discovery.
4/16/2011
WBeXt-1e
WBeXt appraisal well of the WBeXt “e” sandstone tested at rates between 200 and 300 bopd and was subsequently
4/30/2011
put on full production.
WBeXt-1F
WBeXt discovery of new “d” and “e” sandstone reservoir pools in the WBeXt-1F fault compartment. While the “e”
5/11/2011
sand flowed predominantly gas the “d” sand has been placed into production.
WBeXt-4B
WBeXt exploration well encountered good oil shows in several sands however subsequent testing resulted in sub-
6/5/2011
commercial oil flows. the well remains open to work over to test other reservoir zones.
WBeXt-2B
WBeXt
the original appraisal well to the 2010 WBeXt WBv2 discovery was abandoned due to stuck downhole
equipment and a subsequent sidetrack flowed initially on test at rates up to 1,100 bopd.
6/17/2011
Poe-6a
l44
appraisal well to the 2006 Poe-6 discovery producing from the “G” sandstone at rates around 80 bopd.
6/22/2011
0
52
7
58
0
0
0
0
0
0
0
213
65
0
0
0
6
2011 annual rePort
BaCK to ContentS
oPeratinG and FinanCial revieW
Wichian Buri proDuction faciLities
Carnarvon and its partner in the Wichian Buri group of
fields employ low cost, fit for purpose facilities designed to
extract, process, transport and sell the produced crude as
efficiently as possible.
the efficiency begins at the surface location, with multiple
well clusters being drilled from central well sites. Well sites
are purchased with flexibility in mind, such that during the
exploration phase maybe only one or two well cellars are
developed but expansion is possible with extension of the
well pads (see Figure 7 for example of multiple producing
wells from a single site).
the operator of the permits has been continuously drilling
in the region, with up to three rigs at a time, since 2006
and has an enviable record of safety, performance and cost
control. the primary drilling rig used by the operator has
exhibited superior performance over the past year and the
drilling rig company has indicated that a second rig may
be available in october 2011 if required. Wells are typically
drilled very efficiently and for low cost.
extraction of the oil is via one of three main methods:
free flow during the initial flush production, electrical
Submersible Pumps (“eSP”) for high rate wells and simple
pumpjacks for low rate wells.
on site the oil, water and gas are separated via right-sized
heater treater units. Water is temporarily stored on site in
water knockout tanks before eventual transfer to centrally
located water injection wells. as at the end of the 2011
financial year, the capacity of the water injection wells is
around 12,000 bfpd with redundancies built in via multiple
injection pumps and wells. the joint venture continues to
monitor water injection capacities to ensure sufficient
excess.
the separated gas is used onsite as fuel for the heater
treater separator systems, as heat for the storage tanks to
prevent waxing of the crude, and as fuel for reciprocal gas
engines to generate power for onsite pumps. any remaining
gas is flared.
the crude is stored on-site in various tank systems. the
tanks come in individual 100 barrel, 200 barrel, 1,000 barrel
and 2,000 barrel sizes and are moveable around sites. in
this way facilties can be very rapidly put together to test
different rate wells and be reused as required. across the
various well sites in the area, the joint venture has around
50,000 barrels of storage, of which supplemental tank farms
represents around half, allowing for 5-10 days of storage
across all the locations.
Figure 3. Production site layout incorporating (from left) pumpjack, heater treater, water knockout tank, crude storage tanks
and offloading to road tanker.
BaCK to ContentS
Carnarvon Petroleum limited 7
the crude is pumped into 200 barrel road tankers on-site
and transported generally to Bangkok for sale to local
refineries. tankers are leased from at least three different
companies.
the facilities are rapidily scalable across the various sites
and also as a complete system. this ensures that the right
size facilities are in place and that costs are kept as low as
possible.
Wichian Buri proDuction
Production from the Wichian Buri suite of fields varied
throughout the financial year due primarily to wells coming
off flush production (a characteristic of volcanic wells as
detailed in previous annual reports), wells requiring shut-in
because of legislative requirements and then not recovering
and natural field decline.
oil production for the past financial year averaged 4,994
BoPd gross (1,998 BoPd net to Carnarvon).
oPeratinG and FinanCial revieW
Figure 4. Safely and environmentally contained wellsites.
Figure 5. Fit for purpose lifting and treatment methods.
Figure 6. Small footprint, easily transportable drilling rig.
Figure 7. Multiple production wells per location.
8
2011 annual rePort
BaCK to ContentS
oPeratinG and FinanCial revieW
L20/50 phitsanuLok Basin
(Carnarvon Petroleum 50% Operator, Sun Resources 42.5%,
Peak Oil & Gas 7.5%)
Krai thong-1 was drilled in February 2011 and wireline
testing of several zones of potential hydrocarbon bearing
intervals proved water as the mobile fluid and led the joint
venture to the decision to delay drilling of the third well.
Post well analysis of cuttings indicates a working petroleum
system may be present in the block and has encouraged the
joint venture to reprocess the available data.
all three locations are still available for drilling. Casing and
completion equipment are still part of the joint venture’s
working capital and a drilling rig is stacked on location. this
capability enables the joint venture to rapidly remobilise
and commence drilling if the current studies, reprocessing
and post well analysis prove up a valid drilling prospect.
L52/50 anD L53/50 surat-khiensa Basin
(Carnarvon Petroleum 50%, Pearl Oil 50% operator)
the exploration Concessions l52/50 and l53/50 onshore
thailand were officially awarded to Carnarvon and Pearl in
march 2010. l52/50 covers an area of 3,085 km2 and l53/50
covers an area of 3,872 km2.
Figure 8. L20/50 Phitsanulok basin outline.
the l20/50 Concession, granted in January 2007, 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 kms to the west of Carnarvon’s 40%
owned Wichian Buri producing assets. the concession
covers 4,000 km2 and is lightly explored.
acquisition of 550 kms of 2d seismic data was completed in
2009. Processing and interpretation of the new 2d seismic
data was completed by early 2010.
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 two wells were drilled in the concession
in early 2011.
tapao Kaew-1 was drilled in January 2011 and several sands
were intersected in the shallower sections of the well. rig
site analysis of wireline logs, cutting samples, gas readings
and other data indicated the sands were not hydrocarbon
bearing.
Figure 9. L52/50 and L53/50 concessions showing current
2D seismic acquisition.
BaCK to ContentS
Carnarvon Petroleum limited 9
oPeratinG and FinanCial revieW
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 1994-1997 at rates up to 10,000 bopd.
numerous wells in the Chumphon Basin encountered oil
shows.
Some leads have been identified on the limited 2d seismic
available.
three oil and gas exploration wells have been drilled in
l52/50 Concession in addition to two very shallow coalbed
methane wells. one well has been drilled in the l53/50
Concession. one of the wells drilled in l52/50 Concession
(PK-1) is reported to have encountered gas.
Preparations for the acquisition of up to 500 km of 2d seismic
data across the combined l52/50 & l53/50 Concessions are
well advanced, with land permitting and up-hole drilling in
progress.
it is anticipated that the new seismic data will be acquired,
processed and interpreted in 2011 in order to generate
prospects for drilling in 2012.
austraLia
Wa-435-p, Wa-436-p. Wa-437-p & Wa-438-p offshore
northWest sheLf
(Carnarvon Petroleum 50%, Finder Exploration 50% operator)
the Wa-435-P, Wa-436-P, Wa437-P and Wa-438-P permits
contain the Phoenix-1 and Phoenix-2 gas discoveries with
contingent and prospective resources, in the order of several
tCFs of gas close to onshore pipeline infrastructure at Port
Hedland. Central to the appraisal of these discoveries is the
acquisition and interpretation of new 3d and 2d seismic data.
in late 2010 operations commenced for the acquisition of
1,100 km2 of new, multi-client 3d seismic data over the area
highlighted below. the 3d seismic data are being acquired
specifically to assist in the appraisal of the Phoenix gas field
in Wa-435-P and to target other identified gas prospects
and leads in Wa-435-P and the adjacent Wa-437-P permit.
in conjunction with the 3d seismic programme, 407 km of
2d seismic data was also acquired, providing important
well ties and new data over key leads in the area.
the Phoenix 3d & 2d seismic survey finished acquisition
on 16 February 2011 with the processed 3d dataset being
delivered in July 2011.
Processing of the Phoenix 3d seismic survey is scheduled
for completion in 3rd quarter 2011, with detailed velocity
analyses and migration being carried out. this will be
followed by detailed reservoir analysis and remapping of the
Phoenix and Phoenix South structural complex in the Wa-
435-P permit and also the large roc Prospect and other
follow-up leads in the Wa-437-P permit.
in conjunction with the 3d seismic programme, 407 km of
2d seismic data was also acquired, providing important
well ties and new data over key leads in the area. Seismic
re-processing of pre-existing 2d seismic over the Bandy
and other leads in the area is also underway.
in addition, a regional airborne gravity and magnetics
survey, recorded over the western blocks in the Bedout
Sub-basin, was also interpreted during the June quarter
and has provided a regional set of maps to complement the
seismic interpretation.
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 150 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 21,000 km²
(268 graticular blocks).
Figure 10. North West Shelf permit map.
10
2011 annual rePort
BaCK to ContentS
oPeratinG and FinanCial revieW
a large middle triassic prospect, Jaubert, has previously
been recorded in the block as a faulted anticlinal closure. the
structural form and size of Jaubert are comparable to the
adjacent Phoenix group of potentially large gas accumulations.
Carnarvon acquired 1,500 km of reprocessed 2d seismic
data during the 2011 financial year.
Geological and geophysical studies are being carried out in
conjunction with similar work in the Phoenix permits.
Wa-399-p – austraLia offshore northWest sheLf
(Carnarvon Petroleum 13%, Apache Energy 60% and
Operator,Jacka Resources 15% and Rialto Energy 12%)
the Wa-399-P exploration permit was awarded on 7 may
2007. the 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 2010. 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.
apache energy, as operator, acquired 3d seismic data over the
whole permit in late 2010 and into early 2011. the 3d seismic
data acquisition exceeds the existing minimum exploration
commitment obligation under the exploration permit’s terms.
the newly acquired 3d seismic data is being processed
and the interpretation, anticipated to be complete at the
end of 2011, will enable the Joint venture to further de-
risk a number of existing prospects that have already been
mapped within the permit.
only six wells have been drilled in the permits to date. the
two wells, Phoenix-1 and Phoenix-2, drilled on the large
Phoenix structure in Wa-435-P both intersected extensive
gas columns within lower-porosity, mid-triassic reservoirs.
in particular, Phoenix-1 recorded 110 metres of net gas-
bearing section. 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 to15 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 tCFs of recoverable gas, if
exploration and appraisal drilling are successful.
Wa-443-p austraLia offshore northWest sheLf
(Carnarvon Petroleum 100% Operator)
in april 2010 Carnarvon was successful in its bid for 100%
of a new exploration permit gazetted by the australian
government, Wa-443-P, offshore Western australia. this
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
1,400 km of 2d seismic. Geological and geophysical studies
will also be carried out in conjunction with similar work in
the Phoenix permits.
Figure 11. North West Shelf leads and prospects.
Figure 12. WA-399-P permit map.
BaCK to ContentS
Carnarvon Petroleum limited 11
oPeratinG and FinanCial revieW
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 modest oil and gas accumulations can
potentially 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.
Within the permit the tuatara-1 well was drilled, targeting
a significant structure. While the well recorded gas and
oil shows over an extensive interval no zones of economic
potential were identified.
Figure 14. New Zealand permit map.
reserVe assesment
petroLeum resource cLassification,
categorisation anD Definitions
Carnarvon calculates reserves and resources according
the SPe/WPC/aaPG/SPee11 Petroleum resource
to
management System (“SPe-PrmS”) definition of petroleum
resources. this definition was first published in 1997 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.
Figure 13. West Java permit map.
during the 2011 financial year around 500 km of new 2d
seismic data was acquired, processed and interpreted, in
order to better delineate the 12 significant leads identified
from the reprocessing of 1000 km of existing 2d data.
the interpretation has highgraded several leads which are
geologically promising with significant volumes in the 20-80
mm bbls range gross (5 to 20 mm bbls net to Carnarvon).
the joint venture is expected to progress one of these leads
to a drillable prospect with drilling anticipated for 2013.
neW ZeaLanD
proved
proDuction
reserVes
proved &
probable
contingent
resources
prospectiVe
resources
proved,
prob &
possible
commercial
Discovered,
but not
currently
commercial
exploration
prospectivity
pep38524 offshore taranaki
(Carnarvon Petroleum 10%, AWE 60% and Operator, ROC Oil
20%, Kea Oil and Gas 10%)
1
during the financial year, Carnarvon farmed into exploration
block PeP 38254 offshore new Zealand in the southern
taranaki Basin.
Society of Petroleum Engineers (“SPE”); World Petroleum Council
(“WPC”); American Association of Petroleum Geologist (“AAPG”) & Society
of Petroleum Evaluation Engineers (“SPEE”)
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 5.11 and has consented to the form and context in which this
statement appears.
12
2011 annual rePort
BaCK to ContentS
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 20.4 million barrels of 2P oil reserves net to
Carnarvon as at 31 december 2010.
net carnarvon reserves
proved
1p
(million
bbls)
proved
+ probable
2p
(million
bbls)
proved
+ probable
+ possible
3p
(million
bbls)
GCa 31 dec
2010
4.7
20.4
51.9
a breakdown of the major reservoirs net to Carnarvon is
given below.
net carnarvon reserves
31-Dec-09
proved + probable
2p
(million bbls)
nSe Central
nSe-F1
Bo rang - B
Bo rang - a
l44-W
nSe South
Wichian Buri - SSt
Si thep - SSt
WBext - volc
WBext - SSt
l33 - volc
l33-SSt
other
total
1.2
2.2
3.7
1.7
0.9
0.7
1.0
0.5
2.2
1.4
2.4
1.4
1.0
20.4
reservoir
type
volcanic
volcanic
volcanic
volcanic
volcanic
volcanic
Sandstone
Sandstone
volcanic
Sandstone
volcanic
Sandstone
various
oPeratinG and FinanCial revieW
these reservoirs are schematically reproduced below.
Figure 15. Map showing location of contingent resources.
contingent resources
Contingent resources are those quantities of petroleum which
are estimated, on a given date, to be potentially recoverable
from known accumulations, but which are not currently
considered to be commercially recoverable.
it is generally recommended that if the degree of commitment
is not such that the accumulation is expected to be developed
and placed on production within a reasonable timeframe,
the estimated recoverable volumes for the accumulation be
classified as contingent resources.
the Phoenix discovery is one such contingent resource, where
the evaluation of the accumulation is still at an early stage.
net carnarvon contingent resources
Best
estimate
recoverable
million bbls / boe (Bscf)
42.5 (247)
42.5
phoenix
Discovery
carnarvon 30
Jun 2011
BaCK to ContentS
Carnarvon Petroleum limited 13
oPeratinG and FinanCial revieW
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 the likelihood of being included on drilling
schedules in the near future are categorised as prospective
resources by Carnarvon. leads are identified as potential
hydrocarbon accumulations 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 Phoenix blocks in australia, the rangkas block onshore
indonesia and 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 and indonesia,
none of those have near term drilling programs. Carnarvon
continues the process of undertaking additional work to
progress those leads to drillable prospects.
net carnarvon prospective resources
Best
estimate
recoverable (unrisked)
million bbls / boe (Bscf)
170 (987)
42
6
20
10
248
Phoenix South
Wichian Buri
volcanics
Wichian Buri
Sandstone
l20/50
rangkas PSC
carnarvon 30
Jun 2010
sustainaBiLity
Carnarvon is very aware of the effects of the oil and
gas industry on the environment and its communities.
Carnarvon takes all reasonable steps to mitigate any
potential risk, as well as providing several benefits to the
local communities that it operates in.
Carnarvon continues to develop, review and improve its
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 campaigns that are run and operated by Carnarvon
adhere to this safety system.
during this financial year Carnarvon has been directly
involved, as operator, in the drilling of two wells in its
onshore thailand Concession l20/50. this campaign
consisted of well planning, construction of three well pads
with up to 10Km of supporting roads, followed by the drilling
of the two wells. this campaign reported zero lti’s (lost
time incidents).
enVironment
Carnarvon carried out an environmental impact assessment
(eia) prior to commencing its l20/50 drilling campaign. this
assessment covered all aspects of the environment, waste
management through to local community involvement and
opinion. an independent company was employed to monitor
our compliance with the eia and submit a report to the
thai authorities on our performance. due to the nature of
the surrounding area, which is mainly agricultural, a high
importance was put on protecting this environment. We
operated a “zero discharge” campaign and monitored the
water table before, during and after the campaign.
community
Carnarvon builds close relationships with the
local
communities that it works in. We strive to involve the
community as much as possible, through employment,
communication and cultural activities. We give full respect
to all areas of the community, we respect the people, their
culture and their heritage. We continue to support local
schools in the region and during recent flooding in the area
Carnarvon provided food and basic survival kits to support
families dislodged from their dwellings.
14
2011 annual rePort
BaCK to ContentS
oPeratinG and FinanCial revieW
during the recent campaign we employed in excess of 150
locals in varying roles from construction to security and
drilling staff. We used local contractors and local materials
as much as practicable throughout this campaign to
stimulate the local economy.
the ten near miss incidents (nmi) were recorded and
corrections to operating procedure made, this is a function
of our Safety management System.
random Breath test
281
1*
negative
positive
Carnarvon also sponsors the Petroleum engineering
department at Curtin university, educating the petroleum
engineers of the future.
* Disciplinary action followed.
heaLth anD WeLLBeing
We value our staff as one of our greatest assets. due to
the nature of Carnarvon’s operations, staff are required to
have a pre-travel medical for the specific region they are
travelling to. Staff are also offered an annual health check
as part of an ongoing commitment.
safety
We continue to encourage, and actively support, all staff
members to have the basics of first aid, which gives a
benefit not only to the company but also to protecting their
families, friends and others in the community.
during the l2050 drilling campaign all safety reports were
audited with the following results:
man hours
worked
avg
poB
Lti
nmi
Construction
Phase
drilling
Phase
54844
65892
71
90
0
0
0
10
economic
Carnarvon currently has 2P reserves of 20.4 million barrels
as of 31 december 2010. ongoing production of the l44/43,
l33/43 and SWia Concessions in thailand provides the
Company with a sustainable economic outlook. Further
commentary on economic Sustainability is provided in the
Financial review below.
risk management
Carnarvon has a robust risk management framework
developed in accordance with the international standards for
risk management “aS/nZS iSo 31000:2009”. this enables
us to continually review and address risks as they arise.
all business and operational risks are assessed against
financial, health & safety, natural environment, community,
reputation and legal compliance criteria allowing Carnarvon
to grow in a sustainable risk management framework.
BaCK to ContentS
Carnarvon Petroleum limited 15
oPeratinG and FinanCial revieW
financiaL reVieW
continueD profitaBiLity
the Group has now been profitable for four consecutive
financial years. Profit after tax for the year ended 30 June
2011 was $2,159,000. development has continued in the
Wichian Buri project in thailand and the Group is expected
to remain profitable in the foreseeable future, with retained
profits being made available for the exploration and
appraisal of the Company’s other assets.
2011
2010
change
Production
(bbls)
731,544
868,450
Sales ($’000)
54,750
65,230
Cost of sales
18,891
21,473
16%
16%
12%
the decline in production is the main driver of the decrease
in sales in the 30 June 2011 financial year. a portion of
cost of sales is fixed and as a result, cost of sales did not
decrease in line with sales.
the exploration expenditure written off during the 2011
financial year consists of $7,856,000 in relation to the
exploration expenses incurred in the l20/50 concession to
date and $3,391,00 for the tuatara well drilled in PeP 38254.
between 30 June 2010 and 30 June 2011 and depreciation
and amortization charges.
With the increase in development costs carried forward,
there has been an increase in deferred tax liabilities
recognised in the financial statements. 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 in the current period.
new venture costs of $983,000 and exploration and
evaluation expenditure of $10,851,000 demonstrate
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 4.
the impact of the appreciating austraLian DoLLar
the appreciating australian dollar over the financial year
has had a material impact on the financial statements
of the Company. the unrealised foreign exchange loss of
$4,463,000 was as a result of the strengthening australian
dollar against the translation of united States dollar
denominated cash reserves held by the Company.
BaLance sheet
the Company spent $20,460,000 on the development of the
producing fields in thailand. the balance sheet shows an
increase in oil and gas assets of $1,506,000. the difference
was due to a translation adjustment resulting from the
strengthening of the australian dollar against the thai Baht
the exchange differences arising in translation of foreign
operations occurred due to the appreciating australian
dollar against the thai Baht. the balance sheet of the
Whichian Buri assets are denominated in thai Baht
resulting in exchange differences at year end on their
conversions into australian dollar presentational currency.
16
2011 annual rePort
BaCK to ContentS
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 2011, 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 and the Cancer research trust.
mr leonhardt is a member of the audit Committee and the remuneration Committee.
adriaN C COOk
Chief Executive Officer and Managing Director
B Bus, Ca, mappFin
appointed as a director on 1 July 2011
adrian has 25 years experience in commercial and financial management, primarily in the petroleum industry.
immediately prior to joining Carnarvon, adrian was the managing director of Buru energy limited, an aSX listed
oil and gas exploration and production company with interests in the Canning Basin in Western australia. adrian
has also held senior executive positions within Clough limited’s oil and gas construction business and was on the
executive committee at arC energy limited, an aSX listed mid cap oil and gas exploration and production company.
adrian joined Carnarvon on 2 november 2009 and was appointed to the Board on 1 July 2011.
BaCK to ContentS
Carnarvon Petroleum limited 17
direCtorS’ rePort
Edward (TEd) P JaCObSON
Non-Executive Director
B.Sc (Hons Geology)
appointed as a director on 5 december 2005.
mr Jacobson is a petroleum geophysicist with 39 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.
mr Jacobson retired as Chief executive officer on 30 June 2011.
NEiL C FEariS
Non-Executive Director
ll.B (Hons), FaiCd, F Fin
appointed as a director on 30 november 1999.
mr Fearis has over 33 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); and Tiger Resources Limited (from May 2011). 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.
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 is a director of red river resources limited and 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
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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
Bill Foster
Ken Judge
(a)
(b)
9
9
9
7
-
9
9
9
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
Bill Foster
Ken Judge
(a)
(b)
2
2
2
-
2
2
2
-
(a) number of meetings held during period of office
(b) number of meetings attended
BaCK to ContentS
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
Bill Foster
Ken Judge
(a)
(b)
2
2
2
-
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 or share issues, as the remuneration Committee considers appropriate. 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
2011 annual rePort
BaCK to ContentS
direCtorS’ rePort
remuneration report (auDiteD) (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
2007
30 June
2008
30 June
2009
30 June
2010
30 June
2011
Share price as at 30 June each year
year on year change in the share price
$0.24
362%
$0.53
121%
$0.815
54%
$0.345
(58%)
$0.175
(49%)
Consolidated net profit / (loss) from continuing
operations ($000)
Cumulative net profit / (loss) from continuing
operations ($000)
($1,542)
$15,651
$28,736
$14,423
$2,159
($2,788)
$12,863
$41,599
$56,022
$58,181
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.
a non-executive director’s base fee is $62,500 per annum and the Chairman receives $105,000 per annum. these fees
were last increased with effect from 1 January 2010. 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 two components:
1.
2.
the performance of the business as a whole; and
the individual performances of each employee.
the value of any short term incentive is restricted to a maximum 50% of an individual’s Fixed Compensation. of this
amount, half is applicable to fixed Remuneration Committee approved business performance targets; primarily relating to
production, reserves and cash flow measures. the other half is assessed by, and is at the discretion of, the remuneration
Committee based on an individual’s achievement of role related performance measures.
the remuneration Committee is not obliged to make incentive payments where there are material adverse changes in the
circumstances of the Company.
Short term incentives may be paid in cash or by the issue of shares in the Company.
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 25, and fully vested to
each of the directors, named Company executives, and key management personnel during the period.
BaCK to ContentS
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.
22
2011 annual rePort
BaCK to ContentS
direCtorS’ rePort
remuneration report (auDiteD) (continueD)
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
200,000
200,000
issue
date
10/12/2010
10/12/2010
issue price
per share
$0.44
$0.44
Loan
$88,800
$88,800
the issue price for each issue above 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. For this purpose, 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:
2011
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
10/12/2010
09/12/2013
$0.195
$0.4
$0.44
60%
4.75%
0%
Service contracts
the contract duration, period of notice and termination conditions for key management personnel are as follows:
(i) ted Jacobson, whilst employed as Chief executive officer and managing director, was engaged on 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. on 30 June 2011 mr Jacobson retired
as Chief executive officer and managing director and agreed to provide consultancy services to the Company with effect
from 1 July 2011.
(ii) Philip Huizenga, Chief operating officer, 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.
(iii) adrian Cook, was engaged as General manager (Corporate) during the period and 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. mr Cook will act as the Company’s Chief executive officer and managing director
with effect from 1 July 2011.
BaCK to ContentS
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 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. eSP shares issued as compensation to key
management personnel during the year are disclosed on page 22.
there were no shares issued in either 2011 or 2010 on the exercise of options.
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
2011 annual rePort
BaCK to ContentS
direCtorS’ rePort
2
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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
Auditors of the Company:
consolidated 2011 ($)
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
PJ leonhardt
aC Cook
eP Jacobson
nC Fearis
Wa Foster
ordinary shares
options over ordinary shares
17,000,000
1,794,839
31,037,335
8,600,000
-
-
-
-
-
-
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
4 to 16.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 2011.
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 2011.
PriNCiPaL aCTiviTiES
during the course of the 2011 financial year the Group’s principal activities continued to be directed towards oil and gas
exploration, development and production.
26
2011 annual rePort
BaCK to ContentS
direCtorS’ rePort
idENTiFiCaTiON OF iNdEPENdENT dirECTOrS
the independent directors are identified in the Corporate Governance Statement section of this annual report as set out on
pages 73 to 74.
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 4 to 16.
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 2011 is set out on pages 4 to 16 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
no matters or circumstance has arisen since 30 June 2011 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
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, 31 august 2011
BaCK to ContentS
Carnarvon Petroleum limited 27
auditor’S indePendenCe deClaration
28
2011 annual rePort
BaCK to ContentS
ConSolidated inCome Statement
FOR THE yEAR ENDED 30 JuNE 2011
consolidated
2011
$000
2010
$000
54,750
65,230
93
82
(18,891)
(21,473)
(1,724)
(222)
(1,686)
(228)
(4,463)
(983)
(11,247)
(207)
-
(1,396)
(227)
(1,497)
(392)
(525)
(1,124)
(384)
(753)
(1)
15,192
37,540
5,137
5,496
10,633
2,400
13,033
2,159
2,159
0.3
0.3
10,616
8,790
19,406
3,711
23,117
14,423
14,423
2.1
2.1
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
9 (a)
9 (b)
Special remuneratory benefit
total taxes
profit for the year
profit attributable to members of the
company
Basic earnings per share (cents per share)
diluted earnings per share (cents per share)
8
8
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 2011
profit for the year
other comprehensive income
consolidated
2011
$000
2010
$000
2,159
14,423
exchange differences arising in translation
of foreign operations
(17,439)
(1,482)
total comprehensive (loss) / income for the year
(15,280)
12,941
total comprehensive (loss) / income attributable to
members of the company
(15,280)
12,941
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the
financial statements.
30
2011 annual rePort
BaCK to ContentS
ConSolidated Statement oF FinanCial PoSition
AS AT 30 JuNE 2011
notes
21(b)
10
12
13
11
14
15
17
24
18
19
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 expenditure
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
total non-current liabilities
total liabilities
net assets
equity
issued capital
reserves
retained earnings
total equity
consolidated
2011
$000
14,798
5,444
3,381
287
23,910
470
5,955
71,682
78,107
2010
$000
30,255
7,780
4,090
440
42,565
635
6,351
70,176
77,162
102,017
119,727
4,895
146
875
-
5,621
91
6,165
2,172
5,916
14,049
28,802
28,802
34,718
67,299
68,240
(20,222)
19,281
23,306
23,306
37,355
82,372
68,240
(2,990)
17,122
67,299
82,372
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 2011
issued
capital
$000
68,090
104
46
-
retained
earnings
$000
translation
reserve
$000
share-based
payments
reserve
$000
total
$000
2,699
(3,346)
1,131
68,574
-
-
-
-
14,423
(1,482)
-
707
-
104
753
12,941
Balance at 1 July 2009
Shares issued net of
transaction costs
Share based payments
total comprehensive income
Balance at 30 June 2010
68,240
17,122
(4,828)
1,838
82,372
Share based payments
total comprehensive income
-
-
-
2,159
-
(17,439)
207
-
207
(15,280)
Balance at 30 June 2011
68,240
19,281
(22,267)
2,045
67,299
The above statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
32
2011 annual rePort
BaCK to ContentS
Statement oF CaSH FloWS
FOR THE yEAR ENDED 30 JuNE 2011
notes
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
Cash held as security
acquisition of property, plant and equipment
net cash flows (used in) investing activities
cash flows from financing activities
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)
consolidated
2011
$000
2010
$000
61,715
(24,323)
(14,055)
134
23,471
71,274
(23,775)
(15,277)
82
32,304
(34,462)
(34,488)
-
(207)
2,153
(533)
(34,669)
(32,868)
-
-
-
(11,198)
30,255
(4,259)
14,798
(7)
111
104
(460)
31,099
(384)
30,255
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
FOR THE yEAR ENDED 30 JuNE 2011
1.
reporting entity
the consolidated financial report of Carnarvon Petroleum limited (‘Company’) for the financial year ended 30 June
2011 comprises the Company and its controlled entities (the “Group”) and the Group’s interest in jointly controlled
assets.
the separate financial statements of the parent entity, Carnarvon Petroleum limited, have not been presented within
this financial report as permitted by the Corporations Act 2001.
the financial report was authorised for issue by the directors on 31 august 2011.
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 following new standards and amendments to standards are mandatory for the first time for the financial year
beginning 1 July 2010:
• aaSB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements
Project;
• aaSB 2009-8 Amendments to Australian Accounting Standards – Group cash-settled Share-based Payment
Transactions;
• aaSB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues;
• aaSB interpretation 19 Extinguishing Financial Liabilities with Equity Instruments;
• aaSB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19; and
• aaSB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project.
the adoption of these standards did not have any impact on the amounts for the current period or prior periods.
Basis of measurement
the financial report is prepared on a historical cost basis, except for available-for-sale financial which are measured
at fair value.
34
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
2.
Basis of preparation of the financiaL report (continueD)
use of estimates and judgements
the preparation of the financial report requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.
actual results may differ from these estimates.
estimates and underlying assumptions are reviewed on an ongoing basis. revisions to accounting estimates are
recognized in the period in which the estimate is revised and in any future periods affected.
Key estimate – impairment
the 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
estimates are made 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 judgement – 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 judgements – 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.
BaCK to ContentS
Carnarvon Petroleum limited 35
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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 Ventures
the Group’s shares of the assets, liabilities, revenue and expenses of jointly ventures have been included in the
appropriate line items of the consolidated financial statements. details of the Group’s interests are provided in note 16.
(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 against which the
benefits of the deferred tax assets can be utilized.
36
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
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).
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. Such amounts are determined based on current costs.
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%
BaCK to ContentS
Carnarvon Petroleum limited 37
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
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.
(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.
amortisation 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 which are expected to
be recovered by the expiry of the production licenses.
(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.
38
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
(g) 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.
(h) FiNaNCiaL iNSTrumENTS
recognition and initial measurement
Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions
to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the
purchase or sale of the asset (i.e. trade date accounting is adopted).
Financial instruments are initially measured at fair value plus transaction costs, except where the instrument
is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss
immediately.
Classification and subsequent measurement
Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate
method, or cost.
amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition
less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the
difference between that initial amount and the maturity amount calculated using the effective interest method.
Fair value is determined based on current bid prices for all quoted investments. valuation techniques are applied to
determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar
instruments and option pricing models.
the effective interest method is used to allocate interest income or interest expense over the relevant period and
is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction
costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the
contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability.
revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential
recognition of an income or expense item in profit or loss.
the Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the
requirements of accounting Standards specifically applicable to financial instruments.
BaCK to ContentS
Carnarvon Petroleum limited 39
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
(i) 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 subsequently measured at amortised cost.
loans and receivables are included in current assets, where they are expected to mature within 12 months after
the end of the reporting period.
(ii) Available-for-sale financial assets
available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified
into other categories of financial assets due to their nature, or they are designated as such by management.
they comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or
determinable payments.
they are subsequently measured at fair value with changes in such fair value (ie gains or losses) recognised in
other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the
financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in
other comprehensive income is reclassified into profit or loss available-for-sale financial assets are included in
non-current assets where they are expected to be sold within 12 months after the end of the reporting period. all
other financial assets are classified as current assets.
(iii) Financial liabilities
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost.
(i) 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.
(J) 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.
40
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
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.
(k) 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.
(L) SharE CaPiTaL
incremental costs directly attributable to an equity transaction are shown as a deduction from equity, net of any
recognised income tax benefit.
(m) 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.
(N) 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.
BaCK to ContentS
Carnarvon Petroleum limited 41
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
(O) 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.
(P) 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.
(Q) 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.
(r) 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.
(S) 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.
(T) 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.
(u) COmParaTivE FigurES
When required by accounting Standards, comparative figures have been adjusted to conform to changes in
presentation for the current financial year.
42
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
(V) neW stanDarDs anD interpretations not yet aDopteD
the aaSB has issued new and amended accounting Standards and interpretations that have mandatory application
dates for future reporting periods and which the Group has decided not to early adopt. a discussion of those future
requirements and their impact on the Group is as follows:
– aaSB 9: Financial instruments (december 2010) (applicable for annual reporting periods commencing on or after
1 January 2013).
this Standard is applicable retrospectively and includes revised requirements for the classification and measure-
ment of financial instruments, as well as recognition and derecognition requirements for financial instruments.
the Group has not yet determined any potential impact on the financial statements.
the key changes made to accounting requirements include:
-
simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair
value;
simplifying the requirements for embedded derivatives;
removing the tainting rules associated with held-to-maturity assets;
removing the requirements to separate and fair value embedded derivatives for financial assets carried at
amortised cost;
removing the requirements to separate and fair value embedded derivatives for financial assets carried at
amortised cost;
allowing an irrevocable election on initial recognition to present gains and losses on investments in equity
instruments that are not held for trading in other comprehensive income. dividends in respect of these in-
vestments that are a return on investment can be recognised in profit or loss and there is no impairment or
recycling on disposal of the instrument;
requiring financial assets to be reclassified where there is a change in an entity’s business model as they are
initially classified based on: (a) the objective of the entity’s business model for managing the financial assets;
and (b) the characteristics of the contractual cash flows; and
requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change
in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that
would create an accounting mismatch. if such a mismatch would be created or enlarged, the entity is required
to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit
or loss.
-
-
-
-
-
-
-
– aaSB 124: related Party disclosures (applicable for annual reporting periods commencing on or after 1 January
2011).
this Standard removes the requirement for government-related entities to disclose details of all transactions with
the government and other government-related entities and clarifies the definition of a “related party” to remove
inconsistencies and simplify the structure of the Standard. no changes are expected to materially affect the Group.
– aaSB 2009–12: amendments to australian accounting Standards [aaSBs 5, 8, 108, 110, 112, 119, 133, 137, 139,
1023 & 1031 and interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or
after 1 January 2011).
this Standard makes a number of editorial amendments to a range of australian accounting Standards and in-
terpretations, including amendments to reflect changes made to the text of iFrSs by the iaSB. the Standard also
amends aaSB 8 to require entities to exercise judgment in assessing whether a government and entities known
to be under the control of that government are considered a single customer for the purposes of certain operating
segment disclosures. the amendments are not expected to impact the Group.
– aaSB 2009–14: amendments to australian interpretation – Prepayments of a minimum Funding requirement
[aaSB interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2011).
this Standard amends interpretation 14 to address unintended consequences that can arise from the previous
accounting requirements when an entity prepays future contributions into a defined benefit pension plan.
this Standard is not expected to impact the Group.
BaCK to ContentS
Carnarvon Petroleum limited 43
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
3.
significant accounting poLicies (continueD)
– aaSB 2010–4: Further amendments to australian accounting Standards arising from the annual improvements
Project [aaSB 1, aaSB 7, aaSB 101 & aaSB 134 and interpretation 13] (applicable for annual reporting periods
commencing on or after 1 January 2011).
this Standard details numerous non-urgent but necessary changes to accounting Standards arising from the
iaSB’s annual improvements project. Key changes include:
-
clarifying the application of aaSB 108 prior to an entity’s first australian-accounting-Standards financial
statements;
adding an explicit statement to aaSB 7 that qualitative disclosures should be made in the context of the
quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial
instruments;
amending aaSB 101 to the effect that disaggregation of changes in each component of equity arising from
transactions recognised in other comprehensive income is required to be presented, but is permitted to be
presented in the statement of changes in equity or in the notes;
adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and
-
-
-
- making sundry editorial amendments to various Standards and interpretations.
this Standard is not expected to impact the Group.
– aaSB 2010–5: amendments to australian accounting Standards [aaSB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132,
133, 134, 137, 139, 140, 1023 & 1038 and interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting
periods beginning on or after 1 January 2011).
this Standard makes numerous editorial amendments to a range of australian accounting Standards and interpre-
tations, including amendments to reflect changes made to the text of iFrSs by the iaSB. However, these editorial
amendments have no major impact on the requirements of the respective amended pronouncements.
– aaSB 2010–7: amendments to australian accounting Standards arising from aaSB 9 (december 2010) [aaSB 1, 3,
4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and interpretations 2, 5, 10,
12, 19 & 127] (applies to periods beginning on or after 1 January 2013).
this Standard makes amendments to a range of australian accounting Standards and interpretations as a conse-
quence of the issuance of aaSB 9: Financial instruments in december 2010. accordingly, these amendments will
only apply when the entity adopts aaSB 9.
as noted above, the Group has not yet determined any potential impact on the financial statements from adopting
aaSB 9.
44
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
consolidated
2011
$000
93
93
(5,143)
(3,430)
(1,823)
(6,074)
(2,421)
(18,891)
(231)
(212)
2010
$000
82
82
(5,438)
(4,118)
(2,283)
(6,928)
(2,706)
(21,473)
(251)
(204)
122
122
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
depreciation – property, plant and
equipment
rental premises – operating leases
7.
auDitors’ remuneration
Audit services:
auditors of the Company
8.
earnings per share
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
2011
2010
number of shares
686,759,634
683,674,634
590,090
1,723,233
-
-
Weighted average number of ordinary shares 30 June (basic)
687,349,724
685,397,867
effect of share options on issue
-
-
Weighted average number of ordinary shares 30 June (diluted)
687,349,724
685,397,867
Profit used in calculating basic and diluted earnings per share from
continuing operations
$2,159,000
$14,423,000
BaCK to ContentS
Carnarvon Petroleum limited 45
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
9.
taxes
(a) Income tax expense
Numerical reconciliation between pre-tax profit and income tax expense:
consolidated
2011
$000
2011
$000
Prima facie income tax expense on pre-tax profit at 30% (2010: 30%)
4,558
11,262
tax effect of:
Special remuneratory benefit
effect of higher overseas tax rate
Foreign exchange (gains) / losses
non-deductible expenditure
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
Tax Consolidation
(1,200)
6,725
(5,142)
3,861
554
1,277
10,633
5,137
5,496
10,633
(1,856)
6,843
303
581
1,166
1,107
19,406
10,616
8,790
19,406
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.
income tax expense has not been accrued on the profits generated by the thailand joint venture as under australian
tax law, such profits attributable to the branch are taxed in thailand and are non-assessable in australia.
(b) Special remuneratory benefit expense
Special remuneratory benefit
consolidated
2011
$000
2,400
2,400
2011
$000
3,711
3,711
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).
46
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
9.
taxes (continueD)
the SrB, which is tax deductible in the calculation of thai income taxes (see note 9 (a)), 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.
10. traDe anD other receiVaBLes
consolidated
Current
trade and other receivables
Cash held as security
the Group’s exposure to credit and currency risks is disclosed in note 32.
11. property, pLant anD eQuipment
Plant and equipment
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
2011
$000
4,271
1,173
5,444
2011
$000
6,348
1,432
7,780
consolidated
2011
$000
2010
$000
447
106
(58)
495
116
76
192
331
303
42
405
-
447
32
84
116
10
331
BaCK to ContentS
Carnarvon Petroleum limited 47
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
11. property, pLant anD eQuipment (continueD)
Fixtures and fittings
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
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
consolidated
2011
2010
715
85
(68)
732
481
140
621
234
111
103
17
(15)
105
33
16
49
70
56
626
96
(7)
715
334
147
481
292
234
65
38
-
103
14
19
33
51
70
48
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
11. property, pLant anD eQuipment (continueD)
Total
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
12.
inVentories
Current
Consumables
13. other assets
Current
deposits and prepayments
14. expLoration anD eVaLuation expenDiture
Cost:
Balance at beginning of financial year
additions
exploration expenditure written off
Balance at end of financial year
consolidated
2011
2010
1,266
207
(141)
1,332
631
231
862
635
470
733
540
(7)
1,266
380
251
631
353
635
3,381
4,090
287
440
6,351
10,851
(11,247)
5,955
1,219
5,516
(384)
6,351
the exploration expenditure written off during the 2011 financial year consists of $7,856,000 in relation to the
exploration expenses incurred in the l20/50 concession to date and $3,391,00 for the tuatara well drilled in PeP
38254.
BaCK to ContentS
Carnarvon Petroleum limited 49
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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
consolidated
2011
2010
90,127
20,460
(13,038)
97,549
19,951
5,916
25,867
70,176
71,682
62,914
28,087
(874)
90,127
13,213
6,738
19,951
49,701
70,176
16. Joint Ventures
the Group has the following interests in joint venture assets:
Joint venture
ThaiLaNd
principal activities
ownership interest %
2011
2010
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 Blocks l52/50 and
l53/50 3/2553/105 concession
wESTErN auSTraLia
Wa-435-P, Wa-436-P, Wa-437-P,
Wa 438-P, roebuck Basin
exploration for hydrocarbons
exploration for hydrocarbons
exploration for hydrocarbons
Wa-443-P, roebuck Basin
exploration for hydrocarbons
Wa-399-P, Carnarvon Basin
exploration for hydrocarbons
iNdONESia
40%
50%
50%
50%
100%
13%
40%
50%
50%
50%
100%
50%
rangkas, West Java Basin
exploration for hydrocarbons
25%
25%
NEw ZEaLaNd
PeP 38524
exploration for hydrocarbons
10%
-
50
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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
Current tax
Provisions
total current liabilities
non-current liabilities
deferred tax
total non-current liabilities
total liabilities
net assets
income
expenses
net profit after tax
2011
$000
9,349
4,504
3,381
264
2010
$000
7,497
7,097
4,090
318
17,498
19,002
408
5,807
71,682
77,897
95,395
4,046
875
-
4,921
28,802
28,802
33,723
61,672
531
6,176
70,176
76,883
95,885
4,927
6,165
2,172
13,264
23,306
23,306
36,570
59,315
54,750
(43,171)
11,579
65,275
(44,590)
20,685
Capital commitments and contingent liabilities for the joint ventures are disclosed in notes 22 and 23 respectively.
BaCK to ContentS
Carnarvon Petroleum limited 51
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
17. traDe anD other payaBLes
Current
trade payables
non-trade payables and accrued expenses
owing to related parties
consolidated
2011
2010
220
4,611
64
4,895
307
5,298
16
5,621
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
consolidated
2011
$000
2010
$000
-
-
2,172
2,172
Provision for restoration costs
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
30,241
(1,439)
28,802
25,267
(1,961)
23,306
the movement in the deferred tax liability during the reporting period has all been recognised in the income statement.
unrecognised deferred tax assets and liabilities
deferred tax assets have not been recognised in respect of the following items:
australian tax loses
4,256
3,691
the 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. as explained in note 9(a), income tax is not payable in australia on the profits generated by the thailand
joint venture as under australian tax law, such profits attributable to the branch are taxed in thailand and are non-
assessable in australia.
52
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
20. capitaL anD reserVes
Issued capital
Balance at beginning of financial year
employee Share Plan issues
Balance at end of financial year
Issued capital
Balance at beginning of financial year
employee Share Plan related movements
employee Share Plan loans repaid
Share issue transaction costs
Balance at end of financial year
company
2011
2010
number of shares
686,759,634
683,674,634
1,061,000
3,085,000
687,820,634
686,759,634
company
2011
$000
2010
$000
68,240
68,090
-
-
-
46
111
(7)
68,240
68,240
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 options issued under the previous employee option plan or the
loan is repaid under the current eSP.
BaCK to ContentS
Carnarvon Petroleum limited 53
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
21. reconciLiation of cash fLoWs from operating actiVities
(a) Cash flows from operating activities
Profit for the year
Adjustments for:
equity settled share based payment expense
deferred tax expense
depreciation
Foreign exchange losses
exploration expenditure written off
operating profit before changes in working capital and provisions:
Changes in assets and liabilities:
decrease in trade and other receivables
decrease / (increase) in inventories
decrease in other assets
(decrease) 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
2011
$000
2010
$000
2,159
14,423
207
5,496
6,074
4,463
11,247
29,646
1,736
115
107
(726)
(7,407)
23,471
753
8,790
6,930
525
-
31,421
2,550
(225)
237
(1,280)
(399)
32,304
Cash at bank and at call
14,798
30,255
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 $1,173,000 consolidated is included under trade and other receivables (2010:$1,432,000
consolidated), see notes 10 and 23. Since the year end, $422,222 has been released from restricted cash to cash and
cash equivalents as a result of the completion of the l20/50 drilling campaign.
54
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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
2011
$000
2010
$000
394
1,572
4,740
4,864
(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
consolidated
2011
$000
350
1,450
1,800
2010
$000
5,500
4,500
10,000
236
231
BaCK to ContentS
Carnarvon Petroleum limited 55
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
23. contingencies
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 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 (a$1,225,768) 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 (a$612,884) as security in lieu of bonds.
the Company has provided a cash bond of uS$450,000 (a$424,620) 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 (a$424,620) 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 $1,173,000 (2010:
$1,432,000) 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
2011
$000
146
2010
$000
91
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.
56
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
24. empLoyee Benefits (continueD)
the movements in the eSP during the financial year, including those held by Key management Personnel, were as
follows:
1 July 2010
issued
repaid
30 June 2011
number of shares
16,628,199
1,061,000
loan
average loan per share
3,445,013
$0.21
471,084
$.044
-
-
-
17,689,199
3,916,097
$0.22
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
key management
personnel
2011
key
management
personnel
2010
other
employees
2011
other
employees
2010
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
19.5
44.4
44.4
60%
3 years
nil
4.75%
$78,126
23.7 to 24.2
54 to 66
54 to 55
62.5%
3 years
nil
3.25%
$387,171
19.5
44.4
44.4
60%
3 years
nil
4.75%
$129,104
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
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 20 to 25.
BaCK to ContentS
Carnarvon Petroleum limited 57
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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 2011 net receipts from controlled entities totalled $3,873,000 (2010: net
receipts from controlled entities $22,093,000).
the carrying value of loans to controlled entities at 30 June 2011 was $14,186,000 (2010: $8,420,000) after provisions
of $693,000 (2010: $693,000). these loans are unsecured, non-interest bearing, and have no fixed terms of repayment.
Other related party balances
at 30 June 2011 an amount of $63,903 (2010: $15,906) is included in Company and consolidated trade and other
payables for outstanding director fees and expenses.
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
2011
$000
252
385
637
2010
$000
245
71
316
during the reporting period $245,000 was recognised as an expense in the consolidated income statement in respect
of operating leases (2010: $325,000).
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.
58
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
27. segment information (continueD)
Revenue by geographical region
revenue, including interest income, is disclosed below based on the location of the external customer:
thailand
australia
2011
$000
54,797
46
54,843
2010
$000
65,275
37
65,312
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
2011
$000
90,399
8,425
3,193
2010
$000
94,488
23,792
1,447
102,017
119,727
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
2011
$000
1,733
96
78
1,907
2010
$000
1,598
88
387
2,073
information regarding individual directors and executives’ compensation and some equity instruments disclosures,
as permitted by Corporations regulation 2m.3.03, are provided in the remuneration report section of the directors’
report as set out on pages 20 to 25.
apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
Group since the end of the previous financial year and there were no material contracts involving directors’ interests
existing at year end.
BaCK to ContentS
Carnarvon Petroleum limited 59
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
28. key management personneL DiscLosures (continueD)
(b) Loans to key management personnel and their related parties
details of loans to key management personnel and their related parties, which are all interest free loans with limited
recourse security over the plan shares provided in accordance with the Company’s employee Share Plan (“eSP”), are
set out below.
2011
Directors
PJ leonhardt*
eP Jacobson*
Executives
PP Huizenga
aC Cook
2010
Directors
PJ leonhardt*
eP Jacobson*
Executives
PP Huizenga
ra anderson
aC Cook
Balance
1 July 2010 ($)
Balance
30 June 2011 ($)
highest balance
in period
($)
Loaned
in period ($)
repaid
in period ($)
270,000
540,000
357,500
750,000
270,000
540,000
446,300
838,800
270,000
540,000
446,300
838,800
-
-
88,800
88,800
-
-
-
-
Balance
1 July 2009 ($)
Balance
30 June 2010 ($)
highest balance
in period
($)
Loaned
in period ($)
repaid
in period ($)
270,000
540,000
253.100
81,065
-
270,000
540,000
357,500
70,100
750,000
270,000
540,000
357,500
81,065
750,000
-
-
104,400
-
750,000
-
-
-
10,965
-
* the loans to directors were made in 2006 in lieu of normal remuneration at a time the Company had no full time
employees and limited cash resources.
details regarding the aggregate of loans, all of which are interest-free, made by the Group to key management
personnel and their related parties, and the number of individuals in each group, are as follows:
2011
2010
opening
balance ($)
1,647,500
810,253
closing
balance ($)
number in
group at 30 June
1,825,100
1,167,500
3
3
(c) 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
2011
$000
2010
$000
65
16
60
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
28. key management personneL DiscLosures (continueD)
(d) 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 2010
net
acquired/ (sold)
award under
employee
share plan
received on
exercise
of options
held at
30 June 2011
2011
Directors
PJ leonhardt
17,000,000
eP Jacobson
31,037,335
-
-
8,400,000
200,000
-
1,600,000
1,594,839
-
-
-
-
-
-
-
200,000
200,000
-
-
-
-
-
-
17,000,000
31,037,335
8,600,000
-
1,800,000
1,794,839
held at
1 July 2009
net
acquired/ (sold)
award under
employee
share plan
received on
exercise
of options
held at
30 June 2010
nC Fearis
W Foster
Executives
PP Huizenga
aC Cook
2010
Directors
PJ leonhardt
17,000,000
-
eP Jacobson
30,917,335
120,000
nC Fearis
KP Judge
8,400,000
-
10,932,855
(4,000,000)
Executives
PP Huizenga
ra anderson
aC Cook
2,100,000
1,485,000
-
(500,000)
(532,000)
169,839
-
-
-
-
-
-
1,425,000
-
-
-
-
-
-
-
17,000,000
31,037,335
8,400,000
6,932,855
1,600,000
962,000
1,594,839
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.
BaCK to ContentS
Carnarvon Petroleum limited 61
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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
country of incorporation
2011
2010
ownership interest
Carnarvon thailand ltd
British virgin islands
lassoc Pty ltd
Srl exploration Pty ltd
Carnarvon Petroleum (indonesia) Pty ltd
australia
australia
australia
Carnarvon (nZ) Pty ltd
new Zealand
100%
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
no matters or circumstance has arisen since 30 June 2011 that in the opinion of the directors has significantly
affected, or may significantly affect in future financial years:
(iv) The Group’s operations; or
(v) The results of those operations; or
(vi) the Group’s state of affairs
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.
62
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
32. financiaL risk management (continueD)
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 2010:
30 June 2011
30 June 2010
consolidated
equity
$000
5,141
6,177
profit and loss
$000
5,141
6,177
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 2010:
30 June 2011
30 June 2010
consolidated
equity
$000
(5,141)
(6,177)
profit and loss
$000
(5,141)
(6,177)
(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.
BaCK to ContentS
Carnarvon Petroleum limited 63
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
32. financiaL risk management (continueD)
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
2011
2010
14,798
30,255
0.24%
0.3%
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 2010:
30 June 2011
30 June 2010
consolidated
equity
$000
155
188
profit and loss
$000
155
188
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 2010:
30 June 2011
30 June 2010
consolidated
equity
$000
(21)
(43)
profit and loss
$000
(21)
(43)
(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 2011 and June 2010 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 2011 or 30 June 2010 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.
64
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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:
not past due
gross
2011
$000
3,757
3,757
impairment
2011
$000
-
-
consolidated
2011
$000
14,798
5,444
20,242
gross
2010
$000
5,884
5,884
2010
$000
30,255
7,780
38,035
impairment
2010
$000
-
-
Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade
receivables.
(d) Currency risk
Currency risk arises from sales, purchases, assets and liabilities that are denominated in a currency other than the
functional currencies of the entities within the Group, being the a$, 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”).
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$ loans to 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.
BaCK to ContentS
Carnarvon Petroleum limited 65
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
32. financiaL risk management (continueD)
the Group’s exposure to foreign currency risk at balance date was as follows, based on carrying amounts.
Consolidated 2011
Cash and cash equivalents
trade and other receivables
trade payables and accruals
SrB and income tax provisions
Gross balance sheet exposure
Consolidated 2010
Cash and cash equivalents
trade and other receivables
trade payables and accruals
SrB and income tax provisions
Gross balance sheet exposure
thB
a$000
8,702
3,891
(3,580)
(874)
8,139
6,878
5,884
(4,082)
(8,337)
343
usD
a$000
5,737
571
(466)
-
5,842
16,333
-
(16)
-
16,317
the following significant exchange rates applied during the year:
aud to:
1 thai baht
1 uSd
average rate
reporting date spot rate
2011
0.033
1.02
2010
0.034
1.14
2011
0.031
0.94
2010
0.036
1.17
Sensitivity analysis
a 10% strengthening of the aud against the tHB for the 12 months to 30 June 2011 and 30 June 2010 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 2011
tHB
30 June 2010
tHB
consolidated
equity
$000
profit and loss
$000
(11,867)
(3,049)
(10,389)
(3,167)
66
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
32. financiaL risk management (continueD)
a 10% weakening of the aud against the tHB for the 12 months to 30 June 2011 and 30 June 2010 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 2011
tHB
30 June 2010
tHB
(e) Fair values
consolidated
equity
$000
profit and loss
$000
14,504
3,954
12,675
3,746
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
fair Value
carrying amount
fair Value
2011
$000
5,444
14,798
(4,895)
15,347
2011
$000
5,444
14,798
(4,895)
15,347
2010
$000
7,780
30,255
(5,621)
32,414
2010
$000
7,780
30,255
(5,621)
32,414
the basis for determining fair values is disclosed in note 3(h).
(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.
BaCK to ContentS
Carnarvon Petroleum limited 67
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
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:
carrying amount
contractual
cashflows
$000
$000
6 months
or less
$000
6 to 12 months
$000
Consolidated 2011
Non-derivative financial liabilities
trade and other payables
SrB and income tax provisions
Consolidated 2010
Non-derivative financial liabilities
trade and other payables
SrB and income tax provisions
4,895
875
5,770
5,621
8,337
13,958
4,895
875
5,770
5,621
8,337
13,958
4,895
875
5,770
5,621
6,165
11,786
-
-
-
-
2,172
2,172
33. parent information
the following information has been extracted from the books and records of the parent and has been prepared in
accordance with the accounting standards:
STaTEmENT OF FiNaNCiaL POSiTiON
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
2011
$000
6,799
17,521
24,320
493
-
493
68,240
(46,458)
2,045
23,827
(9,102)
(9,102)
2010
$000
23,717
9,439
33,156
418
-
418
68,240
(37,340)
1,838
32,738
14,011
14,011
68
2011 annual rePort
BaCK to ContentS
noteS to tHe FinanCial StatementS
FOR THE yEAR ENDED 30 JuNE 2011
33. parent information (continueD)
ParENT CONTiNgENCiES
the Company has provided a cash bond of uS$450,000 (a$424,620) 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 (a$424,620) 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
2011
$000
2010
$000
ParENT CaPiTaL aNd OThEr COmmiTmENTS
(a) Joint venture commitments
Capital commitments of the Group to joint venture assets:
Within one year
4,740
4,864
(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
350
1,450
1,800
236
145
318
463
5,500
4,500
10,000
230
149
14
163
BaCK to ContentS
Carnarvon Petroleum limited 69
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 69 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 2011 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 2011.
Signed in accordance with a resolution of the directors.
pJ Leonhardt
director
Perth, 31 august 2011
70
2011 annual rePort
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indePendent audit rePort
BaCK to ContentS
Carnarvon Petroleum limited 71
indePendent audit rePort
72
2011 annual rePort
BaCK to ContentS
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.
BaCK to ContentS
Carnarvon Petroleum limited 73
CorPorate GovernanCe Statement
ExPLaNaTiONS FOr dEParTurES FrOm bEST PraCTiCE rECOmmENdaTiONS
From 1 July 2010 to 30 June 2011 (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
notification of
Departure
explanation for
Departure
2
2.4
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.
idENTiFiCaTiON OF iNdEPENdENT dirECTOrS
the Company’s independent directors are considered to be Peter leonhardt, ted Jacobson, 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.
74
2011 annual rePort
BaCK to ContentS
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 30 auguST 2011
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
HSBC Custody nominees (australia) limited
national nominees limited
mr edward Patrick Jacobson
Citicorp nominees Pty limited
Jacobson Geophysical Services Pty ltd
Pendomer investments Pty ltd
J P morgan nominees australia limited
mr Peter James leonhardt
mr James mark dack
arne investments Pty ltd
mr edward Patrick Jacobson
Geolyn Pty ltd
mr Philip Paul Huizenga
arne investments Pty ltd
mr nigel roy Goldthorpe
Seawell Super Pty ltd
macquarie Bank limited
loong Phoong Pty ltd
mr William douglas Goodfellow
number of shares
% held
49,030,654
37,143,913
32,267,354
12,917,903
11,927,116
9,728,390
8,600,000
8,504,085
7,700,000
7,000,000
6,710,493
6,000,000
6,000,000
4,400,000
3,991,906
3,910,432
3,810,000
3,564,598
3,431,000
3,400,853
7.10
5.38
4.67
1.87
1.73
1.41
1.25
1.23
1.12
1.01
0.97
0.87
0.87
0.64
0.58
0.57
0.55
0.52
0.50
0.49
230,038,697
33.33
BaCK to ContentS
Carnarvon Petroleum limited 75
additional SHareHolder inFormation
a)
SharEhOLdiNgS aS aT 30 auguST 2011 (CONTiNuEd)
Distribution of equity security holders
size of holding
1
1,001
5,001
10,001
100,001
1,000
5,000
10,000
100,000
to
to
to
to
and over
number of
shareholders
number of
fully paid shares
551
2,246
1,998
4,677
792
10,264
308,791
7,121,900
16,956,622
167,651,397
498,281,924
690,320,634
the number of shareholders holding less than a marketable parcel of ordinary shares is 704.
b)
C)
OPTiON hOLdiNgS aS aT 31 auguST 2011
there were no share options on issue.
ON-markET buybaCk
there is no current on-market buyback.
d)
SChEduLE OF PErmiTS
Basin/country
Joint Venture partners
eQuity %
operator
permit
SW1a
l33/43
l44/43
Phetchabun / thailand
Phetchabun / thailand
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
raisama
Carnarvon
Pearl oil
Carnarvon
lundin Petroleum
tap oil
eP321
eP407
Perth / australia
Carnarvon
Perth / australia
Carnarvon
Wa-399-P
Carnarvon / australia
Carnarvon
apache
rialto energy
Jacka
Wa-435-P, Wa-436-P,
Wa-437-P, Wa-438-P
roebuck / australia
Carnarvon
Finder exploration
40%
60%
40%
60%
40%
60%
50%
42.5%
7.5%
50%
50%
25%
51%
24%
Pan orient energy
Pan orient energy
Pan orient energy
Carnarvon
Pearl oil
lundin Petroleum
2.5% of
38.25%
2.5% of
42.5%
latent Petroleum
latent Petroleum
13%
60%
12%
15%
50%
50%
apache
Finder exploration
Wa-443-P
roebuck / australia
Carnarvon
100%
Carnarvon
PeP38524
taranaki
Carnarvon
aWe
roC oil
Kea oil & Gas
10%
60%
20%
10%
aWe
76
2011 annual rePort
BaCK to ContentS
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www.carnarvon.com.au
For the financial year ended June 30, 2011
ABN 60 002 688 851