Carnarvon Petroleum
Annual Report 2018

Plain-text annual report

2018 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 4-16 17-31 32 33 34 35 36 37 38 39-77 78 79-82 83-84 2018 Annual Report CORPORATE DIRECTORY Directors PJ Leonhardt (Chairman) AC Cook (Managing Director) WA Foster (Non-Executive Director) P Moore (Non-Executive Director) G Ryan (Non-Executive Director) 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 Telephone: Facsimile: Email: Website: Corporate Governance Statement: carnarvon.com.au/about-us/corporate-governance/ +61 8 9321 2665 +61 8 9321 8867 admin@cvn.com.au carnarvon.com.au Share Registry 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 Carnarvon Petroleum Limited (“Carnarvon”) has remained committed to its strategy of pursuing high value exploration opportunities on the North West Shelf (“NWS”) of Australia. Despite challenging industry conditions in recent years, Carnarvon continued to build its regional NWS database, technical team and participated in high impact exploration drilling programs. With a recovery in the price of oil and a growing sense of optimism in the industry, Carnarvon has built a significant position within the Australian oil and gas industry to take advantage of an improving market. Carnarvon’s current suite of projects has already begun to deliver considerable value to its shareholders, with the potential for additional value to come. Carnarvon and its Joint Venture partner Quadrant Energy (“Quadrant”), commenced drilling the Dorado-1 and Phoenix South-3 wells towards the end of the financial year. In July 2018, Carnarvon was pleased to announce the significant discovery of oil, condensate and gas in the Dorado-1 well. The Dorado discovery is the third largest oil field ever found on the greater NWS and with nearby follow up targets already identified of similar characteristics to that of Dorado, there is the potential to considerably add to the resources which have already been discovered. In addition, the Phoenix South-3 well reached its target depth in August 2018 with the well also encountering hydrocarbons. Over the coming months, technical work will be performed to evaluate the reservoir and determine if the Caley Member in the Phoenix South area is capable of flowing at commercial rates. During the year, Carnarvon completed its technical work on the Labyrinth project which shares a border to the north of the Phoenix and Dorado area. In light of the Dorado and Phoenix South discoveries, I am looking forward to Carnarvon attracting a partner and testing the significant structures within the permit. Carnarvon has also made significant progress in its plans to redevelop the Buffalo oil field. Carnarvon’s technical work has provided compelling evidence of the existence of economically recoverable oil remaining in the previously producing field. On this basis, Carnarvon commenced work to acquire approvals and commence the necessary work to drill a Buffalo well and subsequently redevelop the oil field. Following the signing of the Maritime Boundary Treaty (“Treaty”) by the Australian and Timor-Leste Governments, the redevelopment of the Buffalo oil field will now occur under Timor-Leste jurisdiction. The Treaty will preserve Carnarvon’s legal title and ensure that the redevelopment will occur with equivalent outcomes to those already in place under Australian domestic law. Continuing discussions with the Timor-Leste government have also made it clear to Carnarvon that all parties are aligned in wanting to achieve first oil production as soon as practical. We look forward to working closely with the people of Timor-Leste. I would like to take this opportunity to thank our shareholders for their continued support of Carnarvon, in particular, those who participated in the Capital Raising in May 2018. In August 2018 we were pleased to announce that Mr Gavin Ryan had accepted an appointment to join the Board. We warmly welcome Gavin who is a lawyer with extensive legal and commercial skills gained through an international career with organisations such as BHP Petroleum, BP, PTTEP and Shell. As we focus on the important period of growth before us we are confident his experience, particularly in oil field developments will add significantly to our discussions and I look forward to working with him. Building and maintaining a team with the skill and passion to deliver Carnarvon’s strategy has always been of primary importance to the Board. The Board acknowledges that Carnarvon achieved a number of key milestones in this regard during the year. As such, the Board granted both a cash bonus and employee shares (with attaching loans) as part of Carnarvon’s short and long-term incentive plans. 2 2018 Annual ReportCHAIRMAN'S REVIEW Carnarvon has built a significant position within the Australian oil and gas industry to take advantage of an improving market In regards to the latter, I would like to highlight that the Board has updated its long-term incentive plan in terms of the requirements for granting employee shares. The potential share issues provided during each year are tied to reaching strategic objectives and Carnarvon’s share price growth in relation to a group of its peers during each year. The Board feels this both motivates staff to achieve strategic goals and also aligns staff rewards with growth in shareholder value. Further details can be found in the Remuneration Report section of the Annual Report. Adrian Cook and the Carnarvon team continue to bring their skills to bear with great energy and enthusiasm and I thank them for the outstanding results that they have delivered after a long period of hard work. Their efforts have guided the Company through immensely challenging times in the industry. 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 during a period of intense activity. We look forward to the year ahead with great enthusiasm about the opportunities to build upon the successes achieved so far. Peter Leonhardt Chairman 3 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEW OVERVIEW OF OPERATIONS The highlights for the Company during the 2018 financial year were: > Commenced drilling the Dorado-1 and Phoenix South-3 wells. > Advancing technical work for the Buffalo Project including booking of 31 million barrels 2C resource. > Carnarvon began developing plans to drill a Buffalo well and to redevelop the Buffalo oil field. > Awarded new permits AC/P62 and AC/P63 in the Bonaparte basin named the Condor and Eagle projects. > Completed technical work on the Labyrinth project and began farm-out preparations. Figure 1: Carnarvon Interests as at 30 June 2018 in Australia. Phoenix Project Background Carnarvon and its partners acquired the Phoenix project acreage in 2009, which included the four exploration permits of WA-435-P, WA-436-P, WA-437-P and WA- 438-P. The permits cover an area of approximately 22,000km2 in the Bedout sub-basin, approximately 150 kilometres offshore of Port Hedland in Western Australia. 4 Carnarvon was initially drawn to the area after realising the significance of the Phoenix-1 and 2 gas discoveries in the early 1980’s. Following the award of the exploration permits, Carnarvon, along with its Joint Venture partner, acquired approximately 1,100km2 of modern 3D seismic data and 407 km of additional 2D seismic data to better understand the sub-surface opportunity. Interpretation of this data, together with extensive geological studies, confirmed two significant prospects in Roc and Phoenix South. 2018 Annual ReportThe Phoenix South-1 well was drilled in 2014 which encountered light oil. This discovery was followed by the Roc-1 and Roc-2 wells which discovered condensate rich gas. Additionally, the Roc-2 well was able to perform a successful flow test, confirming the quality of the reservoir, in particular within the Caley interval. On the basis of these discoveries the Joint Venture significantly expanded the seismic data coverage with the acquisition of an additional 10,000km2 of high quality 3D data and 10,000km of new 2D data. A number of new leads and prospects emerged after the interpretation, with the Dorado prospect being the standout target following the successes in the Roc wells. Phoenix South Oil, Gas and Condensate (WA-435-P) (Carnarvon 20%, Quadrant Energy is the Operator) The Phoenix South-3 well commenced drilling in April 2018. The well was drilled using the GSF Development Driller-1, a sixth-generation semi-submersible drilling rig from Transocean Limited. The primary objective of the Phoenix South-3 well was to evaluate the gas and condensate potential of the Caley Member within a large, faulted anti-clinal closure that was partially penetrated with the Phoenix South-2 well. The increased pressure encountered in the Phoenix South-2 well led to an earlier than planned termination of drilling. The successful control of the increased pressure encountered in the Phoenix South-2 well led Carnarvon to submit a successful cost recovery claim under its insurance policy. The claim will cover a majority of the costs of the Phoenix South-3 well. Phoenix South-3 is located around 560 metres North- North East of the Phoenix South-2 well. The well targeted a closure that was estimated by Carnarvon to contain a gross mean recoverable resource of 489 Bscf of gas and 57 million barrels of associated condensate (being 143 million barrels of oil equivalent, gross, Pmean as per the table on page 14). Subsequent to the year end, the well encountered hydrocarbons within the Caley interval. The net reservoir from the wireline logging is around 16 meters with an average porosity of 8%. With permeabilities in the lower end of the expected range, an analysis of the core is required to determine if the reservoir is capable of flowing at commercial rates. Figure 2: Seismic map of Carnarvon’s well locations and discoveries in the Bedout Sub-basin. 5 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEWDorado and Roc (WA-437-P) (Carnarvon 20%, Quadrant Energy is the Operator) The gas and condensate discoveries within the Caley Member in the Roc-1 and Roc-2 wells confirm the hydrocarbon bearing nature of this interval. Furthermore, the successful flow test in the Roc-2 well in October 2016 proved that the reservoir in the Caley interval is of high quality. 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. These results supported the drilling of the Dorado-1 well, which the Joint Venture commenced drilling in June 2018. The primary objective of the Dorado-1 well was to assess additional hydrocarbons within the Caley Member with the well located less than 20km from and updip of the Roc-1 and Roc-2 wells. The significant size of the Dorado structure made it a natural follow up target to the Roc wells. Following the end of the financial year, the Company announced that there were multiple discoveries in the Dorado-1 well. As a result of the Dorado-1 oil and gas discoveries, the Joint venture is currently reassessing the greater area and have already identified follow-up prospects with similar characteristics to Dorado. Figure 3: Image of the Ocean Monarch flow testing at the Roc-2 well. Exploration – Greater Phoenix Area (WA-435-P, WA-436-P, WA-437-P and WA-438-P) (Carnarvon 20%, Quadrant Energy is the Operator) Following a string of discoveries at Phoenix South, Roc and Dorado, the Joint Venture has proved that there is an excellent petroleum system in the region. Given Carnarvon and operator Quadrant Energy hold a significant acreage in the area of approximately 22,000km2, there is considerable exploration upside within the permits. In particular, the discovery of light oil in the Dorado-1 well has enhanced the potential for additional oil discoveries in the region. With additional structures of similar properties to Dorado, there is significant opportunity for 6 greater volumes of hydrocarbons. The Joint Venture will now focus on assessing the follow up prospects and leads, particularly in the Caley, Barret and Milne intervals. The prospects and leads surrounding the Dorado, Roc and Phoenix South areas are listed in the Prospective Resource table on page 14. The additional leads which have been identified across the rest of the acreage are currently under technical review. The joint venture will continue to analyse the discoveries it has made to date and will update its prospect and lead inventories in the coming months. 2018 Annual ReportOPERATING AND FINANCIAL REVIEWBuffalo Project – WA-523-P (Carnarvon 100% and operator) Figure 4: Structure map of the top of the reservoir showing the undrilled attic in the Buffalo field. Carnarvon was awarded the WA-523-P permit in May 2016 which included the previously developed Buffalo oil field. The initial technical work was focused on reprocessing the 3D seismic data using state of the art Full Waveform Inversion (FWI) technology. The FWI reprocessing considerably improved the data quality, allowing clearer analysis of key intervals in and around the Buffalo oil field. The subsequent technical work supported the interpretation of a significant attic oil accumulation remaining after the original development, based on sub- optimal positioning of early wells using poorly processed seismic data. Independently audited volumetric estimates of contingent resources in the Buffalo oil field are 31.1 million barrels (2C) with a low case estimate of 15.3 million barrels (1C) and a high case estimate of 47.8 million barrels (3C) (refer to page 14 for more information). The Buffalo permit is in a proven petroleum system with the Buffalo oil field achieving production rates up to approximately 50,000stb/d of highly-unsaturated, light oil (53°API). On this basis, Carnarvon commenced preparations to redevelop the Buffalo oil field and initiate plans to drill a Buffalo well. Carnarvon commissioned an independent cost analysis of the field redevelopment with the report showing capital expenditure of approximately US$150M (inclusive of the three production wells). At current Brent oil prices of around US$73 per barrel, the field is expected to generate significant revenue based on the 2C contingent resource of 31 million barrels (page 14). On 7 March 2018, the Australian and Timor-Leste Governments signed a new Maritime Boundary Treaty. The Buffalo project is affected by the boundary change and the Buffalo oil field redevelopment will now be undertaken within Timor-Leste’s jurisdiction. A portion of WA-523-P will remain within Australia’s jurisdiction, which contains untapped exploration prospects. The treaty provides that security of title and legal rights currently held by Carnarvon will be preserved through conditions equivalent to those already in place under Australian domestic law. Special legislation will also be enacted by Timor-Leste to confirm these arrangements. The Government meetings to date have demonstrated that all parties are aligned in wanting to achieve first oil as soon as practicable. Carnarvon has already established an office in Dili, appointing a specialist Timor-Leste advisor and initiating a series of meetings with the Timor-Leste government agency Autoridade Nacional do Petróleo e Minerais (ANPM). Once the Treaty is ratified by Australia and Timor-Leste, Carnarvon will enter a Production Sharing Contract (PSC) with the Timor-Leste government. This will allow the Company to begin entering contracts with suppliers to progress towards drilling a Buffalo well and redeveloping the oil field. 7 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEWLabyrinth Project – WA-521-P (Carnarvon 100% and operator) The WA-521-P permit is located in the Roebuck Basin in the North West Shelf of Western Australia and shares a border to the north of the Phoenix permit, where the Company has made a number of recent hydrocarbon discoveries. Carnarvon holds 100% of the equity in the WA-521-P permit, comprising of an area of approximately 5,000km2. The permit was acquired in March 2016 by committing to reprocessing existing 2D seismic over the area in addition to completing various geological and geophysical studies. The seismic reprocessing was completed during the financial year with the Company identifying a number of significant prospects. The technical work was supplemented by the information gained from the oil, gas and condensate discoveries directly to the south of the Labyrinth project in the Phoenix, Roc and Dorado wells. Following the completion of the technical interpretation, a petrophysical analysis has identified 1.5 billion barrels of unrisked recoverable prospective resource within eight prospects in the permit (see page 14 for further information). A number of additional leads have also been recognised. The standout target is the Ivory prospect, estimated to contain 420 million barrels of mean recoverable oil over two levels. Ivory is located in 350 metres water depth with dual target reservoirs which can be drilled with one well. The primary reservoir of the mid-Jurassic Depuch sandstone is relatively shallow in at approximately 2,700 meters below sea level. This reservoir is typically of excellent quality, with porosities averaging around 30% and consisting of hundreds of meters of thick deltaic sandstones. The secondary target is the Upper Bedout formation at approximately 3,400 meters below sea level. At the Ivory location, these sandstones are overlain by approximately 200m-300m with seismically mapped shaly facies which should promote an effective seal. With the technical work now complete, Carnarvon has commenced a farm-out process to identify an appropriate partner to join the project. The forward program following farm-out will involve acquiring 3D seismic in order to refine potential drilling locations and enhance the chance of success of the plays within the area. Figure 5: Prospect and lead inventory for the Labyrinth project. 8 2018 Annual ReportOPERATING 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. The reprocessing of the existing 3D seismic data over the permit was completed during the year. The reprocessing included the application of Full Waveform Inversion (FWI) which has demonstrated clear improvements in both the Phoenix and Buffalo projects. The FWI application has greatly assisted the mapping of the existing leads within the permit. It has also enabled the identification of new prospects and is allowing Carnarvon to identify the potential for hydrocarbon bearing sands within the permit. The interpretation of the data has had a particular focus on the Permian interval. Carnarvon was attracted to the Permo-Triassic stratigraphy within the permit in part due to the well documented success of drilling the Early Triassic play types in the Roebuck Basin. Carnarvon has also identified, through its regional technical work, the potential for a similar pre-Jurassic play on the flanks of the Dampier sub-basin. Carnarvon’s technical team will 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. The technical work is expected to be completed in the coming financial year. Once finalised, the Company will begin working towards a farm-out to progress the project towards drilling the prospects. Figure 6: 3D interpretation highlighting the top Permian reservoir sand depth map pinching out on Basement stratigraphy. 9 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEWCondor Project – AC/P62 (Carnarvon 100% and operator) Carnarvon was awarded the AC/P62 permit in November 2017 over an area of 1,512km2 within the Vulcan sub- basin in the Bonaparte basin. The permit is on trend with and in the vicinity of numerous oil and gas fields including the Montara, Jabiru, Skua and Challis oil fields. Carnarvon’s technical work has been focused around interpreting the recent Cygnus 3D seismic survey acquired by Polarcus over 682km2 of the permit. The interpretation is being greatly assisted by the high- quality data as interpretation in the Vulcan sub-basin has historically been hampered by poor quality vintage seismic data. The Company has already identified various leads over multiple Jurassic and Triassic reservoir levels with similar properties to the nearby Challis oil field and Crux gas field. In addition, there is the potential for secondary plays in the shallower, Late Cretaceous stratigraphy. These reservoirs could be targeted with the same well. Carnarvon is also performing a fault seal study in order to de-risk the fault seal integrity of the leads within the Permit. Carnarvon will prepare the Condor project for farm-out later in the year, once the studies and interpretation have been completed. Figure 7: Outline of the AC/P62 and AC/P63 permits in relation to existing fields. Eagle Project – AC/P63 (Carnarvon 100% and operator) Carnarvon was awarded the AC/P63 permit in February 2018, within the same Vulcan sub-basin as the Condor project on Western Australia’s North-West Shelf. The Eagle project is located in shallow water and contains multiple Jurassic and Cretaceous leads over multiple reservoir levels of the 542km2 permit area. 10 Carnarvon will utilise the Cygnus 3D seismic survey acquired by Polarcus which has provided high quality data for the Condor project. The seismic is currently being processed and will be available for interpretation in the coming financial year. Carnarvon will work towards maturing the identified leads into prospects within the permit and will utilise its geoscience work-flows to add to its portfolio. 2018 Annual ReportOPERATING AND FINANCIAL REVIEWOuttrim Project - WA-155-P (Carnarvon 28.5%, Quadrant Energy is the Operator) Cerberus Project - EP-490, EP-491, EP-475 and TP/27 (Carnarvon 100% and operator) Having acquired the Cerberus permits in May 2014, Carnarvon’s interpretation identified several significant prospects within the permit areas. Due to suppressed industry conditions in the years following the award of the permit, associated with the collapse in the price of oil, Carnarvon was unable to secure a partner to progress towards the drilling of a well. As a result, Carnarvon made the prudent decision not to progress with 100% of the equity in the permits and avoid the well commitments. As such, in July 2018 Carnarvon divested the permits for nominal consideration. Santa Cruz Project - EP-497 (Carnarvon 100% and operator) Carnarvon was awarded EP-497 in November 2017, which lies inboard of the Carnarvon basin on the North- West Shelf of Western Australia. The permit contains the previously drilled Santa Cruz-1 well, drilled in 1994 which discovered a gas cap above a possible oil discovery. In July 2018, Carnarvon divested the Santa Cruz permit along with the Cerberus permits for nominal consideration. The Outtrim project is in the Barrow sub-basin, within the Northern Carnarvon Basin of the North West Shelf. Carnarvon entered the project in January 2016. Following on from Carnarvon’s 2016 Outtrim East oil discovery, the Company has identified another significant prospect. The Belgravia prospect 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. Belgravia lies within the north westerly graticular block of the Outtrim permit and contains an estimated prospective resource of 440 billion cubic feet of gas (Bcf) and 18 million barrels (Mmbbls) of condensate (gross Pmean) as listed in the Prospective Resource table on page 14. The Upper Triassic play system is the most successful petroleum play within the North West Shelf creating a heartland of LNG scale gas and condensate discoveries. Upper Triassic reservoirs have underpinned fields such as Gorgon, Rankin and Wheatstone. The petroleum traps within this play tend to be simple fault block structures. Reservoir quality is excellent and dependant on facies and depth of burial. Results from the Zola and Gorgon gas fields (North East of the area of interest) have proven that the Upper Triassic stratigraphy can preserve good reservoir quality and can flow hydrocarbons from depths of over 4,000 metres. In June 2018, the Joint Venture renewed the WA- 155-P exploration permit for a period of 5 years. The renewal was acquired with minimal commitments, with only geotechnical studies in the first three years being compulsory. Following this the Joint Venture has the option to commit to an exploration well in the final 2 years. 11 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEWRESERVE ASSESSMENT Petroleum Resource Classification, Categorisation and Definitions Carnarvon calculates reserves and resources according to the Society of Petroleum Engineers’ Petroleum Resource Management System (“SPE-PRMS”) definition of petroleum resources. Carnarvon reports reserves and resources 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 Contingent Resources 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 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 Figure 8: Cross section as indicated in Figure 2 12 2018 Annual ReportOPERATING AND FINANCIAL REVIEW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. Gross Contingent Resources 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 Permit Roc WA-437-P Phoenix South WA-435-P WA-435-P Phoenix Buffalo WA-523-P Total 1C - 6.8 2.0 - 8.8 2C - 16.7 7.0 - 23.7 3C - 29.6 16.0 - 45.6 1C 204.5 - - - 204.5 2C 331.8 - - - 331.8 3C 580.3 - - - 580.3 1C 11.9 - - - 11.9 2C 19.6 - - - 19.6 3C 34.8 - - - 34.8 1C 47.8 6.8 2.0 - 56.6 2C 77.8 16.7 7.0 - 101.5 3C 136.6 29.6 16.0 - 182.2 Technical Revision Permit Roc WA-437-P Phoenix South WA-435-P WA-435-P Phoenix WA-523-P Buffalo Total Gross at 30 June 2018 Light Oil Natural Gas Condensate Barrels of Oil Equivalent MMSTB MMSTB MMSTB BSCF BSCF BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE 1C - - - 15.3 15.3 2C - - - 31.1 31.1 3C - - - 47.8 47.8 1C 2C 3C 1C 2C 3C - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1C - - - 15.3 15.3 2C - - - 31.1 31.1 3C - - - 47.8 47.8 Light Oil Natural Gas Condensate Barrels of Oil Equivalent MMSTB MMSTB MMSTB BSCF BSCF BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE Permit Roc WA-437-P Phoenix South WA-435-P WA-435-P Phoenix Buffalo WA-523-P Total 1C - 6.8 2.0 15.3 8.8 2C - 16.7 7.0 31.1 23.7 3C - 29.6 16.0 47.8 45.6 1C 204.5 - - 2C 331.8 - - 3C 580.3 - - 1C 11.9 - - 2C 19.6 - - 3C 34.8 - - 204.5 331.8 580.3 11.9 19.6 34.8 1C 47.8 6.8 2.0 15.3 56.6 2C 77.8 16.7 7.0 31.1 101.5 3C 136.6 29.6 16.0 47.8 182.2  (i) Buffalo volumes added as per ASX announcement 28 August 2017. Net Contingent Resources Light Oil Natural Gas Condensate Barrels of Oil Equivalent MMSTB MMSTB MMSTB BSCF BSCF BSCF MMSTB MMSTB MMSTB MMBOE MMBOE MMBOE Permit Net at 30 June 2018 Roc WA-437-P Phoenix South WA-435-P WA-435-P Phoenix Buffalo WA-523-P Total 1C 2C 3C 1C 2C 3C - 1.4 0.4 15.3 17.1 - 3.3 1.4 31.1 35.8 - 5.9 3.2 47.8 56.9 40.9 - - - 40.9 66.4 - - - 66.4 116.1 - - - 116.1 1C 2.4 - - - 2.4 2C 3.9 - - - 3.9 3C 7.0 - - - 7.0 1C 2C 3C 9.6 1.4 0.4 15.3 26.6 15.6 3.3 1.4 31.1 51.4 27.3 5.9 3.2 47.8 84.2 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. 2 Society of Petroleum Engineers (“SPE”); World Petroleum Council (“WPC”); American Association of Petroleum Geologist (“AAPG”) 13 & Society of Petroleum Evaluation Engineers (“SPEE”) OPERATING AND FINANCIAL REVIEW                                                                                                                                                     OPERATING AND FINANCIAL REVIEW Net Prospective Resources Phoenix South Caley Roc-2 C/D Dorado Caley Roc Satellites Bewdy Bottler Peng Phoenix South Hove (ii) Dorado Milne A Dorado Milne B Dorado Milne C Dorado Milne D Apus Caley (iii) Mensa Caley (iii) Pavo Caley (iii) Mensa Barret (Phoenix) (iii) Lupus (ii) Indus (iii) Ara (iii) Bandy Rankin (iii) Belgravia Honeybadger Kes Belfon Rudder Bunji Sparrow Westy Mighty Gallant Ivory (iv) Ivory deep (iv) Mouse (iv) Mouse deep (iv) Zebra (iv) Hammock deep (iv) Mahogany (iv) Weaver (iv) Total Permit WA-435-P WA-437-P WA-437-P WA-437-P WA-437-P WA-437-P WA-437-P WA-435-P WA-437-P WA-437-P WA-437-P WA-437-P WA-437/8-P WA-435-P WA-438-P WA-435-P WA-435-P WA-435-P WA-435/6-P WA-435/6-P WA-155-P EP-491 EP-475 EP-491 EP-491 EP-491 EP-491 EP-491 EP-491 EP-490 WA-521-P WA-521-P WA-521-P WA-521-P WA-521-P WA-521-P WA-521-P WA-521-P Light Oil MMBBL P90 MMBBL P50 MMBBL Pmean MMBBL P10 BSCF P90 128.0 52.5 Natural Gas BSCF BSCF Pmean P50 489.0 401.0 120.0 110.0 Condensate Barrels Of Oil Equivalent BSCF P10 963.0 199.0 MMBBL P90 10.5 3.1 MMBBL P50 39.4 6.5 MMBBL Pmean 56.8 7.2 MMBBL P10 122.0 12.1 MMBOE P90 33.0 12.3 MMBOE P50 109.8 25.8 MMBOE Pmean 142.6 28.2 MMBOE P10 290.9 47.0 Probability Geological Success 71% 71% 1.9 12.7 31.2 74.1 - - - - - - - - - - - - - - - - 6.0 68.0 163.0 418.0 5.0 4.0 - 12.0 3.0 4.0 4.0 3.0 4.0 7.0 10.0 3.0 20.0 6.0 40.0 3.0 20.0 8.4 21.5 3.4 189.2 77.0 63.0 - 86.0 21.0 25.0 26.0 10.0 15.0 52.0 50.0 79.0 170.0 48.0 202.0 33.0 179.0 112.0 94.0 24.5 1447.2 172.0 142.0 - 144.0 50.0 40.0 36.0 18.0 22.0 114.0 94.0 200.0 322.0 99.0 278.0 62.0 382.0 249.0 148.0 44.0 2810.2 457.0 372.0 - 340.0 126.0 92.0 80.0 39.0 46.0 281.0 226.0 544.0 828.0 243.0 618.0 152.0 924.0 630.0 332.0 106.0 6928.1 58.7 28.7 0.2 - 4.9 338.0 112.9 8.6 - 18.2 545.0 143.3 27.6 - 22.6 1,260.0 300.3 84.7 - 46.4 45.7 36.5 82.3 51.5 97.0 75.0 31.0 266.0 295.0 416.0 409.0 332.0 305.0 193.0 429.0 438.0 565.0 555.0 481.0 446.0 234.0 1,016.0 1,025.0 1,248.0 1,251.0 1,087.0 1,000.0 500.0 2.5 1.7 1.1 16.6 6.7 9.8 31.6 8.6 26.7 74.9 18.0 64.2 0.3 4.1 9.7 23.6 To be determined 13.1 2.0 14.3 1.6 20.1 3.5 19.4 2.3 14.0 4.0 30.0 6.0 10.0 2.0 24.9 25.4 32.8 32.2 24.0 52.0 12.0 59.7 60.8 75.4 75.5 51.0 121.0 27.0 4.0 10.0 80.0 187.0 347.0 346.0 443.0 892.0 1.0 1.0 2.0 5.0 8.0 17.0 20.0 42.0 4.6 - - - - - - - - - - - - - - - - - 710.6 50.7 - - - - - - - - - - - - - - - - - 3522.4 125.4 - - - - - - - - - - - - - - - - - 314.9 - - - - - - - - - - - - - - - - - 5,313.9 11630.3 0.1 - - - - - - - - - - - - - - - - - 42.7 1.4 - - - - - - - - - - - - - - - - - 212.4 5.1 - - - - - - - - - - - - - - - - - 374.0 12.8 - - - - - - - - - - - - - - - - - 860.0 12.8 6.7 1.1 1.9 1.2 10.0 8.0 18.0 11.3 21.0 19.2 7.4 6.0 1.7 2.8 5.0 4.0 0.9 12.0 3.0 4.0 4.0 3.0 4.0 7.0 10.0 3.0 20.0 6.0 40.0 3.0 20.0 8.4 21.5 3.4 356.6 75.9 26.5 11.3 12.7 7.3 127.2 33.7 31.5 31.2 13.7 296.0 70.7 79.1 74.1 31.7 59.8 66.1 93.1 91.2 72.2 83.5 43.9 68.0 16.0 37.8 77.0 63.0 10.3 86.0 21.0 25.0 26.0 10.0 15.0 52.0 50.0 79.0 170.0 48.0 202.0 33.0 179.0 112.0 94.0 24.5 2277.6 100.2 102.2 131.9 129.6 108.4 130.2 53.1 163.0 68.9 77.7 172.0 142.0 27.1 144.0 50.0 40.0 36.0 18.0 22.0 114.0 94.0 200.0 322.0 99.0 278.0 62.0 382.0 249.0 148.0 44.0 4116.4 237.9 240.6 294.3 295.0 241.7 296.4 114.7 418.0 97.7 198.5 457.0 372.0 68.1 340.0 126.0 92.0 80.0 39.0 46.0 281.0 226.0 544.0 828.0 243.0 618.0 152.0 924.0 630.0 332.0 106.0 9828.5 36% 59% 32% 59% 32% 23% 23% 23% 23% 12% 17% 22% 54% 71% 32% 32% 59% 29% 15% 18% 17% 25% 25% 25% 17% 11% 12% 18% 13% 18% 13% 13% 13% 13% 13% Risked MMBOE Pmean 101.2 20.0 45.8 19.9 10.1 18.4 4.4 23.0 23.5 30.3 29.8 13.0 22.1 11.7 88.0 48.9 24.9 55.0 83.8 7.9 21.6 9.0 6.8 9.0 4.5 5.5 19.4 10.3 24.0 58.0 12.9 50.0 8.1 49.7 32.4 19.2 5.7 1027.9 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20/30% 20% 30% 20% 20% 20% 20/30% 20/30% 28.50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (ii) Hydrocarbon shows were encountered in the Hove Member while drilling the Phoenix South-2 well however resource estimates are not able to be calculated for this package until further data is available as per ASX announcement 28 March 2017. (iii) Additional prospective resources included within the Phoenix project based on the results of the Phoenix South 1, Roc-1, Roc-2 and Phoenix South-2 well results as per ASX announcement 23 April 2018. (iv) Updated prospective resources for the Labyrinth project based on the completion of a petrophysical analysis and per ASX announcement 7 February 2018. 14 Carnarvon Petroleum Limited                                                                                                                                                                     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 25 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. Notes on Petroleum Resource Estimates Unless otherwise stated, all petroleum resource estimates are quoted as at 30 June 2018 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. One exception to this is the prospective resources for Dorado. Subsequent to the year end, Carnarvon announced Dorado contingent resource following discoveries in the Dorado-1 well on 20 August 2018. 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. 15 Carnarvon Petroleum LimitedOPERATING AND FINANCIAL REVIEWFINANCIAL REVIEW The Group reports an after-tax profit $1,425,000 for the financial year ending 30 June 2018 (2017: Loss: $36,977,000). a value of the shares of A$2,297,000 which is classified as an Available for sale financial asset on the Balance Sheet as at 30 June 2018. Carnarvon’s balance sheet remained strong with cash and cash equivalents of $63,606,000 (2017: $53,050,000), no debt and minimal commitments going forward. During the financial year, Carnarvon successfully completed a capital raising through a placement to sophisticated and institutional investors followed by a share purchase plan to existing shareholders. Carnarvon raised $19,107,000 after fees (2017: $0). Carnarvon entered into an agreement with CWX Global Limited (formerly Loyz Energy Limited) (“CWX”) to settle the outstanding deferred consideration payable to Carnarvon for a sum of US$4.0m with $0.05m paid on the agreement date in the previous financial year and the balance settled on 14 November 2017 in shares of CWX. As the deferred consideration was written down to nil in the prior financial year, the settlement resulted in a gain of A$3,514,000 under other income in the Consolidated Income Statement. Conversely, the subsequent decline in the value of the shares since settlement has created a change in fair value of ($1,217,000) in Other Comprehensive Income. The resulting balance represents Permit Interests Permit Basin Equity Carnarvon spent $2,204,000 (2017: $2,894,000) in new venture and advisory costs as the Company continues to build its database and portfolio of potentially high impact assets to add to the Company’s string of successful discoveries. The Company also invested a further $6,505,000 on its exploration assets. Most significantly in relation to the Phoenix South-3 and Dorado-1 wells, and preparatory work on redeveloping the Buffalo oil field. During the financial year there was an unrealized gain on foreign exchange of $1,751,000 (2017: Loss: $1,461,000) due to the effect of a depreciation 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. Joint Venture Partner(s) Partner Interest Indicative Forward Program Australia AC-P62 AC-P63 EP-475 EP-490 EP-491 EP-497 TP/27 WA-521-P WA-523-P WA-524-P WA-435-P WA-436-P WA-437-P WA-438-P WA-155-P EP321 EP407 Bonaparte Bonaparte Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon Roebuck Bonaparte Dampier Roebuck Roebuck Roebuck Roebuck Barrow 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 20% 30% 20% - - - - - - - - - - Quadrant Energy (i) Quadrant Energy (i) Quadrant Energy (i) - - - - - - - - - - 80% 70% 80% 30% 28.5% Quadrant Energy (i) Quadrant Energy (i) 70% 71.5% Perth Perth 2.50% of 38.25% (ii) 2.50% of 42.5% (ii) - - - - G & G Studies G & G Studies G & G Studies 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 G & G Studies G & G Studies, Appraisal G & G Studies 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 16 2018 Annual ReportOPERATING 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 2018, 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. 17 Carnarvon Petroleum LimitedDIRECTORS’ REPORT 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 and Beach Energy Limited. Dr Moore is a member of the Audit and Risk Committee and the Remuneration and Nomination Committee. Gavin Ryan Non-Executive Director LLB (Hons), GAICD Appointed as a director on 30 July 2018. Mr Ryan is a lawyer who has extensive legal and commercial skills in oil and gas gained through an extensive international career with organisations such as BHP Petroleum, BP, PTTEP and Shell. Mr Ryan has experience in government dealing, production sharing contracts and petroleum project construction contracts. During the past three years, Mr Ryan has not served as a Director on any other listed Company. 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. 18 2018 Annual ReportDirectors’ meetings The number of directors’ meetings held and attended by each of the directors during the reporting period was as follows: DIRECTORS’ REPORT PJ Leonhardt WA Foster AC Cook P Moore (a) (b) 8 8 8 8 8 8 8 7 (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 1 (a) Number of meetings held during period of office (b) Number of meetings attended 19 Carnarvon Petroleum LimitedDIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Principles of remuneration The Board is responsible for the Company’s remuneration policy and practices. To assist the Board with this, it has established the Remuneration & Nomination Committee (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 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 2014 30 June 2015 30 June 2016 30 June 2017 30 June 2018 Share price as at 30 June each year $0.075 $0.115 $0.100 $0.079 $0.15 Year on year change in the share price 83% 53% (13%) (21%) 90% 20 2018 Annual ReportDIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (CONTINUED) The Board sets objectives and targets for its executives and employees for each 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 meet 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 fully achieved. These objectives are summarised, to the extent possible in the following pages. Non-executive directors Shareholders approve total non-executive directors’ fees and the Committee is responsible for the allocation of those fees amongst the individual members of the Board. 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 three components: 1. The performance of the business as a whole; 2. The extent to which the executive team achieves strategic objectives set by the board; and 3. 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. All short-term incentives awarded during the period are included in remuneration, as set out on page 27, and fully vested to each named executive and key management personnel during the period. The strategic objectives that were met during the 30 June 2018 financial year were as follows: Identifying 2C contingent resource of 31 mmbbls in the Buffalo project; • • Materially advancing the Buffalo redevelopment project; • Award of AC/P62 (Condor Project); • Award of AC/P63 (Eagle Project); • Materially advanced the North-West Shelf database; • Completion of the Maracas project reprocessing and initial prospect mapping; • Commencement of the Labyrinth project farm out; • Conversion of deferred consideration to shares in CWX global; 21 Carnarvon Petroleum LimitedDIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (CONTINUED) Given many of objectives are closely linked to strategy, it is not possible for the Company to publicly disclose all of the objectives until they are fully achieved. Long- term incentive scheme - Employee Share Plan The Carnarvon Employee Share Plan (“ESP”) was originally 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. Each year the maximum numbers of Plan shares that can be awarded is 1.5% of the Company’s total issued capital which is broken down into two components. The award of Plan shares is based on two components: 1. Relative total shareholder return (maximum of 0.75% of total issued capital); and 2. The extent to which the executive team achieves strategic objectives set by the board (maximum of 0.75% of total issued capital). The relative total shareholder return component as awarded on the following basis: CVN TSR compared to peers % of EPS award Less than 50% 50% 50% to 90% 90% and above Nil 25% Pro rata Full amount For the purposes of the TSR evaluation, Carnarvon’s peer group is Buru Energy Ltd, Cooper Energy Ltd, Cue Energy Resources Ltd, Elk Petroleum Ltd, FAR Ltd, Horizon Oil Ltd, Karoon Gas Australia Ltd, Otto Energy Ltd, Senex Energy Ltd, Sino Gas & Energy Ltd, 88E Ltd and Tap Oil Ltd. In the 30 June 2018 financial year, the relative TSR outcome was 58% on the pro rata basis outlined above. Therefore, the pool of plan shares on the relative TSR basis was 5,147,524 shares. The board has set a number of long term measurable objectives for the executive team. Given the sensitive, strategic and ongoing nature of these objectives the Company is not in a position to fully disclose these at this point in time. The long term objectives do however relate to: • Progress under the company’s traditional model of acquiring permits, applying technical expertise with a view to attract a farm in partner to advance the project; • Progress in the Phoenix project (multiple objectives); • Progress in the Buffalo project (multiple objectives); and • Numerous corporate objectives which remain confidential. 22 2018 Annual ReportDIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (CONTINUED) During the 30 June 2018 year, the pool of plan shares on the meeting of measurable objectives was 2,640,000 shares. Therefore, the total pool of Plan shares to be awarded was 7,787,524 shares. Given the team like nature of the Carnarvon organization, the Plan shares were allocated pro rata each executives salary. 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. 23 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. Loans made under the ESP involve no cash outlay by the Company. A complete copy of the rules of the ESP (which incorporates the terms of the loan agreement) is available for inspection by shareholders (free of charge) at the Company’s Registered Office or, upon request, from the Company Secretary. Plan Shares are approved by the Remuneration & 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. 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 27. 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 22. (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 outperformance on the strategic based targets detailed above: Executive Officers Number of plan shares issued AC Cook* PP Huizenga TO Naude 1,500,000* 1,176,201 548,880 Grant date 17/11/2017* 29/06/2018 29/06/2018 Exercise price per plan share Fair value at grant date $0.100* $0.165 $0.165 $0.041* $0.082 $0.082 * Approved by shareholders at the AGM on 25 November 2017. 24 2018 Annual Report DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (CONTINUED) 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. The following factors and assumptions were used in determining the fair value of Plan Shares at grant date in the current reporting period: 2018 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 27/11/2017 29/06/2022 29/06/2018 28/06/2022 $0.041 $0.082 $0.100 $0.165 $0.079 $0.150 68% 68% 1.50% 1.50% 0% 0% (iii) Options There were no options over shares in the Company issued as compensation to key management personnel during the reporting period. No options have been issued since the end of the financial year. The movement during the reporting period, by value, of options over ordinary shares, including shares issued under the Company’s ESP, for each company director and company executive and granted as part of remuneration is detailed below: Granted in year ($) Expense recognised in year ($) Exercised in year ($) Forfeited in the year ($) Total option value in year ($) Directors WA Foster P Moore - - 7,446* 7,446* - - - - 39,637 39,637 * 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. 25 Carnarvon Petroleum LimitedDIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (CONTINUED) Remuneration & Nomination Committee The Committee is to include at least 3 members. Members of the committee during the 30 June 2018 financial year were Mr Foster (Chairman of the Remuneration & Nomination Committee), Mr Leonhardt and Dr 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) 2 2 2 (b) 2 2 1 (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. 26 2018 Annual ReportREMUNERATION REPORT (AUDITED) (CONTINUED) Short Term Name Salary and fees ($) Short term cash bonus ($) NOTES TO THE FINANCIAL STATEMENTS Long Term Shares/ Options ($) Total ($) Proportion of remuneration performance related % Value of shares/ options as a % of remuneration Post- Employment Superannuation contributions ($) 82,400 80,000 118,450 115,000 Directors Non-Executive Mr PJ Leonhardt (Chairman) 2018 2017 Mr WA Foster 2018 2017 Dr P Moore 2018 2017 Executive Mr AC Cook (Chief Executive Officer) 2018 2017 Executives Mr PP Huizenga (Chief Operating Officer) 2018 2017 Mr TO Naude (Chief Financial Officer) 2018 2017 Total compensation: key management personnel (Company and consolidated) 2018 2017 1,646,733 1,604,685 241,097 235,205 578,865 543,896 548,671 513,974 77,250 75,000 - - - - - - 73,124 - 69,468 - 32,417 - - - - - - - 7,4461,2 19,9831,2 7,4461,2 19,9831,2 28,375 37,060 61,2261,3 54,3701,4 23,661 37,933 96,7471 45,9191 24,103 24,225 45,1471 30,6131 - - 118,450 115,000 89,846 99,983 84,696 94,983 741,590 635,326 738,547 597,826 342,764 290,043 175,009 - 76,139 99,218 218,012 170,8681 2,115,893 1,874,771 - - - - - 18.1% 8.6% 22.5% 7.7% 22.6% 10.6% 18.6% 9.3% Directors’ fees are paid or payable to the director or a director-related entity. ¹ Accounting cost as determined using the Black-Scholes Option Pricing Model 2 2017 and 2018 options issued to Mr Foster and Dr Moore relate to 2015 financial year remuneration approved at AGM on 13 November 2015, issued 20 November 2015. 3 2018 share-based payments to Mr Cook relate to 2018 financial year remuneration approved at the AGM on 17 November 2017 and issued 27 November 2017. 4 2017 share-based payments to Mr Cook relate to 2017 financial year remuneration approved at the AGM on 25 November 2016 and issued 23 December 2016. Carnarvon Petroleum Limited - - 8.3% 20.0% 8.8% 21.0% 8.3% 8.6% 13.1% 7.7% 13.2% 10.6% 10.3% 9.3% 27 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: 2018 Directors PJ Leonhardt WA Foster AC Cook P Moore Executives PP Huizenga TO Naude Held at 1 July 2017 Net acquired/ (sold) Award under Employee Share Plan Received on exercise of options Held at 30 June 2018 17,750,000 684,455 10,999,917 - 9,492,421 2,692,509 - 52,847 - 270,232 - - 1,500,000 - - - 1,176,201 548,880 - - - - - - 17,750,000 737,302 12,499,917 270,232 10,668,622 3,241,389 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: 2018 Directors Held at 1 July 2017 Granted as compensation Employee Share Plan cancellations Exercised Held at 30 June 2018 PJ Leonhardt 3,000,000 WA Foster AC Cook P Moore Executives PP Huizenga TO Naude - - - 8,234,917 1,500,000 - - 8,992,421 2,478,436 1,176,201 548,880 - - - - - - - - - - - - 3,000,000 - 9,734,917 - 10,168,622 3,027,316 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: 2018 Directors WA Foster P Moore Held at 1 July 2017 Granted as compensation Acquired/ (sold) Exercised Held at 30 June 2018 500,000 500,000 - - - - - - 500,000 500,000 End of Remuneration Report 28 2018 Annual Report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 2018 ($) Auditors of the Company: Ernst & Young Directors’ interests 99,575 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 WA Foster P Moore 17,750,000 12,499,917 737,302 270,232 - - 500,000 500,000 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 2018, women made up 25% 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 2018 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 2018 financial year are contained in the operating and financial review as set out on pages 4 to 16. 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 2018. 29 Carnarvon Petroleum LimitedDIRECTORS’ REPORT Dividends No dividends were paid during the year and the directors do not recommend payment of a dividend in respect of the current financial year (2017: Nil). Auditor’s independence declaration The auditor’s Independence Declaration under Section 307C of the Corporations Act is set out on page 32 and forms part of the directors’ report for the financial year ended 30 June 2018. Principal activities During the course of the 2018 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 16. Indemnification and insurance of directors and officers During the period the Company paid a premium to insure the directors and officers of the Company and its controlled entities. The policy prohibits the disclosure of the nature of the liabilities covered and the amount of the premium paid. 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 2018 is set out on pages 4 to 16 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. 30 2018 Annual ReportEvents subsequent to reporting date No matters or circumstance has arisen since 30 June 2018 that in the opinion of the directors has significantly affected, or may significantly affect in future financial years: DIRECTORS’ REPORT (i) The Group’s operations; or (ii) The results of those operations; or (iii) The Group’s state of affairs. Rounding off The Company is an entity 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, 28 August 2018 31 Carnarvon Petroleum LimitedAUDITOR’S INDEPENDENCE DECLARATION 32 2018 Annual Report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 2018 is dated as at 30 June 2018 and was approved by the Board on 28 August 2018. The Corporate Governance Statement is available on Carnarvon Petroleum’s website at carnarvon.com.au/about-us/corporate-governance/. 33 Carnarvon Petroleum LimitedCONSOLIDATED INCOME STATEMENT For the year ended 30 June 2018 Consolidated Notes 2018 $000 2017 $000 Other income 2 5,653 3,690 Administrative expenses Directors’ fees Employee benefits expense Unrealised foreign exchange gain/(loss) New venture and advisory costs Exploration expenditure written off Remeasurement of deferred consideration asset (1,409) (278) (2,088) 1,751 (2,204) - - (1,587) (312) (2,155) (1,462) (2,894) (10,104) (22,153) 12 9 Profit (loss) before income tax 1,425 (36,977) Taxes Current income tax expense Profit (loss) for the year Profit (loss) attributable to members of the Company Profit (loss) per share: Basic profit (loss) for the period attributable to members of the entity (cents per share) Diluted profit (loss) for the period attributable to members of the entity (cents per share) 6(a) - - 1,425 (36,977) 1,425 (36,977) 5 5 0.14 (3.62) 0.14 (3.62) The above consolidated income statement should be read in conjunction with the accompanying notes to the financial statements. 34 2018 Annual ReportCONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME For the year ended 30 June 2018 Consolidated Notes 2018 $000 2017 $000 Profit (loss) for the year 1,425 (36,977) Other comprehensive income Items that may be reclassified to profit or loss Change in fair value of available for sale financial asset 8 (1,217) Exchange differences arising on translation of foreign operations, net of income tax - - (2) Total comprehensive profit (loss) for the year 208 (36,979) Total comprehensive profit (loss) attributable to members of the company 208 (36,979) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the financial statements. 35 Carnarvon Petroleum LimitedCONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Property, plant and equipment Available for sale financial asset 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 Notes 16(b) 7 11 10 8 12 14 19 19 15 15 Consolidated 2018 $000 2017 $000 63,606 53,050 324 555 400 459 64,485 53,909 35 2,297 53,443 80 - 46,938 55,775 47,018 120,260 100,927 902 386 1,341 379 1,288 1,720 196 196 279 279 1,484 1,999 118,776 98,928 115,508 (1,595) 4,863 95,865 (375) 3,438 118,776 98,928 The above consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements. 36 2018 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2018 Issued capital $000 Reserve shares $000 Retained earnings $000 Translation reserve $000 Fair value reserve $000 Balance at 1 July 2016 95,401 (3,190) 40,415 28 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) - - - Balance at 30 June 2017 95,865 (3,654) 3,438 Balance at 1 July 2017 95,865 (3,654) 3,438 Comprehensive loss Profit for the year Other comprehensive loss Total comprehensive loss for the year Transactions with owners and other transfers Share based payments - - - - Proceeds from capital raise 19,021 - - - - - Issue of ESP shares 622 (622) Total transactions with owners and other transfers 19,643 (622) 1,425 - 1,425 - - - - - (2) (2) - - - 26 26 - - - - - - - - - - - - - - - - - (1,217) (1,217) - - - - Share based payments reserve $000 Total  $000 2,854 135,508 - - - (36,977) (2) (36,979) 399 - 399 399 - 399 3,253 98,928 3,253 98,928 - - - 1,425 (1,217) 208 619 - - 619 19,021 - 619 19,640 Balance at 30 June 2018 115,508 (4,276) 4,863 26 (1,217) 3,872 118,776 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements. 37 Carnarvon Petroleum Limited                                CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2018 Cash flows from operating activities Payments to suppliers and employees Interest received Research and development tax credit received Consolidated Notes 2018 $000 2017 $000 (5,855) 630 1,523 (7,345) 480 1,822 Net cash used in operating activities 16(a) (3,702) (5,043) 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 capital raise Net cash provided by financing activities Net increase (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 10 (6,505) (27,760) (6) - (17) 93 (6,511) (27,684) 19,021 19,021 8,808 53,050 1,748 - - (32,727) 87,847 (2,070) Cash and cash equivalents at the end of the financial year 16(b) 63,606 53,050 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statements. 38 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS 1. REPORTING ENTITY The consolidated financial report of Carnarvon Petroleum Limited (‘Company’) for the financial year ended 30 June 2018 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 28 August 2018. The basis for the preparation of the following notes can be found in note 29 and the significant accounting policies used in the preparation can be found in note 30. 39 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 2. OTHER INCOME Finance income on bank deposits Research and development tax credit received Gain on settlement of deferred consideration asset (Note 8) Other income Unwinding of interest on deferred consideration asset (note 9) Net loss on foreign currency transactions 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 Tax services: Ernst & Young 5. PROFIT (LOSS) PER SHARE Consolidated 2018 $000 2017 $000 630 1,523 3,514 - - (14) 5,653 480 1,822 - 93 1,403 (108) 3,690 (52) (242) (288) (102) (275) (293) (67) (56) (33) - 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 2018 2017 Number of shares 1,027,969,809 1,019,941,717 24,552,749 1,275,448 Weighted average number of ordinary shares 30 June (basic) 1,052,522,558 1,021,217,165 Effect of share options on issue (1) 1,000,000 - Weighted average number of ordinary shares 30 June (diluted) 1,053,522,558 1,021,217,165 Profit (loss) used in calculating basic and diluted loss per share 1,425,000 (36,977,000) (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 not factored in determining the diluted earnings per share. 2018 $ 2017 $ 40 2018 Annual Report6. TAXES (a) Income tax expense Consolidated 2018 $000 2017 $000 Numerical reconciliation between pre-tax profit and income tax expense: Prima facie income tax benefit on pre-tax profit (loss) at 27.5% 392 (10,169) Tax effect of: Effect of foreign exchange Non-deductible expenditure R&D grant not assessable Settlement of deferred consideration Current year tax benefit not brought to account Income tax benefit Current income tax Deferred tax (b) Current tax liability Tax Consolidation - 190 (419) (966) 803 - - - - - 402 5,896 (501) - 4,372 - - - - - 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. (c) Unrecognised deferred tax assets and liabilities Deferred tax asset on Australian tax losses Deferred tax liability on capitalised exploration and evaluation expenditure Deferred tax liability on capitalised exploration and evaluation expenditure Net deferred tax asset not recognised 21,006 (2,335) (14,697) 3,974 20,773 (1,912) (12,908) 5,953 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. 41 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 7. TRADE AND OTHER RECEIVABLES Consolidated Current Trade and other receivables Cash held as security The Group’s exposure to credit and currency risks is disclosed in Note 26. 8. AVAILABLE FOR SALE FINANCIAL ASSET Available for sale financial asset Reconciliation Reconciliation of the fair values at the beginning and end of the current financial year are set out below: Carrying value at the beginning of period Receipt of shares in CWX Global Limited on settlement of deferred consideration asset Fair value movements Carrying value at the end of period 2018 $000 96 228 324 2018 $000 2,297 - 3,514 (1,217) 2,297 2017 $000 175 225 400 2017 $000 - - - - - On 2 May 2017, Carnarvon entered into an agreement with CWX Global Limited (formerly Loyz Energy Limited) (“CWX”) to settle the outstanding deferred consideration payable to Carnarvon for a sum of US$4.0m with $0.05m paid on the agreement date and the balance payable on 30 June 2017 in cash or shares in CWX; and in addition, Carnarvon would be entitled to 12% of any sale proceeds over US$45m, should CWX sell the concession. In June 2017, Carnarvon gave CWX an extension until 31 October 2017 to complete the settlement of the deferred consideration, subject to certain conditions being met. The deferred consideration asset element of the sale was for US$32,000,000 of future payments based on 12% of the acquirer’s share of revenue in the Concessions. This was in addition to US$30,000,000 received in cash. CWX made the US$3.95m in settlement for the deferred consideration asset by issue of shares as it was unable to make a cash settlement. On 6 September 2017, the issue of 331,653,000 shares in CWX (equating to a fair value of US$3.95m) to Carnarvon (in settlement of the deferred consideration asset) was approved by the shareholders of CWX. Settlement occurred on 14 November 2017. The settlement of the deferred consideration asset resulted in a gain of $3,514,000 which has been reflected in other income in the income statement (note 2). The shares in CWX held by Carnarvon at 30 June 2018 has been accounted for as an available for sale financial asset under Australian Accounting Standards and classified as a “level 1” financial asset under the fair value hierarchy. 42 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS 9. DEFERRED CONSIDERATION ASSET 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 Consolidated 2018 $000 2017 $000 - - - - - - - - - - - - 20,051 1,403 - (22,153) 699 - 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. In the 2017 financial year, 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 an agreement was reached to settle the deferred consideration for US$4.0m by 30 June 2017, which was extended to 31 October 2017 (note 8). 10. PROPERTY, PLANT AND EQUIPMENT Consolidated 2018 $000 2017 $000 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 Additions Disposals Depreciation charge for year Balance at end of financial year Carrying amount opening Carrying amount closing 558 6 - - 564 478 - - 51 529 80 35 541 17 - - 558 376 - - 102 478 165 80 43 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 11. OTHER ASSETS Current Deposits and prepayments 12. EXPLORATION AND EVALUATION EXPENDITURE Cost: Balance at beginning of financial year Additions Exploration expenditure written off Balance at end of financial year 13. JOINT OPERATIONS The Group has the following interests in joint operations: 555 459 46,938 6,505 - 53,443 29,282 27,760 (10,104) 46,938 Joint operation Principal activities Ownership interest % Western Australia 2018 2017 WA-435-P, WA437-P, Roebuck Basin Exploration for hydrocarbons 20% WA-436-P, WA 438-P, Roebuck Basin Exploration for hydrocarbons 30% 20% 30% WA-155-P, 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. 14. TRADE AND OTHER PAYABLES Current Trade payables Non-trade payables and accrued expenses Consolidated 2018 $000 2017 $000 533 369 902 1,263 78 1,341 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26. 44 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS15. 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 capital raise Balance at end of financial year Company 2018 2017 Number of shares 1,027,969,809 1,019,941,717 153,769,034 - 8,149,416 8,028,092 1,189,888,259 1,027,969,809 Company 2018 $000 95,865 622 19,021 115,508 2017 $000 95,401 464 - 95,865 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 2018 2017 Number of shares 45,455,192 37,427,100 8,149,416 8,028,092 53,602,608 45,455,192 Company 2018 $000 3,654 622 4,276 2017 $000 3,190 464 3,654 Movements in the translation reserve are set out in the Statement of Changes in Equity on page 37. 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 37. This reserve represents the fair value of shares issued under the Carnarvon’s ESP. 45 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS16. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES (a) Cash flows from operating activities Profit (loss) for the year Adjustments for: Equity settled share based payment expense Settlement of deferred consideration asset Impairment of deferred consideration asset Depreciation Foreign exchange (loss) profit Exploration expenditure written off Operating loss before changes in working capital and provisions: Changes in assets and liabilities: Decrease / (increase) in trade and other receivables (Increase) / decrease in other assets Decrease in trade and other payables (Decrease) / increase in provisions and employee benefits Consolidated 2018 $000 2017 $000 1,425 (36,977) 618 (3,514) - 51 (1,748) - (3,168) 76 (96) (439) (75) 399 - 22,153 102 1,362 10,104 (2,857) (1,594) 8 (789) 189 Net cash flows used in operating activities (3,702) (5,043) (b) Reconciliation of cash and cash equivalents Cash at bank and at call Cash on deposit 3,726 59,880 63,606 13,938 39,112 53,050 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 26. Restricted cash of $228,000 consolidated is included under trade and other receivables (2017:$ 225,000 consolidated), see Note 7. 46 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS 17. 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 2018 $000 1,153 1,474 2,627 2017 $000 2,707 3,297 6,004 Data licence commitments 437 493 18. 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. 19. EMPLOYEE BENEFITS Consolidated Current: Liability for annual leave and long service leave Non-Current: Provision for long service leave Total Employee benefits 2018 $000 386 196 582 2017 $000 379 279 658 47 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 19. EMPLOYEE BENEFITS (CONTINUED) Employee Share Plan 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 2018 WAEP 2018 Number 2017 WAEP 2017 45,453,192 8,149,416 - - - 53,602,608 53,602,608 0.15 0.15 - - - 0.15 0.15 37,427,100 8,026,092 - - - 45,453,192 45,453,192 0.16 0.10 - - - 0.15 0.15 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 Key management personnel 2018 Key management personnel 2017 Other employees 2018 Other employees 2017 6.3 11 13 68% 5 years Nil 1.50% 6.7 11 13 89% 4 years Nil 1.75% $80,289 8.1 15 17 68% 5 years Nil 1.5% 4.1 8 10 68% 5 years Nil 1.5% $400,975 $279,051 Share-based expense recognised $203,120 Further details of shares granted under the ESP to directors are set out in Note 23, and in the Remuneration Report set out on pages 20 to 28. 48 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS19. 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: 2018 Directors W Foster P Moore Held at 1 July 2017 Granted as compensation Acquired/ (sold) Exercised Held at 30 June 2018 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 2018 1,000,000 - - - - 1,000,000 1,000,000 WAEP 2018 0.15 - - - - 0.15 0.15 Number 2017 1,000,000 - - - - 1,000,000 1,000,000 WAEP 2017 0.15 - - - - 0.15 0.15 The weighted average remaining contractual life for the share options outstanding as at 30 June 2018 was 1 years (2017: 2 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 Fair value at measurement date (cents) Share price at date of issue (cents) Exercise price (cents) Expected volatility Expected life of options Expected dividends Risk-free interest rate Share-based expense recognised 2018 7.9 12 15 89% 5 years Nil 2.0% $14,891 2017 7.9 12 15 89% 5 years Nil 2.0% $39,966 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 49 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS20. 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. Other related party balances and transactions At 30 June 2018 an amount of $78,006 (2017: $130,978) is included in Carnarvon and consolidated trade and other payables for outstanding director fees and expenses. 21. OPERATING LEASES Leases as lessee Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years Consolidated 2018 $000 203 - 203 2017 $000 196 203 399 During the reporting period $196,000 was recognised as an expense in the consolidated income statement in respect of operating leases (2017: $188,000). 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. 50 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS22. 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. 23. 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 2018 $000 1,822 76 218 2,116 2017 $000 1,605 99 171 1,875 Information regarding individual directors and executives’ compensation and some equity instruments disclosures, as permitted by Corporations Regulation 2M.3.03, are provided in the Remuneration Report section of the directors’ report as set out on pages 20 to 28. 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 Consolidated 2018 $000 78 2017 $000 131 51 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTSWA Foster AC Cook P Moore Executives PP Huizenga TO Naude 2017 Directors 23. 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: 2018 Directors Held at 1 July 2017 Net acquired/ (sold) Award under Employee Share Plan Received on exercise of options Held at 30 June 2018 PJ Leonhardt 17,750,000 684,455 10,999,917 - 52,847 - - - 1,500,000 - 270,232 - 9,492,421 2,692,509 - - 1,176,201 548,880 - - - - - - 17,750,000 737,302 12,499,917 270,232 10,668,622 3,241,389 Held at 1 July 2016 Net acquired/ (sold) Award under Employee Share Plan Received on exercise of options Held at 30 June 2017 PJ Leonhardt 17,750,000 WA Foster AC Cook P Moore Executives PP Huizenga TO Naude 684,455 9,799,917 - 8,367,421 1,942,509 - - - - - - - - 1,200,000 - 1,125,000 750,000 - - - - - - 17,750,000 684,455 10,999,917 - 9,492,421 2,692,509 52 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS23. 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: 2018 Directors Held at 1 July 2017 Granted as compensation Employee Share Plan cancellations Exercised Held at 30 June 2018 PJ Leonhardt 3,000,000 WA Foster AC Cook P Moore Executives PP Huizenga TO Naude 2017 Directors WA Foster AC Cook P Moore Executives PP Huizenga TO Naude - - - - - - 8,234,917 1,500,000 - - 8,992,421 2,478,436 1,176,201 548,880 - - - - - - - - - - - - 3,000,000 - 9,734,917 - 10,168,622 3,027,316 Held at 1 July 2016 Granted as compensation Employee Share Plan cancellations Exercised Held at 30 June 2017 7,034,917 1,200,000 - - 7,867,421 1,728,436 1,125,000 750,000 - - - - - - - - - - - - 3,000,000 - 8,234,917 - 8,992,421 2,478,436 PJ Leonhardt 3,000,000 (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: 2018 Directors WA Foster P Moore Held at 1 July 2017 Granted as compensation Acquired/ (sold) Exercised Held at 30 June 2018 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. 53 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS24. CONSOLIDATED ENTITIES Name Company Carnarvon Petroleum Ltd Controlled entities Carnarvon Thailand Ltd Lassoc Pty Ltd SRL Exploration Pty Ltd Timor-Leste Petroleum Pty Ltd 25. SUBSEQUENT EVENTS Country of Incorporation 2018 2017 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 2018 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 54 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS26. 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 63,606 53,050 Weighted average interest rate (%) Financial assets – cash and cash equivalents 1.78% 1.07% Consolidated 2018 2017 All other financial assets and liabilities are non-interest bearing. 55 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS26. 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 2017: 30 June 2018 30 June 2017 Consolidated Equity $000 Profit and loss $000 159 132 159 132 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 2017: 30 June 2018 30 June 2017 Consolidated Equity $000 Profit and loss $000 (159) (132) (159) (132) 56 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS 26. 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 deposits and amounts due from the Australian Taxation office. There were no receivables at 30 June 2018 or 30 June 2017 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 17. 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 The aging of the Group’s trade receivables at reporting date was: Consolidated 2018 $000 2017 $000 63,606 324 63,930 53,050 400 53,450 Gross 2018 $000 Impairment 2018 $000 Gross 2017 $000 Impairment 2017 $000 Not past due 324 324 - - 400 400 - - Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables. 57 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 26. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Currency risk Currency risk arises from assets and liabilities that are denominated in a currency other than the functional currencies of the entities within the Group, being the A$ 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 2018 Cash and cash equivalents Trade payables and accruals Gross balance sheet exposure Consolidated 2017 Cash and cash equivalents Trade payables and accruals Gross balance sheet exposure USD A$000 46,930 - 46,930 49,827 379 50,206 The following significant exchange rates applied during the year: AUD to: 1 USD Average rate Reporting date spot rate 2018 1.290 2017 1.325 2018 1.349 2017 1.301 58 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS26. FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Currency risk (continued) Sensitivity analysis A 5% strengthening of the AUD against the USD for the 12 months to 30 June 2018 and 30 June 2017 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 2018 USD 30 June 2017 USD Consolidated Equity $000 Profit and loss $000 (2,235) (2,235) (2,372) (2,372) A 5% weakening of the AUD against the USD for the 12 months to 30 June 2018 and 30 June 2017 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 2018 USD 30 June 2017 USD (f) Liquidity risk Consolidated Equity $000 Profit and loss $000 2,470 2,622 2,470 2,622 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 Group’s 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 2018 Non-derivative financial liabilities Trade and other payables Consolidated 2017 Non-derivative financial liabilities 533 533 533 Trade and other payables 1,263 1,263 1,263 - - 59 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 27. 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 - 2018 Assets Available for sale financial asset Total assets Consolidated - 2017 Assets Available for sale financial asset Total assets Level 1 $’000 Level 2 $’000 Level 3 $’000 2,297 2,297 - - - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - Total $’000 2,297 2,297 Total $’000 - - 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. 28. 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 60 2018 $000 64,485 55,775 120,260 1,288 196 1,484 115,508 3,672 (404) 118,776 1,425 1,425 2017 $000 53,909 47,018 100,927 1,720 279 1,999 95,865 3,438 (375) 98,928 (36,977) (36,977) 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS28. 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 2018 $000 2017 $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 1,153 1,474 2,627 2,707 3,297 6,004 Data licence commitments 437 493 Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years 203 - 203 196 203 399 61 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 29. 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 2017 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. 62 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS29. 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. 63 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 30. 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 2018. 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 13. 64 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS 30. 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. 65 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS30. 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 30(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. 66 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. (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 30(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. 67 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. 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. 68 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Financial instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at fair value 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. 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. 69 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS 30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Segment reporting The Group reports one segment, oil and gas exploration, development and production, to the chief operating decision maker, being the board of Carnarvon Petroleum Limited, in assessing performance and determining the allocation of resources. The financial information presented in the statement of 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. 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. 70 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases A lease where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments in relation to operating leases are charged to the income statement on a straight- line basis over the period of the lease. (m) Share capital Incremental costs directly attributable to an equity transaction are shown as a deduction from equity, net of any recognised income tax benefit. (n) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less any estimated selling costs. Cost includes those costs incurred in bringing each component of inventory to its present location and condition. (o) Employee benefits Wages and salaries, annual leave Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Share based payments 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. 71 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. (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. 72 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) 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. (w) 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 2018. 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 2017-2 AASB 2018-2 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). Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2017 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. Impact on the Company There will be no material impact on the Company. Application date of standard Application date for Group 1 January 2018 1 July 2018 There will be no material impact on the Company. 1 January 2018 1 July 2018 73 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Application date of standard Application date for Group 1 January 2018 1 July 2018 Impact on the Company AASB 9 Financial Instruments brings together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting. This standard does not apply before 1 January 2018 and the application date for the Company is 1 July 2018. The Company holds equity instruments that are not held for trading. The Company has elected to carry their investment at fair value with the fair value changes recognised in profit and loss. On the adoption of AASB 9, the fair value movement currently in fair value reserves of $1.217m will be transferred to the opening retained earnings on 1 July 2018. Reference Title Summary AASB 9, and relevant amending standards Financial Instruments AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement. 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. 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. 74 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Application date of standard Application date for Group 1 January 2018 1 July 2018 Impact on the Company This standard does not apply before 1 January 2018 and the application date for the Company is 1 July 2018. The Company has performed an initial impact assessment and concluded that there will be no material impact on the adoption of AASB 15. 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. 75 Carnarvon Petroleum LimitedNOTES TO THE FINANCIAL STATEMENTSImpact on the Company There will be no material impact on the Company. Application date of standard Application date for Group 1 January 2018 1 July 2018 There will be no material impact on the Company. 1 January 2018 1 July 2018 There will be no material impact on the Company. 1 January 2018 1 July 2018 30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 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 2014-10 AASB 2017-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions • 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 2017. 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. AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration 76 2018 Annual ReportNOTES TO THE FINANCIAL STATEMENTS30. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary AASB 16 Leases IFRIC 23 Uncertainty over Income Tax Treatments 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 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: Impact on the Company The Company is still assessing whether there will be any material impact. Application date of standard Application date for Group 1 January 2019 1 July 2019 The Company is still assessing whether there will be any material impact. 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. 77 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 34 to 77 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 2018 and of its performance for the year ended on that date; and (ii) Complying with Accounting Standards and the Corporations Regulations 2001; and (b) (d) The financial statements and notes comply with International Financial Reporting Standards as set out in Note 29; and 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 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 2018. Signed in accordance with a resolution of the directors. PJ Leonhardt Director Perth, 28 August 2018 78 2018 Annual ReportINDEPENDENT AUDITOR’S REPORT 79 Carnarvon Petroleum LimitedINDEPENDENT AUDITOR’S REPORT 80 2018 Annual ReportINDEPENDENT AUDITOR’S REPORT 81 Carnarvon Petroleum LimitedINDEPENDENT AUDITOR’S REPORT 82 2018 Annual Report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 27 August 2018 Substantial shareholders There are no substantial shareholder notices lodged with the Company. Voting Rights The voting rights attaching to Ordinary Shares are governed by the Constitution. On a show of hands every person present who is a member or representative of a member shall have one vote and on a poll, every member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. No options have any voting rights. Twenty Largest Shareholders Name of Shareholder J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Nero Resource Fund Pty Ltd Jacobson Geophysical Services Pty Ltd BNP Paribas Noms Pty Ltd Mr Philip Paul Huizenga Brentworth Pty Ltd National Nominees Limited Elgar Park Pty Ltd Prettejohn Projects Pty Ltd Arne Investments Pty Ltd Mr Adrian Caldwell Cook Ms Belinda Michelle Honey Mr Peter James Leonhardt Kemast Investments Pty Ltd Kemast Investments Pty Ltd Log Creek Pty Ltd Mr Edward Patrick Jacobson Geolyn Pty Ltd 47 Eton Pty Ltd Mr Edward Patrick Jacobson Distribution of equity security holders Size of Holding 1 1,001 5,001 10,001 100,001 to to to to and over 1,000 5,000 10,000 100,000 Number of Shares 50,364,139 36,167,527 29,350,701 18,538,462 11,934,068 10,480,994 10,068,622 9,000,000 8,489,858 8,470,425 8,400,000 8,353,950 8,309,917 7,700,000 7,000,000 6,502,944 6,440,851 6,000,000 6,000,000 5,500,000 5,315,982 268,388,440 % held 4.23 3.04 2.47 1.56 1.00 0.88 0.85 0.76 0.71 0.71 0.71 0.70 0.70 0.65 0.59 0.55 0.54 0.50 0.50 0.46 0.45 22.56 Number of shareholders Number of fully paid shares 609 2,544 1,930 5,151 1,603 284,659 7,690,691 16,103,961 198,289,077 967,519,871 11,837 1,189,888,259 83 Carnarvon Petroleum LimitedADDITIONAL SHAREHOLDER INFORMATION (b) Option holdings as at 27 August 2018 Options over ordinary shares issued (c) On-market buyback There is no current on-market buyback. (d) Schedule of permits Number on issue 1,000,000 Number of holders 2 Permit Basin/Country Joint Venture Partners WA-435-P, WA-437-P Roebuck / Australia Carnarvon WA-436-P, WA-438-P Roebuck / Australia Carnarvon Quadrant Energy WA-155-P Barrow / Australia Quadrant Energy Carnarvon Quadrant Energy EP-490, EP-491, EP-475, EP497, TP/27 Carnarvon / Australia Carnarvon WA-521-P WA-523-P WA-524-P AC-P62 AC-P63 EP321 EP407 Roebuck / Australia Bonaparte / Australia Dampier / Australia Bonaparte / Australia Bonaparte / Australia Perth / Australia Perth / Australia Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon Equity % 20% 80% 30% 70% 28.5% 71.5% 100% 100% 100% 100% 100% 100% Operator Quadrant Energy Quadrant Energy Quadrant Energy Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon Carnarvon 2.5% of 38.25% Transerv Energy 2.5% of 42.5% Transerv Energy 84 2018 Annual Reportcarnarvon.com.au 

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