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2012
AnnuAl RepoRt
ABn 60 002 688 851
Additional Shareholder Information
b)
Option holdings as at 31 August 2012
There were no share options on issue.
c)
On-market buyback
There is no current on-market buyback.
d)
Schedule of permits
BASIN/COUNTRY
JOINT VENTURE PARTNERS
EQUITY %
OPERATOR
PERMIT
SW1A
L33/43
L44/43
L20/50
L52/50, & L53/50
EP321
EP407
WA-399-P
Phetchabun /
Thailand
Phetchabun /
Thailand
Phetchabun /
Thailand
Phitsanulok /
Thailand
Surat-Khiensa /
Thailand
Perth / Australia
Carnarvon
Towngas
Carnarvon
Towngas
Carnarvon
Towngas
Carnarvon
Sun Resources
Carnarvon
Mubudala
Carnarvon
Perth / Australia
Carnarvon
Carnarvon /
Australia
Carnarvon
Apache
Rialto Energy
Jacka
Carnarvon
Finder Exploration
Carnarvon
WA-435-P, WA-
436-P, WA-437-P,
WA-438-P
Roebuck /
Australia
WA-443-P
Roebuck /
Australia
Towngas
Towngas
Towngas
Carnarvon
Mubudala
40%
60%
40%
60%
40%
60%
55%
45%
50%
50%
2.5% of
38.25%
2.5% of
42.5%
13%
Latent Petroleum
Latent Petroleum
Apache
60%
12%
15%
50%
50%
100%
Finder Exploration
Carnarvon
Carnarvon Petroleum Limited
73
CONTENTS
Chairman’s Review .............................................................2
Consolidated Statement of Financial Position ......... 27
Chief Executive’s Review ..................................................3
Consolidated Statement of Changes in Equity ........ 28
Operating and Financial Review ...............................4-12
Statement of Cash Flows ............................................... 29
Directors’ Report........................................................ 13-23
Notes to the Financial Statements ....................... 30-65
Auditor’s Independence Declaration ........................... 24
Directors’ Declaration ..................................................... 66
Consolidated Income Statement ................................. 25
Independent Audit Report ....................................... 67-68
Consolidated Statement of ........................................... 26
Comprehensive Income
Corporate Governance Statement ........................ 69-71
Additional Shareholder Information ...................... 72-73
CORPORATE DIRECTORY
Directors
Registered Office
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
G Smith
Auditors
Crowe Horwath Perth
Bankers
Australia and New Zealand Banking Group Limited
National Australia Bank Limited
HSBC
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.au
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
Carnarvon Petroleum Limited’s shares are quoted on the
Australian Securities Exchange.
ASX Code
CVN - ordinary shares
Carnarvon Petroleum Limited
BACK TO CONTENTS
1
Chairman’s Review
Our results for the 2012 financial year reflect a difficult period in which we have worked hard to address
several challenges, most particularly around our production assets in Thailand.
Last year in my review I touched on our plans to re-weight
our production in Thailand from oil produced from volcanic
reservoirs to oil produced from sandstone reservoirs. The
commencement of this initiative was delayed as we awaited
approvals from the Thai Government. The approvals were
eventually received in June 2012 and we commenced the
program in July with immediate and encouraging results.
Our production was also impacted by a number of wells
being shut in for regulatory reasons. This matter is being
addressed but has also taken longer than we had hoped.
On a more positive note, late in the financial year the 60%
joint venture interest held by our former partner in Thailand,
Pan Orient Energy, was acquired by Hong Kong and China
Gas Company Limited (Towngas). Towngas are a substantial
Hong Kong listed company and have, in a very short time
since acquiring the asset, shown they have access to
extensive resources that have not been applied to this asset
before. Carnarvon welcomes Towngas and looks forward to
working with them to enhance returns from the Thai assets.
For the year ended 30 June 2012 Carnarvon recorded
sales revenue of $30.4 million, a profit before tax of $6.9
million and a loss after tax of $2.5 million. The earnings
figures include a $3.4 million exploration expenditure write-
off for the Rangkas PSC seismic acquisition program as
the Company continues to maintain a prudent policy of
expensing exploration costs.
During the year the Board of Directors undertook a review
of its remuneration policies and introduced a number of
changes in both the short and long term incentive programs.
These included, for example, issuing employee share plan
shares at a premium to market and extending vesting
periods. Additional business performance hurdles were also
put in place for the short term incentive program. I would
note that this year no short term bonuses were paid and no
employee share plan shares were issued to non-executive
directors. There has also been no increase in fees to non-
executive directors. Changes in remuneration noted in the
Remuneration Report were solely on account of changes
in management’s roles and responsibilities following the
retirement of Ted Jacobson as Managing Director in June
2011.
I am pleased to report that following the year-end our
initiatives to increase production through the sandstone
development program are starting to bear fruit. Our efforts to
realise value from our interest in the Phoenix gas discovery in
Western Australia are also close to fruition through the farm-
out of two of our exploration permits and the acquisition
of a significant new 3D seismic program that creates the
opportunity to accelerate the next round of farm-outs in
this area.
Despite difficult global economic conditions we believe the
Company is well placed to re-build value through increasing
its production in Thailand and drilling the potentially
significant prospects around the Phoenix discovery.
We look forward to delivering on the above and new
opportunities in 2013 and I can assure you that our team is
fully committed to achieving these objectives.
Peter Leonhardt
Chairman
2
BACK TO CONTENTS
Annual Report 30 June 2012
Chief Executive’s Review
The past financial year was a busy year for Carnarvon as the company drilled 20 wells in the L33/43,
L44/43 and SW1A Concessions, acquired 2D seismic data in the L52/50 and L53/50 Concessions, and
completed post-well technical work in the L20/50 Concession, all onshore Thailand. The company was
also busy completing technical work associated with the Phoenix 3D seismic program in the WA-435-P
and WA-437-P blocks offshore Western Australia and the Rangkas block onshore Indonesia post the
acquisition of 2D seismic in the previous year.
The results from drilling into volcanic reservoirs in the L33/43,
L44/43 and SW1A Concessions were disappointing,
resulting in a decrease in oil production, revenue and
reserves. However, success in the discovery and appraisal
of significant sandstone reservoirs bodes well for future
development. The sandstone development program was
delayed until environmental impact assessment approvals
were granted in June 2012 but initial wells have delivered
positive results and, importantly, in line with projections.
Since June 2012, we have been working extensively with
Towngas, the new operator of the L44/43, L33/43 and
SW1A Concessions in Thailand. As Mr Leonhardt outlined
earlier, while Towngas have only been managing the field for
a short time, their approach and multi-disciplinary approach
to exploration, appraisal and development is refreshing
and has already produced positive results. Carnarvon will
continue to work closely with the Towngas management
team, who are planning significant production increases in
a very disciplined manner.
Also in Thailand, the 2D seismic program over the L52/50
and L53/50 Concessions was completed during the year,
and after processing and interpretation several significant
structures are evident which have the potential to contain
5-20 million barrels of oil. The Concessions are on trend
and in a similar geological structure to the prolific Nuan –
Nuan oil field that flowed up to 10,000 bopd. Carnarvon
has previously indicated its desire to farm out a portion of
its current 50% interest in these Concessions in order to
fund further exploration activities, including the drilling of two
exploration wells.
In Australia, we completed the technical work on the WA-
435-P and WA-437-P permits that enabled us to commence
the farm-out process as planned in February 2012.
Carnarvon is seeking to secure a major oil and gas company
to operate the permits and in particular drill exploration wells
to test the significant Phoenix South and Roc prospects.
These prospects are well defined on modern 3D seismic
data, being the first 3D data to be completed in the Bedout
Sub-Basin area. They are also close to two wells within
the WA-435-P permit that intersected gas in sands over
approximately a 700 metre interval of the well bore.
The Company’s technical
work is showing that there
are a large number of play
types warranting exploration
covering gas, gas/
condensate and oil
Following the acquisition of the first 3D seismic program
covering 1,100 km², an additional 3,854 km² has been
completed (although not yet licensed by Carnarvon),
providing a very substantial and important 4,954 km² of
modern 3D data over an area of approximately 28,000 km²
covering five contiguous permits.
The Company’s technical work is showing that there are a
large number of play types warranting exploration covering
gas, gas/condensate and oil. The shallow water depth and
close proximity to shore and relevant infrastructure warrants
a concerted focus by Carnarvon to participate in future
exploration programs in this region.
Carnarvon is pleased to have secured this acreage on
very low commitments ahead of a major push into the
area by a number of major oil and gas companies who
have collectively committed to an exploration program that
includes a minimum of 20,000 km² of new 3D seismic data
and around 23 exploration wells.
We are pleased to be working with Towngas as the new
operator of the oil production facilities in Thailand and to
have a clear and deliverable plan to increase production to
a targeted 3,000 bopd gross before the end of the calendar
year, with more detailed plans beyond this time currently
being prepared. We are also looking forward to being able
to explore the potential in the Phoenix area in Western
Australia and the opportunities that could be generated in
the greater Phoenix area.
Adrian Cook
Chief Executive Officer
Carnarvon Petroleum Limited
BACK TO CONTENTS
3
Operating and Financial Review
Permits
Permit
Basin
Equity
Joint Venture
Partner(s)
Partner
Interest Program
Indicative Forward
Thailand
SW1A
L33/43
L44/43
Phetchabun
Phetchabun
Phetchabun
L20/50
Phitsanulok
40%
40%
40%
55%
L52/50
Surat-Khian Sa
50%
L53/50
Surat-Khian Sa
50%
Australia
WA-435-P
Roebuck
WA-436-P
Roebuck
WA-437-P
Roebuck
WA-438-P
Roebuck
50%
50%
50%
50%
WA-443-P
Roebuck
100%
EP321
EP407
Perth
Perth
2.50% of 38.25% (iii)
2.50% of 42.5% (ii)
WA-399-P
Carnarvon
13%
Pan Orient Energyi,ii
Pan Orient Energyi,ii
Pan Orient Energyi,ii
Sun Resources
Mubudalai
Mubudalai
Finder Explorationi
Finder Explorationi
Finder Explorationi
Finder Explorationi
60%
60%
60%
45%
50%
50%
50%
50%
50%
50%
Apache i
Rialto Energy
Jacka Resources
60%
12%
15%
Production, Appraisal
Production, Appraisal, Exploration
Production, 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
Note:
(i) Denotes operator where Carnarvon is non-operator partner
(ii) Post year end, Towngas purchased Pan Orient’s Thailand assets
(iii) Carnarvon has an overriding royalty interest in these assets
Thailand
L44/43, L33/43 &, SW1A Phetchabun Basin (“SW1A”)
(Carnarvon Petroleum 40%, Pan Orient 60% operator)
Background
Carnarvon’s producing asset is contained within the L33/43,
L44/43 and SW1A Concessions. These Concessions are
situated in Thailand, within the Phetchabun Basin.
Since 1995 oil has been produced from the sandstone
reservoirs of the Wichian Buri oil field. In 2006, an exploration
well (POE-9) flowed oil at 330 bopd from a fractured
volcanic reservoir. Follow-up appraisal wells (NS-3 and NS-
4) confirmed a significant oil discovery when they flowed at
rates exceeding 400 bopd and 750 bopd respectively. The
success sparked an aggressive exploration and development
campaign which discovered the Bo Rang, L44W, Na Sanun,
Na Sanun East, Wichian Buri Extension (WBEXT) and L33-2
oil fields. These fields contain multiple oil bearing reservoirs
and have increased the discovered original oil in place (OOIP)
within the concessions to over 400 million barrels.
Several of these oil fields consist of sandstone and fractured
volcanic reservoirs. The volcanic reservoirs tend to produce
at highly variable rates due to their fracturing, the initial rates
tend to be high but drop rapidly after water encroaches into
the wellbore. The sandstone reservoirs, in contrast, produce
at lower rates with less variability making them easier to
forecast.
2012 Drilling
The joint venture performed 20 drilling operations in the
2012 financial year targeting a combination of volcanic and
sandstone reservoirs. A complete list of results can be found
in the table on page 6.
4
BACK TO CONTENTS
Annual Report 30 June 2012
Inflow Control Devices
installing
Throughout the year, the Joint Venture began
addressing the production variability of the volcanic
inflow control devices
reservoirs by
(ICDs) in the horizontal development wells. An
ICD is hardware that is deployed as a part of
well completions aimed at distributing the inflow
of fluids evenly across horizontal well sections,
especially in instances where there is permeability
contrasts along the wellbore. The joint venture aims
to use this technology with the fractured volcanic
reservoirs to reduce the production from water
bearing fractures. Restricting flow from the water-
bearing fractures reduces the water cut and allows
the well to flow oil at higher production rates.
The first ICD was trialed in November 2011. The
trial utilised an existing well, BR-1RDST1, to allow
the comparison of production before and after
the device was installed. The installation of the
device reduced the water cut from 90% to 80%
and as a result, the oil production increased from
50 bopd to over 200 bopd. Since then, ICDs have
been installed in another 6 wells with encouraging
results. It is expected that future development
plans will incorporate this technology.
Exploration
The Concessions cover a substantial area of
the prolific Phetchabun Basin and significant
exploration potential remains. The Joint Venture
has committed to a multi-year exploration program
including seismic acquisition in the upcoming
financial year with the intention to exploit this
potential. The program includes 200 km of 2D
in the L33/43 Concession and up to 200 km2
of 3D seismic across the L33/43 and L44/43
Concessions, of which planning has commenced
for 3D acquisitions in L33 for this financial year.
The seismic data will be used to identify further oil
prospects and better delineate the L33 oil field.
The Concessions cover
a substantial area of the
prolific Phetchabun Basin
and significant exploration
potential remains.
Operating and Financial Review
New Proposed
2D Areas
New Proposed
3D Areas
Existing
3D Areas
Figure 1: Carnarvon’s Proposed Seismic Program within the
Phetchabun Basin
L33
Wichian Buri
Extension
Wichian Buri
NSE North
L44 W
Bo Rang
A & B
NSE F1
NSE Central
Na Sanun
NSE South
Prospects and Leads
2P Reserves
Resource +3P
Si Thep
Figure 2: Carnarvon’s Production Licenses within the Phetchabun Basin
Carnarvon Petroleum Limited
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5
Operating and Financial Review
Well
Q1
NS-2A
NSW-A
WBEXT-1DST1
& ST2
L44-G2 & ST1
POR-6B
NSE-F6
Q2
L33-2A
BR-2ST3
BR-4DST1
NSE F7
NSE F5
NSE F9
BR-4D1ST2
L44-VD1ST1 &
ST2
Q3
POE-3A
L44-R2ST1 &
ST2
L44-G3
NS-4A
Q4
NS-9A
NS-8B
Development well for the Na Sanun Field. The well produced over 300 BOPD on test from the Main
Na Sanun Volcanic
Exploration well in L44/43. Encountered a tight primary volcanic objective with encouraging oil
shows in sands below the volcanic zone. Well bore conditions did not allow wire line logging
despite repeated attempts. This well has been suspended until the deeper sandstone potential is
evaluated.
Designed to appraise the WBV2 volcanic in the WBEXT area. The well was drilled as a sidetrack
from the WBEXT-1D well. Borehole stability issues required another sidetrack (WBEXT-1DST2) into
the WBV1 volcanic. The well produced over 400 BOPD on test.
Appraised the NSE North accumulation discovered in August 2007. The well was completed as a
development well but initial testing did not flow commercial hydrocarbons.
Appraised the “G” sandstone reservoir. The well was completed as a production well.
Development of the NSE-F field. The well was completed in the main volcanic reservoir and
produced over 1000 BOPD on test.
Exploration well in L33/43. The well targeted the unproven WBV2 volcanic zone below the
producing WBV1 volcanic. Drilling fluid losses over the interval indicated excellent fracturing
however, only water was recovered on test.
Development of the Bo Rang “A1” volcanic reservoir. The well tested at an initial rate of
approximately 500 BOPD and no water
Development of the Bo Rang “A1” reservoir at a location approximately 850 meters east of BR-
2ST3 development well. Issues with the steering equipment caused the well to miss the target. The
well was suspended prior to drilling a second sidetrack.
Development of the NSE-F field. The well encountered extensive fracturing within the target
volcanic formation with over 2,000 barrels of fluid losses observed while drilling. The well tested at
540 BOPD.
Development of the NSE-F field. The well was drilled as a horizontal well targeting the main
volcanic unit approximately 1.4 kilometres east of the NSE-F7 well. It was put on test prior to
running an ICD recompletion. The well tested at 690 BOPD after the ICD was installed.
Appraised the extent of the NSE-F field. The well recovered 38degree API oil however the well
did not encounter the fracturing required for commercial production. The well was suspended in
preparation for a sidetrack at a future date.
A sidetrack of BR-4ST1 that targeted the Bo Rang “A1” reservoir. The well was completed as
a producer from the “A1” volcanic interval. Early production testing was dominated by fluid lost
during the drilling process but oil production was eventually established at rates up to 200 BOPD.
Appraised the Bo Rang “A2” volcanic interval. The well encountered oil but it did not encounter
significant fracturing required for commercial production. The well has been placed on intermittent
production while the “A2” volcanic is evaluated.
Appraised the main F sand reservoir of the Wichian Buri field, down flank from the production
wells. The sands encountered appeared to be depleted and the well was deemed unsuccessful
after testing. The results of this well were incorporated into the year end 2011 reserve report.
Exploration well in L44/43. The well tested the potential of two volcanic intervals below the proven
oil bearing uppermost volcanic. Both zones initially flowed oil on test but quickly went to a 100%
water cut.
Appraisal of the NSE North field. The well targeted the proven volcanic reservoir and one deeper
unproven potential volcanic reservoir. Production testing of both reservoir intervals found them to
be tight.
Exploration well targeting a volcanic interval below the main volcanic reservoir of the Na Sanun oil
field. The well lost significant drilling fluids over the reservoir interval, indicating good flow potential
however the well produced water on test. Over 3,000 barrels of drilling fluid losses were reported
at the very top of the target interval. While drilling to the main target, the well discovered an oil
bearing sand. The sand produced 250 BOPD on test. The equivalent sandstone interval was then
perforated in the NS-4 well which then produced an additional 220 BOPD.
Spud Date
5-Jul-11
16-Jul-11
23-Jul-11
21-Aug-11
9-Sep-11
20-Sep-11
3-Oct-11
15-Oct-11
23-Oct-11
3-Nov-11
18-Nov-11
29-Nov-11
16-Dec-11
22-Dec-11
21-Jan-12
18-Feb-12
16-Mar-12
28-Mar-12
Development of the Na Sanun oil field. The well was completed to produce from the main volcanic
interval and produced 580 BOPD on test. An ICD was installed in the well in July 2012.
NS-8B targeted the oil bearing sand discovered by NS-4A. The well encountered oil bearing sands
and is currently on test.
11-Apr-12
24-Jun-12
Note: All flow rates and volumes are gross to the JointVenture in which Carnarvon has a 40% interest
6
BACK TO CONTENTS
Annual Report 30 June 2012
L20/50 Phitsanulok Basin
(Carnarvon Petroleum 50% Operator,
Sun Resources 50%)
The L20/50 Concession, granted in January 2007, is
situated approximately 30 km’s to the southeast and on
trend with the largest onshore oil field in Thailand at Sirikit.
The permit is around 60 km to the west of Carnarvon’s 40%
owned Petchabun Basin producing assets. The concession
covers 4,000 km2 and is lightly explored.
The acquisition of 550 km of 2D seismic data was completed
in 2009. Processing and interpretation of the new 2D seismic
data was completed in early 2010.
Significant sedimentary section and structuring were evident
in the new data, and play types include Sirikit style fans,
Wichian Buri style sandstones and Na Sanun style volcanics.
In early 2011, the Joint Venture drilled two exploration wells.
The wells discovered good reservoir sands that were water
bearing.
Subsequent geological modeling identified several drilling
prospects that Carnarvon is seeking to explore with new
joint venture partners.
Operating and Financial Review
L52/50 and L53/50 Surat-Khian Sa Basin
(Carnarvon Petroleum 50%, Mubudala 50% operator)
The exploration Concessions L52/50 and L53/50 onshore
Thailand were awarded to Carnarvon and Mubudala in
March 2010. The L52/50 Concession covers an area of
3,085 km² and the L53/50 Concession covers an area of
3,872 km².
New 2D
Seismic survey
completed
2012
Figure 4: Basin location within the L52/50 and L53/50 Concessions
Figure 5: Seismic line through Khian Sa Basin
Figure 3: Map of the Thailand Concessions
Carnarvon Petroleum Limited
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7
Operating and Financial Review
These blocks are situated in the Khian Sa 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.
Three oil and gas exploration wells have been drilled in the
L52/50 Concession in addition to two very shallow coalbed
methane wells. One well has been drilled in the L53/50
Concession.
Australia
WA-435-P, WA-436-P. WA-437-P & WA-438-P Offshore
Northwest Shelf
(Carnarvon Petroleum 50%, Finder Exploration 50%
operator)
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 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).
The current Joint Venture acquired 314 km of new 2D seismic
data with the processing and interpretation being completed
in April 2012. Several leads and three prospects have been
identified with individual prospect volume estimates of up to 42
MMBO (P50). The target formation is the Permian limestone’s,
similar to those producing in the Chumphon basin.
The Joint Venture is currently farming out an interest in the
permit in exchange for payment of the exploration costs
relating to the 2013 commitment wells.
The WA-435-P, WA-436-P, WA437-P and WA-438-P permits
contain the Phoenix-1 and Phoenix-2 wells with the first
being declared a gas discovery. The Joint Venture embarked
on an extensive geological study, acquiring 1,100 km2 of
multi-client 3D seismic and another 407 km of 2D seismic
data. The Phoenix seismic acquisition was completed on 16
February 2011 and the processed 3D dataset was delivered
in July 2011. Detailed velocity analyses and migration carried
out followed by detailed reservoir analysis and remapping of
the WA-435-P and WA-437-P permits.
The study confirmed two significant gas prospects, Phoenix
South within WA-435-P and Roc in WA-437-P. Combined,
the prospects contain approximately 2 Tcf of prospective
resources. Development of gas discoveries in this area
could utilise the existing onshore domestic gas pipeline
infrastructure at Port Hedland or tie into offshore facilities
in the area.
8
BACK TO CONTENTS
Annual Report 30 June 2012
Operating and Financial Review
The Joint Venture aims to drill the prospects in
2013. To fund this, the joint venture began farming
out the WA-435-P and WA-437-P concessions
in February 2012. The farm-out has progressed
significantly and Carnarvon is in negotiations
to secure an international oil and gas major to
operate the permits and drill exploration wells to
test the prospects.
and WA-438-P
WA-436-P
currently
undergoing further analysis to understand the
exploration potential within these blocks.
are
Figure 6: Offshore North West Shelf permit map
Figure 7: North West Shelf leads and prospects
On 26 June 2012 the 3,854 km² new Zeester
3D seismic survey was completed covering the
Northern part of WA-435-P and WA-436-P. The
survey covers several key leads of interest and
has the potential to add significant value to the
Phoenix blocks and WA-443-P. At this stage
Carnarvon has not licensed the data.
WA-443-P Australia Offshore Northwest Shelf
(Carnarvon Petroleum 100% Operator)
This exploration permit is situated adjacent to
Carnarvon’s four existing permits WA-435-P,
WA-436-P, WA-437-P and WA-438-P, in which
it holds a 50% interest, within the Bedout Sub-
Basin.
No previous drilling has taken place in the WA-
443-P block. There are a number of leads in the
permit of a structural form and size 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.
The multi-client 3D seismic survey being
undertaken across WA-435-P and WA-437-P
also extends into part of WA-443-P. The seismic
acquisition will cover the Salamander
lead,
identified in a regional technical review, in the
north-western section of the block.
The permit also contains a large Middle Triassic
Jaubert lead. The structural form and size of this
lead comparable to the adjacent Phoenix group
of potentially large gas accumulations.
Geological and geophysical studies are being
carried out in conjunction with similar work in the
Phoenix permits.
Figure 8: North West Shelf seismic 3D seismic locations over key leads and prospects
Carnarvon Petroleum Limited
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9
Operating and Financial Review
WA-399-P – Australia Offshore Northwest Shelf
(Carnarvon Petroleum 13%, Apache Energy 60% and
Operator,Jacka Resources 15% and Rialto Energy 12%)
WA-399-P was awarded on 7 May 2007. The exploration
permit covers an area of 50 km² 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 the “Gazelle” 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 interpretation and analysis of the data supports several
prospects and leads in the permit that requires further review.
The Joint Venture also approved making an application to
the Government to defer the drilling commitment by 12
months to allow further technical and commercial work
to be undertaken. This will include an assessment of the
potential to co-ordinate activities and resources with other
permits in the region operated by Apache.
Figure 9: WA-399-P permit map
Indonesia
Rangkas PSC Onshore Java
(Carnarvon Petroleum 25%, Lundin Petroleum 51%
and Operator, Tap Oil 24%)
After a strategic and technical review, the Joint Venture
commenced the process of withdrawing from the Rangkas
PSC. An assessment of the seismic data gathered in 2011
identified several prospects. However, the prospects would
appear to have a low chance of success and do not have
sufficient volume to warrant further exploration activities.
10
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Annual Report 30 June 2012
Operating and Financial Review
RESERVE ASSESMENT
Proved and Probable (2P) Reserves Thailand
Petroleum Resource Classification,
Categorisation and Definitions
Carnarvon calculates reserves and resources according
the SPE/WPC/AAPG/SPEE1 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.
A breakdown of the major reservoirs net to Carnarvon is
given below.
Net Carnarvon Reserves
31-Dec-11
Proved + Probable
Reservoir
Type
2P
(million bbls)
NSE Central
NSE-F1
Bo Rang - B
Bo Rang - A
L44-W
NSE South
Wichian Buri
Si Thep
WBExt - Volc
WBExt - SST
L33
Other
Total
0.8
1.6
2.1
1.4
0.4
0.7
0.8
0.4
1.5
1.7
0.4
0.4
12.1
Volcanic
Volcanic
Volcanic
Volcanic
Volcanic
Volcanic
Sandstone
Sandstone
Volcanic
Sandstone
Volcanic
Various
These reservoirs are schematically reproduced below.
Carnarvon Reserves
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 12.1 million barrels of 2P oil reserves net to
Carnarvon as at 31 December 2011.
Net Carnarvon Reserves
Proved +
Probable
Proved +
Probable +
Possible
2P
(million
bbls)
3P
(million
bbls)
Proved
1P
(million
bbls)
L33
Wichian Buri
Extension
Wichian Buri
NSE North
L44 W
Bo Rang
A & B
NSE F1
NSE Central
Na Sanun
NSE South
Prospects and Leads
2P Reserves
Resource +3P
Si Thep
GCA 31 Dec
2011
3.8
12.1
22.7
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.
1 Society of Petroleum Engineers (“SPE”); World Petroleum Council
(“WPC”); American Association of Petroleum Geologist (“AAPG”) &
Society of Petroleum Evaluation Engineers (“SPEE”)
Carnarvon Petroleum Limited
BACK TO CONTENTS
11
Operating and Financial Review
Financial Review
The Group reports an after-tax loss of $2,498,000 for the
financial year ending 30 June 2012.
2012
2011
Change
Production (bbls)
321,968 731,544 t 56%
Sales ($’000)
30,411
54,750 t 44%
Cost of sales
15,828
18,891 t 16%
The decline in production is the main driver of the decrease
in revenue in the 30 June 2012 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 2012
financial year consists of $3,361,000 in relation to the
exploration expenses incurred in the Rangkas PSC.
The Company spent $14,583,000 on exploration and
development drilling and associated activities during the
period.
The Company has reported current income tax expense of
$5,074,000 despite making a profit before income tax of
$6,885,000. This arises because profit before income tax
includes expenses of $7,759,000 which are not available
as tax deduction for Thailand income tax purposes. These
expenses relate to head office corporate expenses and
exploration expenditure written off which were not incurred
in Thailand.
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.
12
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Annual Report 30 June 2012
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 2012, 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 of 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
Mr Cook has 25 years experience in commercial and financial management, primarily in the petroleum industry.
Immediately prior to joining Carnarvon, he 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. Mr Cook
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.
During the past three years Mr Cook has served as a Director of Buru Energy Limited (from August 2008 to November 2009).
Mr Cook joined Carnarvon on 2 November 2009 and was appointed to the Board on 1 July 2011.
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 Mr Jacobson 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. Mr Jacobson retired from Tap in September 2005.
During the past three years Mr Jacobson has served as director of 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.
Carnarvon Petroleum Limited
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13
Directors’ Report
Neil C Fearis
Non-Executive Director
LL.B (Hons), FAICD, F Fin
Appointed as a director on 30 November 1999.
Mr Fearis has over 35 years’ experience as a commercial lawyer in the UK and Australia.
During the past three years Mr Fearis served as a director of the following listed companies: Perseus Mining Limited (from
2004); Liberty Resources Limited (from June 2007 to November 2008); Kresta Holdings Limited (November 1997 to December
2009); Magma Metals Limited (from October 2009 to June 2012); 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 a member of the Remuneration Committee.
William (Bill) A Foster
Non Executive Director
BE (Chemical)
Appointed as a director on 17 August 2010.
Mr Foster 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.
Mr Foster 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 Chairman of the Remuneration Committee a member of the Audit Committee.
Company Secretary
Mr Graeme Smith was appointed Company Secretary in November 2011. Mr Smith has company secretarial positions in both
ASX-listed companies and private entities. Mr Smith is a qualified accountant and is a Fellow of both the Australian Society of
Certified Practicing Accountants and the Chartered Institute of Secretaries and Administrators.
Mr Smith was appointed following the resignation of Mr Robert Anderson in November 2011.
14
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Annual Report 30 June 2012
Directors’ meetings
The number of directors’ meetings held and attended by each of the directors during the reporting period was as follows:
Directors’ Report
Peter Leonhardt
Ted Jacobson
Neil Fearis
Bill Foster
Adrian Cook
(a)
12
12
12
12
12
(b)
12
12
12
12
12
(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. 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
(a)
2
2
2
(b)
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
Carnarvon Petroleum Limited
BACK TO CONTENTS
15
Directors’ Report
Remuneration Report (Audited)
Remuneration Committee
The Remuneration Committee currently comprises Neil Fearis, Peter Leonhardt, and Bill Foster. Mr Foster replaced Mr Fearis
as Chairman of the Committee on 3 July 2012.
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
Peter Leonhardt
Bill Foster
(a)
2
2
2
(b)
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
The Remuneration Committee is responsible for the compensation arrangements for directors and executives of the Company.
The Remuneration Committee considers compensation packages and policies applicable to the executive directors, senior
executives and non-executive directors’ fees. In certain circumstances these include incentive arrangements including
employee share plans, incentive performance packages, and retirement and termination entitlements.
Principles of compensation
Total non-executive directors’ fees are approved by shareholders and the Remuneration Committee is responsible for the
allocation of those fees amongst the individual members of the Board.
The Remuneration Committee assesses the appropriateness of the nature and amount of compensation on an annual basis
by reference to industry and market conditions, and with regard to individual performance and the Company’s financial
and operational results. Such assessments are also made after referring to the recommendations of specialist consultancy
firms, industry groups, government and shareholder bodies. The Board obtains, when required, independent advice on the
appropriateness of remuneration packages, given trends in comparative companies both locally and internationally.
The Remuneration Committee ultimately determines its compensation practices in terms of their effectiveness to attract, retain
and incentivise 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 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.
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.
16
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Annual Report 30 June 2012
Directors’ Report
Remuneration Report (Audited) (continued)
30 June
2008
30 June
2009
30 June
2010
30 June
2011
30 June
2012
Share price as at 30 June each year
$0.53
$0.815
$0.345
$0.175
$0.105
Year on year change in the share price
121%
54%
(58%)
(49%)
(40%)
Consolidated net profit / (loss) from
continuing operations ($000)
$15,651
$28,736
$14,423
$2,159
($2,498)
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 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,
40% is applicable to fixed Remuneration Committee approved business performance targets; primarily relating to production,
reserves and cash flow measures. A further 40% is assessed by the Remuneration Committee based on an individual’s
achievement of role related performance measures. The remaining 20% is assessed at the discretion of, the Remuneration
Committee.
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 26, and fully vested to
each of the directors, named Company executives, and key management personnel during the period.
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.
Carnarvon Petroleum Limited
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17
Directors’ Report
Remuneration Report (Audited) (continued)
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.
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.
18
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Annual Report 30 June 2012
Directors’ Report
Remuneration Report (Audited) (continued)
During the current financial year the following Plan Shares were issued to Executive Officers of the Company:
Executive Officers
Number of shares issued
Issue date
Exercise price per share
Loan
AC Cook*
PP Huizenga
3,000,000*
2,500,000
25/11/2011*
15/07/2011
$0.23*
$690,000*
$0.23
$575,000
The exercise 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.
* Approved by shareholders at the AGM on 18 November 2011.
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:
2012
Grant date
Assumed
expiry date
Fair value
per option
Exercise
price
ASX quoted price of
shares at grant date
Expected
volatility
Risk free
interest rate
Dividend
yield
15/07/2011
14/07/2014
25/11/2011
24/11/2014
$0.11
$0.035
$0.23
$0.23
$0.225
$0.115
70%
70%
4.75%
4.50%
0%
0%
Service contracts
The contract duration, period of notice and termination conditions for key management personnel are as follows:
(i) 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 an additional payment of 3 months’ remuneration. Termination by Mr
Huizenga is with 3 months’ notice.
(ii) Adrian Cook, Chief Executive Officer, is engaged as an employee. Termination by the Company is with 12 months’
notice or payment in lieu thereof. Termination by Mr Cook is with 6 months’ notice.
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 20.
There were no shares issued in either 2012 or 2011 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.
Carnarvon Petroleum Limited
BACK TO CONTENTS
19
Directors’ Report
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BACK TO CONTENTS
Annual Report 30 June 2012
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20
Directors’ Report
Non-audit services
The auditors have not performed any non-audit services over and above their statutory duties during the current reporting
period.
Details of the amounts paid or payable to the auditor of the Group for audit services provided during the year are set out below:
Audit Services
Consolidated 2012 ($)
Auditors of the Company:
Audit and review of financial reports
132,000
Directors’ interests
At the date of this report, the relevant interests of the directors in securities of the Company are as follows:
Name
Ordinary Shares
Options over
ordinary Shares
PJ Leonhardt
AC Cook
EP Jacobson
NC Fearis
WA Foster
17,000,000
5,000,000
31,297,635
9,000,000
-
-
-
-
-
-
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 2012 financial year are contained in the operating and financial review as set out on pages 5 to
17.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 2012.
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 (2011: Nil).
Auditor’s independence declaration
The auditor’s Independence Declaration under Section 307C of the Corporations Act is set out on page 30 and forms part of
the directors’ report for the financial year ended 30 June 2012.
Principal activities
During the course of the 2012 financial year the Group’s principal activities continued to be directed towards oil and gas
exploration, development and production.
Carnarvon Petroleum Limited
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21
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 69 to 71.
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 12.
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 2012 is set out on pages 4 to 12 and forms
part of this report.
Indemnity of directors, company secretary and auditors
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.
The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified
or agreed to indemnify the auditor of the company against a liability incurred by the auditor.
Events subsequent to reporting date
No matters or circumstance has arisen since 30 June 2012 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.
22
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Annual Report 30 June 2012
Directors’ Report
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 2012
Carnarvon Petroleum Limited
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23
Auditor’s Independence Declaration
24
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Annual Report 30 June 2012
Consolidated Income Statement
For the year ended 30 June 2012
Oil sales
Other income
Cost of sales
Notes
4
5
Administrative expenses
Directors’ fees
Employee benefits expense
Travel related costs
Unrealised foreign exchange gain / (loss)
New venture costs
Exploration expenditure written off
14
Share-based payments
Profit before income tax
Taxes
Current income tax expense
Deferred income tax expense
Special remuneratory benefit
Total taxes
(Loss) / profit for the year
(Loss) / profit attributable to members of the Company
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
9 (a)
9 (b)
8
8
Consolidated
2012
$000
2011
$000
30,411
54,750
61
93
(15,828)
(18,891)
(1,317)
(293)
(1,165)
(126)
235
(1,287)
(3,361)
(445)
(1,724)
(222)
(1,686)
(228)
(4,463)
(983)
(11,247)
(207)
6,885
15,192
5,074
4,309
9,383
-
5,137
5,496
10,633
2,400
9,383
13,033
(2,498)
(2,498)
(0.4)
(0.4)
2,159
2,159
0.3
0.3
The above consolidated income statement should be read in conjunction with the accompanying notes to the financial
statements.
Carnarvon Petroleum Limited
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25
Consolidated Statement Of Comprehensive Income
For the year ended 30 June 2012
Consolidated
2012
$000
2011
$000
(Loss) / profit for the year
(2,498)
2,159
Other comprehensive income
Exchange differences arising in translation of foreign
operations, net of income tax
3,070
(17,439)
Total comprehensive income / (loss) for the year
572
(15,280)
Total comprehensive income / (loss) attributable to
members of the company
572
(15,280)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to
the financial statements.
26
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Annual Report 30 June 2012
Consolidated Statement Of Financial Position
As at 30 June 2012
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 liability
Provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Notes
21(b)
10
12
13
11
14
15
17
24
18
19
20
20
Consolidated
2012
$000
7,106
2,926
4,332
427
2011
$000
14,798
5,444
3,381
287
14,791
23,910
469
7,776
82,905
470
5,955
71,682
91,150
78,107
105,941
102,017
1,945
222
2,347
-
4,895
146
875
-
4,514
5,916
33,111
28,802
33,111
28,802
37,625
34,718
68,316
67,299
68,536
(17,003)
16,783
68,240
(20,222)
19,281
68,316
67,299
The above consolidated statement of financial position should be read in conjunction with the accompanying notes to the
financial statements.
Carnarvon Petroleum Limited
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27
Consolidated Statement Of Changes In Equity
For the year ended 30 June 2012
Issued
capital
$000
Retained
earnings
$000
Translation
reserve
$000
Share
based
payments
reserve
$000
Total
$000
Balance at 1 July 2010
68,240
17,122
(4,828)
1,838
82,372
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income / (loss) for
the year
Transactions with owners and other
transfers
Share based payments
Total transactions with owners and
other transfers
-
-
-
-
-
2,159
-
-
(17,439)
2,159
(17,439)
-
-
-
-
-
-
-
207
207
2,159
(17,439)
(15,280)
207
207
Balance at 30 June 2011
68,240
19,281
(22,267)
2,045
67,299
Balance at 1 July 2011
68,240
19,281
(22,267)
2,045
67,299
Comprehensive income
Loss for the year
Other comprehensive income
Total comprehensive income for the
year
Transactions with owners and other
transfers
Share based payments
Total transactions with owners and
other transfers
-
-
-
296
296
(2,498)
-
-
3,070
(2,498)
3,070
-
-
-
-
-
-
-
149
149
(2,498)
3,070
572
445
445
Balance at 30 June 2012
68,536
16,783
(19,197)
2,194
68,316
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the
financial statements.
28
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Annual Report 30 June 2012
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
Statement Of Cash Flows
For the year ended 30 June 2012
Consolidated
2012
$000
2011
$000
33,818
(18,908)
(3,733)
61
61,715
(24,323)
(14,055)
134
Net cash flows generated from operating activities
21(a)
11,238
23,471
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 held
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
(19,271)
(34,462)
359
(253)
-
(207)
(19,165)
(34,669)
-
-
-
-
-
-
(7,927)
(11,198)
14,798
30,255
235
(4,259)
21(b)
7,106
14,798
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial
statements.
Carnarvon Petroleum Limited
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29
Notes To The Financial Statements
1.
Reporting entity
The consolidated financial report of Carnarvon Petroleum Limited (‘Company’) for the financial year ended 30 June
2012 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 2012.
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.
Adoption of new and revised Accounting Standards
None of the new standards and amendments to standards that are mandatory for the first time for the financial
year beginning 1 July 2011 affected any of the amounts recognised in the current period or any prior period and
are not likely to affect future periods. However, the adoption of AASB 1054 Australian Additional Disclosures and
AASB 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project
enabled the removal of certain disclosures in relation to commitments and the franking of dividends.
Basis of measurement
The financial report is prepared on a historical cost basis, except for available-for-sale financial assets which are
measured at fair value.
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
recognised 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.
An impairment loss of $3.4 million was recognised during the 30 June 2012 financial year (2011: $11.2 million)
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.
30
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Annual Report 30 June 2012
2.
Basis of preparation of the financial report (continued)
Notes To The Financial Statements
Key estimate – special remuneratory benefit and income tax
The Group’s Phetchabun Basin Joint Venture is subject to Thai income tax at 50% and a special remuneratory benefit
(“SRB”) tax on profits, at sliding scale rates (0% - 75% per concession).
The SRB, which is tax deductible in the calculation of Thai income taxes, involves a highly detailed calculation done
on a concession by concession basis. The basis of the calculation is petroleum profits, adjusted for capital spent,
being subjected to a sliding scale SRB rate such that profits are not taxed until all capital has been recovered. The
sliding scale rate is principally driven by production and pricing but is subject to other adjustments such as changes
in Thailand’s consumer price index, wholesale price index, cumulative metres drilled on the concession, and, for
certain concessions, changes in the exchange rate between the Thai Baht and the USD.
The SRB calculation is performed and paid annually for each concession at the calculated annual rate at the end
of each calendar year. Judgement is required in determining provisions which are based on estimates of amounts
due. Where the final outcome of those matters is different from the amounts that were originally recognised, such
difference may impact those provisions in the period in which such a determination is made.
Key estimate – reserve quantities
Reserves are estimates of the amount of product that can be economically and legally extracted from the consolidated
entity’s properties. In order to estimate economically recoverable reserves, assumptions are required about a range
of geological, technical, legal and economic factors, including quantities, production techniques, reversion rights,
recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates.
Estimating the quantity of reserves requires the size, shape and depth of fields to be determined by analysing
geological drilling and production data. This process may require complex and difficult judgements to interpret the
data. Because the economic assumptions used to estimate economically recoverable reserves change from period
to period, and because additional data is generated during the course of operations, estimates of reserves may
change from period to period. Changes in reported reserves may affect the consolidated entity’s financial results and
financial position in a number of ways, including the following:
•
asset carrying values (note 15) may be affected due to changes in estimated future cash flows;
• depreciation charged in the income statement (note 5) may change as such charges are determined by
the units of production basis; and
•
the carrying value of deferred tax assets (note 19) may change due to changes in the estimates of the
likely recovery of the tax benefits.
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.
Carnarvon Petroleum Limited
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31
Notes To The Financial Statements
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in the consolidated
financial report. The accounting policies have been applied consistently by all entities in the Group. Certain comparative
amounts have been reclassified to conform to the current year’s presentation.
(a) Basis of consolidation
Controlled entities
The consolidated financial report comprises the financial statements of the Company and its controlled entities.
A controlled entity is any entity controlled by the Company whereby the Company has the power to control the
financial and operating policies of an entity so as to obtain benefits from its activities. All inter-company balances
and transactions between entities in the group, 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 group 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.
Joint Ventures
The Group’s shares of the assets, liabilities, revenue and expenses of joint 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 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.
32
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Annual Report 30 June 2012
3.
Significant accounting policies (continued)
Notes To The Financial Statements
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%
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.
Carnarvon Petroleum Limited
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33
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(d) Oil and gas assets
Oil and gas assets include costs transferred from exploration and evaluation once technical feasibility and commercial
viability of an area of interest are demonstrable, together with subsequent costs to develop the asset to the production
phase.
Where the directors decide that specific costs will not be recovered from future development, those costs are charged
to the income statement during the financial period in which the decision is made.
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.
(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
There are no restoration provisions required in respect of the Group’s activities under current Thai Legislation.
34
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Annual Report 30 June 2012
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(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.
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.
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 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.
(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.
Carnarvon Petroleum Limited
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35
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(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
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.
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 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.
36
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Annual Report 30 June 2012
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(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.
(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.
Carnarvon Petroleum Limited
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37
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(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
statement of financial position are shown inclusive of GST.
Cash flows are presented in the statement of cash flows 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.
38
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Annual Report 30 June 2012
Notes To The Financial Statements
3.
Significant accounting policies (continued)
(v) New standards and interpretations not yet adopted
The AASB has issued a number of new and amended Accounting Standards and Interpretations that have mandatory
application dates for future reporting periods, some of which are relevant to the Group. The Group has decided not
to early adopt any of the new and amended pronouncements. The Group’s assessment of the new and amended
pronouncements that are relevant to the Group but applicable in future reporting periods is set out below:
-
AASB 9: Financial Instruments (December 2010) and 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] (applicable for annual
reporting periods commencing on or after 1 January 2013).
These Standards are applicable retrospectively and include revised requirements for the classification and
measurement of financial instruments, as well as recognition and derecognition requirements for financial
instruments.
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;
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 investments 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.
The Group has not yet been able to reasonably estimate the impact of these pronouncements on its financial
statements.
-
AASB 2010–8: Amendments to Australian Accounting Standards: Deferred Tax: Recovery of Underlying
Assets [AASB 112] (applies to periods beginning on or after 1 January 2012).
This Standard makes amendments to AASB 112: Income Taxes and incorporates Interpretation 121: Income
Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112.
Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends
on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a
presumption that an investment property is recovered entirely through sale. This presumption is rebutted if
the investment property is held within a business model whose objective is to consume substantially all of the
economic benefits embodied in the investment property over time, rather than through sale.
The amendments are not expected to significantly impact the Group.
Carnarvon Petroleum Limited
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39
Notes To The Financial Statements
3.
Significant accounting policies (continued)
-
AASB 10: Consolidated Financial Statements, AASB 11: Joint Arrangements, AASB 12: Disclosure of Interests in
Other Entities, AASB 127: Separate Financial Statements (August 2011), AASB 128: Investments in Associates
and Joint Ventures (August 2011) and AASB 2011–7: Amendments to Australian Accounting Standards arising
from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 9, 2009–11, 101, 107, 112,
118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17] (applicable for annual
reporting periods commencing on or after 1 January 2013).
AASB 10 replaces parts of AASB 127: Consolidated and Separate Financial Statements (March 2008, as
amended) and Interpretation 112: Consolidation – Special Purpose Entities. AASB 10 provides a revised
definition of control and additional application guidance so that a single control model will apply to all investees.
The Group has not yet been able to reasonably estimate the impact of this Standard on its financial statements.
AASB 11 replaces AASB 131: Interests in Joint Ventures (July 2004, as amended). AASB 11 requires joint
arrangements to be classified as either “joint operations” (where the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities) or “joint ventures” (where the parties
that have joint control of the arrangement have rights to the net assets of the arrangement). Joint ventures are
required to adopt the equity method of accounting (proportionate consolidation is no longer allowed).
AASB 12 contains the disclosure requirements applicable to entities that hold an interest in a subsidiary, joint
venture, joint operation or associate. AASB 12 also introduces the concept of a “structured entity”, replacing
the “special purpose entity” concept currently used in Interpretation 112, and requires specific disclosures in
respect of any investments in unconsolidated structured entities. This Standard will affect disclosures only and
is not expected to significantly impact the Group.
To facilitate the application of AASBs 10, 11 and 12, revised versions of AASB 127 and AASB 128 have also
been issued. The Group has not yet been able to reasonably estimate the impact of these pronouncements on
its financial statements.
-
AASB 13: Fair Value Measurement and AASB 2011–8: Amendments to Australian Accounting Standards arising
from AASB 13 [AASB 1, 2, 3, 4, 5, 7, 9, 2009–11, 2010–7, 101, 102, 108, 110, 116, 17, 118, 119, 120, 121,
128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 and Interpretations 2, 4, 12, 13, 14, 17,
19, 131 & 132] (applicable for annual reporting periods commencing on or after 1 January 2013).
AASB 13 defines fair value, sets out in a single Standard a framework for measuring fair value, and requires
disclosures about fair value measurement.
AASB 13 requires:
-
-
-
inputs to all fair value measurements to be categorised in accordance with a fair value hierarchy; and
enhanced disclosures regarding all assets and liabilities (including, but not limited to, financial assets and
financial liabilities) to be measured at fair value.
These Standards are not expected to significantly impact the Group.
-
AASB 2011–9: Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive
Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] (applicable for annual reporting periods
commencing on or after 1 July 2012).
The main change arising from this Standard is the requirement for entities to group items presented in
other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss
subsequently.
This Standard affects presentation only and is therefore not expected to significantly impact the Group.
40
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Annual Report 30 June 2012
Notes To The Financial Statements
Consolidated
2012
$000
2011
$000
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
Defined contribution – superannuation expense
7.
Auditors’ remuneration
Audit and review services:
Auditors of the Company
61
61
93
93
(5,894)
(1,664)
(764)
(5,171)
(2,335)
(15,828)
(5,143)
(3,430)
(1,823)
(6,074)
(2,421)
(18,891)
(236)
(181)
(147)
(231)
(212)
(149)
132
122
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
Weighted average number of ordinary shares 30 June (basic)
Effect of share options on issue
Weighted average number of ordinary shares 30 June (diluted)
2012
2011
Number of shares
687,820,634
686,759,634
2,727,397
590,090
690,548,031
687,349,724
-
-
690,548,031
687,349,724
2012
$
2011
$
(Loss) / Profit used in calculating basic and diluted earnings per share from
continuing operations
($2,498,000)
$2,159,000
Carnarvon Petroleum Limited
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41
Notes To The Financial Statements
9.
Taxes
(a) Income tax expense
Consolidated
2012
$000
2011
$000
Numerical reconciliation between pre-tax profit and income tax expense:
Prima facie income tax expense on pre-tax profit at 30%
(2011: 30%)
2,065
4,558
Tax effect of:
Special remuneratory benefit
Effect of higher overseas tax rate
Foreign exchange losses / (gains)
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
-
2,929
729
1,160
878
1,622
9,383
5,074
4,309
9,383
(1,200)
6,725
(5,142)
3,861
554
1,277
10,633
5,137
5,496
10,633
Effective 1 July 2003, for the purposes of Australian income taxation, Carnarvon and its 100%-owned Australian
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.
42
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Annual Report 30 June 2012
Notes To The Financial Statements
9.
Taxes (continued)
(b) Special remuneratory benefit expense
Special remuneratory benefit
Consolidated
2012
$000
-
-
2011
$000
2,400
2,400
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 (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.
2012
$000
2,035
891
2,926
2011
$000
4,271
1,173
5,444
Carnarvon Petroleum Limited
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43
Notes To The Financial Statements
11. Property, plant and equipment
Consolidated
2012
$000
2011
$000
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
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:
Balance at beginning of financial year
Depreciation charge for year
Balance at end of financial year
Carrying amount opening
Carrying amount closing
495
42
15
552
192
87
279
303
273
732
138
6
876
621
74
695
111
172
105
32
2
139
49
22
71
56
69
447
106
(58)
495
116
76
192
331
303
715
85
(68)
732
481
140
621
234
111
103
17
(15)
105
33
16
49
70
56
44
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Annual Report 30 June 2012
Notes To The Financial Statements
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
2012
$000
2011
$000
1,332
212
23
1,567
862
236
1,098
470
469
1,266
207
(141)
1,332
631
231
862
635
470
4,332
3,381
427
287
5,955
5,182
(3,361)
7,776
6,351
10,851
(11,247)
5,955
The exploration expenditure written off during the financial year ended 30 June 2012 of $3,361,000 was in relation
to the exploration expenses incurred in the Rangkas PSC.
Carnarvon Petroleum Limited
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45
Notes To The Financial Statements
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
16. Joint ventures
The Group has the following interests in joint venture assets:
97,549
14,583
1,598
113,730
25,867
4,958
30,825
71,682
82,905
90,127
20,460
(13,038)
97,549
19,951
5,916
25,867
70,176
71,682
Joint venture
Thailand
Phetchabun Basin Concession,
Exploration Blocks L44/43 and L33/43
3/2546/60 and 5/2546/62 Concessions
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
Principal activities
Ownership interest %
2012
2011
Exploration, development and
production of hydrocarbons
40%
40%
Exploration for hydrocarbons
55%
50%
Exploration for hydrocarbons
50%
50%
Exploration for hydrocarbons
50%
50%
WA-443-P, Roebuck Basin
Exploration for hydrocarbons
100%
100%
WA-399-P, Carnarvon Basin
Exploration for hydrocarbons
13%
13%
Indonesia
Rangkas, West Java Basin
Exploration for hydrocarbons
New Zealand
PEP 38524
Exploration for hydrocarbons
-
-
25%
10%
46
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Annual Report 30 June 2012
Notes To The Financial Statements
16. Joint ventures (continued)
Summary financial information for joint venture assets, as included in the consolidated statement of financial position
and income statement, 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
2012
$000
5,465
2,838
4,332
390
2011
$000
9,349
4,504
3,381
264
13,025
17,498
435
6,085
82,905
89,425
102,450
1,658
2,347
-
4,005
33,111
33,111
37,116
65,334
30,411
(28,572)
1,839
408
5,807
71,682
77,897
95,395
4,046
875
-
4,921
28,802
28,802
33,723
61,672
54,750
(43,171)
11,579
Capital commitments and contingent liabilities for the joint ventures are disclosed in Notes 22 and 23 respectively.
17. Trade and other payables
Current
Trade payables
Non-trade payables and accrued expenses
Owing to related parties
Consolidated
2012
$000
2011
$000
105
1,760
80
1,945
220
4,611
64
4,895
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 32.
Carnarvon Petroleum Limited
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47
Notes To The Financial Statements
18. Provisions
Current
Special Remuneratory Benefit - Thailand
Consolidated
2012
$000
2011
$000
-
-
-
-
Provision for restoration costs
There are no restoration provisions required in respect of the Group’s activities under current Thai Legislation.
19. Deferred tax liabilities
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 - Thailand
Net deferred tax liability
34,334
(1,223)
33,111
30,241
(1,439)
28,802
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 losses
5,407
4,256
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.
48
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Annual Report 30 June 2012
Notes To The Financial Statements
20. Capital and reserves
Issued capital
Balance at beginning of financial year
Employee Share Plan issues
Employee Share Plan cancellations
Balance at end of financial year
Issued capital
Balance at beginning of financial year
Transfer from share based payment reserve*
Balance at end of financial year
Company
2012
2012
Number of shares
687,820,634
686,759,634
6,824,000
1,061,000
(1,274,000)
-
693,370,634
687,820,634
Company
2012
$000
68,240
296
68,536
2011
$000
68,240
-
68,240
* This represents the fair value of Employee Share Plan shares transferred from the share based payment reserve
to issued capital upon cancellation.
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 28.
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 28.
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 and
the loan is repaid or cancelled under the current ESP.
Carnarvon Petroleum Limited
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49
Notes To The Financial Statements
21.
Reconciliation of cash flows from
operating activities
(a) Cash flows from operating activities
(Loss) / 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
(Increase) / decrease in inventories
(Increase) / decrease in other assets
(Decrease) in trade and other payables
Increase / (decrease) in provisions and employee benefits
Net cash flows generated from operating activities
(b) Reconciliation of cash and cash equivalents
Consolidated
2012
$000
2011
$000
(2,498)
2,159
445
4,309
5,194
235
3,361
207
5,496
6,074
4,463
11,247
11,046
29,646
2,695
(894)
(136)
(3,006)
1,533
11,238
1,736
115
107
(726)
(7,407)
23,471
Cash at bank and at call
7,106
14,798
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 $891,000 consolidated is included under trade and other receivables (2011:$1,173,000
consolidated), see Notes 10 and 23.
50
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Annual Report 30 June 2012
Notes To The Financial Statements
22. Capital and other commitments
(a) Joint venture commitments
Share of capital commitments of joint venture assets:
Within one year
Capital commitments of the Group to joint venture assets:
Within one year
(b) Exploration expenditure commitments
Consolidated
2012
$000
2011
$000
983
413
394
4,740
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
Consolidated
2012
$000
2,350
5,300
7,650
2011
$000
350
1,450
1,800
Data licence commitments
156
236
Carnarvon Petroleum Limited
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51
Notes To The Financial Statements
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$1,245,741) as security in lieu of bonds.
The L20/50 Joint Venture, in which the Group has a 55% interest, has procured the issue of bank guarantees for an
amount of 20 million Thai Baht (A$622,871) as security in lieu of bonds.
The restricted cash held by the banks as security for these bonds and guarantees totaling $891,000 (2011:
$1,173,000) 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
Share based payments - Employee Share Plan
Consolidated
2012
$000
2011
$000
222
146
Under the terms of the Carnarvon Employee Share Plan (“ESP”), as approved by shareholders, the Company may, in
its absolute discretion, make an offer of ordinary fully paid shares in the Company to any Eligible Person, to be funded
by a limited recourse interest free loan granted by the Company.
The issue price is determined by the directors and is not to be less than the weighted average market price of the
Company’s shares on the five trading days prior to the date of offer. Eligible Persons use the above-mentioned loan
to acquire plan shares.
The movements in the ESP during the financial year, including those held by Key Management Personnel, were as follows:
1 July 2011
Issued
Cancelled
30 June 2012
Number of shares
Loan
Average loan per share
17,689,199
3,916,097
$0.22
6,824,000
1,463,600
$0.21
1,274,000
661,381
$0.52
23,239,199
4,718,316
$0.20
1 July 2010
Issued
Repaid
30 June 2011
Number of shares
Loan
Average loan per share
16,628,199
3,445,013
$0.21
1,061,000
471,084
$0.44
-
-
-
17,689,199
3,916,097
$0.22
52
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Annual Report 30 June 2012
Notes To The Financial Statements
24. Employee benefits (continued)
Shares issued under the ESP are accounted for In accordance with the AASB 2.
The fair value of shares issued under the ESP is measured by reference to their fair value using the Black-Scholes
model, as set out below.
Fair value of share options and
related assumptions
Fair value at measurement date (cents)
Share price at date of issue (cents)
Exercise price (cents)
Expected volatility
Actual / assumed option life
Expected dividends
Risk-free interest rate
Share-based expense recognised
Key
management
personnel
2012
Key
management
personnel
2011
Other
employees
2012
Other
employees
2011
7.6
16.5
23
70%
3 years
Nil
4.61%
$380,974
19.5
44.4
44.4
60%
3 years
Nil
4.75%
$78,126
4.8
11.5
15
70%
3 years
Nil
4.25%
$64,188
19.5
44.4
44.4
60%
3 years
Nil
4.75%
$129,104
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 16 to 20.
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 2012 net receipts from controlled entities totalled $2,957,000 (2011: net
receipts from controlled entities $3,873,000).
The carrying value of loans to controlled entities at 30 June 2012 was $2,798,000 (2010: $14,186,000) after
provisions of $693,000 (2011: $693,000). These loans are unsecured, non-interest bearing, and have no fixed terms
of repayment.
Other related party balances
At 30 June 2012 an amount of $80,437 (2011: $63,903) is included in Company and consolidated trade and other
payables for outstanding director fees and expenses.
Carnarvon Petroleum Limited
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53
Notes To The Financial Statements
26. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
Consolidated
2012
$000
238
304
542
2011
$000
252
385
637
During the reporting period $243,000 was recognised as an expense in the consolidated income statement in
respect of operating leases (2011: $245,000).
The property lease is a non-cancellable lease with the three-year term, with rent payable in advance. Contingent
rental provisions within the lease agreement require that minimum lease payment shall be increased by the change
in the consumer price index (CPI).
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.
Revenue by geographical region
Revenue, including interest income, is disclosed below based on the location of the external customer:
Thailand
Australia
2012
$000
30,454
18
30,472
2011
$000
54,797
46
54,843
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
2012
$000
100,544
5,397
-
2011
$000
90,399
8,425
3,193
105,941
102,017
54
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Annual Report 30 June 2012
Notes To The Financial Statements
28. Key management personnel disclosures
(a) Key management personnel compensation
Key management personnel compensation included in employee benefits expense, directors emoluments, share
based payments and administration expenses are as follows:
Short term employee benefits
Post-employment benefits
Share-based payments
Consolidated
2012
$000
1,305
49
381
1,735
2011
$000
1,733
96
78
1,907
Information regarding individual directors and executives’ compensation and some equity instruments disclosures,
as permitted by Corporations Regulation 2M.3.03, are provided in the Remuneration Report section of the directors’
report as set out on pages 16 to 20.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
Group since the end of the previous financial year and there were no material contracts involving directors’ interests
existing at year end.
(b) Loans to key management personnel and their related parties
Details of loans to key management personnel and their related parties, which are all interest free loans with limited
recourse security over the plan shares provided in accordance with the Company’s Employee Share Plan (“ESP”),
are set out below.
2012
Directors
PJ Leonhardt*
EP Jacobson*
Executives
PP Huizenga
AC Cook
2011
Directors
PJ Leonhardt*
EP Jacobson*
Executives
PP Huizenga
AC Cook
Balance
1 July 2011 ($)
Balance
30 June 2012 ($)
Highest balance
in period ($)
Loaned
in period ($)
Repaid
in period ($)
270,000
540,000
446,300
838,800
270,000
540,000
270,000
540,000
-
-
1,021,300
1,528,800
1,021,300
1,528,800
575,000
690,000
-
-
-
-
Balance
1 July 2010 ($)
Balance
30 June 2011 ($)
Highest balance
in period ($)
Loaned
in period ($)
Repaid
in period ($)
270,000
540,000
357,500
750,000
270,000
540,000
446,300
838,800
270,000
540,000
446,300
838,800
-
-
88,800
88,800
-
-
-
-
* The loans to directors were made in 2006 in lieu of normal remuneration at a time the Company had no full time
employees and limited cash resources.
Carnarvon Petroleum Limited
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55
Notes To The Financial Statements
28. Key management personnel disclosures (continued)
Details regarding the aggregate of loans, all of which are interest-free, made by the Group to key management
personnel and their related parties, and the number of individuals in each group, are as follows:
Opening
balance ($)
Closing
balance ($)
Number in
group at 30 June
2012
2011
1,285,100
1,647,500
2,550,100
1,825,100
2
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
(d) Movements in shares
Consolidated
2012
$000
80
2011
$000
65
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:
2012
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
W Foster
AC Cook
Executives
PP Huizenga
2011
Directors
PJ Leonhardt
EP Jacobson
NC Fearis
W Foster
Executives
PP Huizenga
AC Cook
Held at
1 July 2011
Net
acquired/ (sold)
Award under
Employee
Share Plan
Received on
exercise
of options
Held at
30 June 2012
17,000,000
31,037,335
8,600,000
-
-
260,300
400,000
-
-
-
-
-
1,794,839
205,161
3,000,000
1,800,000
-
2,500,000
-
-
-
-
-
-
Held at
1 July 2010
Net
acquired/ (sold)
Award under
Employee
Share Plan
Received on
exercise
of options
17,000,000
31,037,335
8,400,000
-
1,600,000
1,594,839
-
-
200,000
-
-
-
-
-
-
-
200,000
200,000
-
-
-
-
-
-
17,000,000
31,297,635
9,000,000
-
5,000,000
4,300,000
Held at
30 June 2011
17,000,000
31,037,335
8,600,000
-
1,800,000
1,794,839
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.
56
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Annual Report 30 June 2012
Notes To The Financial Statements
28. Key management personnel disclosures (continued)
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 16 to 20.
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).
Country of Incorporation
Ownership interest
2012
2011
30. Consolidated entities
Name
Company
Carnarvon Petroleum Ltd
Controlled entities
Carnarvon Thailand Ltd
Lassoc Pty Ltd
SRL Exploration Pty Ltd
Carnarvon Petroleum (Indonesia) Pty Ltd
Carnarvon (NZ) Pty Ltd
New Zealand
British Virgin Islands
Australia
Australia
Australia
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 2012 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
Carnarvon Petroleum Limited
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57
Notes To The Financial Statements
32. Financial risk management
The Group’s activities expose it to market risk (including currency risk, commodity price risk and interest rate risk),
credit risk and liquidity risk.
This note presents qualitative and quantitative information about the Group’s exposure to each of the above risks,
their objectives, policies and procedures for managing risk, and the management of capital. The Board of Directors
has overall responsibility for the establishment and oversight of the risk management framework.
The Group’s overall risk management approach focuses on the unpredictability of financial markets and seeks to
minimize the potential adverse effects on the financial performance of the Group. The Group does not currently use
derivative financial instruments to hedge financial risk exposures and therefore it is exposed to daily movements in
the international oil prices, exchange rates, and interest rates.
The Group uses various methods to measure different types of risk to which it is exposed. These methods include
sensitivity analysis in the case of interest rate, foreign exchange, and commodity price risk and ageing analysis for
credit risk.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence
and to sustain future development of the business. Given the stage of the Group’s development there are no formal
targets set for return on capital. There were no changes to the Group’s approach to capital management during the
year. Neither the Company nor any of its controlled entities are subject to externally imposed capital requirements.
(a) Commodity price risk
Commodity price risk is the risk of financial loss resulting from movements in the price of the Group’s commodity
output, being crude oil.
Revenues under the Group’s contractual arrangements with its customer are denominated in US$, linked to the US$
prices of a basket of oil products, and paid in Thai Baht at the average monthly exchange rate. The Group does
not currently use derivative financial instruments to hedge commodity price risk and therefore is exposed to daily
movements in the prices of these oil products.
Sensitivity analysis
An increase of 10% in the achieved monthly oil sale price would have increased equity and pre tax profit and loss
by the amounts shown below. This analysis assumes that all other variables other than royalties, which are directly
related to oil revenues, remain constant. The analysis is performed on the same basis for 2011:
30 June 2012
30 June 2011
Consolidated
Equity
$000
2,888
5,141
Profit
and loss
$000
2,888
5,141
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 2011:
30 June 2012
30 June 2011
Consolidated
Equity
$000
(2,888)
(5,141)
Profit
and loss
$000
(2,888)
(5,141)
58
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Annual Report 30 June 2012
Notes To The Financial Statements
32. Financial risk management (continued)
(b) Interest rate risk
The significance and management of the risks to the Group is dependent on a number of factors including:
Interest rates (current and forward) and the currencies that are held;
Level of cash and liquid investments and their term;
•
•
• Maturity dates of investments;
• Proportion of investments that are fixed rate or floating rate.
The Group manages the risk by maintaining an appropriate mix between fixed and floating rate investments.
At the reporting date the effective interest rates of variable rate interest bearing financial instruments of the Group
were as follows. There were no interest-bearing financial liabilities.
Carrying amount (A$000)
Financial assets – cash and cash equivalents
Weighted average interest rate (%)
Financial assets – cash and cash equivalents
Sensitivity analysis
All other financial assets are non interest bearing.
Consolidated
2012
2011
7,106
14,798
0.44%
0.24%
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 2011:
30 June 2012
30 June 2011
Consolidated
Equity
$000
34
155
Profit
and loss
$000
34
155
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 2011:
30 June 2012
30 June 2011
Consolidated
Equity
$000
(28)
(21)
Profit
and loss
$000
(28)
(21)
Carnarvon Petroleum Limited
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59
Notes To The Financial Statements
32. Financial risk management (continued)
(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 2012 and June 2011 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 2012 or 30 June 2011 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 statement of financial position.
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum
exposure to credit risk at the reporting date was:
Carrying amount:
Cash and cash equivalents
Trade and other receivables
The aging of the Group’s trade receivables at reporting date was:
Consolidated
2012
$000
2011
$000
7,106
2,926
10,032
14,798
5,444
20,242
Not past due
Gross
Impairment
Gross
Impairment
2012
$000
1,800
1,800
2012
$000
-
-
2011
$000
3,757
3,757
2011
$000
-
-
Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade
receivables.
(d) Currency risk
Currency risk arises from sales, purchases, assets and liabilities that are denominated in a currency other than the
functional currencies of the entities within the Group, being the A$, 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.
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Annual Report 30 June 2012
Notes To The Financial Statements
32. Financial risk management (continued)
(d) Currency risk (continued)
The Group’s exposure to foreign currency risk at balance date was as follows, based on carrying amounts.
Consolidated 2012
Cash and cash equivalents
Trade and other receivables
Trade payables and accruals
SRB and income tax provisions
Gross balance sheet exposure
Consolidated 2011
Cash and cash equivalents
Trade and other receivables
Trade payables and accruals
SRB and income tax provisions
Gross balance sheet exposure
THB
A$000
5,004
2,688
(1,445)
(2,347)
3,900
8,702
3,891
(3,580)
(874)
8,139
USD
A$000
2,047
558
(213)
-
2,392
5,737
571
(466)
-
5,842
The following significant exchange rates applied during the year:
AUD to:
1 Thai baht
1 USD
Average rate
Reporting date spot rate
2012
0.031
0.97
2011
0.033
1.02
2012
0.031
0.98
2011
0.031
0.94
Sensitivity analysis
A 10% strengthening of the AUD against the THB for the 12 months to 30 June 2012 and 30 June 2011 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 2012
THB
30 June 2011
THB
Consolidated
Equity
$000
Profit and loss
$000
(13,333)
(1.797)
(11,867)
(3,049)
Carnarvon Petroleum Limited
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61
Notes To The Financial Statements
32. Financial risk management (continued)
(d) Currency risk (continued)
A 10% weakening of the AUD against the THB for the 12 months to 30 June 2012 and 30 June 2011 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 2012
THB
30 June 2011
THB
(e) Fair values
Consolidated
Equity
$000
Profit and loss
$000
16,295
2,197
14,504
3,954
The fair values of financial assets and financial liabilities, together with their carrying amounts shown in the statement
of financial position, are as follows:
Consolidated
Loans and receivables
Cash and cash equivalents
Trade and other payables
Carrying amount
Fair Value
Carrying amount
Fair Value
2012
$000
2,926
7,106
(1,945)
8,087
2012
$000
2,926
7,106
(1,945)
8,087
2011
$000
5,444
14,798
(4,895)
15,347
2011
$000
5,444
14,798
(4,895)
15,347
The basis for determining fair values is disclosed in Note 3(h).
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Annual Report 30 June 2012
Notes To The Financial Statements
32. Financial risk management (continued)
(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.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding
the impact of any netting agreements:
Consolidated 2012
Non-derivative financial liabilities
Trade and other payables
SRB and income tax provisions
Consolidated 2011
Non-derivative financial liabilities
Trade and other payables
SRB and income tax provisions
Carrying
amount
$000
Contractual
cashflows
$000
6 months
or less
$000
6 to 12
months
$000
1,945
2,347
4,292
4,895
875
5,770
1,945
2,347
4,292
1,945
2,347
4,292
4,895
875
5,770
4,895
875
5,770
-
-
-
-
-
-
Carnarvon Petroleum Limited
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63
Notes To The Financial Statements
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 (loss)
Total comprehensive income
Parent Contingencies
2012
$000
2011
$000
1,787
10,367
12,154
500
-
500
68,536
(59,077)
2,195
11,654
6,799
17,521
24,320
493
-
493
68,240
(46,458)
2,045
23,827
(4,772)
(9,102)
(4,772)
(9,102)
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
may be 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 capital and other commitments
(a) Joint venture commitments
Capital commitments of the Group to joint venture assets:
Within one year
(b) Exploration expenditure commitments
Parent
2012
$000
2011
$000
413
4,740
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.
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Annual Report 30 June 2012
Notes To The Financial Statements
33. Parent Information (continued)
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
2,350
5,300
7,650
350
1,450
1,800
Data licence commitments
156
236
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
150
168
318
145
318
463
Carnarvon Petroleum Limited
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65
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 25 to 65 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 2012 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 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 2012.
Signed in accordance with a resolution of the directors.
PJ Leonhardt
Director
Perth, 31 August 2012
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Annual Report 30 June 2012
Independent Audit Report
Carnarvon Petroleum Limited
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67
Independent Audit Report
68
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Annual Report 30 June 2012
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;
Remuneration 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.
Carnarvon Petroleum Limited
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69
Corporate Governance Statement
Explanations for departures from best practice recommendations
From 1 July 2011 to 30 June 2012 (the “Reporting Period”) the Company complied with each of the Essential Corporate
Governance Principles (Note 1 below) and the corresponding Best Practice Recommendations (Note 2 below) as published
by the ASX Corporate Governance Council (“ASX Principles and Recommendations”), other than in relation to the matters
specified below:
Principle
Reference
Recommendation
Reference
2
2.4
Notification of Departure
Explanation for Departure
A separate Nomination
Committee has not been formed.
3
3.2
A diversity policy has not been
established.
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.
The Company is committed to providing equal
employment opportunities to all employees, and
to all applicants for employment, regardless of
race, colour, gender, religion, age, nationality,
disability, marital status, sexual orientation, political
conviction or any other personal factors.
As the Company has a small number of employees
a policy has not been formalised.
3
3
3.3
3.4
Measurable objectives for
achieving gender diversity set
in accordance with the diversify
policy have not been established.
Given the Company’s small number of Directors
and employees the Board considers that at
this stage measurable objectives would not be
meaningful.
The proportion of women
employees on the whole
organisation, women in senior
executive positions and women
on the on Bard has not been
disclosed.
Given the Company’s small number of Directors
and employees the Board considers that at this
stage disclosure women employees in the whole
organisation, women in senior executive positions
and women on the Board would not
be meaningful.
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 16 to 20.
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.
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Annual Report 30 June 2012
Corporate Governance Statement
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.
Carnarvon Petroleum Limited
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71
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 2012
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
Number of Shares
% held
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Mr Edward Patrick Jacobson
National Nominees Limited
Citicorp Nominees Pty Limited
Jacobson Geophysical Services Pty Ltd
Pendomer Investments Pty Ltd
Mr James Mark Dack
Mr Peter James Leonhardt
Mr James Mark Dack
Arne Investments Pty Ltd
Loong Phoong Pty Ltd
Geolyn Pty Ltd
Mr Edward Patrick Jacobson
JP Morgan Nominees Australia (Cash Income A/C)
Mr Philip Paul Huizenga
Arne Investments Pty Ltd
Mr Hsin Wei Wi & Ms Lydia Wen-Lin Hsieh
Mr William Douglas Goodfellow
Log Creek Pty Ltd
Distribution of equity security holders
Size of Holding
1
1,001
5,001
10,001
to
to
to
to
100,001
and over
1,000
5,000
10,000
100,000
52,358,317
26,829,774
12,917,903
12,160,222
11,177,494
9,728,390
9,000,000
8,000,000
7,700,000
7,000,000
6,710,493
6,484,000
6,000,000
6,000,000
5,432,468
4,400,000
3,991,906
3,827,600
3,400,000
3,400,853
7.55
3.87
1.86
1.75
1.61
1.40
1.30
1.15
1.11
1.01
0.97
0.94
0.87
0.87
0.78
0.63
0.58
0.55
0.49
0.49
206,519,420
29.78
Number of
shareholders
Number of
fully paid shares
526
1,997
1,797
4,435
867
9,622
282,571
6,362,775
15,184,730
170,133,345
501,407,213
693,370,634
The number of shareholders holding less than a marketable parcel of ordinary shares is 2,581.
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Annual Report 30 June 2012
Additional Shareholder Information
b)
Option holdings as at 31 August 2012
There were no share options on issue.
c)
On-market buyback
There is no current on-market buyback.
d)
Schedule of permits
BASIN/COUNTRY
JOINT VENTURE PARTNERS
EQUITY %
OPERATOR
PERMIT
SW1A
L33/43
L44/43
L20/50
L52/50, & L53/50
EP321
EP407
WA-399-P
Phetchabun /
Thailand
Phetchabun /
Thailand
Phetchabun /
Thailand
Phitsanulok /
Thailand
Surat-Khiensa /
Thailand
Perth / Australia
Carnarvon
Towngas
Carnarvon
Towngas
Carnarvon
Towngas
Carnarvon
Sun Resources
Carnarvon
Mubudala
Carnarvon
Perth / Australia
Carnarvon
Carnarvon /
Australia
Carnarvon
Apache
Rialto Energy
Jacka
Carnarvon
Finder Exploration
Carnarvon
WA-435-P, WA-
436-P, WA-437-P,
WA-438-P
Roebuck /
Australia
WA-443-P
Roebuck /
Australia
Towngas
Towngas
Towngas
Carnarvon
Mubudala
40%
60%
40%
60%
40%
60%
55%
45%
50%
50%
2.5% of
38.25%
2.5% of
42.5%
13%
Latent Petroleum
Latent Petroleum
Apache
60%
12%
15%
50%
50%
100%
Finder Exploration
Carnarvon
Carnarvon Petroleum Limited
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ABn 60 002 688 851