Annual Report
Carnarvon Petroleum Limited
ABN 60 002 688 851
Contents
Corporate Directory
Chairman’s Review
Operating and Financial Review
Directors’ Report
Auditor’s Independence Declaration
Corporate Governance Statement
Consolidated Income Statement
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Shareholder Information
1
2-3
4-17
18-34
35
36
37
38
39
40
41
42-83
84
85-89
90-91
2017 Annual Report
Corporate Directory
Directors
PJ Leonhardt (Chairman)
AC Cook (Managing Director)
WA Foster (Non-Executive Director)
P Moore (Non-Executive Director)
EP Jacobson (Non-Executive Director) (Retired)
Company Secretary
T Naude
Auditors
Ernst & Young
Bankers
Australia and New Zealand Banking Group Limited
Commonwealth Bank of Australia
National Australia Bank Limited
HSBC
Registered Office
2nd Floor
76 Kings Park Road
West Perth WA 6005
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Facsimile:
Email:
Website:
Corporate Governance statement:
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+61 8 9321 2665
+61 8 9321 8867
admin@cvn.com.au
carnarvon.com.au
carnarvon.com.au/about-us/corporate-governance/
Link Market Services Limited
Level 12
250 St Georges Terrace
Perth, WA 6000 Australia
Investor Enquiries:
Investor Enquiries:
Facsimile:
1300 554 474 (within Australia)
+61 2 8280 7111 (outside Australia)
+61 2 9287 0303
Stock Exchange Listing
Carnarvon Petroleum Limited’s shares are quoted on the Australian Securities Exchange.
ASX Code: CVN - ordinary shares
1
Carnarvon Petroleum Limited Chairman’s Review
Since 2012 Carnarvon Petroleum Limited (“Carnarvon”) has established itself as a major
explorer on the North West Shelf (“NWS”) of Australia. The timely divestment of Carnarvon’s
Asian assets and the investment in and building of a world class NWS technical database
during a downturn in the industry has enabled the Company to take advantage of several very
exciting opportunities. The Company now has 2C contingent resources of 20.3 million barrels
of oil equivalent and mean prospective resources of 2.5 billion barrels of oil equivalent. This
strong and growing resource base puts Carnarvon in a strong position to capitalise as industry
and global economic conditions improve.
Clearly the 2017 financial year has been a difficult one
in the industry and frustrating for our shareholders.
Nevertheless I believe we have made strong underlying
progress with a focused and well-defined strategy.
Carnarvon along with its Joint Venture partner Quadrant
Energy drilled the Roc-2 well and successfully flowed gas
and condensate to the surface. The flow rates exceeded
the Joint Venture’s expectations, which confirmed the
quality of the reservoir within the basin and proved that
the resource can be produced at commercial rates.
The results are significant for the Joint Venture’s other
discoveries in the greater Phoenix/Roc area and give
us tremendous optimism for the future as the Company
prepares to drill the Phoenix South-3 well in early 2018
and advances plans to drill the Dorado prospect.
Following the Roc-2 well, the Company drilled the
Phoenix South-2 well, which discovered gas and
condensate at the top of the Caley interval. The greater
than expected pressures encountered prevented the
Joint Venture from drilling further and completing its
reservoir evaluation. However, the results enabled
Carnarvon to increase its volume estimates for the
Phoenix South Caley interval. Preparations to re-drill
the reservoir through the Phoenix South-3 well are well
advanced. At the same time, the Company is working
with its insurance underwriters to cover a significant
portion of the Phoenix South-3 well cost based on
well control initiatives required during the drilling of the
Phoenix South-2 well.
2
2017 Annual Report Chairman’s Review
During the year Carnarvon made important progress in its
technical work on the Labyrinth Project that lies adjacent
to the Phoenix permits. A number of very large prospects
have been identified. The Company will continue to
advance this project towards being ready to drill and test
the strongest prospects.
Toward the end of the 2017 financial year, Carnarvon
completed its technical work on the Buffalo project in the
Timor Sea. Through the reprocessing of seismic utilising
state of the art Full Waveform Inversion technology,
Carnarvon’s technical work has provided significant
evidence of the presence of economically recoverable
oil remaining in the previously producing Buffalo oil
field. Carnarvon is currently progressing its analysis to
unlock the opportunity to redevelop the oil field and the
Company has engaged an independent expert who has
validated the resource estimates.
After 12 years with Carnarvon as both Managing
Director and non-executive director, Mr. Ted Jacobson
announced his retirement from the Company. I would like
to thank him for his immense contribution to Carnarvon
during this time and acknowledge Ted’s well-earned
recognition for his impact in the industry during an
outstanding lifetime career.
The Carnarvon team led so ably by Adrian Cook bring
their skills to bear on our objectives with great energy and
enthusiasm and I thank them for their continuing strong
performance. Their efforts have guided the Company
through immensely challenging times in the industry
and have set the foundation for some incredibly exciting
years to come. In closing, I believe my fellow directors
bring an excellent balance of experience and skills to
our deliberations and I thank them for their counsel and
support.
The Board of Carnarvon is conscious of the fact that
the Company has achieved some important milestones
in recent years, however these achievements are not
currently reflected in the share price. Accordingly, the
Board has maintained a conservative approach sensitive
to the market environment in its remuneration practices
this year. Most notably fixed remuneration has been
limited to cost of living increases, cash bonuses have
not been awarded and the linkage between Employee
Share Plan (“ESP”) shares and the focus on improving the
Company’s share price has been emphasized.
Peter Leonhardt
Chairman
Carnarvon is currently progressing its analysis
to unlock the opportunity to redevelop the
oil field and the Company has engaged an
independent expert who has validated the
resource estimates.
3
Carnarvon Petroleum Limited OVERVIEW OF OPERATIONS
The 2017 financial year continued where the 2016 year ended with the successful well testing
of the Roc-2 well and the drilling of the Phoenix South-2 gas and condensate discovery.
Carnarvon also expanded its exploration footprint through adding the WA-524-P (Maracas
project) exploration block to the portfolio. Carnarvon’s technical work was ongoing and resulted
in the progression of the WA-523-P (Buffalo project) and WA-521-P (Labyrinth project) permits,
the latter having significant volumes of oil reported for the high graded prospects. Finally,
Carnarvon is preparing for drilling in the 2018 financial year, most particularly with the Phoenix
South-3 well expected to commence between 1 February 2018 and 1 April 2018.
Figure 1: Carnarvon Interests as at 30 June 2017 in Australia
4
2017 Annual ReportOperating and Financial Review Phoenix Project Background
In 2007, Carnarvon recognised that the Phoenix-1 and
2 gas discoveries were significant, however they were
in a under-explored area and were lacking in extensive
seismic data. Carnarvon secured the acreage in 2009
with four exploration permits (WA-435-P, WA-436-P,
WA-437-P and WA-438-P) covering a total area of some
22,000 km2. These permits are situated in the north-
western region of the Bedout Sub-basin within the
greater Roebuck Basin. The permits 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’s to the
northeast.
Carnarvon, along with its Joint Venture partner Quadrant
Energy, acquired approximately 1,100 km2 of modern 3D
seismic data and 407 km of additional 2D seismic data to
better understand the sub-surface. Interpretation of this
data, together with extensive geological studies, confirmed
two significant prospects in Roc and Phoenix South.
The Phoenix South-1 well was drilled in 2014 and
discovered light oil while the Roc-1 well was drilled in
2015 and discovered a condensate rich gas. On the
basis of these discoveries the Joint Venture significantly
expanded the seismic data coverage with the acquisition
of an additional 10,000 km2 of high quality 3D data
and 10,000 km of new 2D data. A number of leads and
prospects have emerged after interpretation of this new
technical work, as outlined below.
Figure 2: Phoenix Area Discoveries, Prospects and Leads map
5
Carnarvon Petroleum LimitedOperating and Financial Review Phoenix South Oil, Gas and Condensate (WA-435-P)
(Carnarvon 20%, Quadrant Energy is the Operator)
Roc Gas and Condensate (WA-437-P)
(Carnarvon 20%, Quadrant Energy is the Operator)
Oil was discovered in the Barret interval of the Phoenix
South structure with the drilling of Phoenix South-1 while
gas and condensate were discovered within the Caley
interval with the drilling of Phoenix South-2.
The Caley interval was not fully evaluated at Phoenix
South-2 as drilling stopped when high pressures where
encountered, although the nature of the hydrocarbons
encountered and the pressure observed resulted in an
upgrade to the resource estimates as per the table on
page 14. The current mean gross estimate of Prospective
Resources was revised to 489 bscf of recoverable gas
and 57 million barrels of associated condensate.
The drilling observations also indicate that the Caley
sands encountered are of a permeable nature and
indicate good reservoir.
Gas and condensate were discovered in the Caley
interval of the Roc structure with the drilling of the Roc-1
well and confirmed with the Roc-2 well. In addition, in
October 2016, a successful flow test was completed in
the Roc-2 well. The flow test achieved a peak flow rate
of 55 million scf/day and 3,000 barrels of condensate
per day, which is equal to approximately 11,500 barrels
of oil equivalent per day. These rates were achieved
through an approximate 1 ½” choke and were equipment
constrained flow rates; meaning the well flowed at the
maximum rate possible with the equipment being used.
The flow test followed the discovery of a high-quality
reservoir within the Caley interval of the Roc-2 well, which
is saturated with gas and condensate. Porosities of up
to 15% were observed with an average of around 9%,
which is an excellent result for a reservoir at this depth.
The successful control of the increased pressure
encountered in the Phoenix South-2 well led Carnarvon to
submit a cost recovery claim under its insurance policy.
The claim is currently in the final stages of assessment
by the insurance underwriters. Proceeds from the claims
are expected to cover a substantial amount of the cost
of drilling the Phoenix South-3 well allowing for a full
evaluation of the Caley interval.
The Joint Venture has contracted the GSF Development
Driller-1, a sixth-generation semi-submersible drilling rig
from Transocean Limited to drill the Phoenix South-3
well and drilling is expected to commence between 1
February 2018 and 1 April 2018.
Figure 3: Image of the Ocean Monarch flow testing
at the Roc-2 well
6
2017 Annual ReportOperating and Financial Review These results exceeded the pre-drill expectations by
quite some margin and resulted in the reassessment
of the quality of the reservoir at different depths in the
basin. These are positive implications on the capability of
hydrocarbons to flow from quality reservoirs in the basin
including not only the Roc gas and condensate discoveries
but also for the Phoenix South-2 discovery and the chain
of prospects in the greater exploration area.
Exploration – Greater Phoenix Area (WA-435-P,
WA-436-P, WA-437-P and WA-438-P)
(Carnarvon 20%, Quadrant Energy is the Operator)
The success at Phoenix South and Roc has established
the existence of an excellent petroleum system in the
region and has also confirmed that the Barret and Caley
formations can produce at commercial rates.
The results from the Roc-2 well enabled Carnarvon to
increase the resources assigned to the Roc structure with
gross 2C contingent resources now calculated to be 332
Bscf of gas and 20 million barrels of condensate as per
the tables on page 14.
The Joint Venture has been focussing on the follow up
potential and a number of prospects and leads have
already been identified with the most exciting of these
being the Dorado prospect.
With discovered 2C resources around minimum
economic levels, and an ongoing exploration program
to assess additional resources to aid commercial
development considerations, the Joint Venture
has commenced studies to analyse the options to
commercialise the gas and condensate at Roc.
The Dorado prospect is positioned South of the Roc-
1 and Roc-2 wells. Dorado contains a significant
structure in the Caley interval, which contained gas and
condensate in the Roc-1, Roc-2 and Phoenix South-2
wells. In addition, Dorado contains deeper targets in the
Baxter Sandstone and Milne Sandstone, which could
potentially unlock a new structural play type for the basin.
The Joint Venture is currently considering drilling the
Dorado-1 well in 2018.
The prospects and leads surrounding the Roc and
Phoenix South areas are listed in the Prospective
Resource table on page 15. Further leads have been
identified across the rest of the acreage and these are
currently under technical review.
Labyrinth Project – WA-521-P
(Carnarvon 100% and operator)
Carnarvon acquired the exploration permit in March
2016 by committing to undertake a work program that
included the reprocessing of existing 2D seismic data
and geological / geophysical studies.
The permit is located in the Roebuck Basin in the North
West Shelf of Western Australia and covers an area of
approximately 5,000 km2. The permit is contiguous to the
WA-435-P permit which contains the recently discovered
Phoenix South oil, gas and condensate fields.
The interpretation of newly reprocessed 2D seismic
on the permit, as part of the WA-521-P first year work
program, has revealed a suite of significant prospects
and leads, in the middle and early Jurassic deltaic
reservoirs. The largest prospect identified is Labyrinth,
with an aerial extent of 90km² at the Lower Depuch
Formation level.
7
Carnarvon Petroleum LimitedOperating and Financial Review The Labyrinth Prospect is located in 200 metres water
depth, with the target reservoir, the mid-Jurassic Lower
Depuch sandstone, occurring at a relatively shallow depth
of burial, approximately 2,700 metres below sea level. The
Lower Depuch reservoir is typically of excellent quality,
with porosities averaging around 30% and consisting of
hundreds of metres of thick deltaic sandstones. At the
Labyrinth location, these sandstones are overlain with
approximately 200m-300m of seismically mapped sealing
facies, indicating an effective seal.
Geological similarities with the highly prospective
southern Browse Basin are clearly apparent from the
early technical work and provide a very exciting analogue
to the prospectivity of the WA-521-P permit. The Browse
Basin contains extensive petroleum resources, with
discovered ultimate recovery of hydrocarbons totalling
over 1 billion barrels of oil and condensate, 34 Tcf of
gas and 350 million barrels of LPG within the Icthys,
Poseidon, Brecknock/Calliance/Torosa, Prelude, Argus,
Cornea, Crown, Crux and Gwydion fields1.
A further seven prospects and leads have been high-
graded and are listed in the prospective resources table
on page 15, with at least a dozen additional structures
identified.
Figure 4: Prospect and lead inventory for WA-521-P.
Le Poidevin, S. R., Kuske, T. J., Edwards, D. S. and Temple, P. R. 2015. Australian Petroleum Accumulations Report 7 Browse Basin: Western
Australia and Territory of Ashmore and Cartier Islands adjacent area, 2nd edition. Record 2015/10. Geoscience Australia, Canberra.
1
8
2017 Annual ReportOperating and Financial Review
Buffalo Project – WA-523-P
(Carnarvon 100% and operator)
Figure 5: Depth structure map to the top of the reservoir in the Buffalo field
Carnarvon acquired the WA-523-P exploration permit in
May 2016 by committing to undertake a work program
that included reprocessing the existing 3D seismic data.
The permit is located in the Bonaparte Basin in the north
of the North West Shelf of Western Australia.
Previous drilling in the area shows that there were
significant challenges targeting oil filled structures
because of seismic velocity control issues. Carnarvon has
been able to correct these seismic velocity control issues
with modern Full Wave Inversion (“FWI”) processing
technologies not previously available.
The WA-523-P permit is in a proven petroleum system
with the permit containing the Buffalo oil field that was
producing around 4,000 barrels of oil per day when it
was shut in. The permit also contains two proven but
undeveloped oil pools at Bluff-1 and Buller-1. There are
also significant oil fields within adjoining permits including
the 200 million-barrel Laminaria-Corallina field.
Following FWI reprocessing, the data quality has been
considerably improved allowing clearer analysis of
key intervals in and around the Buffalo oil field. As a
result, Carnarvon‘s new seismic interpretation of the
field has identified a potentially significant undrilled
and unproduced area up dip of the original Buffalo
development.
9
Carnarvon Petroleum LimitedOperating and Financial Review Maracas Project – WA-524-P
(Carnarvon 100% and operator)
Carnarvon was awarded the WA-524-P permit in
September 2016.
WA-524-P is situated on the flanks of the Dampier
Sub-Basin, an important part of the highly prospective
Greater Carnarvon Basin, on Western Australia’s North
West Shelf. This large 1,210km² permit is located on the
Enderby Terrace, which contains a number of untested
yet attractive play types in a proven basin which includes
the Stag, Wandoo and Legendre oil fields, plus the
Reindeer gas field.
Carnarvon was attracted to the Permo-Triassic
stratigraphy within the permit. The success of drilling
the Early Triassic play types in the Roebuck Basin is
well documented, and Carnarvon has identified, through
its regional technical work, the potential for a similar
pre-Jurassic play on the flanks of the Dampier Barrow
Sub-Basin.
Carnarvon has identified three potential leads within
the block and aims to de-risk the elements of the play,
with a number of geoscience work flows. This will
include a regional source rock study and 3D seismic
reprocessing with modern Full Wave Form Inversion
(FWI) aimed at greatly improving the quality of the 3D
seismic interpretation, which also act as a precursor to
rock physics studies aimed at improving our confidence
around the reservoir properties. These work flows allow
Carnarvon to add significant value to the asset by
undertaking a forward work program that has a modest
financial obligation.
Carnarvon’s technical team will also further investigate
the potential of a secondary play system in the shallower
Cretaceous stratigraphy, which has seen great success in
the nearby Stag and Wandoo oil accumulations.
As at the financial year end, Carnarvon was continuing
the reprocessing of the existing 3D seismic data over the
permit. The reprocessing includes the application of FWI
technology that has demonstrated clear improvements in
both the Phoenix and Buffalo projects. The reprocessed
data is expected to assist with the mapping of
existing leads and identifying new prospects. It is also
expected to enable Carnarvon to study the potential for
hydrocarbon bearing sands in the permit.
Figure 6: 3D interpretation of the top reservoir highlighting the large throw of the fault blacks
10
2017 Annual ReportOperating and Financial Review
Outtrim East - WA-155-P(1)
(Carnarvon 28.5%, Quadrant Energy is the
Operator)
Carnarvon entered the WA-155-P(1) Outtrim Project in
January 2016. The objective of this project is to discover
and aggregate sufficient oil resources to underpin a field
development. The Outtrim Project already contained the
Outtrim oil discovery and was adjacent to the Blencathra
oil discovery.
Central to this strategy was the drilling of the Outtrim
East-1 well which, in addition to testing the extent of oil
discovered in the Outtrim-1 reservoir, was planned to
investigate the potential for new oil charged sands to the
north and east of the original 1984 well. The well was
completed in July 2016.
The Outtrim East-1 well was announced as a discovery
at the beginning of this financial year (see ASX
Announcement 11 July 2016) and successfully acquired
91 metres of wellbore core wholly contained within the
reservoir section.
Core analysis has shown sands to be more laminated
than originally interpreted which has complicating the
technical evaluation of this well.
While Carnarvon is progressing with technical work on
the Outtrim East-1 well, further regional work is ongoing
and is particularly focused on structures in the Triassic
Mungaroo that comprises the extension of the Gorgon
and Rankin trend. In particular, work has been focussed
on the Belgravia project, which is similar in size and
geology to the nearby Woodside operated Swell Triassic
prospect. The Belgravia prospect contains an estimated
recoverable 440 billion cubic feet of gas (Bcf) and 18
million barrels (Mmbbls) of condensate (gross Pmean) as
Figure 7 shows:
(1) The WA-155-P(1) permit boundary outline in blue;
(2) Belgravia prospect : Top Triassic depth map (red depicting the structural high to the fault bound trap);
(3) The approximate distance between the Belgravia prospect and Swell-1 well location; and
(4) The distance between the Belgravia prospect and the Macedon Gas field and its associated infrastructure.
11
Carnarvon Petroleum LimitedOperating and Financial Review listed in the Prospective Resources table on page 15.
The Triassic Belgravia prospect lies within the north
westerly graticular block of the WA-155-P(1) permit,
adjacent to the proposed location of the Swell-1
exploration well (Figure 6). A discovery at Swell-1 would
be particularly relevant to the Belgravia prospect, given
its geological similarity, its immediate proximity, and the
fact that the Belgravia structure lies directly updip of the
Swell Triassic prospect.
Belgravia is an upper Triassic tilted fault block that is
covered by 3D seismic data. The Belgravia structure has
a 45km² closure in water depths of less than 180 metres.
The reservoir is expected to be Upper Triassic in age, as
part of the greater Upper Triassic play system within the
Northern Carnarvon Basin.
The Upper Triassic play system is the most successful
petroleum play within the North West Shelf creating a
heartland of LNG and gas condensate discoveries. Upper
Triassic reservoirs have underpinned fields such as
Gorgon, Rankin and Wheatstone. The petroleum trapped
within this play tends to be simple fault block structures.
Reservoir quality is excellent and dependant on facies
and depth of burial. Wells at the Zola gas discovery and
Gorgon gas field (North East of the area of interest) have
proven that Upper Triassic stratigraphy can preserve
good reservoir quality and flow hydrocarbons from
depths over 4,000 metres.
Cerberus Project - EP-490, EP-491, EP-475
and TP/27
(Carnarvon 100% and operator)
Carnarvon recently received approval for a one-year
suspension and extension of the permit work program,
particularly in relation to deferring commitments to drill
two exploration wells. This allows Carnarvon sufficient
time to prepare for a contingent well in 2018 and to
secure a partner to help fund the project.
Additionally, Carnarvon has identified the existence of
a lower Triassic play in the Kes Prospect. The lower
Triassic plays across the North-West Shelf have been
significantly de-risked following Carnarvon’s recent
success in the Roebuck basin and its continued technical
studies in the Cerberus area.
Figure 8: Location map of the 100% owned Permits in the Carnarvon Basin
12
2017 Annual ReportOperating and Financial Review RESERVE ASSESSMENT
Petroleum Resource Classification, Categorisation and Definitions
Carnarvon calculates reserves and resources according to the SPE/WPC/AAPG/SPEE2 Petroleum Resource
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.
Production
Reserves
Proved
Proved
& Probable
Proved, Probable
& Possible
Contingent Resources
Commercial
Discovered; no field
development plan approved
or not yet economic
Prospective Resources
Exploration prospectivity
Reserves
Reserves represent that part of resources which are
commercially recoverable and have been justified for
development, while contingent and prospective resources
are less certain because some significant commercial or
technical hurdle must be overcome prior to there being
confidence in the eventual production of the volumes.
Carnarvon does not yet have any reported reserves.
Contingent Resources
Contingent resources are less certain than reserves.
These are resources that are potentially recoverable
but not yet considered mature enough for commercial
development due to technological or business hurdles.
For contingent resources to move into the reserves
category, the key conditions, or contingencies, that
prevented commercial development must be clarified
and removed. As an example, all required internal and
external approvals should be in place or determined to be
forthcoming, including environmental and governmental
approvals. There also must be evidence of firm
intention by a company’s management to proceed with
development within a reasonable time frame (typically 5
years, though it could be longer).
Based on the results of drilling and testing to date, the
following Contingent Resource estimates are provided.
Figure 9: Cross section as indicated in Figure 2
2 Society of Petroleum Engineers (“SPE”); World Petroleum Council (“WPC”); American Association of Petroleum Geologist (“AAPG”)
& Society of Petroleum Evaluation Engineers (“SPEE”)
13
Operating and Financial Review
Gross Contingent Resources
Gross at 30 June 2016
Light Oil
Natural Gas
Condensate
Barrels of Oil Equivalent
MMSTB MMSTB MMSTB BSCF
BSCF
BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE
Permit
WA-437-P
WA-435-P
WA-437-P
1C
-
6.0
3.0
2C
-
19.0
9.0
3C
1C
2C
3C
-
41.8
269.7
371.9
56.0
28.0
-
-
-
-
-
-
1C
2.0
-
-
2C
3C
13.0
18.2
-
-
-
-
1C
9.3
6.0
3.0
2C
60.3
19.0
9.0
3C
83.4
56.0
28.0
9.0
28.0
84.0
41.8
269.7
371.9
2.0
13.0
18.2
18.3
88.3
167.4
Roc
Phoenix South
Phoenix
Total
Technical Revision
Light Oil
Natural Gas
Condensate
Barrels of Oil Equivalent
MMSTB MMSTB MMSTB BSCF
BSCF
BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE
1C
-
0.8
-1.0
-0.2
2C
-
-2.3
-2.0
-4.3
3C
1C
2C
3C
-
162.7
62.1
208.4
-26.4
-12.0
-
-
-
-
-
-
1C
9.9
-
-
2C
6.6
-
-
3C
1C
2C
16.6
38.4
17.5
-
-
0.8
-1.0
-2.3
-2.0
-38.4
162.7
62.1
208.4
9.9
6.6
16.6
38.2
13.2
3C
53.2
-26.4
-12.0
14.8
Permit
Roc (i)
WA-437-P
Phoenix South (ii) WA-435-P
Phoenix (iii)
WA-437-P
Total
Gross at 30 June 2017
Light Oil
Natural Gas
Condensate
Barrels of Oil Equivalent
MMSTB MMSTB MMSTB BSCF
BSCF
BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE
Roc
Phoenix South
Phoenix
Total
Permit
1C
2C
3C
1C
2C
3C
1C
2C
3C
1C
WA-437-P
WA-435-P
WA-437-P
6.8
2.0
16.7
7.0
29.6
16.0
204.5
331.8
580.3
11.9
19.6
34.8
47.8
-
-
-
-
-
-
6.8
2.0
2C
77.8
16.7
7.0
3C
136.6
29.6
16.0
8.8
23.7
45.6
204.5
331.8
580.3
11.9
19.6
34.8
56.6
101.5
182.2
(i) Roc volumes added due to successful Roc-2 well as per ASX announcement 14 November 2016
(ii) Phoenix South oil volumes changed due to results of Phoenix South-2 as per ASX announcement 28 March 2017
(iii) Phoenix volumes adjusted as a result of updated reservoir parameters following additional Roc-2 and
Phoenix South-2 wells
Net Contingent Resources
Net at 30 June 2017
Light Oil
Natural Gas
Condensate
Barrels of Oil Equivalent
MMSTB MMSTB MMSTB BSCF
BSCF
BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE
Roc
Phoenix South
Phoenix
Total
Permit
WA-437-P
WA-435-P
WA-437-P
1C
-
1.4
0.4
1.8
2C
-
3.3
1.4
4.7
3C
1C
2C
3C
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40.9
66.4
116.1
5.9
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-
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11.3
20.3
36.4
Prospective Resource Estimates
Prospective resources are estimated volumes associated with undiscovered accumulations. These represent quantities
of petroleum which are estimated, as of a given date, to be potentially recoverable from oil and gas deposits identified
on the basis of indirect evidence but which have not yet been drilled. This class represents a higher risk than contingent
resources since the risk of discovery is also added. For prospective resources to become classified as contingent
resources, hydrocarbons must be discovered, the accumulations must be further evaluated and an estimate of
quantities that would be recoverable under appropriate development projects prepared.
14
2017 Annual ReportOperating and Financial Review l
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15
Carnarvon Petroleum LimitedOperating and Financial Review
Notes on Petroleum Resource Estimates
FINANCIAL REVIEW
Unless otherwise stated, all petroleum resource estimates
are quoted as at 30 June 2017 at standard oilfield
conditions of 14.696 psi (101.325 kPa) and 60 degrees
Fahrenheit (15.56 deg Celsius).
Carnarvon is not aware of any new information or data
that materially affects the information included in the
Reserves Statement. All the material assumptions and
technical parameters underpinning the estimates in the
Reserves Statement continue to apply and have not
materially changed.
Carnarvon uses both deterministic and probabilistic
methods for estimation of petroleum resources at the
field and project levels. Unless otherwise stated, all
petroleum estimates reported at the company level are
aggregated by arithmetic summation by category.
MMBOE means millions of barrels of oil equivalent.
Dry gas volumes, defined as ‘C4 minus’ hydrocarbon
components and non-hydrocarbon volumes that are
present in sales product, are converted to oil equivalent
volumes via a constant conversion factor, which for
Carnarvon is 5.7 Bcf of dry gas per 1 MMboe. Volumes
of oil and condensate, defined as ‘C5 plus’ petroleum
components, are converted from MMbbl to MMboe on a
1:1 ratio.
The estimates of petroleum resources are based
on and fairly represent information and supporting
documentation prepared by qualified petroleum reserves
and resources evaluators. The estimates have been
approved by the Company’s Chief Operating Officer,
Mr Philip Huizenga, who is a full-time employee of
Carnarvon. Mr Huizenga has over 20 years’ experience
in petroleum exploration and engineering. Mr Huizenga
holds a Bachelor Degree in Engineering and a Master’s
Degree in Petroleum Engineering and is a member of the
Society of Petroleum Engineers. Mr Huizenga is qualified
in accordance with ASX Listing Rules and has consented
to the form and context in which this statement appears.
There are numerous uncertainties inherent in
estimating reserves and resources, and in projecting
future production, development expenditures,
operating expenses and cash flows. Oil and gas
reserve engineering and resource assessment must
be recognised as a subjective process of estimating
subsurface accumulations of oil and gas that cannot be
measured in an exact way.
16
The Group reports an after-tax loss of $36,977,000 for the
financial year ending 30 June 2017 (2016: $5,367,000).
The key drivers of this result, outlined in detail below,
comprised prudent write offs of exploration expenditure
($10,104,000), an impairment loss on receivables
($22,153,000) and an unrealised foreign exchange loss
($1,462,000).
Carnarvon’s balance sheet remained strong with cash
and cash equivalents of $53,050,000 (2016: $87,847,000),
no debt and minimal commitments going forward.
Carnarvon has significantly advanced its North West
Shelf database in-line with the Company’s primary focus
on high impact opportunities in the North West Shelf. As
such, Carnarvon spent $2,894,000 (2016: $4,552,000)
in new venture and advisory costs. Carnarvon invested
a further $27,760,000 on its exploration properties
including the Roc-2 and Phoenix South-3 wells and
further technical work aimed at maximizing the value
of Carnarvon’s assets. A conservative write off of
$10,104,000 (2016: $244,000) of exploration expenditure
relates to the WA-155-P(1) permit as it is not certain that
these costs will be recovered through the production or
sale of the oil discovered in the Outtrim East-1 well.
Carnarvon booked an impairment loss of $22,153,000
(2016: $6,914,000) on the deferred consideration asset
that was previously carried in relation to the divestment of
its Thai assets to Loyz Energy Limited (“Loyz”) in March
2014. The impairment was due to a number of factors
including the performance of the underlying Thai assets,
a sustained decline in oil prices since the divestment and
the financial position of Loyz. More specifically, Loyz was
unable to make the deferred consideration payment that
was due in December 2016 and by agreement extended
to May 2017. Carnarvon has since given Loyz a further
extension to complete the settlement to 31 October 2017.
The impairment of the deferred consideration asset of
$22,153,000 is not a cash expense and can be reversed
in future periods in line with changes to these factors. The
settlement of the deferred consideration payment would
be recognised in Carnarvon‘s financial statements in the
period that the settlement occurs.
During the financial year there was an unrealized loss on
foreign exchange of $1,462,000 (2016: Profit: $3,748,000)
due to the effect of an appreciation of AUD against the
Carnarvon’s USD cash and financial assets. 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. Carnarvon manages
its cash positions in US Dollars and Australian Dollars
to naturally hedge its foreign exchange rate exposures
having regard for likely future expenditure.
2017 Annual ReportOperating and Financial Review Permit Interests
Permit
Basin
Equity
Joint Venture
Partner(s)
Partner
Interest
Indicative Forward
Program
Australia
EP-490
EP-491
EP-475
TP/27
Carnarvon
Carnarvon
Carnarvon
Carnarvon
WA-521-P
Roebuck
WA-523-P
Bonaparte
WA-524-P
Dampier
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
WA-435-P
Roebuck
20%
Quadrant Energy (i)
80%
G & G Studies
G & G Studies
G & G Studies
G & G Studies
G & G Studies
G & G Studies
G & G Studies
G & G Studies,
Appraisal
WA-436-P
Roebuck
30%
Quadrant Energy (i)
70%
G & G Studies
WA-437-P
Roebuck
20%
Quadrant Energy (i)
80%
G & G Studies,
Appraisal
WA-438-P
Roebuck
30%
Quadrant Energy (i)
70%
G & G Studies
WA-155-P (1) Barrow
28.5%
Quadrant Energy (i)
71.5%
EP321
EP407
Perth
Perth
2.50% of 38.25% (ii)
2.50% of 42.5% (ii)
-
-
-
-
G & G Studies,
Exploration well
Appraisal
Appraisal
Note:
(i) Denotes operator where Carnarvon is non-operator partner
(ii) Carnarvon has an overriding royalty interest in these assets
17
Carnarvon Petroleum LimitedOperating and Financial Review Directors’ Report
Statutory Information
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 2017, 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, former Senior Partner of PricewaterhouseCoopers and National Board
member and Managing Partner of Coopers & Lybrand in Western Australia.
During the past three years Mr Leonhardt has served as a director of CTI Logistics Limited (from August 1999). He
was previously a foundation Chairman of Voyager Energy Limited until its agreed acquisition by ARC Energy Limited.
Mr Leonhardt is also a director of the Cancer Research Trust and retired as a director of The Harry Perkins Institute of
Medical Research in April 2016 following 17 years’ service.
Mr Leonhardt is a member of the Audit and Risk Committee and the Remuneration and Nomination Committee.
Adrian C Cook
Chief Executive Officer and Managing Director
B Bus, CA, MAppFin, FAICD
Appointed as a director on 1 July 2011
Mr Cook has over 30 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. Mr. Cook is
a fellow of the Australian Institute of Company Directors.
During the past three years Mr Cook has not served as a Director of any other listed company. Mr Cook joined
Carnarvon on 2 November 2009 and was appointed to the Board on 1 July 2011.
18
2017 Annual Report Directors’ Report
Edward (Ted) P Jacobson
Non-Executive Director
B.Sc (Hons Geology)
Appointed as a director on 5 December 2005. Retired as Director on 23 January 2017.
Mr Jacobson is a petroleum geophysicist with over 40 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, Mr
Jacobson 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 Oil Ltd in September 2005.
During the past three years Mr Jacobson has not served as director of any other listed company.
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 plus year period. He has been an advisor to a major Japanese trading company for the last 25 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 has significant M&A experience and has assisted companies
in their commercial activities including financing and marketing.
During the past three years Mr Foster served as a director of Hawkley Oil & Gas 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 and Nomination Committee and the Audit and Risk Committee.
Peter Moore
Non-Executive Director
B.Sc (Hons Geology), MBA, PhD, GAICD.
Appointed as a director on 18 June 2015.
Dr Moore has extensive experience in exploration and production in Australia and internationally gained through senior
roles with a number of globally recognised companies. Dr Moore led Woodside’s worldwide exploration efforts as the
Executive Vice President Exploration reporting to the CEO and was the Head of the Geoscience function (Exploration,
Development, Production, M&A).
During the past three years Dr Moore served as a non-executive Director of Central Petroleum Ltd.
Dr Moore is a member of the Audit and Risk Committee and the Remuneration and Nomination Committee.
Company Secretary
Mr Thomson Naude was appointed Company Secretary in November 2013. Mr Naude is a qualified Chartered
Accountant, a member of Chartered Secretaries Australia and the Chief Financial Officer at Carnarvon Petroleum.
19
Carnarvon Petroleum Limited Directors’ Report
Directors’ meetings
The number of directors’ meetings held and attended by each of the directors during the reporting period was as
follows:
PJ Leonhardt
WA Foster
AC Cook
P Moore
EP Jacobson
(a)
(b)
9
9
9
9
4
9
9
9
9
4
(a) Number of meetings held and eligible to attend during period of office
(b) Number of meetings attended
Audit and Risk Committee
Names and qualifications of Audit and Risk Committee members
The Committee is to include at least 3 members from 1 July 2009. Current members of the committee are Mr Foster
(Chairman of the Audit and Risk Committee), Mr Leonhardt and Dr Moore. Qualifications of Audit and Risk Committee
members are provided in the Directors section of this directors’ report.
Audit and Risk Committee meetings
The number of Audit and Risk Committee meetings held and attended by the members during the reporting period was
as follows:
PJ Leonhardt
WA Foster
P Moore
(a)
(b)
2
2
2
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
20
2017 Annual Report Directors’ Report
REMUNERATION REPORT (AUDITED)
The Board recognises that 23.75% of votes were cast against the 2016 Remuneration Report at the 2016 Annual
General Meeting. While this result did not constitute a ‘first strike’, the Board has consulted with stakeholders in
relation to its remuneration practices with the following outcomes:
Issue Raised
Commentary
There were concerns with respect to the level of
short-term incentive payments made given the financial
performance and share price performance of the
Company.
The Company is not an earnings driven business given
and is in the exploration and appraisal phase of its
projects.Carnarvon is an event driven business and the
executives should be rewarded when certain events or
milestones are achieved such as exploration success.
A significant portion of the Employee Share Plan (“Plan”)
shares vest within less than three years from grant.
Plan shares are only subject to share price appreciation
hurdle.
The Board recognises that the Company’s share price
has not reflected achievements the Company has made
this year, therefore, the decision was made to award
executives ESP shares which reward long term share
price appreciation. No short term incentive payments were
made in the 30 June 2017 financial year.
Clear measurable objectives have been set for the 30
June 2018 financial year.
In response to this issue, the Company has increased
the vesting period of new Plan shares. As a result,
participants cannot dispose any share within two years of
issue, participants may dispose of up to 25% of their ESP
Shares after two years, 50% after three years, 75% after
four years and 100% after five years of issue.
The quantum of Plan shares issued to executives is
determined by the extent to which they achieve strategic
goals set by the board. Given many of these objectives
are closely linked to strategy, it has not been possible for
the Company to publicly disclose the objectives until they
are achieved.
Clear measurable objectives have been set in the
Company’s medium / long-term strategic plan.
Non-executive directors received options as part of their
remuneration.
No options were issued to directors during the 30 June
2017 financial year.
21
Carnarvon Petroleum Limited Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
Principles of remuneration
Shareholders approve total non-executive directors’ fees and the Remuneration & Nomination Committee (Committee)
is responsible for the allocation of those fees amongst the individual members of the Board.
Ultimately, the Board is responsible for the Company’s remuneration policy and practices. To assist the Board with
this, it has established the Committee. The Committee’s role is to review and make recommendations to the Board on
remuneration policies and practices and to ensure that the remuneration policies and practices are consistent with the
strategic goal of the Board to build and deliver value to shareholders over the long term.
The Remuneration & Nomination 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 Committee obtains,
when required, independent advice on the appropriateness of remuneration packages, given trends in comparative
companies both locally and internationally.
The Committee determines its compensation practices in terms of their effectiveness to:
• Provide a strategic and value based reward for employees and executives who make a contribution to the success
of the Company;
• Align executives and employees interests with the interests of shareholders;
• Promote the retention of executives and employees; and
• Promote the long term success of the Company;
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 executives’ 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 executives’ remuneration.
The Remuneration & Nomination 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 the most effective structure to meet its objectives and attract, retain and motivate appropriately qualified and
experienced executives.
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.
30 June
2013
30 June
2014
30 June
2015
30 June
2016
30 June
2017
Share price as at 30 June each year
$0.041
$0.075
$0.115
$0.100
$0.079
Year on year change in the share price
(61%)
83%
53%
(13%)
(21%)
22
2017 Annual Report Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
The Board of the Company also set a number of strategic and value based objectives for its executives and employees
which were considered when ESP shares were issued. The objectives that were met during the 30 June 2017 financial
year were as follows:
• Achieved a successful Roc-2 flow test;
• Gas and condensate discovery at Phoenix South-2 and associated insurance cost recovery;
• Award of WA-524-P (Maracas Project);
• Materially advanced the North-West Shelf database
• Completion of the Buffalo project reprocessing and initial prospect mapping
• Completion of the Labyrinth project technical work identifying two significant prospects
The Board of Carnarvon is conscious of the fact that the Company has made some important achievements in recent
years, however these achievements are not currently reflected in the share price. As a result, it amended the executive
remuneration structure this year, where no cash bonuses were paid and there was a focus on the Plan shares. The
issue of ESP shares rewards executives for material and sustained increases in the Carnarvon share price. We believe
this better aligns Carnarvon’s management team and shareholders.
The Board also set objectives and targets for its executives and employees for the 30 June 2018 financial year. The
quantum of short-term incentive payments and long term incentive payments to be made to executives are determined
by the extent to which they achieve strategic objectives set by the board. Given many of these objectives are closely
linked to strategy, it is not possible for the Company to publicly disclose the objectives until they are achieved. These
objectives are summarised, to the extent possible, as follows:
Short-term Objectives:
• There are five key short term objectives that have been identified;
• Within these five objectives, there are a total of 13 key actions to be met;
• Four of these objectives are with respect to progressing assets that the Company currently owns, namely the
Phoenix Project, Buffalo Project, Outtrim Project and the Labyrinth Project;
• One objective is with respect to new opportunities; and
• New objectives and actions may be recognised and added during the year as a result of changing circumstances.
This is in recognition that one of the Company’s strengths is being nimble and able to react quickly to the changing
environment and new opportunities.
Medium and Long-term Objectives:
• There are 14 medium and long term objectives that have been identified;
• Within these 14 objectives, there are a total of 32 key actions to be met;
• Medium to long term objectives have been set for each of the Company’s projects
• The company has set long term objectives with respect to appropriate new opportunities being introduced to the
business
23
Carnarvon Petroleum Limited Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
Non-executive directors
Total remuneration for all non-executive directors, last voted upon by shareholders at a General Meeting in November
2015, is not to exceed $400,000 per annum.
A non-executive director’s base fee is $75,000 per annum, the Chairman of the board receives $115,000 per annum,
the Chairman of the Audit Committee receives an additional $2,500 and the Chairman of the Remuneration Committee
receives an additional $2,500. These fees were last increased with effect from 1 January 2014. Non-executive directors
do not receive any performance-related remuneration. 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 & Nomination Committee based on two components:
1. The performance of the business as a whole; and
2. The individual performances of each employee.
The value of any short-term incentive paid in cash is restricted to a maximum 50% of an individual’s Fixed
Compensation.
The Remuneration & Nomination Committee is not obliged to make incentive payments where there are material
adverse changes in the circumstances of the Company.
Non-executive directors are not entitled to participate in the short term incentive scheme.
There were no short-term incentives awarded during the period as set out on page 30, to each of the directors, named
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 updated and ratified by shareholders at the AGM on 13 November 2015.
The purpose of the ESP is to attract, retain and motivate those who have been invited by the Board to participate in the
ESP and align their interests with all other shareholders by encouraging performance that increases shareholder wealth
through long-term growth.
The Plan is considered to be the most appropriate long-term incentive scheme for the size and nature of the Company.
The plan only rewards long term share price growth, rather than relative performance. Unlike performance rights, the
Plan shares are only of value to the holder of the shares to the extent to which the share price increases to exceed at
least 120% of the share price when the offer is made to the employee. Furthermore, the Plan does not give rise to a
tax liability on issue (unlike some options) thus encouraging long-term holdings. The Company Employee Share Plan is
considered to be an effective way to align the objectives of management with the interests of shareholders.
24
2017 Annual Report Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
The principal provisions of the Plan include:
• The Plan is available to all executive Directors, employees or consultants of the Company or any of its subsidiaries
(“Eligible Person”);
• Non-Executive Directors are not eligible to participate in the Plan;
• 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 determined by the Board, provided that the issue price is at least 120% of the market price
of the Company’s Shares, being the weighted average sale price of Shares sold through the ASX on the 5 trading
days prior to the proposed date of an offer under the Plan.;
• 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;
• Plan participants may not dispose of any ESP Shares within two years of the issue date but, subject to repayment of
any associated loan (equal to the issue price), participants may dispose of up to 25% of their ESP Shares after two
years, 50% after three years, 75% after four years and 100% after five years.
• 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.
25
Carnarvon Petroleum Limited Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
There has been some misunderstanding with respect to the Company’s ESP scheme. Unlike performance rights where
executives enjoy the entire value of the share upon vesting,the Company’s ESP scheme only rewards the holder of the
share to the extent the share price exceeds the issue price of the share. The graph below as an example demonstrates
how the ESP scheme effectively works in relation to an issue made in 2017.
Loans made under the ESP involve no cash outlay by the Company. The ESP shares are treated in principle as options
as demonstrated in the graph above.
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 & Nomination Committee based upon the assessed performance of
each person against their job specifications and the recommendations of the Chief Executive Officer, and in the case of
executive Directors, with the approval of shareholders.
26
2017 Annual Report Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
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 page 30.
Service contracts
The contract duration, period of notice and termination conditions for key management personnel are as follows:
(i) 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.
(ii) Philip Huizenga, Chief Operating Officer, is engaged as an employee. Termination by the Company is with 3 months’
notice or payment in lieu thereof and an additional payment of 3 months’ remuneration. Termination by Mr Huizenga
is with 3 months’ notice.
(iii) Thomson Naude, Chief Financial Officer, is engaged as an employee. Termination by the Company is with 3 months’
notice or payment in lieu thereof. Termination by Mr Naude is with 3 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 Plan Shares issued as described on page 24.
(ii) Plan Shares
During the current financial year the following Plan Shares, which are in-substance options, were granted to Executive
Officers of the Company based on the out performance on the strategic based targets detailed above:
Executive
Officers
AC Cook*
PP Huizenga
TO Naude
Number of plan
shares issued
1,200,000*
1,125,000
750,000
Grant date
25/11/2016*
30/06/2017
30/06/2017
Exercise price
per plan share
Fair value at
grant date
$0.13*
$0.10
$0.10
$0.067*
$0.041
$0.041
The exercise price for each issue above was calculated based on at least a 20% premium 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 25 November 2016.
27
Carnarvon Petroleum Limited Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
The following factors and assumptions were used in determining the fair value of Plan Shares at grant date in the
current reporting period:
2017
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
25/11/2016
14/06/2020
30/06/2017
13/06/2020
$0.052
$0.041
$0.13
$0.10
$0.110
$0.079
89%
68%
1.75%
1.50%
0%
0%
(iii) Options
There were no options over shares in the Company issued as compensation to key management personnel during the
reporting period. No options have been issued since the end of the financial year.
The movement during the reporting period, by value, of options over ordinary shares, including shares issued under the
Company’s ESP, for each company director and company executive and granted as part of remuneration is detailed
below:
Granted
in year ($)
Expense recognised
in year ($)
Exercised
in year ($)
Forfeited in
the year ($)
Total option
value in year ($)
Directors
WA Foster
P Moore
-
-
19,983*
19,983*
–
–
–
–
32,192
32,192
*Options approved by shareholders at the AGM and granted on 13 November 2015.
The value of options expensed in the year is the fair value of the options at grant date using the Black-Scholes Option
Pricing Model.
The value of options exercised during the year is calculated as the market price of shares of the Company on the
Australian Securities Exchange as at the close of trading on the date the options were exercised, after deducting the
price paid to exercise the options.
28
2017 Annual Report Directors’ Report
REMUNERATION & NOMINATION COMMITTEE
The Committee is to include at least 3 members. Members of the committee during the 30 June 2017 financial year
were Mr Foster (Chairman of the Remuneration & Nomination Committee), Mr Leonhardt and Mr Moore. Qualifications
of Remuneration & Nomination Committee members are provided in the Directors section of this directors’ report.
Remuneration Committee meetings
The number of Remuneration & Nominations Committee meetings and the number attended by each of the members
during the reporting period were as follows:
WA Foster
PJ Leonhardt
P Moore
(a)
(b)
2
2
2
2
2
2
(a) Number of meetings held during period of office
(b) Number of meetings attended
The Remuneration & Nomination Committee is responsible for the compensation arrangements for directors and
executives of the Company. The Remuneration & Nomination 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.
29
Carnarvon Petroleum Limited Directors’ Report
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30
2017 Annual Report
Directors’ Report
REMUNERATION REPORT (AUDITED) (CONTINUED)
Ordinary shares held by key management personnel
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:
2017
Directors
PJ Leonhardt
EP Jacobson*
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
Held at
1 July 2016
Net acquired/
(sold)
Award under
Employee
Share Plan
Received on
exercise of
options
Held at
30 June 2017
17,750,000
29,164,100
684,455
9,799,917
–
8,367,421
1,942,509
–
–
–
–
–
–
–
–
–
–
1,200,000
–
1,125,000
750,000
–
–
–
–
–
–
–
17,750,000
29,164,100
684,455
10,999,917
–
9,492,421
2,692,509
* Mr Jacobson ceased to be a director on 23 January 2017.
Plan shares held by key management personnel
Included in the above are plan shares held by key management personnel. The balance and movement during the
reporting period in the number of plan shares directly, indirectly or beneficially, by each key management person,
including their related parties, is as follows:
2017
Directors
PJ Leonhardt
EP Jacobson*
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
Held at
1 July 2016
Granted as
compensation
Employee Share Plan
cancellations
Exercised
Held at
30 June 2017
3,000,000
6,000,000
–
7,034,917
–
–
–
–
1,200,000
–
7,867,421
1,728,436
1,125,000
750,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,000,000
6,000,000
–
8,234,917
–
8,992,421
2,478,436
* Mr Jacobson ceased to be a director on 23 January 2017.
Options over equity instruments held by key management personnel
The movement during the reporting period in the number of options over ordinary shares in Carnarvon Petroleum Limited
held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
2017
Directors
WA Foster
P Moore
Held at
1 July 2016
Granted as
compensation
Acquired/
(sold)
Exercised
Held at
30 June 2017
500,000
500,000
–
–
–
–
–
–
500,000
500,000
End of Remuneration Report
31
Carnarvon Petroleum Limited 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 2017 ($)
Auditors of the Company:
Ernst & Young
Directors’ interests
55,925
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*
WA Foster
P Moore
17,750,000
9,799,917
29,164,100
684,455
–
–
–
–
500,000
500,000
* Mr Jacobson ceased to be a director on 23 January 2017.
Shares issued under the Company’s ESP are included under the heading Ordinary Shares. Options over ordinary shares
issued to directors are included under the heading Share options.
Diversity
For the year ending 30 June 2017, women made up 33% of the Company’s general work force. Currently, there are no
women on the board or in senior executive positions.
The Board has set the diversity objective of providing mentoring and support to female employees for the 2017 financial
year.
All employees receive ongoing training and professional support in the development of their career and no diversity
distinction exists for these activities.
Likely developments
The likely developments for the 2017 financial year are contained in the operating and financial review as set out on
pages 4 to 17.
Environmental regulation and performance
The Group’s oil and gas exploration and development activities are concentrated in Western Australia. Environmental
obligations are regulated under both State and Federal Law in Western Australia. No significant environmental
breaches have been notified by any government agency during the year ended 30 June 2017.
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 (2016: Nil).
32
2017 Annual Report Directors’ Report
Auditor’s independence declaration
The auditor’s Independence Declaration under Section 307C of the Corporations Act is set out on page 35 and forms
part of the directors’ report for the financial year ended 30 June 2017.
Principal activities
During the course of the 2017 financial year the Group’s principal activities continued to be directed towards oil and gas
exploration, development and production.
Identification of independent directors
The independent directors are identified in the Company’s Corporate Governance Statement. The Corporate
Governance Statement is available on Carnarvon Petroleum’s website at:
carnarvon.com.au/about-us/corporate-governance/.
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 17.
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.
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.
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 2017 is set out on pages 4 to 17
and forms part of this report.
Indemnity of auditors
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Ernst & Young during or since the financial year.
Events subsequent to reporting date
No matters or circumstance has arisen since 30 June 2017 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.
33
Carnarvon Petroleum Limited Directors’ Report
Rounding off
The Company is an entity of the kind referred to in the Australian Securities and Investments Commission Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016. As a result, 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, 30 August 2017
34
2017 Annual Report Auditor’s Independence Declaration
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of Carnarvon
Petroleum Limited
As lead auditor for the audit of Carnarvon Petroleum Limited for the financial year ended 30 June 2017,
I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Carnarvon Petroleum Limited and the entities it controlled during the
financial year.
Ernst & Young
R J Curtin
Partner
30 August 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
RC:KW:CARNARVON:016
35
Carnarvon Petroleum Limited Corporate Governance Statement
CORPORATE GOVERNANCE STATEMENT
The Board is committed to achieving and demonstrating the highest standards of corporate governance. As such,
Carnarvon Petroleum Limited and its Controlled Entities (‘the Group’) have adopted the third edition of the Corporate
Governance Principles and Recommendations which was released by the ASX Corporate Governance Council on 27
March 2015 and became effective for financial years beginning on or after 1 July 2015.
The Group’s Corporate Governance Statement for the financial year ending 30 June 2017 is dated as at 30 June 2017
and was approved by the Board on 30 August 2017. The Corporate Governance Statement is available on Carnarvon
Petroleum’s website at carnarvon.com.au/about-us/corporate-governance/.
36
2017 Annual Report Consolidated Income Statement
Other income
Administrative expenses
Directors’ fees
Employee benefits expense
Unrealised foreign exchange (loss)/gain
New venture and advisory costs
Exploration expenditure written off
Remeasurement of deferred consideration asset
Loss before income tax
Taxes
Current income tax expense
Loss for the year
Loss attributable to members of the Company
Loss per share:
Basic loss for the period attributable to members of the
entity (cents per share)
Diluted loss for the period attributable to members of
the entity (cents per share)
For the year ended 30 June 2017
Consolidated
Notes
2
11
8
2017
$000
3,690
(1,587)
(312)
(2,155)
(1,462)
(2,894)
(10,104)
(22,153)
2016
$000
6,209
(1,710)
(345)
(1,559)
3,748
(4,552)
(244)
(6,914)
(36,977)
(5,367)
6(a)
–
–
(36,977)
(5,367)
(36,977)
(5,367)
5
5
(3.6)
(0.5)
(3.6)
(0.5)
The above consolidated income statement should be read in conjunction with the accompanying notes to the financial
statements.
37
Carnarvon Petroleum Limited Consolidated Statement of Other Comprehensive Income
For the year ended 30 June 2017
Consolidated
2017
$000
2016
$000
Loss for the year
(36,977)
(5,367)
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences arising on translation of
foreign operations, net of income tax
Total comprehensive loss for the year
(2)
28
(36,979)
(5,339)
Total comprehensive loss attributable to members of the company
(36,979)
(5,339)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes to the financial statements.
38
2017 Annual Report Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Deferred consideration asset
Other assets
Total current assets
Non-current assets
Deferred consideration asset
Property, plant and equipment
Exploration and evaluation expenditure
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Total current liabilities
Non-current liabilities
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
As at 30 June 2017
Consolidated
Notes
2017
$000
2016
$000
15(b)
53,050
87,847
7
8
10
8
9
11
13
18
18
14
14
400
–
459
297
1,542
466
53,909
90,152
–
80
46,938
18,509
165
29,282
47,018
47,956
100,927
138,108
1,341
379
2,130
268
1,720
2,398
279
279
202
202
1,999
2,600
98,928
135,508
95,865
(375)
3,438
95,401
(308)
40,415
98,928
135,508
The above consolidated statement of financial position should be read in conjunction with the accompanying notes to
the financial statements.
39
Carnarvon Petroleum Limited Consolidated Statement of Changes in Equity
For the year ended 30 June 2017
Issued
capital
$000
Reserve
shares
$000
Retained
earnings
$000
Translation
reserve
$000
Balance at 1 July 2015
93,011
(2,786)
45,782
Comprehensive loss
Loss for the year
Other comprehensive income
Total comprehensive loss for
the year
Transactions with owners and
other transfers
Share based payments
Issue of ESP shares
Proceeds from exercised options
Total transactions with owners
and other transfers
–
–
–
–
404
1,986
–
–
–
–
(404)
–
2,390
(404)
(5,367)
–
(5,367)
–
–
–
–
Balance at 30 June 2016
95,401
(3,190)
40,415
Balance at 1 July 2016
95,401
(3,190)
40,415
Comprehensive loss
Loss for the year
Other comprehensive loss
Total comprehensive loss for the
year
Transactions with owners and
other transfers
Share based payments
Issue of ESP shares
Total transactions with owners and
other transfers
–
–
–
–
464
464
–
–
–
–
(464)
(464)
(36,977)
–
(36,977)
–
–
–
-
–
28
28
–
–
–
–
28
28
–
(2)
(2)
–
–
–
Share based
payments
reserve
$000
Total
$000
2,421
138,428
–
–
–
(5,367)
28
(5,339)
433
–
–
433
–
1,986
433
2,419
2,854
135,508
2,854
135,508
–
–
–
(36,977)
(2)
(36,979)
399
–
399
399
–
399
Balance at 30 June 2017
95,865
(3,654)
3,438
26
3,253
98,928
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes to
the financial statements.
40
2017 Annual Report Consolidated Statement of Cash Flows
For the year ended 30 June 2017
Consolidated
Notes
2017
$000
2016
$000
Cash flows from operating activities
Payments to suppliers and employees
Interest received
Research and development tax credit received
Net cash used in operating activities
Cash flows from investing activities
Exploration and development expenditure
Acquisition of property, plant and equipment
Proceeds from deferred consideration asset
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercised options
Net cash provided by financing activities
15(a)
9
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
15(b)
(7,345)
480
1,822
(5,043)
(5,805)
398
3,164
(2,243)
(27,760)
(13,126)
(17)
93
(126)
1,128
(27,684)
(12,124)
–
–
1,986
1,986
(32,727)
(12,381)
87,847
(2,070)
53,050
97,302
2,926
87,847
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to the
financial statements.
41
Carnarvon Petroleum Limited 1.
REPORTING ENTITY
The consolidated financial report of Carnarvon Petroleum Limited (‘Company’) for the financial year ended 30
June 2017 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.
Carnarvon Petroleum Limited is a for profit company limited by shares incorporated in Australia whose shares
are publicly traded on the Australian Stock Exchange.
The financial report was authorised for issue by the directors on 30 August 2017.
The basis for the preparation of the following notes can be found in note 28 and the significant accounting
policies used in the preparation can be found in note 29.
42
2017 Annual ReportNotes to the Financial Statements 2.
OTHER INCOME
Finance income on bank deposits
Research and development tax credit received
Other income
Unwinding of interest on deferred consideration asset (note 8)
Net (loss) gain on foreign currency transactions
Gain on sale of shares
3.
OTHER EXPENSES
The following expenses are included in administrative and employee benefit
expenses in the income statement:
Depreciation – property, plant and equipment
Rental premises – operating leases
Defined contribution – superannuation expense
4.
AUDITORS’ REMUNERATION
Audit and review services:
Ernst & Young
Crowe Horwath
5.
LOSS PER SHARE
Consolidated
2017
$000
2016
$000
480
1,822
93
1,403
(108)
–
3,690
(102)
(275)
(293)
(56)
–
(56)
409
1,948
121
3,490
113
128
6,209
(139)
(251)
(233)
(68)
(5)
(73)
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
2017
2016
Number of shares
1,019,941,717
994,066,022
1,275,448
11,649,541
Weighted average number of ordinary shares 30 June (basic)
1,021,217,165
1,005,715,563
Effect of share options on issue(1)
–
–
Weighted average number of ordinary shares 30 June (diluted)
1,021,217,165
1,005,715,563
Loss used in calculating basic and diluted loss per share
(36,977,000)
(5,367,000)
(1) As the consolidated entity incurred a loss for the year ended 30 June 2017, the effect of options on issue is
considered to be antidilutive and thus naot factored in determining the diluted earnings per share.
2017
$
2016
$
43
Carnarvon Petroleum LimitedNotes to the Financial Statements 6.
TAXES
Consolidated
2017
$000
2016
$000
(a) Income tax expense
Numerical reconciliation between pre-tax profit and income tax expense:
Prima facie income tax benefit on pre-tax loss at 27.5% (2016: 30%)
(10,169)
(1,610)
Tax effect of:
Effect of foreign exchange
Non-deductible expenditure
R&D grant not assessable
Prior year temporary differences recognised
Current year tax benefit not brought to account
Income tax benefit
Current income tax
Deferred tax
(b) Current tax liability
Tax Consolidation
402
5,896
(501)
–
4,372
–
–
–
–
–
(1,124)
(2,973)
–
1,531
4,176
–
–
–
–
–
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 operation as under
Australian tax law, such profits attributable to the branch are taxed in Thailand and are non-assessable in
Australia.
(c) Unrecognised deferred tax assets and liabilities
Deferred tax asset on Australian tax losses
Deferred tax liability on capitalised exploration and evaluation expenditure
Net deferred tax asset not recognised
20,773
(12,908)
7,865
12,596
(8,785)
3,811
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.
44
2017 Annual ReportNotes to the Financial Statements 7.
TRADE AND OTHER RECEIVABLES
Consolidated
Current
Trade and other receivables
Cash held as security
2017
$000
175
225
400
2016
$000
68
229
297
The Group’s exposure to credit and currency risks is disclosed in Note 25.
8.
DEFERRED CONSIDERATION ASSET
Consolidated
Current portion of deferred consideration asset
Non-current portion of deferred consideration asset
Reconciliation
Reconciliation of the fair values at the beginning and end of the
current financial year are set out below:
Opening fair value
Effective interest
Repayments
Fair value movement
Effects of exchange rate fluctuations
Closing fair value
2017
$000
–
–
–
20,051
1,403
–
(22,153)
699
–
2016
$000
1,542
18,509
20,051
23,624
3,490
(916)
(6,925)
778
20,051
Carnarvon completed the sale of half of its 40% interest in its producing Concessions in Thailand during
the 2014 financial year to Loyz Energy Limited (“Loyz Energy”) which included a US$32,000,000 deferred
consideration based on 12% of the acquirer’s share of revenue in the Concessions. The deferred consideration
asset has been accounted for as an available for financial asset under Australian Accounting Standards and
classified as a “level 3” financial asset under the fair value hierarchy.
On 23 January 2017, Carnarvon entered into a supplemental agreement with Loyz Energy by which:
• Subsequent payments continue to be on 30 November each year,
• With exception to the receivable payment due 30 November 2016 which shall be deferred until 31 December 2017.
Loyz Energy will pay USD$5,000 interest per month in consideration for the deferment, with the first interest
•
payment to be made on 31 January 2017.
On 2 May 2017, Carnarvon entered into an agreement with Loyz Energy to settle the outstanding deferred
consideration payable:
•
•
For a sum of US$4.0m payable on 30 June 2017 in cash or share in Loyz Energy
In addition, Carnarvon is entitled to 12% of any sale proceeds over US$45m, should Loyz Energy sell the asset
In June 2017, Carnarvon gave Loyz Energy an extension until 31 October 2017 to complete the settlement of the
deferred consideration, subject to certain conditions being met.
Carnarvon impaired the carrying value of the deferred consideration asset due to a number of factors including
the performance of the underlying Thai assets, a sustained decline in oil prices since the divestment and the
financial position of Loyz. More specifically, Loyz was unable to make the deferred consideration payment that
was due in December 2016 and agreement to settle the deferred consideration for US$4.0m (as detailed above)
by 30 June 2017, which was extended to 31 October 2017.
45
Carnarvon Petroleum LimitedNotes to the Financial Statements 9. PROPERTY, PLANT AND EQUIPMENT
Fixtures and fittings
Cost:
Balance at beginning of financial year
Additions
Disposals
Effects of movements in foreign exchange
Balance at end of financial year
Depreciation and impairment losses:
Balance at beginning of financial year
Disposals
Depreciation charge for year
Balance at end of financial year
Carrying amount opening
Carrying amount closing
10. OTHER ASSETS
Current
Deposits and prepayments
11. EXPLORATION AND EVALUATION EXPENDITURE
Cost:
Balance at beginning of financial year
Additions
Exploration expenditure written off
Balance at end of financial year
Consolidated
2017
$000
2016
$000
541
17
–
–
558
376
–
102
478
165
80
415
126
–
–
541
237
–
139
376
178
165
459
466
29,282
27,760
(10,104)
46,938
17,352
12,174
(244)
29,282
The exploration expenditure written off during the financial year ended 30 June 2017 of $10,104,000 was
in relation to exploration expenses incurred in the WA-155-P and EP-490 Permits in Western Australia
(2016:$244,000) as the Company does not have any substantive plans for future exploration activities or
expenditure in this permit at this time. Included in additions is $26,166,000 (2016: $11,603,000) spent on
concessions where the company has joint control (refer to Note 12).
46
2017 Annual ReportNotes to the Financial Statements 12. JOINT OPERATIONS
The Group has the following interests in joint operations:
Joint operation
Principal activities
Ownership interest %
Western Australia
WA-435-P, WA437-P, Roebuck Basin
Exploration for hydrocarbons
WA-436-P, WA 438-P, Roebuck Basin
Exploration for hydrocarbons
2017
20%
30%
2016
20%
30%
WA-155-P(1), Barrow sub Basin
Exploration for hydrocarbons
28.5%
28.5%
With respect to oil and gas in the Phoenix South resource, within WA-435-P, Carnarvon has an arrangement
with the operator whereby Carnarvon funds 5% of the Phoenix South-2 and Phoenix South-3 well costs (net
of insurance proceeds) and Carnarvon will contribute the balance of its 20% interest into any future work at
Phoenix South plus a small promote to be offset against future production.
Carnarvon has accounted for its interest in the above Concessions as Joint Operations as the company has joint
control.
13. TRADE AND OTHER PAYABLES
Current
Trade payables
Non-trade payables and accrued expenses
Consolidated
2017
$000
1,263
78
1,341
2016
$000
2,057
73
2,130
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 25.
47
Carnarvon Petroleum LimitedNotes to the Financial Statements
14. CAPITAL AND RESERVES
Contributed equity
Balance at beginning of financial year
Issued for cash
Employee Share Plan issues
Balance at end of financial year
Issued capital
Balance at beginning of financial year
Reserve employee shares
Proceeds from exercised options
Balance at end of financial year
Company
2017
2016
Number of shares
1,019,941,717
994,066,022
–
19,858,914
8,028,092
6,016,781
1,027,969,809
1,019,941,717
Company
2017
$000
95,401
464
–
95,865
Restated
2016
$000
93,011
404
1,986
95,401
Ordinary shares have the right to one vote per share at meetings of Carnarvon, to receive dividends as declared
and, in the event of a winding-up of Carnarvon, 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.
Reserve shares (plan shares)
Balance at beginning of financial year
Employee Share Plan issues
Balance at end of financial year
Reserve shares (plan shares)
Balance at beginning of financial year
Employee Share Plan issues
Balance at end of financial year
Translation reserve
Company
2017
2016
Number of shares
37,427,100
31,401,589
8,028,092
6,025,511
45,455,192
37,427,100
Company
2017
$000
3,190
464
3,654
2016
$000
2,786
404
3,190
Movements in the translation reserve are set out in the Statement of Changes in Equity on page 40.
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 40.
This reserve represents the fair value of shares issued under the Carnarvon’s ESP.
48
2017 Annual ReportNotes to the Financial Statements 15. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
(a) Cash flows from operating activities
(Loss) for the year
Adjustments for:
Equity settled share based payment expense
Impairment of deferred consideration asset
Depreciation
Foreign exchange (loss)
Exploration expenditure written off
Operating (loss) before changes in working capital and provisions:
Changes in assets and liabilities:
(Increase) / decrease in trade and other receivables
Decrease in other assets
(Decrease) / increase in trade and other payables
Increase in provisions and employee benefits
Net cash flows used in operating activities
(b) Reconciliation of cash and cash equivalents
Cash at bank and at call
Cash on deposit
Consolidated
2017
$000
2016
$000
(36,977)
(5,367)
399
22,153
102
1,362
10,104
(2,857)
(1,594)
8
(789)
189
433
–
139
(415)
244
(4,966)
1,064
38
1,544
77
(5,043)
(2,243)
13,938
39,112
53,050
44,164
43,683
87,847
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed
in Note 25.
Restricted cash of $225,000 consolidated is included under trade and other receivables (2016:$ 229,000
consolidated), see Note 7.
49
Carnarvon Petroleum LimitedNotes to the Financial Statements 16. CAPITAL AND OTHER COMMITMENTS
(a) Exploration expenditure commitments
Due to the nature of the Group’s operations in exploring and evaluating areas of interest it is necessary to
incur expenditure in order to retain the Group’s present permit interests. Expenditure commitments on
exploration permits can be reduced by selective relinquishment of exploration tenure, by the renegotiation of
expenditure commitments, or by farming out portions of the Group’s equity. Failure to meet Joint Operation cash
requirements may result in a reduction in equity in that particular Joint Operation.
Exploration expenditure commitments forecast but not provided for in the financial statements are as follows:
Less than one year
Between one and five years
(b) Capital expenditure commitments
Consolidated
2017
$000
2,707
3,297
6,004
2016
$000
1,533
2,766
4,299
Data licence commitments
493
443
17. CONTINGENCIES
In accordance with normal petroleum industry practice, the Group has entered into joint operations and farmin
agreements with other parties for the purpose of exploring and developing its petroleum permit interests. If a
party to a joint operation defaults and does not contribute its share of joint operation obligations, then the other
joint operators 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 operators.
Consolidated
2017
$000
2016
$000
379
268
279
658
202
470
18. EMPLOYEE BENEFITS
Current:
Liability for annual leave and long service leave
Non-Current:
Provision for long service leave
Total Employee benefits
Employee Share Plan
50
2017 Annual ReportNotes to the Financial Statements 18. EMPLOYEE BENEFITS (CONTINUED)
Under the terms of the Carnarvon Employee Share Plan (“ESP”), as approved by shareholders, Carnarvon may,
in its absolute discretion, make an offer of ordinary fully paid shares in Carnarvon 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 Carnarvon’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 following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in
plan shares during the year:
Outstanding at 1 July
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 30 June
Exercisable at 30 June
Number
2017
WAEP
2017
Number
2016
WAEP
2016
37,427,100
8,026,092
0.16
0.10
31,401,589
6,025,511
–
–
–
–
–
–
–
–
–
45,453,192
45,453,192
0.15
0.15
37,427,100
37,427,100
0.17
0.14
–
–
–
0.16
0.16
Shares granted under the ESP are accounted for as “in-substance” options due to the limited recourse nature
of the loan between the employees and Carnarvon to finance the purchase of ordinary shares. The fair value
at grant date for the various tranches of shares issued under the ESP is determined using a Black Scholes
methodology using the following model inputs:
Fair value of ESP shares and
related assumptions
Fair value at measurement date (cents)
Share price at date of issue (cents)
Exercise price (cents)
Expected volatility
Expected life of ESP share
Expected dividends
Risk-free interest rate
Share-based expense recognised
Key
management
personnel
2017
Key
management
personnel
2016
Other
employees
2017
Other
employees
2016
6.7
11
13
89%
4 years
Nil
1.75%
$80,289
7.2
12
15
89%
4 years
Nil
2.0%
4.1
8
10
68%
5 years
Nil
1.5%
6.7
11
13
89%
4 years
Nil
2.0%
$187,148
$279,051
$245,728
Further details of shares granted under the ESP to directors are set out in Note 22, and in the Remuneration
Report set out on pages 21 to 31.
51
Carnarvon Petroleum LimitedNotes to the Financial Statements 18. EMPLOYEE BENEFITS (CONTINUED)
Options over equity instruments
The movement during the reporting period in the number of options over ordinary shares in Carnarvon Petroleum
Limited held, directly, indirectly or beneficially, by each key management person, including their related parties,
is as follows:
2017
Directors
W Foster
P Moore
Held at
1 July 2016
Granted as
compensation
Acquired/
(sold)
Exercised
Held at
30 June 2017
500,000
500,000
–
–
–
–
–
–
500,000
500,000
Options granted as compensation vest immediately. During the financial year there was no forfeiture or vesting
of options granted in previous periods. There were no options on issue that were still to vest at the end of the
reporting period.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in,
share options during the year:
Outstanding at 1 July
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 30 June
Exercisable at 30 June
Number
2017
1,000,000
–
–
–
–
1,000,000
1,000,000
WAEP
2017
0.15
–
–
–
–
0.15
0.15
Number
2016
–
1,000,000
–
–
–
1,000,000
1,000,000
WAEP
2016
–
0.15
–
–
–
0.15
0.15
The weighted average remaining contractual life for the share options outstanding as at 30 June 2017 was 3
years (2016: 4 years).
The fair value of share options issued is measured by reference to their fair value using the Black-Scholes model,
as set out below:
Fair value of share option and related assumptions
2017
2016
Fair value at measurement date (cents)
Share price at date of issue (cents)
Exercise price (cents)
Expected volatility
Expected life of ESP share
Expected dividends
Risk-free interest rate
7.9
12
15
89%
5 years
Nil
2.0%
7.9
12
15
89%
5 years
Nil
2.0%
Share-based expense recognised
$39,966
$24,418
The expected life of the share options is based on historical data and current expectations and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical
volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be
the actual outcome
52
2017 Annual ReportNotes to the Financial Statements 19. 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 Carnarvon and its controlled entities and joint
arrangements. Carnarvon provided accounting and administrative services to its controlled entities for which it
did not charge a management fee.
The carrying value of loans to controlled entities at 30 June 2017 was $0 (2016: $647,000). These loans are
unsecured, non-interest bearing, and have no fixed terms of repayment.
Other related party balances and transactions
At 30 June 2017 an amount of $130,978 (2016: $41,250) is included in Carnarvon and consolidated trade and
other payables for outstanding director fees and expenses.
20. OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
Consolidated
2017
$000
196
203
399
2016
$000
188
399
587
During the reporting period $188,000 was recognised as an expense in the consolidated income statement in
respect of operating leases (2016: $168,000).
The property lease is a non-cancellable lease with the five-year term, with rent payable in advance. Contingent
rental provisions within the lease agreement require that minimum lease payment shall be increased by 4% per
annum.
53
Carnarvon Petroleum LimitedNotes to the Financial Statements 21. 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 the chief operating decision maker.
The capitalised exploration and evaluation expenditure reflected on the statement of financial position is in
respect of exploration projects in Australia.
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.
22. 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
2017
$000
1,605
99
171
1,875
2016
$000
1,792
81
187
2,060
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 21 to 31.
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) 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
54
Consolidated
2017
$000
2016
$000
131
41
2017 Annual ReportNotes to the Financial Statements 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(c) Ordinary shares held by key management personnel
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:
2017
Directors
PJ Leonhardt
EP Jacobson1
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
2016
Directors
PJ Leonhardt
EP Jacobson1
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
Held at
1 July
2016
Net
acquired/
(sold)
Award under
Employee
Share Plan
Received on
exercise
of options
Held at
30 June
2017
17,750,000
29,164,100
684,455
9,799,917
–
8,367,421
1,942,509
–
–
–
–
–
–
–
–
–
–
1,200,000
–
1,125,000
750,000
–
–
–
–
–
–
–
17,750,000
29,164,100
684,455
10,999,917
–
9,492,421
2,692,509
Held at
1 July
2015
Net
acquired/
(sold)
Award under
Employee
Share Plan
Received on
exercise
of options
Held at
30 June
2016
17,750,000
34,188,267
528,205
8,000,000
–
7,397,421
1,305,281
–
(5,414,792)
–
–
–
–
67,228
–
–
–
1,159,917
–
970,000
570,000
–
390,6252
156,2502
640,0002
–
–
–
17,750,000
29,164,100
684,455
9,799,917
–
8,367,421
1,942,509
1 Mr Jacobson ceased to be a director on 23 January 2017.
2 Listed options granted on 24 December 2013 to shareholders who participated in the Entitlement offer
announced on 20 November 2013.
55
Carnarvon Petroleum LimitedNotes to the Financial Statements 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(d) Plan shares held by key management personnel
Included in the above are plan shares held by key management personnel. The balance and movement during
the reporting period in the number of plan shares directly, indirectly or beneficially, by each key management
person, including their related parties, is as follows:
2017
Directors
PJ Leonhardt
EP Jacobson*
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
2016
Directors
PJ Leonhardt
EP Jacobson*
WA Foster
AC Cook
P Moore
Executives
PP Huizenga
TO Naude
Held at
1 July 2016
Granted as
compensation
Employee
Share Plan
cancellations
Exercised
3,000,000
6,000,000
–
–
–
–
7,034,917
1,200,000
–
–
7,867,421
1,728,436
1,125,000
750,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Held at
1 July 2015
Granted as
compensation
Employee
Share Plan
cancellations
Exercised
3,000,000
6,000,000
–
–
–
–
5,875,000
1,159,917
–
–
6,897,421
1,158,436
970,000
570,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Held at
30 June
2017
3,000,000
6,000,000
–
8,234,917
–
8,992,421
2,478,436
Held at
30 June
2016
3,000,000
6,000,000
–
7,034,917
–
7,867,421
1,728,436
* Mr Jacobson ceased to be a director on 23 January 2017.
(e) Options over equity instruments held by key management personnel
The movement during the reporting period in the number of options over ordinary shares in Carnarvon Petroleum
Limited held, directly, indirectly or beneficially, by each key management person, including their related parties,
is as follows:
2017
Directors
WA Foster
P Moore
Held at
1 July 2016
Granted as
compensation
Acquired/
(sold)
Exercised
Held at
30 June 2017
500,000
500,000
–
–
–
–
–
–
500,000
500,000
Options granted as compensation vest immediately. During the financial year there was no forfeiture or vesting
of options granted in previous periods. There were no options on issue that were still to vest at the end of the
reporting period.
56
2017 Annual ReportNotes to the Financial Statements 23. CONSOLIDATED ENTITIES
Name
Company
Carnarvon Petroleum Ltd
Controlled entities
Carnarvon Thailand Ltd
Lassoc Pty Ltd
SRL Exploration Pty Ltd
Carnarvon Petroleum (Indonesia) Pty Ltd
24. SUBSEQUENT EVENTS
Country of Incorporation
2017
2016
Ownership interest
British Virgin Islands
Australia
Australia
Australia
100%
100%
100%
–
100%
100%
100%
100%
No other matters or circumstance has arisen since 30 June 2017 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
57
Carnarvon Petroleum LimitedNotes to the Financial Statements 25. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to market risk (including currency 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)
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.
Carrying amount (A$000)
Financial assets – cash and cash equivalents
53,050
87,847
Weighted average interest rate (%)
Financial assets – cash and cash equivalents
All other financial assets and liabilities are non-interest bearing.
1.07%
0.69%
Consolidated
2017
2016
58
2017 Annual ReportNotes to the Financial Statements 25. FINANCIAL RISK MANAGEMENT (CONTINUED)
Sensitivity analysis
An increase in 25 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 2016:
30 June 2017
30 June 2016
Consolidated
Equity
Profit and loss
$000
$000
132
219
132
219
A decrease in 25 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 2016:
30 June 2017
30 June 2016
Consolidated
Equity
Profit and loss
$000
$000
(132)
(219)
(132)
(219)
59
Carnarvon Petroleum LimitedNotes to the Financial Statements 25. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) 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 are all due from the Australian Taxation office and an entity located in Singapore
and listed on the Singapore Stock Exchange (in 2016). This entity has an appropriate credit history with the
Group. There were no receivables at 30 June 2017 or 30 June 2016 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 16.
Exposure to credit risk 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
Deferred consideration asset
Consolidated
2017
$000
53,050
400
–
2016
$000
87,847
1,542
18,509
53,450
107,898
The aging of the Group’s trade receivables at reporting date was:
Not past due
Gross
2017
$000
400
400
Impairment
2017
$000
–
–
Gross
2016
$000
1,542
1,542
Impairment
2016
$000
–
–
Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of
trade receivables.
60
2017 Annual ReportNotes to the Financial Statements 25. FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Currency risk
Currency risk arises from assets and liabilities that are denominated in a currency other than the functional
currencies of the entities within the Group, being the A$, THB and US$.
The Group 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 USD cash
balances to meet its USD obligations.
The Group’s exposure to foreign currency risk at balance date was as follows, based on carrying amounts.
Consolidated 2017
Cash and cash equivalents
Trade payables and accruals
Gross balance sheet exposure
Consolidated 2016
Cash and cash equivalents
Deferred consideration asset
Gross balance sheet exposure
THB
A$000
–
–
–
USD
A$000
49,827
379
50,206
220
–
220
82,628
20,051
102,679
The following significant exchange rates applied during the year:
AUD to:
1 Thai baht
1 USD
Average rate
Reporting date spot rate
2017
0.038
1.325
2016
0.039
1.373
2017
0.038
1.301
2016
0.038
1.344
61
Carnarvon Petroleum LimitedNotes to the Financial Statements 25. FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Currency risk (continued)
Sensitivity analysis
A 5% strengthening of the AUD against the THB for the 12 months to 30 June 2017 and 30 June 2016 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 2017
THB
30 June 2016
THB
Consolidated
Equity
$000
Profit and loss
$000
–
(10)
–
(10)
A 5% weakening of the AUD against the THB for the 12 months to 30 June 2017 and 30 June 2016 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 2017
THB
30 June 2016
THB
Consolidated
Equity
$000
Profit and loss
$000
–
12
–
12
A 5% strengthening of the AUD against the USD for the 12 months to 30 June 2017 and 30 June 2016 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, remain constant:
30 June 2017
USD
30 June 2016
USD
Consolidated
Equity
$000
Profit and loss
$000
(2,372)
(2,372)
(4,896)
(4,896)
A 5% weakening of the AUD against the USD for the 12 months to 30 June 2017 and 30 June 2016 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, remain constant:
30 June 2017
USD
30 June 2016
USD
62
Consolidated
Equity
$000
Profit and loss
$000
2,622
5,411
2,622
5,411
2017 Annual ReportNotes to the Financial Statements 25. 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 groups significant balance of
cash and cash equivalents are considered to be 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:
Carrying
amount
$000
Contractual
cash flows
$000
6 months
or less
$000
6 to 12
months
$000
Consolidated 2017
Non-derivative financial liabilities
Trade and other payables
Consolidated 2016
Non-derivative financial liabilities
Trade and other payables
1,263
1,263
1,263
2,130
2,130
2,130
–
–
63
Carnarvon Petroleum LimitedNotes to the Financial Statements 26. FAIR VALUE MEASUREMENT
Fair value hierarchy
The following tables detail the consolidated entity’s assets and liabilities, measured or disclosed at fair value,
using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value
measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
Consolidated - 2017
Assets
Deferred consideration available-for-sale
Total assets
Consolidated - 2016
Assets
Deferred consideration available-for-sale
Total assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
20,051
20,051
20,051
20,051
There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate
their fair values due to their short-term nature.
Valuation techniques for fair value measurements categorised within level 2 and level 3
The Company impaired the carrying value of the deferred consideration asset in 2017 as detailed in Note 8.
At 30 June 2016, the deferred consideration was valued using a discounted cash flow model applying the
following inputs:
• Production volumes - Estimate production volumes are based on the production profiles of proven
and probable reserves for the fields and take into account development plans for the fields agreed by
management as part of the long-term planning process, which have been independently verified;
• Crude oil price – forecast crude oil prices are based on independent data;
• Discount rate – A discount rate of 14%;
• Foreign exchange rate – An AUD/USD foreign exchange rate of 0.7686.
64
2017 Annual ReportNotes to the Financial Statements 26. FAIR VALUE MEASUREMENT (CONTINUED)
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
Consolidated
Balance at the beginning of the year
Repayments
Effective interest
Asset revaluation
Unrealised foreign exchange gain
Impairment of deferred consideration asset
2017
$’000
20,051
–
1,403
–
699
(22,153)
2016
$’000
23,624
(916)
3,490
(6,925)
778
–
Balance at the end of the year
–
22,051
27. 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 Profits
Reserves
Total equity
Statement of comprehensive income
Total loss
Total comprehensive loss
2017
$000
53,909
47,018
2016
$000
89,932
47,956
100,927
137,888
1,720
279
1,999
95,865
3,438
(375)
2,398
202
2,600
95,401
40,223
(336)
98,928
135,288
(36,977)
(5,334)
(36,977)
(5,334)
65
Carnarvon Petroleum LimitedNotes to the Financial Statements 27. PARENT INFORMATION (CONTINUED)
Parent Contingencies
In accordance with normal petroleum industry practice, Carnarvon has entered into joint arrangements and
farmin agreements with other parties for the purpose of exploring and developing its petroleum permit interests.
If a party to a joint operation defaults and does not contribute its share of joint operation’s obligations, then the
other joint operators 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 operators.
Parent
2017
$000
2016
$000
Parent capital and other commitments
(a) Exploration expenditure commitments
Due to the nature of Carnarvon’s operations in exploring and evaluating areas of interest it is necessary to incur
expenditure in order to retain Carnarvon’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 Carnarvon’s equity. Failure to meet Joint Operation cash
requirements may result in a reduction in equity in that particular Joint Operation.
Exploration expenditure commitments forecast but not provided for in the financial statements are as follows:
Less than one year
Between one and five years
(b) Capital expenditure commitments
2,707
3,297
6,004
1,533
2,766
4,299
Data licence commitments
493
443
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
196
203
399
188
399
587
66
2017 Annual ReportNotes to the Financial Statements 28. BASIS OF PREPARATION OF THE FINANCIAL REPORT
(a) 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 2016 affected any of the amounts recognised in the current period or any prior period and
are not likely to affect future periods.
(b) 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 – 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.
Exploration and evaluation expenditures
The application of the Company’s accounting policy for exploration and evaluation expenditure requires
judgement to determine whether it is likely that future economic benefits are likely, from future either exploitation
or sale, or whether activities have not reached a stage which permits a reasonable assessment of the existence
of reserves. The determination of reserves and resources is itself an estimation process that requires varying
degrees of uncertainty depending on how the resources are classified. These estimates directly impact when
the Company defers exploration and evaluation expenditure. The deferral policy requires management to make
certain estimates and assumptions as to future events and circumstances, in particular, whether an economically
viable extraction operation can be established. Any such estimates and assumptions may change as new
information becomes available. If, after expenditure is capitalised, information becomes available suggesting that
the recovery of the expenditure is unlikely, the relevant capitalised amount is written off in profit or loss in the
period when the new information becomes available.
67
Carnarvon Petroleum LimitedNotes to the Financial Statements 28. BASIS OF PREPARATION OF THE FINANCIAL REPORT (CONTINUED)
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:
• Depreciation charged in the income statement (note 3) may change as such charges are determined by the
units of production basis; and
• The carrying value of deferred tax assets (note 6) 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.
Classification of deferred consideration
The deferred consideration asset has been classified as an available for sale financial asset as the Company
may not recover substantially all of its initial investment for the reasons other than credit deterioration. Nor has
the deferred consideration asset been recognised as held-to-maturity as it does not have fixed or determinable
payments.
The deferred consideration asset is measured at fair value but the interest is calculated at an effective interest
rate that takes into account the cash flows expected at origination. Subsequent changes in expected cash flows
are recognised in profit and loss.
Key judgements – other
Other areas of judgement are in the determination of oil reserves, rehabilitation provisions, and capitalisation
of exploration and evaluation costs, determination of areas of interest, and the units of production method of
depreciation.
68
2017 Annual ReportNotes to the Financial Statements 29. 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 statements comprise the financial statements of the Group and its subsidiaries as at
30 June 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of
the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
•
The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption
and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
The contractual arrangement(s) with the other vote holders of the investee
•
• Rights arising from other contractual arrangements
•
The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to
the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies
into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities,
non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or
loss. Any investment retained is recognised at fair value.
Joint Operations
The Group’s shares of the assets, liabilities, revenue and expenses of joint operations have been included in the
appropriate line items of the consolidated financial statements. Details of the Group’s interests are provided in
Note 12.
69
Carnarvon Petroleum LimitedNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Income tax and special remuneratory benefit
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date in the countries where the Group operates and generates taxable
income.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement
of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities
are recognised for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss
In respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not reverse in the foreseeable future
•
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax
credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilised, except:
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition
•
of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss
In respect of deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that
the temporary differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to
be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the
extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax
items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same
taxation authority.
70
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition
at that date, are recognised subsequently if new information about facts and circumstances change. The
adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred
during the measurement period or recognised in profit or loss.
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 29(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.
71
Carnarvon Petroleum LimitedNotes to the Financial Statements 29. 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. The carrying amount
of Oil and gas assets 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 29(f).
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 29(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.
The Company does not record any expenditure made by the farmee on its account. It also does not recognise
any gain or loss on its exploration and evaluation farm-out arrangements but redesignates any costs previously
capitalised in relation to the whole interest as relating to the partial interest retained. Any cash consideration
received directly from the farmee is credited against costs previously capitalised in relation to the whole interest
with any excess accounted for by the farmor as a gain on disposal.
(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.
72
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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 or at amortised cost using the effective interest
rate method. 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.
73
Carnarvon Petroleum LimitedNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 include investments in the equity of other entities and debt instruments where there is
neither a fixed maturity nor fixed or determinable payments.
When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously
recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial
assets are included in non-current assets where they are expected to be sold within 12 months after the
end of the reporting period. All other financial assets are classified as current assets.
(iii)
Financial liabilities
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised
cost.
(i) Segment reporting
The Group reports one segment, oil and gas exploration, development and production, to the chief operating
decision maker, being the board of Carnarvon Petroleum Limited, in assessing performance and determining the
allocation of resources. The financial information presented in the statement of cash flows 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.
74
2017 Annual ReportNotes to the Financial Statements
29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign operations
The financial performance and position of foreign operations whose functional currency is different from the
Group’s presentation currency are translated as follows:
• assets and liabilities are translated at exchange rates prevailing at balance 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) Discontinued operations
A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as
held for sale and that represents a separate major line of business or geographical area of operations, is part of
a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired
exclusively with a view to resale. The results of discontinued operations are presented separately on the face of
the statement of profit or loss and other comprehensive income.
(l) Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of
the agreement so as to reflect the risks and benefits incidental to ownership.
Operating leases
A lease where a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments in relation to operating leases are charged to the income statement on a straight-
line basis over the period of the lease.
(m) Share capital
Incremental costs directly attributable to an equity transaction are shown as a deduction from equity, net of any
recognised income tax benefit.
(n) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling
price in the ordinary course of business less any estimated selling costs.
Cost includes those costs incurred in bringing each component of inventory to its present location and condition.
75
Carnarvon Petroleum LimitedNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Employee benefits
Wages and salaries, annual leave
Provision is made for the Group’s liability for employee benefits arising from services rendered by employees
to balance date. Employee benefits that are expected to be settled within one year have been measured at the
amounts expected to be paid when the liability is settled, plus related on-costs.
Share based payments
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 and share options issued to eligible persons, 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 in respect of plan shares issued.
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. With respect to plan share, upon repayment of the ESP loans, the balance of the
share-based payments reserve relating to the loan repaid is transferred to issued capital.
(p) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) for its ordinary shares.
Basic EPS is calculated by dividing the profit attributable to equity holders of the Company by the weighted
number of shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of all potential ordinary shares, which comprise
share options issued.
(q) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly
liquid investments.
(r) Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable.
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, and the amount of revenue can be measured reliably. For the sale of
oil the transfer of risks and rewards occurs on delivery of oil to the refinery.
76
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except
where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances
the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and
payables in the 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.
(t) Finance income and expenses
Interest revenue on funds invested is recognised as it accrues, using the effective interest rate method.
Finance expenses comprise interest expense on borrowings and the unwinding of the discount on provisions.
(u) Royalties
Royalties are treated as taxation arrangements when they have the characteristics of a tax. This is considered
to be the case when they are imposed under government authority and the amount payable is calculated by
reference to revenue derived (net of any allowable deductions) after adjustment for items comprising temporary
differences. For such arrangements, current and deferred tax is provided on the same basis as described above
for other forms of taxation.
Obligations arising from royalty arrangements that do not satisfy these criteria are recognised as current
provisions and included in expenses.
(w) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and
all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as
income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are
expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected
useful life of the related asset.
When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal
amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of
consumption of the benefits of the underlying asset by equal annual instalments.
77
Carnarvon Petroleum LimitedNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) New Accounting Standards for Application in Future Periods
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30
June 2017. The consolidated entity’s assessment of the impact of these new or amended Accounting Standards
and Interpretations, most relevant to the consolidated entity, are set out below:
Reference Title
Summary
AASB 2016-2 Amendments
to Australian
Accounting
Standards –
Disclosure
Initiative:
Amendments
to AASB 107
The amendments to AASB 107 Statement of
Cash Flows are part of the IASB’s Disclosure
Initiative and help users of financial statements
better understand changes in an entity’s debt.
The amendments require entities to provide
disclosures about changes in their liabilities
arising from financing activities, including both
changes arising from cash flows and non-cash
changes (such as foreign exchange gains or
losses).
AASB 2017-2 Amendments
to Australian
Accounting
Standards –
Further Annual
Improvements
2014-2016
Cycle
This Standard clarifies the scope of AASB
12 Disclosure of Interests in Other Entities by
specifying that the disclosure requirements
apply to an entity’s interests in other
entities that are classified as held for sale or
discontinued operations in accordance with
AASB 5 Non-current Assets Held for Sale and
Discontinued Operations.
Application
date of
standard
Application
date for
Group
1 January 2017 1 July 2017
1 January 2017 1 July 2017
Financial
Instruments
AASB 9 replaces AASB 139 Financial
Instruments: Recognition and Measurement.
1 January 2018 1 July 2018
Except for certain trade receivables, an entity
initially measures a financial asset at its fair value
plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs.
Debt instruments are subsequently measured
at fair value through profit or loss (FVTPL),
amortised cost, or fair value through other
comprehensive income (FVOCI), on the basis of
their contractual cash flows and the business
model under which the debt instruments are
held.
There is a fair value option (FVO) that allows
financial assets on initial recognition to be
designated as FVTPL if that eliminates or
significantly reduces an accounting mismatch.
AASB 9,
and relevant
amending
standards
78
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference Title
Summary
Application
date of
standard
Application
date for
Group
AASB 9,
and relevant
amending
standards
(continued)
Equity instruments are generally measured at
FVTPL. However, entities have an irrevocable
option on an instrument-by-instrument basis to
present changes in the fair value of non-trading
instruments in other comprehensive income
(OCI) without subsequent reclassification to
profit or loss.
For financial liabilities designated as FVTPL using
the FVO, the amount of change in the fair value
of such financial liabilities that is attributable
to changes in credit risk must be presented in
OCI. The remainder of the change in fair value is
presented in profit or loss, unless presentation
in OCI of the fair value change in respect of the
liability’s credit risk would create or enlarge an
accounting mismatch in profit or loss.
All other AASB 139 classification and
measurement requirements for financial
liabilities have been carried forward into AASB
9, including the embedded derivative separation
rules and the criteria for using the FVO.
The incurred credit loss model in AASB 139
has been replaced with an expected credit loss
model in AASB 9.
The requirements for hedge accounting have
been amended to more closely align hedge
accounting with risk management, establish
a more principle-based approach to hedge
accounting and address inconsistencies in the
hedge accounting model in AASB 139.
Based on an initial impact assessment, the new
standard is not expected to significantly impact
the recognition and measurement of financial
instruments.
79
Carnarvon Petroleum LimitedNotes to the Financial Statements Application
date of
standard
Application
date for
Group
1 January 2018 1 July 2018
29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference Title
Summary
AASB 15,
and relevant
amending
standards
Revenue from
Contracts with
Customers
AASB 15 replaces all existing revenue
requirements in Australian Accounting
Standards (AASB 111 Construction Contracts,
AASB 118 Revenue, AASB Interpretation
13 Customer Loyalty Programmes,
AASB Interpretation 15 Agreements for
the Construction of Real Estate, AASB
Interpretation 18 Transfers of Assets from
Customers and AASB Interpretation 131
Revenue – Barter Transactions Involving
Advertising Services) and applies to all
revenue arising from contracts with customers,
unless the contracts are in the scope of other
standards, such as AASB 117 (or AASB 16
Leases, once applied).
The core principle of AASB 15 is that an entity
recognises revenue to depict the transfer of
promised goods or services to customers in an
amount that reflects the consideration to which
an entity expects to be entitled in exchange for
those goods or services. An entity recognises
revenue in accordance with the core principle
by applying the following steps:
• Step 1: Identify the contract(s) with a
customer
• Step 2: Identify the performance obligations
in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the
performance obligations in the contract
• Step 5: Recognise revenue when (or as) the
entity satisfies a performance obligation.
As the company does not generate any
revenue at the moment, AASB 15 is not
expected to have a significant impact on the
financial performance of the company.
80
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference Title
Summary
AASB
2014-10
AASB
2016-5
Amendments
to Australian
Accounting
Standards
– Sale or
Contribution
of Assets
between an
Investor and
its Associate
or Joint
Venture
Amendments
to Australian
Accounting
Standards –
Classification
and
Measurement
of Share-
based
Payment
Transactions
AASB
Interpretation
22
Foreign
Currency
Transactions
and Advance
Consideration
The amendments clarify that a full gain or loss
is recognised when a transfer to an associate
or joint venture involves a business as defined
in AASB 3 Business Combinations. Any gain
or loss resulting from the sale or contribution
of assets that does not constitute a business,
however, is recognised only to the extent of
unrelated investors’ interests in the associate
or joint venture.
• AASB 2015-10 defers the mandatory
effective date (application date) of AASB
2014-10 so that the amendments are
required to be applied for annual reporting
periods beginning on or after 1 January
2018 instead of 1 January 2016.
This Standard amends AASB 2 Share-based
Payment, clarifying how to account for certain
types of share-based payment transactions.
The amendments provide requirements on the
accounting for:
• The effects of vesting and non-vesting
conditions on the measurement of cash-
settled share-based payments
• Share-based payment transactions with a
net settlement feature for withholding tax
obligations
• A modification to the terms and conditions
of a share-based payment that changes the
classification of the transaction from cash-
settled to equity-settled.
The Interpretation clarifies that in determining
the spot exchange rate to use on initial
recognition of the related asset, expense or
income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability
relating to advance consideration, the date of
the transaction is the date on which an entity
initially recognises the non-monetary asset or
non-monetary liability arising from the advance
consideration. If there are multiple payments
or receipts in advance, then the entity must
determine a date of the transactions for each
payment or receipt of advance consideration.
Application
date of
standard
Application
date for
Group
1 January 2018
1 July
2018
1 January 2018
1 July
2018
1 January 2018 1 July 2018
81
Carnarvon Petroleum LimitedNotes to the Financial Statements Application
date of
standard
Application
date for
Group
1 January 2019 1 July 2019
29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference Title
Summary
AASB 16
Leases
AASB 16 requires lessees to account for
all leases under a single on-balance sheet
model in a similar way to finance leases under
AASB 117 Leases. The standard includes
two recognition exemptions for lessees –
leases of ’low-value’ assets (e.g., personal
computers) and short-term leases (i.e., leases
with a lease term of 12 months or less).
At the commencement date of a lease, a
lessee will recognise a liability to make lease
payments (i.e., the lease liability) and an asset
representing the right to use the underlying
asset during the lease term (i.e., the right-of-
use asset).
Lessees will be required to separately
recognise the interest expense on the lease
liability and the depreciation expense on the
right-of-use asset.
Lessees will be required to remeasure the lease
liability upon the occurrence of certain events
(e.g., a change in the lease term, a change in
future lease payments resulting from a change
in an index or rate used to determine those
payments). The lessee will generally recognise
the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
Lessor accounting is substantially unchanged
from today’s accounting under AASB 117.
Lessors will continue to classify all leases using
the same classification principle as in AASB
117 and distinguish between two types of
leases: operating and finance leases.
The Group has yet to fully assess the impact
on the Group’s financial results when it is first
adopted for the year ended 30 June 2020
82
2017 Annual ReportNotes to the Financial Statements 29. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference Title
Summary
IFRIC 23
Uncertainty
over
Income Tax
Treatments
The Interpretation clarifies the application of
the recognition and measurement criteria in
IAS 12 Income Taxes when there is uncertainty
over income tax treatments. The Interpretation
specifically addresses the following:
Application
date of
standard
Application
date for
Group
1 January 2019 1 July 2019
• Whether an entity considers uncertain tax
treatments separately
• The assumptions an entity makes about the
examination of tax treatments by taxation
authorities
• How an entity determines taxable profit (tax
loss), tax bases, unused tax losses, unused
tax credits and tax rates
• How an entity considers changes in facts
and circumstances.
83
Carnarvon Petroleum LimitedNotes to the Financial Statements 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 37 to 83 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 2017 and of its performance for
the year ended on that date; and
(ii) Complying with Accounting Standards and the Corporations Regulations 2001; and
(b) The financial statements and notes comply with International Financial Reporting Standards as set out in
Note 28; and
(c) 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 directors by
the chief executive officer and chief financial officer in accordance with section 295A of the Corporations Act 2001
for the financial year ended 30 June 2017.
Signed in accordance with a resolution of the directors.
PJ Leonhardt
Director
Perth, 30 August 2017
84
2017 Annual Report Independent Auditor’s Report
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent auditor's report to the members of Carnarvon Petroleum
Limited
Independent auditor's report to the members of Carnarvon Petroleum
Report on the audit of the financial report
Limited
Opinion
Report on the audit of the financial report
We have audited the financial report of Carnarvon Petroleum Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
Opinion
2017, the consolidated income statement, consolidated statement of other comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then
We have audited the financial report of Carnarvon Petroleum Limited (the Company) and its subsidiaries
ended, notes to the financial statements, including a summary of significant accounting policies, and the
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
directors' declaration.
2017, the consolidated income statement, consolidated statement of other comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
ended, notes to the financial statements, including a summary of significant accounting policies, and the
2001, including:
directors' declaration.
a)
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the year ended on that date; and
b)
a)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the year ended on that date; and
Basis for Opinion
complying with Australian Accounting Standards and the Corporations Regulations 2001.
b)
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Basis for Opinion
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
Report section of our report. We are independent of the Group in accordance with the auditor
ethical responsibilities in accordance with the Code.
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
our opinion.
ethical responsibilities in accordance with the Code.
Key Audit Matters
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
Key Audit Matters
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
Key audit matters are those matters that, in our professional judgment, were of most significance in our
is provided in that context.
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
opinion on these matters. For each matter below, our description of how our audit addressed the matter
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
is provided in that context.
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
performed to address the matters below, provide the basis for our audit opinion on the accompanying
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
financial report.
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
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85
Carnarvon Petroleum Limited
Independent Auditor’s Report
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
1. Carrying value of capitalised exploration and evaluation
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
How our audit addressed the key audit matter
Why significant
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
As disclosed in note 11, the Group held
Our audit procedures included the following:
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
capitalised exploration and evaluation
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
expenditure of $46,938,000 as at 30 June
operations, or have no realistic alternative but to do so.
2017.
•
considered the Group’s right to explore in
the relevant exploration area which
included obtaining and assessing
supporting documentation such as licence
agreements.
Auditor's Responsibilities for the Audit of the Financial Report
The carrying value of exploration and evaluation
assets is subjective as it is based on the Group’s
ability and intention to continue to explore the
asset. The carrying value may also be impacted
by the results of exploration and evaluation work
indicating that the reserves may not be
commercially viable for extraction. This creates
a risk that the amounts stated in the financial
report may not be recoverable.
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
considered the Group’s intention to carry
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
out significant exploration and evaluation
conducted in accordance with the Australian Auditing Standards will always detect a material
activity in the relevant exploration area
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
which included an assessment of the
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
Group's future cash flow forecasts and
users taken on the basis of this financial report.
enquired of management and the Board of
Directors as to the intentions and strategy
of the Group.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
assessed recent exploration activity in a
given exploration licence area to
determine if there are any negative
indicators that would suggest a potential
impairment of the capitalised exploration
and evaluation expenditure.
evaluated the Group’s assessment of the
commercial viability of results relating to
exploration and evaluation activities
Obtain an understanding of internal control relevant to the audit in order to design audit
carried out in the relevant licence area.
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
•
►
►
2. Deferred consideration asset
►
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Why significant
How our audit addressed the key audit matter
►
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
During the year, the Group signed a third
based on the audit evidence obtained, whether a material uncertainty exists related to events or
supplemental agreement (as amended on 30
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
June 2017) with Loyz Oil Thailand Pte Ltd
evaluated the Group’s assessment of the
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
(“Loyz”) in relation to the deferred consideration
recoverability of the asset.
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
receivable as a result of the divestment of the
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
obtained an understanding of the financial
Group’s then 20% interest in the L33/43,
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
performance of the underlying
L44/43 and SW1 Concessions (“the
a going concern.
concessions.
Concessions”) in March 2014 (refer to note 8).
Our procedures included the following:
•
•
•
•
evaluated the Group’s assessment of
Loyz’s ability to settle the deferred
consideration.
assessed the cash received to date.
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2017 Annual Report
Independent Auditor’s Report
Responsibilities of the Directors for the Financial Report
Why significant
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
How our audit addressed the key audit matter
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In accordance with the third supplemental
agreement, the Group agreed to receive a lump
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
sum payment of US$4million prior to 30 June
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
2017. The lump sum payment was to be settled
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
either in cash or shares in Loyz Oil Thailand Pte
operations, or have no realistic alternative but to do so.
Ltd’s Singapore listed parent company, Loyz
Energy Limited. The third supplemental
agreement was amended on 30 June 2017 to
extend settlement of the deferred consideration
asset to 31 October 2017.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
The carrying value of the deferred consideration
asset was impaired to nil at 31 December 2016
and continues to be carried at nil at 30 June
2017 (refer to note 8).
►
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
We focused on this matter because of the
significant judgments and estimates involved in
the determination the recoverable amount of the
deferred consideration asset and because the
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
impairment expense was significant to the
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
financial result for the year.
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2017 Annual Report other than the financial report and our auditor’s report
Obtain an understanding of internal control relevant to the audit in order to design audit
►
thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the
opinion on the effectiveness of the Group’s internal control.
date of this auditor’s report.
Information Other than the Financial Report and Auditor’s Report Thereon
►
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
In connection with our audit of the financial report, our responsibility is to read the other information and,
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
►
in doing so, consider whether the other information is materially inconsistent with the financial report or
based on the audit evidence obtained, whether a material uncertainty exists related to events or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
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87
Carnarvon Petroleum Limited
Independent Auditor’s Report
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
Responsibilities of the Directors for the Financial Report
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
The directors of the Company are responsible for the preparation of the financial report that gives a true
error.
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
error.
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
Auditor's Responsibilities for the Audit of the Financial Report
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
Auditor's Responsibilities for the Audit of the Financial Report
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
users taken on the basis of this financial report.
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
judgment and maintain professional scepticism throughout the audit. We also:
users taken on the basis of this financial report.
►
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
internal control.
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
Obtain an understanding of internal control relevant to the audit in order to design audit
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
internal control.
opinion on the effectiveness of the Group’s internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
estimates and related disclosures made by the directors.
opinion on the effectiveness of the Group’s internal control.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
based on the audit evidence obtained, whether a material uncertainty exists related to events or
estimates and related disclosures made by the directors.
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
based on the audit evidence obtained, whether a material uncertainty exists related to events or
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
a going concern.
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
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►
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►
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Liability limited by a scheme approved under Professional Standards Legislation
RC:KW:CARNARVON:014
88
Liability limited by a scheme approved under Professional Standards Legislation
RC:KW:CARNARVON:014
2017 Annual Report
Independent Auditor’s Report
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
Evaluate the overall presentation, structure and content of the financial report, including the
►
such internal control as the directors determine is necessary to enable the preparation of the financial
disclosures, and whether the financial report represents the underlying transactions and events in a
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
manner that achieves fair presentation.
error.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
►
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
business activities within the Group to express an opinion on the financial report. We are
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
responsible for the direction, supervision and performance of the Group audit. We remain solely
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
responsible for our audit opinion.
operations, or have no realistic alternative but to do so.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
Auditor's Responsibilities for the Audit of the Financial Report
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
We also provide the directors with a statement that we have complied with relevant ethical requirements
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
regarding independence, and to communicate with them all relationships and other matters that may
conducted in accordance with the Australian Auditing Standards will always detect a material
reasonably be thought to bear on our independence, and where applicable, related safeguards.
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
From the matters communicated to the directors, we determine those matters that were of most
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
significance in the audit of the financial report of the current year and are therefore the key audit
users taken on the basis of this financial report.
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
not be communicated in our report because the adverse consequences of doing so would reasonably be
judgment and maintain professional scepticism throughout the audit. We also:
expected to outweigh the public interest benefits of such communication.
►
Report on the Audit of the Remuneration Report
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors' report for the year ended 30 June
2017.
Obtain an understanding of internal control relevant to the audit in order to design audit
►
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
In our opinion, the Remuneration Report of Carnarvon Petroleum Limited for the year ended 30 June
opinion on the effectiveness of the Group’s internal control.
2017, complies with section 300A of the Corporations Act 2001.
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Responsibilities
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
The directors of the Company are responsible for the preparation and presentation of the Remuneration
►
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Ernst & Young
R J Curtin
Partner
Perth
30 August 2017
Liability limited by a scheme approved under Professional Standards Legislation
RC:KW:CARNARVON:014
Liability limited by a scheme approved under Professional Standards Legislation
RC:KW:CARNARVON:014
89
Carnarvon Petroleum Limited
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 29 August 2017
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
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Log Creek Pty Ltd
BNP Paribas Nominees Pty Ltd
Jacobson Geophysical Services Pty Ltd
Woss Group Film Productions Pty Ltd
Pendomer Investments Pty Ltd
Mr Philip Paul Huizenga
Elgar Park Pty Ltd
Arne Investments Pty Ltd
47 Eton Pty Ltd
Prettejohn Projects Pty Ltd
Mr Peter James Leonhardt
Merrill Lynch (Australia) Nominees Pty Limited
Mr Adrian Caldwell Cook Ms Belinda Michelle Honey
Kemast Investments Pty Ltd
Mr Edward Patrick Jacobson
Culloden Investments Pty Ltd
Mr Edward Patrick Jacobson
Geolyn Pty Ltd
Distribution of equity security holders
to
to
to
to
and over
1,000
5,000
10,000
100,000
Size of Holding
1
1,001
5,001
10,001
100,001
90
31,835,942
31,832,914
25,235,480
12,881,702
12,505,951
11,674,068
10,750,000
9,500,000
8,892,421
8,417,578
8,353,950
8,000,000
8,000,000
7,700,000
7,292,120
6,809,917
6,502,944
6,315,982
6,300,000
6,000,000
6,000,000
3.10
3.10
2.45
1.25
1.22
1.14
1.05
0.92
0.87
0.82
0.81
0.78
0.78
0.75
0.71
0.66
0.63
0.61
0.61
0.58
0.58
240,800,969
23.42
Number of
shareholders
Number of fully
paid shares
525
1,698
1,507
4,233
1,407
9,370
217,972
5,443,957
12,722,816
172,696,869
836,888,195
1,027,969,809
2017 Annual Report Additional Shareholder Information
Number
on issue
Number
of holders
1,000,000
2
(b) Option holdings as at 29 August 2017
Options over ordinary shares issued
(c) On-market buyback
There is no current on-market buyback.
(d) Schedule of permits
Permit
Basin/Country
Joint Venture
Partners
Equity
%
Operator
WA-435-P, WA-437-P
Roebuck / Australia
Carnarvon
Quadrant Energy
WA-436-P, WA-438-P
Roebuck / Australia
Carnarvon
Quadrant Energy
WAC155CP(1)
Barrow / Australia
Carnarvon
Quadrant Energy
EP-490, EP-491,
EP-475, TP/27
Barrow / Australia
Carnarvon
WA-521-P
WA-523-P
WA-524-P
EP321
EP407
Roebuck / Australia
Carnarvon
Bonaparte / Australia
Carnarvon
Dampier / Australia
Carnarvon
Perth / Australia
Perth / Australia
Carnarvon
Carnarvon
20%
80%
30%
70%
28.5%
71.5%
100%
100%
100%
100%
Quadrant Energy
Quadrant Energy
Quadrant Energy
Carnarvon
Carnarvon
Carnarvon
Carnarvon
2.5% of 38.25%
Transerv Energy
2.5% of 42.5%
Transerv Energy
91
Carnarvon Petroleum Limited carnarvon.com.au