Central Petroleum
Annual Report 2012

Plain-text annual report

CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 Annual report 30 June 2012 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CONTENTS Corporate Directory..........................................................................................................................................2 Chairman’s Letter.............................................................................................................................................3 CEO’s Letter.....................................................................................................................................................5 Directors’ Report ..............................................................................................................................................7 Auditor’s Declaration of Independence...........................................................................................................27 Corporate Governance Statement .................................................................................................................28 Financial Statements......................................................................................................................................34 Directors’ Declaration .....................................................................................................................................74 Independent Auditor’s Report.........................................................................................................................75 ASX Additional Information ............................................................................................................................77 Interests in Petroleum Permits and Mineral Licences.....................................................................................79 1 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE DIRECTORY DIRECTORS Henry J Askin BSc (Hons) PhD MPESA MSEG MEAGE, Non-executive Chairman Richard I Cottee BA LLB (Hons), Executive Director and Chief Executive Officer Michael R Herrington BE (Hons), MBS (Dist), Non-executive Director Wrixon F Gasteen BE (Hons), MBA (Dist), Non-executive Director William J Dunmore BSc MSc, Non-executive Director Andrew P Whittle BSc (Hons), Non-executive Director and Deputy / Vice Chairman CHIEF FINANCIAL OFFICER AND JOINT COMPANY SECRETARY Bruce Elsholz BCom CA GROUP GENERAL COUNSEL AND JOINT COMPANY SECRETARY Daniel CM White LLB BCom LLM (Merit) REGISTERED OFFICE Suite 3, Level 4 South Shore Centre 85 South Perth Esplanade South Perth Western Australia 6151 Telephone; +61(0)8 9474 1444 Fax: +61(0)8 9474 1555 www.centralpetroleum.com.au AUDITORS PricewaterhouseCoopers QV1 250 St Georges Terrace Perth Western Australia 6005 BANKERS Westpac Banking Corporation South Shore Centre Mends Street South Perth Western Australia 6151 SHARE REGISTRAR Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth Western Australia 6000 Telephone: +61(0)8 9323 2000 Fax: +61(0)8 9323 2033 www.computershare.com.au STOCK EXCHANGE LISTING Central Petroleum Limited shares and options are listed on the Australian Securities Exchange Limited under the codes ‘CTP’ (shares) and ‘CTPO’ (options). 2 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CHAIRMAN’S LETTER Fellow Shareholders, The year since our last annual report has been one of unprecedented change and development in the activities and fortunes of your Company. Most of you will be familiar with the key issues, so in this review of the year I will confine myself to an overview of these critical events. First and foremost was the December 2011 re-entry of the Surprise-1 well and its completion with a horizontal leg, following which flow rates on test of up to 380 bopd were reported to the ASX on 11 and 12 January 2012. Despite this being the first free flow oil discovery in the Basin in almost 50 years, a Share Purchase Plan to provide working capital, priced at 5.5 cents per share closed 2 weeks later with only 9% of shareholders responding. The total raising was $7.15 million, and it was clear that the Company could not rely upon the market at that time to support further meaningful exploration. Had a second well been drilled immediately, even in a success case your Company would have faced a cash crisis long before attaining any cash flow from production. The Board therefore determined that farmout was the only practical option available. Regrettably this was followed by events that led to a Board resolution withdrawing all duties from the Managing Director, and subsequently a further resolution to seek his removal as a Director of the company by shareholders. On 16 March there was heavy unprecedented buying of CTP shares by Petroleum Nominees P/L (PNPL), a Clive Palmer company, followed by negotiations on a possible Joint Venture and Placement with Central Petroleum. These continued for several weeks, until the final offer was assessed to significantly undervalue the assets of Central and negotiations were terminated in accordance with the terms of a deadline set by PNPL. However these events resulted in a revival of market interest, and in the first week of April a placement of approximately $11 million was concluded. This was followed by a series of legal injunctions and hearings initiated by PNPL, now withdrawn. Additionally three General Meetings were held, one called by Directors and two requisitioned by shareholder groups. The outcome of these proceedings was the appointment of Mr. Richard Cottee as Chief Executive Officer, this being confirmed by his election as a Director at the 22 June GM, together with the election of Mr. Herrington and Mr. Gasteen and the confirmation of Mr. Whittle as Directors. Mr. Elsholz (CFO) and Mr. Faull, the latter a co-founder of your Company, voluntarily stepped down as directors to progress this renewal. With litigation at an end (other than that initiated by the previous Managing Director), your Company now looks forward to a period of management stability, renewal and rejuvenation. In particular, this stability underpins the progress of essential farmout discussions, and I anticipate concrete results to be on the very near horizon. However, it focuses our attention on the up-coming vote on the Company Remuneration Report, which received a “first strike” at the last Annual General Meeting. Under recent regulatory changes if a second strike occurs this year then a Board spill is mandated. To revisit last year, this occurred on a vote of 25.89 % of votes cast. The number cast being 11.42 % of the eligible total meant that the strike was triggered by a mere 2.89 % of total possible shareholder votes. I can assure you that this is a serious issue that is taken very seriously by your Board, and independent review and benchmarking against industry peers has been undertaken to ensure that the Report presented is fully in line with industry standards. It is also the case that the remuneration package awarded to Mr. Cottee as CEO and Director has already been approved by the shareholders at a General Meeting. Our hard won stability is at risk on this issue, and I unreservedly recommend this report to you for your approval. In that regard, I believe that our company is on the verge of a major re-rating, in line with anticipated major favourable developments in our ability to deploy enhanced exploration and development programs compatible with the extent of our acreage holdings. In particular, operations and administration related to the application areas in Queensland will be facilitated by the planned relocation of your Company’s office to Brisbane. I do not minimise the challenges we face, including the management of our potential coal assets. The maintenance of these Mineral Permits incurs a very significant cost for a resource that may not deliver a commercial return for many years, possibly decades. Central Petroleum is not a company with market expertise in coal, and as previously announced, the spin-off of these discoveries remains under investigation. To address in passing an issue mentioned last year in my Letter, regarding a proposed listing on the Toronto Stock Exchange (TSXV), as events have unfolded it is not likely that this initiative will be actively pursued. Finally after a longer than usual letter, necessary I believe for you as shareholders to be able to put into perspective the events of the last year and the significance of the overall outcomes, I return to where I started, 3 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CHAIRMAN’S LETTER with the Surprise-1 oil field discovery. This has been hugely important in highlighting the prospectivity of the entire Amadeus Basin west of the Mereenie Oil Field. An active petroleum system has been proven, and reservoirs have been shown to be of sufficient quality to allow free flow of hydrocarbons to surface at potentially commercial rates. An application for a Production License has been submitted, a 3D seismic survey has been completed and an Extended Production Test remains underway at the present, results of which will be reported when completed. Also not to be overlooked is the huge potential upside of the Pellinor carbonate play in the Pedirka Basin, success in which would be an unequivocal company maker. The 2D seismic survey here has been completed but data processing and structural interpretation takes considerably more time than the field acquisition of raw data. We should take confidence also from the continued strength of the oil price per barrel, given that prices have been maintained throughout a period of global economic pessimism. In conclusion, I would like to welcome our new Directors to the Board, with a special recognition of the achievements of Richard Faull, a co-founder of your Company. For myself and on behalf of all Directors I would like to express our appreciation and thanks for the efforts of our staff, who have kept our operations on track throughout a period of disruption and considerable uncertainty. Dr. Henry J. Askin Chairman Melbourne, 14 September 2012 4 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CHIEF EXECUTIVE OFFICER’S LETTER Dear shareholder, The potential of Central Petroleum Limited with 68 million acres of prime exploration areas in central Australia has never been in doubt. Recent major investments by experienced industry players in both the Amadeus and Southern Georgina Basins provide independent verification of the unapplied potential of this acreage. The stock market, however, appears to have taken the view that after 6 years the Company had not advanced sufficiently to realise this potential. Personally I feel privileged to be given the opportunity by shareholders to rise to this challenge. I am attracted to the prospect of being able to lead again a company which, with a fair wind, will become a major player in the exciting Australian oil and gas industry. Having first been involved in this sector some 30 years ago, experience taught me the key ingredients that will enable this company to grow possibly into an ASX Top 100 company. History shows there are four pre- conditions necessary for success. They are; 1. Three Generational Assets: There is no doubt that Central Petroleum Limited has acreage with great potential to deliver resources, like Woodside, Santos, and QGC before it.. 2. Clarity of Purpose: The Company needs to have a clear view on its investment proposition. In the past, clarity was less than apparent, possibly opaque. Let me make it clear: Central Petroleum Limited is an oil and gas explorer and soon to be producer in central Australia focussed primarily in the Amadeus and Southern Georgina Basins. 3. Access to Expertise: All start-up companies find it difficult to initially attract the people and skills needed to do justice to their assets. Great companies like Santos, Woodside and QGC initially leant on the technical expertise of third party companies. Even well established companies such as BHP in the 1960’s elected to develop Bass Strait with outside expertise. 4. Access to Capital: Whilst the equity markets are an important source of capital especially on listing, it provides generally a shorter time horizon than the industry requires. With three generational assets the capital requirements are sufficiently large that the question of gaining access to capital is a choice between dilution at the shareholder level, or at the asset level. To my mind the most beneficial option for shareholders is for dilution to occur at the asset level, and preserving rights at the shareholder level. Given the challenges above, it is clear that the Company must now embark aggressively to farm-out part of the acreage to experienced industry players to harness their skills and capital to quickly develop our assets. This was the path chosen by the Board in the first quarter of 2012, leading in part the collateral turmoil at the Board level. The Board opened a data room but it was not until the shareholders resolved the company’s leadership in June and July that active engagement occurred. This farm-out process is being structured in a way that will de-risk and re-rate the Company. The objectives which we wish to achieve are as follows; 1. Meet all our permit obligations. 2. Garnering access to capital for the rapid evaluation and development of the Amadeus and Southern Georgina Basins. 3. Partnering technically with respected industry players that bring the Company access to expertise whilst giving the Company sufficient areas of operatorship to organically grow its own technical capabilities. 4. Retain a majority interest in parts of both the Amadeus and Southern Georgina Basins to provide the clarity of purpose mentioned above. 5. Retain an equity accounted investment in over half our acreage and allowing the Company to keep about one-third of its acreage at 100% for future opportunities. Whilst only time will tell whether we are able to achieve all our objectives, I have confidence in my management team that the wait will not be too long. Whilst the turmoil at Central Petroleum Limited may have taken the headlines, the real news was that the Company announced its first surface oil flows from Surprise 1 RE H on 11 January 2012. We have applied for a Production Licence over the Surprise Area. We have completed 3D Seismic over that area and are progressing an Extended Production Test. By the fourth quarter of this year we should be in a position to plan the stages of development and announce our plans. 5 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CHIEF EXECUTIVE OFFICER’S LETTER I am excited by the prospects of this company and relish the challenges ahead. Richard Cottee Chief Executive Officer Perth, 14 September 2012 6 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Your directors present their report on the consolidated entity, consisting of Central Petroleum Limited (“Company” or “CTP”) and the entities it controlled (collectively “the Group” or “the Consolidated Entity”) at the end of, or during the year ended 30 June 2012. Directors The names of the directors of the parent company in office at any time during or since the end of the financial year are: Henry J Askin Richard I Cottee (appointed 22 June 2012) William J Dunmore Michael R Herrington (appointed 22 June 2012) Wrixon F Gasteen (appointed 22 June 2012) Andrew P Whittle (appointed 25 April 2012) Bruce W Elsholz (appointed 25 April 2012, resigned 22 June 2012) Richard W Faull (resigned 22 June 2012) Edmund R T Babington (appointed as an alternative director to John Heugh 17 February 2012, resigned 10 April 2012) John P Heugh (removed 22 June 2012) Henry J Askin, Richard I Cottee, Michael R Herrington, Wrixon F Gasteen, Andrew P Whittle, William J Dunmore held office at the date of this report. Principal activities The principal activity of the Consolidated Entity during the financial year was the exploration for hydrocarbons. There was no significant change in the nature of the Consolidated Entity’s activities during the year. Operating result The Consolidated Entity had an operating loss after income tax for the year ended 30 June 2012 of $26,358,168 (2011: $36,643,523). At 30 June 2012 consolidated cash and cash equivalents available totalled $12,105,232 (2011: $9,463,949). Dividends No dividends were paid or declared during the financial year (2011:Nil). No recommendation for payment of dividends has been made. Review of Operations The Company’s focus for the year was fourfold: (cid:190) preparing for and executing the re-entry and drilling and testing of the Surprise-1 RE H (“S1REH’) well in EP115 [Central Petroleum Limited 100%]; (cid:190) appraising the new oil discovery at S1REH through an extended production testing in order to evaluate the productivity and physical characteristics of the reservoir: and (cid:190) continuing with the interpretation of seismic and other data to develop exploration plays throughout the Company’s acreage and to establish optimal drilling locations. (cid:190) an increased focus on the farm-out process 7 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Surprise-1 RE H re-entry and horizontal drilling The Surprise-1 well was re-entered on 18 November 2011 using Hunt Rig #3 and on 29 November 2011 the well reached a depth of 2,672mRKB in the Pacoota Sandstone. The results of electric log analysis, coring and visual observations of cuttings and mud flow indicated a prospective oil flow from the well. The Company proceeded to drill an approximately 230m lateral which it then tested. A number of dip changes were encountered during the horizontal drilling but the drill bit remained in sandstone throughout and with continuous oil shows. Of the 230m section drilled, approximately 10m rated less than good to excellent oil shows. The first flow rates from testing were released to the market on 11 January 2012 with a maximum sustained flow rate of 300 barrels of oil per day (BOPD) over a four-hour test period, with a 7.5% drilling fluid cut. The oil quality encountered had an API gravity averaging 40 degrees-light sweet crude and low gas oil ratios. On 13 January 2012 the Company advised that further initial flow testing had concluded after recording a sustained flow rate via a 32/64” choke of 380 BOPD with a low 4.4% drilling fluid and/or water cut. The final PBU (Pressure Build Up) was 523 PSI. Independent consultants RPS Energy Pty Ltd (“RPS”) concluded that the well may access Stock Tank Oil Initially In Place (STOIIP) in the range of 0.5 to 2 million barrels in an area proximal to the well. RPS based their calculations on a 105m section of the horizontal well bore placed in the lower half of an 8m thick sandstone reservoir section with an average permeability of 50 millidarcies and a vertical to horizontal permeability ratio of 10%. RPS used a vertical wellbore model; further definition may be available by using horizontal wellbore modelling. Following the completion of initial flow testing at the Surprise-1 well, the Hunt Rig #3 was released and was temporarily stacked on site pending a determination of drilling plans going forward. The Company subsequently elected not to exercise the option to retain Hunt Rig #3, thereby deferring the drilling of an appraisal well pending the outcome of the planned Extended Production Test of the Surprise-1 RE H well and acquisition of 3D seismic over the Surprise structure. Surprise-1 RE H extended production testing On 20 June 2012 following approval from the Northern Territory Department of Resources (NTDOR) the Surprise Extended Production Test (‘EPT’) commenced with first oil delivered to market in early July 2012. A Crude Oil Sale and Purchase Agreement was signed for the length of the EPT, which is three months, and allows the Company to commence receiving its first oil sale cash flows. An application for a Production Licence was made in August 2012 and if granted by the NTDOR then the Company intends executing a further sale and purchase agreement to cover licence production. EPT’s are an important part of appraising new oil discoveries. They are important for the evaluation of the productivity and various physical characteristics of a reservoir. Understanding a reservoir's optimal potential will help the Company reduce production and development risks. In particular, EPTs are used to: • • • • estimate reservoir volume and confirm reserves for field development; confirm long-term reservoir deliverability; pilot future facility designs during actual field development; and obtain additional production-related data, such as water cut, sand production, and well deliverability. The Company believes undertaking an extensive EPT together with the seismic acquisition and interpretation (see below) will assist in minimising risks related to developing the field for long-term, sustained production. Meanwhile, infrastructure upgrades to assist our production aspirations continued with the completion of the Kintore bypass road and improvement to the existing Surprise access road. These roads were completed in early June and are currently being used to truck oil sales to market. In addition, Central recently purchased and set up a 20-man camp at the Surprise location which is being used during the EPT and will be used for future appraisal and drilling activity. 8 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 First load of crude oil from Surprise-1 RE H Seismic data interpretation The Company commissioned a 3D seismic program over the greater Surprise structure to assist with its understanding of the discovery. Our technical teams carefully coordinated operations of the EPT with seismic data collection to avoid seismic interference. The 3D seismic program over 82km² of the Surprise structure in EP-115 in the Northern Territory was completed in early July 2012. Data processing is currently underway. With the information garnered from the EPT and from the seismic the Company will be in a position to determine the requirements for the long term production of the Surprise discovery. 9 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 After finishing the 3D seismic acquisition programme in EP-115 in early July 2012 the seismic crew moved to the EP-97 area and completed a 96 line km 2D seismic acquisition programme early August. Data processing is currently underway. The Company also completed further technical reports for use in planning for its forward exploration campaigns in conventional and unconventional oil and gas horizons. Farm-ins / Farm-outs The Company opened a data room for potential farm-in parties in March this year with meaningful engagement commencing in July of this year. The objective of the Company is to retain Operatorship over the majority of it acreage whilst allowing a substantial portion to be operated by an experienced industry participant. Ideally our focus will be in the Amadeus and Southern Georgina Basins and our objective will be to meet our tenement commitments, substantially enhance our exploration expenditure to record levels, retain an equity interest in over half of our acreage and 100% interest in about one-third. Presently indications are that our objectives are achievable. Geothermal Permits The Company relinquished its three geothermal exploration permits in May 2012. The geothermal permits were considered to be non-core relative to Central’s other conventional and unconventional acreage holdings. They contained heavy expenditure obligations over the next four years, including $7 million in the next two years, and were viewed as not constituting the best use of Central’s financial and management resources. The Company canvassed expressions of interest for both farm-in and acquisition opportunities as an alternative to the relinquishment of the geothermal exploration permits and received no interest from any party. Petroleum and Mineral Granted Licence and Application Interests of Central Petroleum Limited 10 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Information on directors Henry J Askin BSc (Hons) PhD MSEG MEAGE MPESA Non Executive Chairman 1,3 Dr Askin has over 40 years of experience in the oil exploration industry, of which some 25 years were with the Shell Group of Companies, most recently as a consultant. He is based in Melbourne. From 1990 until his retirement in December 1997, he was exploration manager with Shell Development (Australia) Pty Ltd in Melbourne. Throughout this period he was Shell’s representative on the APPEA Exploration Committee, and was a Director of the various Shell companies established pursuant to operations in the Indonesia Australia Zone of Cooperation. Dr Askin’s previous appointments with the Shell Group were in Australia, Oman, Norway, The Netherlands and India. During this time he held various positions including seismic interpreter, chief geophysicist, seismic processing manager, deputy head of new exploration ventures and, immediately prior to returning to Australia, general manager of Shell India. While his career has ranged from seismic interpretation and prospect generation to senior management, Dr Askin has contributed to the practice of geophysics in the wider sense, most notably in the co-authorship of a paper read at the EAEG meeting in Belgrade (1987) which received the inaugural best paper award. He is a life member of the Society of Exploration Geophysicists, an active member of the European Association of Geoscientists and Engineers, and a member of the Petroleum Exploration Society of Australia. Dr Askin retired as a non-executive director of Bass Strait Oil Company Ltd on 31 December 2011. Within the last three years, he has not been a director of any other listed public company. Richard I Cottee BA LLB (Hons) Executive Director and Chief Executive Officer 3 With a background in law and energy, Mr Cottee is a prominent figure in the Australian oil and gas industry having taken QGC from an early stage explorer to a major non-conventional gas supplier sold to BG Group for $5.7 billion. Mr Cottee has renowned international energy experience with an outstanding reputation for driving company market development. An attorney, Mr Cottee has also served as the director of marketing and sales for Cyprus Amax and then was named managing director of England, Wales, Scotland, Ireland and the Scandinavian and Norway regions for NRG Energy. Previously he worked with Santos Oil and Gas. He was also chief executive officer of CS Energy Ltd, a Queensland Government owned electricity generator. Mr Cottee is currently a non-executive chairman of Austin Exploration Limited and is a principal of Freestone Energy Partners Pty Ltd (“FEP”). Mr Cottee resigned as managing director of Nexus Energy Ltd on 22 September 2011. Within the last three years, he has not been a director of any other listed public company. Michael R Herrington BE (Hons), MBS (Dist) Independent Non Executive Director 3 Mr Herrington was recently upstream president for QGC, a BG Group Company, managing director for Jabiru Energy and previously was managing director for Enron Exploration Australia Pty Ltd based in Queensland, Australia and Enron Oil & Gas China Ltd based in Beijing, China. Mr Herrington has more than 30 years of diversified petroleum industry experience, holds a BS degree in civil engineering from the University of Utah and is a registered professional engineer. He has set up operations in Spain, France, Australia as well as China. These efforts have been consistently results orientated and have been completed on time and under budget invoking state of the art technology and developing new concepts where necessary incorporating such diverse technologies as satellite imaging and drilling rig modifications. In particular he has managed efforts to establish coal bed methane recovery leases in Europe, Australia and Asia. Within the last three years, Mr Herrington has not been a director of any other listed public company. 11 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Wrixon F Gasteen BE (Hons), MBA (Dist) Independent Non Executive Director ² Mr Gasteen is a director and co-founder of Ikon Corporate (Singapore), established in 2007 to provide corporate advisory, capital raising and management consulting services. Mr Gasteen has a track record as a determined “turnaround” specialist, change agent and business developer. He was appointed chairman of BCP Precast by the major shareholder, private equity firm NBC Capital in 2007 and took on the executive chairman / chief executive officer role in July 2008 when the company fell into serious financial difficulty. He has undertaken long term management consulting projects for Rheem (Aust) 2006, Rinker China (2005) and WEM Civil (2005 – on going). Previously Mr Gasteen was chief executive officer of Hong Leong Asia (HLA) where he presided over the transformation and rapid development of the company by both acquisition and organic growth, from a loss making South East Asian building materials company with $300m in annual sales to $2.2bn in annual sales. He was director of Tasek Corporation (cement) (KLSE) and also chairman and president of China Yuchai International (diesel engines) listed on the New York Stock Exchange (NYSE). Within the last three years, Mr Gasteen has not been a director of any other listed public company. Andrew P Whittle BSc (Hons) Independent Non Executive Director and Vice Chairman¹ Mr Whittle has over 42 years of technical and managerial experience in the petroleum exploration and production industry and is deemed an expert in the Otway Basin that was the subject of his thesis and in other worldwide exploration with a focus on South East Asia and Australia. His experience includes over 21 years with several affiliates of Exxon Corporation in Australia, Singapore, Malaysia, Canada and the US, finally in the position of geological manager of Esso Australia. Thereafter, he was exploration manager for 5 years with GFE Resources Ltd, Australia. He has over 15 years experience through PetroVal Australasian Pty Ltd, of which he is a founding director, and his private consulting company Sheristowe Pty Ltd, in preparing independent technical reports and in evaluating exploration and production assets and providing valuations, and expert opinions for a range of clients. He was closely involved in the exploration that led to the identification and discovery of the Thylacine gas field in the Otway Basin and in promoting Pexco into Indonesian deepwater exploration. He is also a member of the American Association of Petroleum Geologists, the Society of Professional Well Log Analysts and the Petroleum Exploration Society of Australia. He was appointed a non-executive director of ASX listed Bass Strait Oil Ltd in 2011 and a director of Bumi Armada Sdn Bhd, a major offshore service company which listed in Malaysia in mid 2011. Within the last three years, he has not been a director of any other listed public company. William J Dunmore BSc MSc Independent Non Executive Director 3 Mr Dunmore is an experienced reservoir and production engineer with significant transaction, analysis and financial modelling knowledge from consulting and employment with a number of petroleum companies and financial institutions including Barclays Bank, Unicredit, HVB, British Gas, HBOS/BankWest, SMBC, BHP Petroleum, Schlumberger, Hardman, Mobil, Petrobras, Total, Nippon Oil and Powergen. Mr Dunmore has over 35 years of direct relevant experience in Australia, Europe and elsewhere. He actively consults to a number of clients. Recent and current projects have included several very large gas and LNG developments in Asia and Australia as well as oil and gas projects located around the world. He has also advised on asset finance such as drilling rig conversions and FPSO new build and construction. He is a member of the Society of Petroleum Engineers. Within the last three years, Mr Dunmore has not been a director of any other listed public company. ¹ Member of the audit committee ² Chairman of the audit committee 3 Member of the nominations committee 12 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Company secretaries Bruce W Elsholz BCom CA Mr Elsholz has around 30 years experience in the upstream oil and gas sector. He has held senior financial roles with a number of exploration and production companies in Australia and Canada. He also has approximately fifteen years experience as Company Secretary with a number of ASX listed entities. Daniel CM White LLB BCom LLM (Merit) Mr White has considerable experience in corporate finance transactions (including acquisitions and divestitures), equity and debt capital raisings, joint venture and partnering agreements and litigation and international commercial arbitration. He has held senior international based positions with Kuwait Energy Company and Clough Limited. Directors’ meetings The number of directors’ meetings held and the number of meetings attended by each of the directors of the Company during the financial year are: Full Meeting of Directors Audit Committee Meetings Number of meetings held at which eligible to attend 17 Number of meetings attended 17 1 17 1 1 10 9 16 16 1 1 16 1 0 7 8 16 13 1 Number of meetings held at which eligible to attend Number of meetings attended 2 N/A 2 N/A N/A N/A N/A 2 N/A N/A 2 N/A 1 N/A N/A N/A N/A 2 N/A N/A Henry Askin Richard Cottee William Dunmore Michael Herrington Wrixon Gasteen Andrew Whittle Bruce Elsholz Richard Faull John Heugh Edmund Babington¹ ¹ appointed as an alternative director to John Heugh 17 February 2012, resigned 10 April 2012 Significant changes in the state of affairs Significant changes in the state of affairs of the Consolidated Entity during the financial year were as follows: • The Company’s Surprise-1 REH well produced the first significant oil flow from an onshore discovery in the Northern Territory since the discovery of the Mereenie oil and gas field almost fifty years ago. The well is believed to be the first ever horizontal well completion producing oil onshore in Australia. The Company believes this success at Surprise has materially enhanced the prospectivity of Central’s extensive acreage in the western Amadeus Basin. Matters subsequent to the end of the financial year No matters or circumstances, besides those disclosed at note 31 to the financial statements, have arisen since the end of the financial year which significantly affected or may affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in future financial years. 13 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Likely developments and expected results of operations Oil and Gas Interests The Company is examining its options for the development of the Surprise structure. In addition to the extended production testing of the discovery well, decisions on further drilling are under consideration. As well as planning for the development of the Surprise structure, the Company is actively reviewing plans for further drilling of a number of play types. The Company also plans to assess the conventional and unconventional oil and gas potential within the Company’s application areas in the Southern Georgina and Wiso Basins. Please refer to page 10 for likely development of farm-in and farm-out opportunities. Mineral / Coal Interests As previously advised to the market, the Company is evaluating alternative ways to deliver to shareholders optimum value for its early stage coal discoveries in central Australia. This may be a farm-out deal, a separate listing of the coal assets in a new corporate entity, or possibly an asset sale or sales if that is deemed the best outcome. With the Company moving towards a more focussed approach to its core business of oil and gas exploration and development and given that its extensive coal assets are at an early stage of exploration, the coal assets are viewed as non-core. The Company’s plan is to deliver maximum shareholder value in a manageable timeframe and has consequently determined that its operational and financial resources need be applied to its core areas. Environmental regulation Central Australia Basins 14 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 The Consolidated Entity is subject to significant environmental regulation with regard to its exploration activities. The Consolidated Entity aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the Company and the Consolidated Entity are not aware of any breach of environmental legislation for the year under review. Insurance of directors and officers During the financial year, the Group paid premiums to insure Directors and Officers of the Group. The contracts include a prohibition on disclosure of the premium paid and nature of the liabilities covered under the policy. Number of employees The Company had 17 employees at 30 June 2012 (19 at 30 June 2011). Proceedings on behalf of the Company Except as referred below 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 Consolidated Entity for all or any part of those proceedings. The Consolidated Entity was a party to the following proceedings during the year. Legal Action Legal Action with Drilling Contractor During the Year the Company continued preparing for its arbitration proceedings against Century Energy Services Pty Ltd and MB Century Drilling Pty Ltd in the matter of the unplanned incident which occurred during the drilling of Surprise-1 in EP 115 whereby the monkey board and 129 stands of racked drill pipe twisted around the rig mast by 30 degrees whilst the wireline sheaves were being repositioned. This incident resulted in the Company having to necessarily terminate the drilling contract with Century Energy Services Pty Ltd for performance related issues. The matter is currently expected to proceed to an arbitration hearing in the first quarter of 2013. Legal Actions with Petroleum Nominees Pty Ltd (a Clive Palmer company) (“PNPL”) During the 2012 financial year various legal claims were made against the Company by Petroleum Nominees Pty Ltd (“PNPL”), a Clive Palmer company. On 31 August 2012 the Company announced to the Australian Stock Exchange that all legal proceedings with PNPL had been settled with no material financial outflow to the Company incurred. Legal Action with John Heugh On 26 March 2012 the Company advised that it had terminated the employment of Mr John Heugh. Mr John Heugh commenced an action in the Supreme Court of Western Australia against the Company disputing the Company's termination of his employment. The Company is defending the action vigorously. On 13 April 2012 the Company advised that Mr John Heugh had served an application seeking an injunction in the Supreme Court of Western Australia to restrain the Company from: • • taking any steps to call a general meeting of members of the Company to consider a resolution that Mr John Heugh be removed as a director of the Company; or further or alternatively from moving such resolution at any general meeting, pending the hearing and determination of Mr John Heugh’s legal action disputing the Company's termination of his employment (as announced on 26 March 2012). On 17 April 2012 the Company advised that the injunction application brought by Mr John Heugh had been dismissed by the Court. Mr John Heugh was ordered to pay the Company’s costs of the application. 15 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Non-audit services During the year the Company engaged the auditor, PricewaterhouseCoopers (PwC) on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the Consolidated Entity was important. Details of amounts paid or payable to the auditor (PwC) for non-audit services provided during the year are set out below. The board of directors is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 and did not compromise the general principles relating to auditor independence in accordance with APES 110 Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. PwC Australian firm: (i) Other assurance services Review of governance processes, controls and systems (ii) Taxation services Tax compliance International tax consulting and advice (iii) Other services EGM related costs TSX listing consulting & advice Corporate and strategic advice Benchmarking services CONSOLIDATED 2012 $ - - 45,500 - 45,500 6,500 30,000 - - 36,500 2011 $ 45,500 45,500 300 47,319 47,619 - - 25,500 5,950 31,450 Total remuneration for non-audit services 82,000 124,569 Auditor’s Independence The directors received an Independence Declaration from the auditor of Central Petroleum Limited as required under section 307C of the Corporations Act 2001 and this is set out on page 27. 16 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Remuneration report This remuneration report, which has been audited, outlines the remuneration arrangements in place for non- executive directors, executive directors, other key management personnel of the Consolidated Entity and the Company. Directors and Key Management Personnel The directors and key management personnel of the Consolidated Entity during the year were: Directors Henry Askin Richard Cottee William Dunmore Michael Herrington Wrixon Gasteen Andrew Whittle Richard Faull Edmund Babington¹ Non-Executive Chairman Executive Director and Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director and Vice Chairman Non-Executive Director Non-Executive Director John Heugh Managing Director and Non-Executive Director Other Key Management Personnel Bruce Elsholz Chief Financial Officer and Company Secretary Daniel White Dalton Hallgren Group General Counsel and Company Secretary Chief Operating Officer Trevor Shortt Exploration Manager ¹ appointed as an alternative director to John Heugh Remuneration Policy Appointed chief executive officer 5 June 2012 and executive director 22 June 2012 Appointed 22 June 2012 Appointed 22 June 2012 Appointed 25 April 2012 Resigned 22 June 2012 Appointed 17 February 2012, resigned 10 April 2012 Removed as Managing Director 26 March 2012 and removed as Non- Executive Director 22 June 2012 Appointed as non-executive director 25 April 2012 and resigned as non- executive director 22 June 2012 Appointed Chief Operating Officer 21 November 2011 Appointed as acting Chief Executive Officer 26 March 2012, resigned 5 June 2012 Appointed 25 August 2011 The remuneration policy of the Company is to pay its directors and executives amounts in line with employment market conditions relevant to the oil exploration industry. The performance of the Company depends upon the quality of its directors and executives and the Company strives to attract, motivate and retain highly qualified and skilled management. The remuneration of directors and executives consists of the following key elements: Short term incentives (i) (ii) (iii) Annual salary and non-monetary benefits (executives and Managing Director only); Directors fees (directors only); Participation in performance-based bonuses over and above salary arrangements where applicable and in line with key performance indicators. Long term incentives (i) (ii) Participation in the Incentive Option Scheme; Payment of superannuation benefits in line with Australian regulatory guidelines 17 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Salaries and directors fees are reviewed at least annually to ensure they remain competitive with the market. There is no guaranteed base pay increases included in any executive’s contract. Performance-based bonus Participation in bonus schemes is at the discretion of the board of directors. In determining the extent of any performance based bonus, the Company takes into consideration the key performance indicators and objectives of the employee and the Company, as the Company may set from time to time, and any other matter that it deems appropriate. Before establishment of any bonus scheme the board of directors will consider the appropriate targets and key performance indicators (KPI’s) to link the bonus scheme and the level of payout if targets are met. This includes setting any maximum payout under the scheme, and minimum levels of performance to trigger payment of the bonus. As of the date of this report no bonus scheme has been established for any director or employee. Incentive Option Scheme Non executive directors do not receive performance-based pay, however they, along with executives, do participate in the Incentive Option Scheme which is designed to provide incentive to deliver long-term shareholder returns. At the discretion of the Company, performance criteria may or may not be established in respect of options that vest under the Incentive Option Scheme. Options are granted for no consideration. Options that have been granted to date to employees, excluding directors, have contained service conditions in respect of their vesting. Options have vested progressively from grant date to, in some cases, an employee’s third anniversary of employment. On 19 July 2012 shareholders approved 172,922,033 options for issue to FEP on 8 August 2012 exercisable at $0.09 subject to the satisfaction of various vesting hurdles. Mr Richard Cottee has a beneficial equity interest in FEP. No other director or executive received options under the Incentive Option Scheme that contained any performance criteria in respect of their vesting. There are no rules imposing a restriction on removing the ‘at risk’ aspect of options granted to directors and executives. 18 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration Details of the remuneration of the directors and the key management personnel of Central Petroleum Ltd and the Consolidated Entity are set out in the following tables. Table 1: Remuneration of Directors and Key Management Personnel Short-term Post-employment Long-term benefits Share- based payments Salary/ fees $ Non- monetary benefits 8 $ Superannuation contributions $ Termination Benefits $ Long service leave $ Options $ Total $ Value of options as proportion of remuneration % Non-Executive Directors Henry Askin William Dunmore Michael Herrington1 Wrixon Gasteen1 Andrew Whittle2 Richard Faull3 Edmund Babington4 Sub-total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 84,000 and 112,50011 80,500 60,000 57,500 1,475 - 1,475 - 11,000 - 60,000 57,500 - - 330,450 195,500 Executive Directors and Other Key Management Personnel Richard Cottee5 Daniel White Bruce Elsholz2/3 Dalton Hallgren6 Trevor Shortt7 John Heugh9 Sub-total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 282,78010 - 370,660 340,630 234,911 207,231 229,303 - 287,662 - 309,355 423,555 1,714,671 971,416 Total Remuneration 2012 2,045,121 2011 1,166,916 3,787 3,186 3,787 3,186 93 - 93 - 695 - 3,787 3,186 550 - 9,450 7,245 - - - - - - 990 - 6,750 5,175 - - 12,792 9,558 17,190 12,420 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 209,737 90,931 63,787 60,686 1,568 - 1,568 - 12,685 - 70,537 65,861 550 - 360,432 217,478 93 - 3,787 3,186 3,787 3,186 2,303 - 3,206 - 3,694 3,186 16,870 9,558 29,662 19,116 - - 25,000 20,625 19,602 18,360 18,893 - 23,256 - 29,930 36,414 116,681 75,399 133,871 87,819 - - - - - - - - - - 84,375 - 84,375 - 84,375 - 113 - 6,174 5,248 4,239 3,994 1,551 - 2,171 - (2,647) 11,151 11,601 20,393 11,601 20,393 - - 55,451 21,763 36,254 9,345 66,665 - 110,056 - - - 268,426 282,986 - 461,072 391,452 298,793 242,116 318,715 - 426,351 - 424,707 474,306 2,212,624 31,108 1,107,874 268,426 2,573,056 31,108 1,325,352 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 12% 6% 12% 4% 21% - 26% - 0% 0% 13% 3% 11% 2% 6 Appointed 21 November 2011 1 Appointed 22 June 2012 7 Appointed 25 August 2011 2 Appointed 25 April 2012 8 Represents directors and officers insurance premiums 3 Resigned 22 June 2012 9 Removed 22 June 2012 4 Appointed 17 February 2012 and resigned 10 April 2012 5 Appointed as Chief Executive Officer (“CEO”) 5 June 2012. Appointed as Executive Director 22 June 2012 10 Freestone Energy Partners Pty Ltd (“FEP”) have provided the services of Richard Cottee on the basis of a secondment. As such compensation is made to FEP in line with Richard Cottee’s service agreement shown on page 25. Richard Cottee has a beneficial equity interest in FEP. The above Salary includes an accrual for a $250,000 sign on payment in line with Richard Cottee’s service agreement. 11 Payment to director related entity Askin Nominees Pty Ltd for the provision of Executive Services provided during the period 26 March 2012 to 5 June 2012. 19 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration (continued) The fair values of options granted during 2012 were calculated at the dates of grant using a Binomial valuation model. The values are allocated to each reporting period evenly over the period from grant date to vesting date. The values disclosed for 2012 are the portions of the fair values applicable to and recognised in this reporting period. The following factors and assumptions were used in determining the fair value of options at grant date: Grant date Expiry date Fair value per option Exercise price Price of shares at grant date Estimated volatility Risk free interest rate Dividend yield 19 Aug 11 19 Aug 16 $0.034 $0.115 $0.065 92.06% 3.74% 30 Aug 11 30 Aug 16 $0.035 $0.115 $0.066 92.16% 3.99% 15 Nov 11 15 Nov 16 $0.025 $0.095 $0.057 72.93% 3.60% 30 Nov 11 30 Nov 16 $0.024 $0.095 $0.057 70.04% 3.38% - - - - No options were granted to key management personnel during 2011. Table 2: Share based compensation – Options granted and vested during the year Number of options granted Grant date Average fair value at grant date Average exercise price per option Number of options vested Proportion of options vested % Expiry date Non-Executive Directors Henry Askin William Dunmore Michael Herrington¹ Wrixon Gasteen¹ Andrew Whittle² Richard Faull3 Edmund Babington 4 Year 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Executive Directors and Other Key Management Personnel Richard Cottee5/9 2012 2011 - - - - - - - - - - - - - - - - Daniel White 2012 1,550,000 Bruce Elsholz²/³ Dalton Hallgren6 Trevor Shortt7 John Heugh8 Total compensation options 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 - 1,000,000 - 4,000,000 - 4,000,000 - - - 10,550,000 - - - - - - - - - - - - - - - - - 19 Aug 11 and 15 Nov 11 - 19 Aug 11 - 30 Nov 11 - 30 Aug 11 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $0.029 $0.010 - $0.034 - $0.024 - $0.033 - - - - $0.115 - $0.095 - $0.115 - - - - - - - - - - - - - - - - - - - 19 Aug 16 and 15 Nov 16 - 19 Aug 16 - 30 Nov 16 - 30 Aug 16 - - - - - - - - - - - - - - - - - - - 2,550,000 1,000,000 1,666,668 666,666 2,000,000 - 2,000,000 - - - 8,216,666 1,666,666 - - - - - - - - - - - - - - - - 56% 33% 55% 33% 50% - 50% - - - 20 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration (continued) Table 2: Share based compensation – Options granted and vested during the year (continued) 1 Appointed 22 June 2012 2 Appointed 25 April 2012 3 Resigned 22 June 2012 4 Appointed 17 February 2012 and resigned 10 April 2012 5 Appointed as Chief Executive Officer (“CEO”) 5 June 2012. Appointed as Executive Director 22 June 2012 6 Appointed 21 November 2011 7 Appointed 25 August 2011 8 Removed 22 June 2012 9 172,922,033 unlisted options exercisable at $0.09 on or before 15 November 2015 and 15 November 2017 were issued to FEP on 8 August 2012, a company in which Richard Cottee has a beneficial equity interest. Table 3: Options granted as part of remuneration 2012 Non-Executive Directors Henry Askin William Dunmore Michael Herrington Wrixon Gasteen Andrew Whittle Richard Faull Edmund Babington Executive Directors and Other Key Management Personnel Richard Cottee Bruce Elsholz Daniel White Dalton Hallgren Trevor Shortt John Heugh 2011 Non-Executive Directors Henry Askin William Dunmore Michael Herrington Wrixon Gasteen Andrew Whittle Richard Faull Edmund Babington Executive Directors and Other Key Management Personnel Richard Cottee Bruce Elsholz Daniel White Dalton Hallgren Trevor Shortt John Heugh Value of options granted during the year ($) Value of options lapsed during the year ($) Remuneration consisting of options for the year (%) - - - - - - - - 34,206 48,299 90,743 132,303 - - - - - - - - - - - - - - - - - - - - - - 12% 12% 20% 25% - Value of options granted during the year ($) Value of options lapsed during the year ($) Remuneration consisting of options for the year (%) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - No options were exercised during either year, and no shares were issued on exercise of compensation options. 21 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration (continued) Table 4: Shareholdings of key management personnel Held at beginning of year Held at date of appointment Share purchase plan issue Received on exercise of options Net change other Held at date of departure Held at end of year Non-Executive Directors Henry Askin 2012 2011 William Dunmore 2012 2011 Michael Herrington 2012 2011 Wrixon Gasteen 2012¹ 2011 Andrew Whittle 2012 2011 Richard Faull 2012 2011 Edmund Babington 2012 2011 3,600,000 3,600,000 766,666 766,666 N/A N/A N/A N/A N/A N/A 2,386,100 2,386,100 N/A N/A N/A N/A N/A N/A - N/A - N/A - N/A N/A N/A - N/A Executive Directors and Other Key Management Personnel Richard Cottee 2012 2011 Daniel White 2012 2011 Bruce Elsholz 2012 2011 Dalton Hallgren 2012 2011 Trevor Shortt 2012 2011 John Heugh 2012 2011 N/A N/A 1,440,000 1,440,000 - - N/A N/A N/A N/A 5,741,429 5,703,693 - N/A N/A N/A N/A N/A - N/A - N/A N/A N/A ¹200,000 ordinary shares purchased on 11 July 2012 272,728 - - - - N/A - N/A - N/A 90,910 - - N/A - N/A - - - - - N/A - N/A 272,728 - 22 - - - - - N/A - N/A - N/A - - - N/A - N/A - - - - - N/A - N/A - - - - - - - N/A - N/A 400,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3,872,728 3,600,000 776,666 776,666 - N/A - N/A 400,000 N/A - - 2,477,010 N/A N/A 2,386,100 - N/A - N/A - - - - - N/A - N/A - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - N/A 1,440,000 1,440,000 - - - N/A - N/A - 37,736 6,014,157 N/A - 5,741,429 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration (continued) Table 5: Option holdings of key management personnel Held at beginning of year Options exercised Granted as remuneration Net change other Held at date of departure Held at end of year * Non-Executive Directors Henry Askin 2012 2011 William Dunmore 2012 2011 Michael Herrington 2012 2011 Wrixon Gasteen 2012 2011 Andrew Whittle 2012 2011 Richard Faull 2012 2011 Edmund Babington 2012 2011 5,340,000 5,340,000 3,400,000 3,400,000 N/A N/A N/A N/A N/A N/A 3,580,550 3,580,550 N/A N/A - - - - - N/A - N/A - N/A - - - N/A - - - - (2,000,000) - (2,000,000) - - N/A - N/A - N/A - N/A - N/A - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3,340,000 5,340,000 1,400,000 3,400,000 - N/A - N/A - N/A - - (2,000,000) - 1,580,550 N/A N/A 3,580,550 - N/A - N/A - N/A N/A N/A * All of the options had vested and were exercisable at the end of the year. Held at beginning of year Options exercised Granted as remuneration Net change other Held at date of departure Held at end of year Executive Directors and Other Key Management Personnel Richard Cottee 2012 1 2011 Daniel White 2012 2011 Bruce Elsholz 2012 2011 Dalton Hallgren 2012 2011 Trevor Shortt 2012 2011 John Heugh 2012 2011 N/A N/A 3,096,000 3,096,000 2,000,000 2,000,000 N/A N/A N/A N/A 7,803,978 7,503,978 - N/A - - - - - N/A - N/A - - - N/A - N/A 1,550,000 - 1,000,000 - 4,000,000 N/A 4,000,000 N/A - - - - - N/A - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - N/A 4,646,000 3,096,000 3,000,000 2,000,000 4,000,000 N/A 4,000,000 N/A - - (5,000,000) 300,000 2,803,978 N/A N/A 7,803,978 1 172,922,033 unlisted options exercisable at $0.09 on or before 15 November 2015 and 15 November 2017 were issued to FEP on 8 August 2012, a company in which Richard Cottee has a beneficial equity interest. 23 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Details of remuneration (continued) The vesting profile for options held at the end of the year was as follows: Executive Holding at end of year Executive Directors and Other Key Management Personnel 2012 Vested during the year Exercisable at end of year Holding at end of year 2011 Vested during the year Exercisable at end of year Richard Cottee1 Daniel White Bruce Elsholz Dalton Hallgren Trevor Shortt - 4,646,000 3,000,000 4,000,000 4,000,000 - 2,550,000 1,666,668 2,000,000 2,000,000 - 4,646,000 3,000,000 2,000,000 2,000,000 N/A 3,096,000 2,000,000 N/A N/A N/A 1,000,000 666,666 N/A N/A N/A 2,096,000 1,333,332 N/A N/A For each grant of options included in the tables 1 to 5 above, the percentage of the grant that was vested in the financial year and the percentage that was forfeited because the person did not meet the performance or service criteria are set out below. The options vest over a range of time frames provided the vesting conditions are met. No options will vest if the conditions are not satisfied (refer page 18), hence the minimum value of the option yet to vest is nil. The maximum value of the options yet to vest has been determined as the amount of the grant date fair value of the options that is yet to be expensed. Name Henry Askin William Dunmore Michael Herrington Wrixon Gasteen Andrew Whittle John Heugh Richard Faull Edmund Babington Richard Cottee1 Daniel White Bruce Elsholz Dalton Hallgren Trevor Shortt Year Granted 2009 2008 2009 2008 - - - 2009 2008 2009 2008 - - 2010 2012 2010 2012 2012 2012 Share based compensation benefits (options) Financial years in which options may vest - - - - - - - - - - - Forfeited % - - - - - - - - - - - Vested % 100 100 100 100 - - - 100 100 100 100 - - 100 100 100 100 50 50 - - - - - - - - - - - - - - 30/06/2013 30/06/2013 - 24,075 22,246 Maximum value of grant yet to vest $ - - - - - - - - - - - - - - - - 1 172,922,033 unlisted options exercisable at $0.09 on or before 15 November 2015 and 15 November 2017 were issued to FEP on 8 August 2012, a company in which Richard Cottee has a beneficial equity interest. 24 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 Service agreements The details of service agreements of the key management personnel of Central Petroleum Limited and the Consolidated Entity are as follows: Richard Cottee, Executive Director and Chief Executive Officer The term of the agreement is 3 years, commencing 5 June 2012; • • Mr Cottee’s base salary is presently $500,000 per annum. In addition, superannuation at the statutory 9% rate is applicable up to a cap of $16,470 per annum. In order to terminate employment, a 6 month period of notice is required by either party. • Bruce Elsholz, Chief Financial Officer and Company Secretary The term of the agreement is 4 years, commencing 31 August 2009; • • Mr Elsholz’s base salary is presently $285,000 per annum. In addition, superannuation at 9% is applicable. • The salary is reviewed annually. In order to terminate employment, increasing periods of notice are required by either party, depending on the length of service, up to a maximum of 3 months’ notice or payment in lieu. Daniel White, Group General Counsel and Company Secretary The term of the agreement is 4 years, commencing 30 November 2009; • • Mr White’s base salary is presently $366,000 per annum. In addition, superannuation at 9% is applicable. • The salary is reviewed annually. In order to terminate employment, increasing periods of notice are required by either party, depending on the length of service, up to a maximum of 3 months’ notice or payment in lieu. Dalton Hallgren, Chief Operating Officer The term of the agreement is 4 years, commencing 21 November 2011; • • Mr Hallgren’s base salary is presently $350,000 per annum. In addition, superannuation at 9% is applicable. • The salary is reviewed annually. In order to terminate employment, increasing periods of notice are required by either party, depending on the length of service, up to a maximum of 3 months’ notice or payment in lieu. Trevor Shortt, Exploration Manager The term of the agreement is 4 years, commencing 25 August 2011; • • Mr Shortt’s base salary is presently $300,000 per annum. In addition, superannuation at 9% is applicable. • The salary is reviewed annually. In order to terminate employment, increasing periods of notice are required by either party, depending on the length of service, up to a maximum of 3 months’ notice or payment in lieu. John Heugh, Formerly Managing Director: • Mr Heugh’s employment was terminated on 26 March 2012. • Mr Heugh’s base salary at the date of termination was $337,500 per annum. In addition, superannuation at 9% was applicable, and Mr Heugh received a directors fee of $60,000 per annum. • Mr Heugh remained a non-executive director until his removal by shareholders on 22 June 2012. 25 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 DIRECTORS’ REPORT 30 JUNE 2012 • Service agreements (continued) Non executive directors The Company has engaged Dr Henry Askin, Mr Michael Herrington, Mr Wrixon Gasteen, Mr Andrew Whittle and Mr William Dunmore whereby they are appointed as non-executive directors of the Company. The terms of appointment are subject to the Company’s Constitution. The Company maintains an appropriate level of Directors and Officers’ Liability Insurance and provide rights relating to indemnity, insurance, and access to documents. Dr Askin, chairman of the board, receives a non-executive directors fee of $95,000 per annum, plus superannuation benefits. Messrs Herrington, Gasteen, Whittle and Dunmore receive non-executive directors fees of $65,000 per annum. Mr Herrington and Mr Whittle also receive superannuation benefits. However, Mr Gasteen and Dunmore, who reside outside of Australia, do not receive superannuation benefits. Signed in accordance with a resolution of the Directors: Richard Cottee – Executive Director, Perth 14 September, 2012 26 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Introduction The Company and the board are committed to achieving and demonstrating high standards of corporate governance. The board continues to review the framework and practices to ensure they meet the interests of shareholders. The Group seeks to follow the best practice recommendations for listed companies to the extent that it is practicable. The Company is required to disclose the extent to which they have not adopted with the ASX Corporate Governance Principles and Recommendations. Set out below are the principal corporate governance practices of the Company along with the reasons for non-adoption of the recommendations (including 2010 Amendments) where applicable. Principle 1: Lay solid foundations for management and oversight Role of the board of Directors The board of directors guides and monitors the business and affairs of the Company on behalf of its shareholders, by whom the directors are elected and to whom they are accountable. The board’s primary role is the protection and enhancement of long-term shareholder value. The board is responsible for the overall corporate governance of the Company, including engaging with management in the development of strategic and business plans, preparation of annual budgets and establishment of goals for management and monitoring the achievement of those goals on a regular basis. Management will report to the board and execute the directives of the board. The board is also responsible for: • • • • • • reviewing the performance of the managing director and senior management; planning the development, retention and succession of the management team; reviewing and ratifying systems of risk management and internal compliance, including approving and monitoring the policies and procedures relating to occupational health and safety and the environment; approving and monitoring financial and other reporting, including the progress of major capital expenditure and capital management; approving and monitoring acquisitions and divestitures; and preparing, implementing and monitoring policies to ensure that all major developments affecting the financial position and state of affairs of the Company and any subsidiaries are announced to the ASX in strict accordance with the Listing Rules. The board has also established a framework for the management of the Company, including a system of internal control and business risk management and the establishment of appropriate ethical standards. The board conducts annual reviews of its processes to ensure that it is able to carry out its functions effectively and in an efficient manner. The board from time to time carries out the process of considering and determining relevant KPI’s and other measures to evaluate the performance of its senior executives. Principle 1.1 recommendations not currently adopted: Recommendation Explanation/ Reference Rec 1.1 Companies should establish functions reserved to the board and those delegated to senior executives and disclose the functions. the formalised The Company has not the functions reserved to the board and those delegated to management. However, the responsibilities of the board are set out above. 28 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Principle 2: Structure the board to add value Structure and composition of the board The board consists of six directors – an executive director and five non–executive directors. Details of their skills, experience and expertise and the period of office held by each director have been included in the directors’ report. The number of board meetings and the attendance of the directors are set out in the directors’ report. The Chairman, Dr Askin, is a non-executive director. Normally the roles of chairman and the executive director are not exercised by the same individual as there is a clear division of responsibility between them. However, this policy was departed from for a brief period of time during the year ended 30 June 2012. Further details are provided in section ‘Independence of non-executive directors and the chairman of the board’ below. Independence of non-executive directors and the chairman of the board The Board monitors the independence of each board member on a regular ongoing basis. The board has assessed the independence of the non-executive directors and the Chairman. Although Messrs Askin, Dunmore, Whittle and Gasteen hold 3,872,728, 776,666, 400,000 and 200,000 fully paid ordinary shares respectively, the board considers these holdings to be immaterial, being significantly below the holdings threshold to be considered as substantial shareholders as defined by the Corporations Act. During the year ended 30 June 2012 the Chairman provided executive services to the Company for the period following termination of John Heugh as Managing Director until appointment of Richard Cottee as the Company’s Chief Executive Officer. As disclosed in the Remuneration Report on page 19 the Chairman received $112,500 for these executive services. Therefore the Company has determined that the Chairman is not independent as defined by the Corporations Act. The remaining non-executive directors have no business or other relationship which is likely to compromise their independence. Individual directors are required to keep the board advised of any interests that could potentially create conflict with those of the Company. Nominations Committee The board has established a nominations committee which consists of the following directors; Henry Askin, Richard Cottee, Michael Herrington and William Dunmore. Details of these directors’ qualifications are set out in the directors’ report. The role of the Nominations Committee is to review Board composition, performance and Board succession planning. A copy of the charter is available on the Company’s website. Conflict of Interest Directors and senior management are required to advise the Chairman of any existing or potential conflict of interest. When necessary, the Chairman will refer the matter to the board for determination. Term of office Under the constitution of the Company, the directors, other than the Managing Director, are obliged to present one third of their company for retirement and potential re-election at each annual general meeting of the Company. Independent professional advice In the proper performance of their duties, each director has the right to seek a reasonable level of independent professional advice on matters concerning the Company at the Company’s expense, after obtaining the Chairman’s approval, which will not be unreasonably withheld. Each director has the right of access to all relevant Company information and to the Company’s executives. Principle 2.5 recommendation is currently not adopted: Recommendation Explanation/ Reference Rec 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors Given the size and nature of the Company a formal process for performance evaluation has not yet been developed. 29 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Principle 3: Promote ethical and responsible decision making Ethical standards and code of conduct The directors acknowledge the need for, and continued maintenance of, the highest standards of ethical conduct by all directors and employees of the Company. All directors, executives and employees are required to abide by laws and regulations, to respect confidentiality and the proper handling of information and act with their highest standards of honesty, integrity, objectivity and ethics in all dealings with each other, the Company, customers, suppliers and the community. The board has developed a code of conduct reflecting its high standards and expectations. The code of conduct will be regularly reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism. The code of conduct is available on the Central Petroleum Limited website. Share trading The Company has adopted a Share Dealing Code for the directors and employees, which is appropriate for a Company whose shares are admitted to trading on the ASX, and the Company will take all reasonable steps to ensure compliance by its directors and any relevant employees. The Share Dealing Code is summarised as follows: • Consistent with the legal prohibitions on insider trading contained in the Corporations Act, all employees, officers and directors are prohibited from trading in the Company’s securities while in possession of unpublished price sensitive information. • Unpublished price sensitive information is information, which a reasonable person would expect to have a material affect on the price or value of the Company’s securities. Examples may include: o o o o the financial results of the Company and any of its subsidiaries; projections of future earnings or losses; changes in senior management; and results of drilling and or production testing. It should be noted that either positive or negative information may be material. An employee, officer or director, whilst in possession of unpublished price sensitive information, is subject to three restrictions: • • • they must not deal in securities affected by information; they must not cause or procure anyone else to deal in those securities; and they must not communicate the information to any person if they know or ought to know that the other person will use the information, directly in directly, for dealings in securities. Employees, officers, and directors are required to advise the Company Secretary of their intentions prior to undertaking any transaction in the Company’s securities. If an employee, officer or director is considered to possess unpublished price sensitive information, they will be precluded from making a security transaction until one trading day after the time of public release of that information. Related party matters Directors and senior management are required to advise the Chairman of any related party contract or potential contract. The Chairman will inform the board and the reporting party will be required to remove himself/herself from all discussions and decisions involving the matter. Prior board approval will be required for all proposed contracts. Diversity The Company values diversity and recognises the benefits it can bring to the organisation’s ability to achieve its goals. The Company has formulated a diversity policy, which can be viewed on its website. At the end of the current reporting period there were 4 women in the whole organisation representing 23% of total employees. There were no women in senior executive or board positions. 30 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Principle 4: Safeguard integrity in financial reporting Reporting and assurance When considering the financial reports, the board receives a written statement declaration in accordance with section 295A of the Corporations Act, signed by the Chief Executive Officer and Chief Financial Officer that the Company’s financial reports give a true and fair view, in all material respects, of the Company’s financial position and its performance and comply in all material respects with relevant accounting standards. This statement also confirms that the Company’s financial reports are founded on a sound system of risk management and internal control and that the system is operating effectively in relation to financial reporting risks. Similarly, in a separate written statement the Chief Executive Officer and Chief Financial Officer also confirm to the board that the Company’s risk management and internal control systems are operating effectively in relation to material business risks for the period, and that nothing has occurred since period-end that would materially change the position. Financial reporting Monthly results are circulated to the board of directors and Chief Financial Officer for review. Rolling cash flow forecasts are prepared on a regular basis. Exploration expenditure is measured against approved programme budgets. Audit committee The board has established an audit committee which consists of the following non-executive directors: Wrixon Gasteen (Chair) Henry Askin Andrew Whittle Details of these directors’ qualifications are set out in the directors’ report. The audit committee operates in accordance with a charter which is available on the Company’s website. External Auditors The Company and audit committee policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed regularly. PwC was appointed auditor for the first time for the financial year ended 30 June 2011. It is PwC’s policy to rotate audit engagement partners on listed companies at least every five years. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the directors’ report and in note 5 to the financial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the audit committee. The external auditor will attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Principle 5: Make timely and balanced disclosure Continuous disclosure The directors are committed to keeping the market fully informed of material developments to ensure compliance with the listing rules and the Corporations Act. At each board meeting, specific consideration is given as to whether any matters should be disclosed under the Company’s continuous disclosure policy. The practice of senior management is to review and authorise any Company announcement to ensure that the information is factual, timely, clearly expressed and contains all material information so that investors can make appropriate assessments of the information for investment decisions. 31 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Principle 5.1 recommendation is currently not adopted: Recommendation Explanation/ Reference Rec 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior level for that compliance and disclose those policies or a summary of those policies. The Company has established a practice of evaluating continuous disclosure issues as a part of each formal board meeting. The board is acutely aware of the continuous disclosure regime and believes there are strong informal systems in place to ensure compliance. Disclosure of the Company’s approach to continuous disclosure is set out above. Principle 6: Respect the rights of shareholders Shareholder relations The directors aim to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the Company. Information on all major developments affecting the Company is available to shareholders through: • • • the Company’s annual report; quarterly and half yearly reports; the annual general meeting of the Company and other meetings called to obtain approval for board actions as appropriate. All shareholders who are unable to attend these meetings will be encouraged to communicate issues or ask questions by writing or emailing to the Company; and • mandatory ASX announcements on the Company website. The Company will take advantage of technology, such as the Company website, to provide greater opportunities for effective communication with shareholders and to encourage participation at meetings. Information disclosed to the Australian Security Exchange (“ASX”) is available to shareholders via the ASX website. In addition various reports and announcements are made available on the Company’s website where there is also an option for shareholders to register their email address for updates made by the Company from time to time. All shareholders are entitled to receive a copy of the Company’s annual and half-yearly reports and these reports are also made available on the Company’s website. Principle 7: Recognise and manage risk The board is responsible for satisfying itself annually, or more frequently as required, that management has developed and implemented a sound system of risk management and internal control. Detailed work on this task is delegated to the audit committee for review by the full board. The audit committee is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. In providing this oversight they review and obtain reasonable assurance that the financial risk management, internal control and information systems are operating effectively to produce accurate, appropriate and timely management and financial information Business risk management The board acknowledges that it is responsible for the overall internal control and risk management framework. Accordingly, the board has implemented the following control framework: Special functional reporting: The board has identified a number of key areas which are subject to regular reporting to the board such as safety, environmental, insurance and legal matters. Investment appraisal: The Company has set clearly defined guidelines for capital expenditure. These include annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements. Capital expenditure and revenue commitments above a certain size require prior board approval. Procedures exist to ensure that business transactions are properly authorised and executed. The Board receives regular reports about the financial condition and operating results of the Group. The CEO and CFO annually provide a declaration in the form required by section 295A of the Corporations Act. 32 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 CORPORATE GOVERNANCE STATEMENT – 30 JUNE 2012 Principle 7.1 and 7.2 recommendations not complied with: Recommendation Rec 7.1 Companies should establish policies the oversight and management of material business risks and disclose a summary of those policies. for Rec 7.2 The Board should require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as the Company’s the effectiveness of management of its material business risks. to Principle 8: Remunerate fairly and responsibly Explanation/ Reference The Company has not established a formal, written risk management policy. Disclosure of the Company’s approach to risk management is set out above. The Company has not established a formal, written risk management and internal control system. the Company’s approach to risk management and internal control is set out above. Disclosure of On matters of remuneration, the board has policies that were established to review the remuneration policies and practices of the Company to ensure that it remunerates fairly and responsibly. The remuneration policy of the board is designed to ensure that the level and composition of remuneration is competitive, reasonable and appropriate for the results delivered and to attract and maintain talented and motivated directors and employees. The policy is designed for: • • • • decisions in relation to executive and non-executive remuneration policy; decisions in relation to remuneration packages for executive directors and senior management; decisions in relation to merit recognition arrangements and termination arrangements; and ensuring that any equity-based executive remuneration is made in accordance with the thresholds set in plans approved by shareholders. Non-executive directors’ remuneration policy The structure of non-executive directors’ remuneration is distinguished from that of executives. Remuneration for non-executive directors is fixed. Total remuneration for all non-executive directors, as approved by shareholders, is not to exceed $500,000 per annum. Neither the non-executive directors nor the executives of the Company receive any retirement benefits, other than superannuation. Executive directors’ remuneration policy Executive directors are employed pursuant to employment agreements. A summary of the Executive Director’s employment agreement is set out in the remuneration report. Principle 8 recommendations not currently adopted: Recommendation Explanation/ Reference Rec 8.1 The board should remuneration committee. establish a The Company currently does not have a remuneration committee. Remuneration matters are reviewed and approved by the board as a whole. Disclosure of the Company’s remuneration policy is set out above. 33 CENTRAL PETROLEUM LIMITED ABN 72 083 254 308 ANNUAL FINANCIAL REPORT – 30 JUNE 2012 Contents Page Financial statements Consolidated statement of comprehensive income.............................................................................35 Consolidated balance sheet................................................................................................................36 Consolidated statement of changes in equity......................................................................................37 Consolidated statement of cash flows.................................................................................................38 Notes to the consolidated financial statements ...................................................................................39 Directors’ declaration .....................................................................................................................................74 Independent auditor’s report to the members.................................................................................................75 These financial statements are the consolidated financial statements of the consolidated entity consisting of Central Petroleum Limited and its subsidiaries. The financial statements are presented in Australian currency. Central Petroleum Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 3, Level 4 South Shore Centre 85 South Perth Esplanade South Perth Western Australia 6151. A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities on pages 7 to 14 and in the directors’ report on page 7, both of which are not part of these financial statements. The financial statements were authorised for issue by the directors on 14 September 2012. The directors have the power to amend and reissue the financial statements. Through the use of the internet we have ensured that our corporate reporting is timely and complete. Press releases, links on our website: financial www.centralpetroleum.com.au information are available via reports and other the 34 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 C O N S O L I D AT E D S T AT E M E N T O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 Other income Share based employment benefits General and administrative expenses Depreciation & amortisation Employee benefits and associated costs Exploration expenditure Finance costs Loss before income tax Income tax expense Loss for the year Note 2 28(c) 3 3 3 3 2012 $ 1,548,206 (705,904) (4,683,915) (317,327) (3,460,947) (18,715,972) (22,309) 2011 $ 1,357,644 (129,668) (3,357,254) (264,894) (2,903,215) (31,342,975) (3,161) (26,358,168) (36,643,523) 4 18 - (26,358,168) - (36,643,523) Other comprehensive loss for the year, net of tax - - Total comprehensive loss for the year (26,358,168) (36,643,523) Total comprehensive loss attributable to members of the parent entity (26,358,168) (36,643,523) Basic and diluted loss per share (cents) 19 (2.28) (3.80) The accompanying notes form part of these financial statements. 35 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 C O N S O L I D AT E D B AL AN C E S H E E T AS AT 3 0 J U N E 2 0 1 2 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Exploration assets Intangible assets Other financial assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses Total equity Note 2012 $ 2011 $ 6 7 8 9 10 11 12 13 14 15 12,105,232 1,578,759 1,051,439 9,463,949 3,468,537 853,995 14,735,430 13,786,481 1,780,765 10,488,500 51,785 1,318,941 828,358 10,488,500 72,406 2,412,746 13,639,991 13,802,010 28,375,422 27,588,491 3,727,627 361,027 1,257,329 386,128 4,088,654 1,643,457 82,960 82,960 49,862 49,862 4,171,614 1,693,319 24,203,808 25,895,172 16 17 18 122,700,723 7,964,729 (106,461,644) 99,105,548 6,893,100 (80,103,476) 24,203,808 25,895,172 The accompanying notes form part of these financial statements. 36 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 C O N S O L I D AT E D S T AT E M E N T O F C H AN G E S I N E Q U I T Y F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 Contributed equity $ Reserves $ Accumulated Losses $ Total $ Total equity at 1 July 2010 93,209,470 6,763,432 (43,459,953) 56,512,949 Total loss for the year Other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners Share based payments Share and option issues Share issue costs - - - - 6,451,281 (555,203) 5,896,078 - - - (36,643,523) (36,643,523) - - (36,643,523) (36,643,523) 129,668 - - 129,668 - - - - 129,668 6,451,281 (555,203) 6,025,746 Balance at 30 June 2011 99,105,548 6,893,100 (80,103,476) 25,895,172 Total loss for the year Other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners Share based payments Share based capital raising costs Share and option issues Share issue costs - - - - - 25,959,860 (2,364,685) - - - (26,358,168) (26,358,168) - - (26,358,168) (26,358,168 705,904 365,725 - - 23,595,175 1,071,629 - - - - - 705,904 365,725 25,959,860 (2,364,685) 24,666,804 Balance at 30 June 2012 122,700,723 7,964,729 (106,461,644) 24,203,808 The accompanying notes form part of these financial statements. 37 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 C O N S O L I D AT E D S T AT E M E N T O F C AS H F L O W S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 Note 2012 $ 2011 $ Cash flows from operating activities Interest received GST refunds received Other income Interest paid Payments to suppliers and employees (inclusive of GST) 548,410 4,238,151 9,774 (22,309) (26,003,505) 940,776 2,674,149 358,829 (3,161) (38,131,130) Net cash outflow from operating activities 24 (21,229,479) (34,160,537) Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Payments for exploration assets Redemption of security deposits and bonds (1,183,943) - - 1,093,805 (578,079) (5,565) (319,718) 1,016,177 Net cash (outflow)/inflow from investing activities (90,138) 112,815 Cash flows from financing activities Proceeds from the issue of shares, bonds and options Payments for share issue and listing costs 25,959,860 (1,998,960) 6,451,281 (469,189) Net cash inflow from financing activities 23,960,900 5,982,092 Net increase/(decrease) in cash and cash equivalents 2,641,283 (28,065,630) Cash and cash equivalents at the beginning of the financial year 9,463,949 37,529,579 Cash and cash equivalents at the end of the financial year 6 12,105,232 9,463,949 The accompanying notes form part of these financial statements. 38 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Central Petroleum Limited (“the Company”) and its subsidiaries (collectively “the Group” or “Consolidated Entity”). (a) Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and the Corporations Act 2001. Central Petroleum Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Going concern The consolidated financial statements of the Group have been prepared on a going concern basis, which contemplates continuity of business activities and realisation of assets and the settlement of liabilities in the ordinary course of business. For the year ended 30 June 2012 the Group incurred a loss before tax of $26,358,168 and a cash outflow from operating activities of $21,229,479. As at 30 June 2012 the Group had cash assets amounting to $12,105,232. Minimum cash requirements for the period until 12 months from the signing date of this report are expected to be in the vicinity of $10,800,000. Accordingly the financial statements have been prepared on a going concern basis. Whilst the Group has exploration plans and commitments in excess of cash reserves (note 27), in the petroleum industry it is common practice for entities to farm-out, transfer or sell a portion of their rights to third parties or relinquish them altogether and, as a result, obligations may be significantly reduced or extinguished. The directors, therefore, are of the opinion that no asset is likely to be realised for an amount less than the amount it is recorded in the financial report at 30 June 2012. Accordingly no adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. (ii) Compliance with IFRS The consolidated financial statements of the Central Petroleum Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (iii) New and amended standards adopted by the Group The following new and amendments to standards are mandatory for the first time for the financial year beginning on 1 July 2011: • AASB 124 (Revised) Amendments to Related Party Disclosures (December 2009) • AASB 2009-12 AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052 • AASB 2010-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project, AASB’s 1, 7,101,134 and Interpretation 13 • AASB 2010-5 Amendments to Australian Accounting Standards • AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042 • AASB 1054 Australian Additional Disclosures • AASB 1048 Interpretation of Standards The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. 39 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies (continued) (iv) Early adoption of standards The Group has not applied any pronouncements to the annual reporting period beginning on 1 July 2011 where such application would result in them being applied prior to them becoming mandatory. (v) Historical cost convention These financial statements have been prepared under the historical cost convention. (vi) Critical accounting judgements and key sources of estimate uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions regarding carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. Key judgements in applying the entity’s accounting policies are required in the following areas: Rehabilitation The Group recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken exploration and evaluation activity. The Group makes provision for future restoration expenditure relating to work previously undertaken based on management’s estimation of the work required. Share-based payments The Group is required to use assumptions in respect of their fair value models, and the variable elements in these models, used in determining share based payments. The directors have used a model to value options, which requires estimates and judgements to quantify the inputs used by the model. Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the lease itself or, if not, whether it successfully recovers the related exploration and evaluation expenditure through sale. Factors that impact recoverability may include, but are not limited to, the level of resources and reserves, the cost of production, legal changes and commodity price changes. Acquisition expenditure is capitalised if activities in the area of interest have not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that the capitalised acquisition expenditure is determined not to be recoverable in future, profits and net assets will be reduced in the period in which this determination is made. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Central Petroleum Limited (‘Company’ or ‘Parent Entity’) as at 30 June and the results of all subsidiaries for the year then ended. Central Petroleum Limited and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity. Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date control ceases. 40 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies (continued) The acquisition method is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non controlling interests (if applicable) in the results and equity of subsidiaries are shown separately in the statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Joint Ventures The proportionate interests in the assets, liabilities, revenue and expenses of a joint venture activity have been incorporated in the financial statements under the appropriate headings. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. (d) Foreign currency translation Functional and presentation currency (i) Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Central Petroleum Limited’s functional and presentation currency. Transactions and balances (ii) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. (e) (i) Revenue recognition Interest Income Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial assets. (ii) Government grants Grants from the government, including research and development concessions, are recognised at their fair value where there is a reasonable assurance that the grant or refund will be received and the Group has or will comply with any conditions attaching to the grant or refund. (f) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the end of the reporting period in the countries where entities in the Group generate taxable income. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 41 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies (continued) Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Central Petroleum Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (g) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Consolidated Entity will obtain ownership by the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 27). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. (h) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (i) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts (if applicable) are shown within borrowings in current liabilities in the balance sheet. 42 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. (j) Summary of significant accounting policies (continued) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. Inventories (k) Inventories comprise hydrocarbon stocks, drilling materials and spare parts and are valued at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on a first in first out cost basis. Cost of inventory includes the purchase price after deducting any rebates and discounts, as well as any associated freight charges. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. (l) Other financial assets Classification The Group’s financial assets consist of loans and receivables. These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting period which are classified as non- current assets. Loans and receivables are included in trade and other receivables (note 7) and other financial assets (note 12) in the balance sheet. Amounts paid as performance bonds or amounts held as security for bank guarantees in satisfaction of performance bonds are classified as other financial assets. Measurement At initial recognition, the Group 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 that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Loans and receivables are subsequently carried at amortised cost using the effective interest method. (m) Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. 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. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. 43 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies (continued) Land is not depreciated. Depreciation of plant and equipment is calculated on a reducing balance basis so as to write off the net costs of each asset over the expected useful life. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. 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 are included in the profit or loss. The expected useful life for each class of depreciable assets is: Class of Fixed Asset Expected useful life Buildings 40 years Leasehold Improvements 2 – 6 years Plant and Equipment Motor Vehicles 2 – 10 years 5 – 10 years (n) Exploration expenditure Exploration and evaluation costs are expensed as incurred. Acquisition costs of rights to explore are accumulated in respect of each separate area of interest. Acquisition costs are carried forward where right of tenure of the area of interest is current and these costs are expected to be recouped through sale or successful development and exploitation of the area of interest or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area are written off in the financial period the decision is made. Each area of interest is also reviewed at the end of each accounting period and accumulated costs written off to the extent that they will not be recoverable in the future. Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. (o) (i) Intangible assets Software Costs incurred in acquiring software and licences that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 5 years. (ii) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 3 to 5 years. (p) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. 44 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. (q) Summary of significant accounting policies (continued) Provisions Provisions for legal claims, restoration, and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (r) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and long service leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Share-based payments Share-based compensation benefits are provided to employees (including directors) by Central Petroleum Limited. The fair value of options granted is recognised as an employee benefits expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. 45 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. (s) Summary of significant accounting policies (continued) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (t) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. (u) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares by the weighted average number of ordinary shares outstanding during the financial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the exercise of all dilutive potential ordinary shares. (v) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (w) Parent entity financial information The financial information for the parent entity, Central Petroleum Limited, disclosed in note 21, has been prepared on the same basis as the consolidated financial statements except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Central Petroleum Limited. (ii) Tax consolidation legislation Central Petroleum Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Central Petroleum Limited, and the controlled entities in the tax consolidated Group account for their own current and deferred tax amounts where recognition of such is permitted under accounting standards. These tax amounts are measured as if each entity in the tax consolidated Group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Central Petroleum Limited also recognises the current tax liabilities or assets and the deferred tax assets arising from unused tax losses from controlled entities, where permitted to recognise such assets under accounting standards. 46 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 1. Summary of significant accounting policies (continued) (x) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods. The Group's assessment is that these standards are not expected to have a material impact on the consolidated entity in the current or future reporting periods and on foreseeable future transactions, other than as set out below. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013). In July 2011 the AASB decided to remove the key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures to achieve consistency with the international equivalent standard and to remove a duplication of the requirements of the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments will apply from 1 July 2013 and cannot be adopted early. The Corporations Act 2001 requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future. AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049 In September 2011, the AASB made an amendment to AASB 101 Presentation of Financial Statements which requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. The group intends to adopt the new standard from 1 July 2012. AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective for annual reporting periods beginning on or after 1 January 2013) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. When adopted, the Group does not expect the new standard to have an impact on its classification or measurement of the group’s accounting for financial assets. There will be no impact on the group's accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated as at fair value through profit or loss and the group does not have any such liabilities. AASB 10 Consolidated Financial Statements AASB 10 introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. There is also new guidance on participating and protective rights and on agent/principal relationships. The Group does not expect the new standard to have an impact on its composition as it currently stands. AASB 11 Joint Arrangements AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. IFRS 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. The Group is yet to evaluate its joint arrangements in light of the new guidance. The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. 47 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 2. Other income Interest Research and development refunds Foreign exchange gains Other Total other income 3. Expenses Loss before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Leasehold improvements Total depreciation Amortisation Software Write off of property, plant and equipment Write off of intangible assets Rental expense relating to operating leases – Minimum lease payments 2012 $ 2011 $ 529,248 996,324 4,995 17,639 962,376 345,228 36,439 13,601 1,548,206 1,357,644 820 4,786 278,782 186,185 1,184 1,553 280,786 192,524 36,541 72,370 9,297 - 5,058 6,159 466,003 433,265 Interest paid to suppliers and joint venture partners 22,309 3,161 48 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 4. Income tax The Consolidated Entity is in a tax loss position and is not yet in a situation whereby it can satisfy AASB 112 for the recognition of its tax losses. Accordingly, no current or deferred income tax benefits have yet been brought to account. 2012 $ 2011 $ (a) Income tax expense Current tax Deferred tax (b) Numerical reconciliation of income tax expense and prima facie tax benefit Loss before income tax expense Prima facie tax benefit at 30% (2011: 30%) Tax effect of amounts which are not deductible in calculating taxable income: Depreciation on buildings Non-deductible expenses Share based payments Movement in items of deferred tax not recognised: Provisions and accruals Blackhole expenditure Accrued income Capitalised exploration expenditure Adjustment to current tax of prior periods relating to additional exploration deductions available upon entry into tax consolidation Adjustment to deferred tax of prior periods relating to provisions and accruals Deferred tax assets not recognised Income tax expense - - - - - - (26,358,168) (36,643,523) 7,907,451 10,993,057 (246) (5,321) (1,436) (4,213) (321,489) (38,900) (3,488) (68,442) 5,749 - 737,276 (41,066) 6,480 75,302 7,514,214 11,726,500 - - 3,578,268 (67,719) (7,514,214) (15,237,049) - - 49 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 4. Income tax (continued) (c) Amounts recognised directly in equity Aggregate deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited or credited to equity: Net deferred tax – debited directly to equity Deferred tax assets not recognised Net amounts recognised directly in equity 2012 $ 2011 $ 221,315 181,281 (221,315) (181,281) - - (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% 114,127,211 87,452,868 34,238,163 26,235,860 (e) Deferred tax assets and liabilities Deferred tax assets Provisions Blackhole expenditure Undeducted losses Total deferred tax assets before set-offs 156,970 153,482 1,315,755 1,025,998 34,238,163 25,594,227 35,710,888 26,773,707 Set-off of deferred tax liabilities pursuant to set-off provisions (3,147,281) (3,153,030) Net deferred tax assets not recognised 32,563,607 23,620,677 Deferred tax liabilities Accrued income Capitalised exploration expenditure Total deferred tax liabilities before set-offs 731 6,480 3,146,550 3,146,550 3,147,281 3,153,030 Set-off of deferred tax liabilities pursuant to set-off provisions (3,147,281) (3,153,030) Net deferred tax liabilities - - 50 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 2012 $ 2011 $ 5. Remuneration of auditors The following fees were paid or payable for services provided by PwC Australia, the auditor of the Company, its related practices and non-related audit firms: (i) Audit and other assurance services 2012 Audit and review of financial statements 79,750 80,000 Under provision for 2011 audit and review of financial statements Other assurance services Review of governance processes, controls and systems (ii) Taxation services Tax compliance International tax consulting and advice (iii) Other services Benchmarking services EGM related costs TSX listing consulting & advice Corporate and strategic advice 14,345 - - 94,095 45,500 - 45,500 - 6,500 30,000 - 36,500 45,500 125,500 300 47,319 47,619 5,950 - - 25,500 31,450 Total remuneration of PwC 176,095 204,569 6. Cash and cash equivalents Cash at bank and in hand Risk exposure The Group’s exposure to interest rate risk is discussed in Note 29. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of cash and cash equivalents. 12,105,232 9,463,949 51 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 7. Trade and other receivables Current Research and development refund from Australian Tax Office Other receivables GST receivables Prepayments The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed in Note 29. 8. Inventories Crude oil Drilling materials and supplies at cost 2012 $ 2011 $ 987,023 79,353 296,945 215,438 - 37,446 3,250,856 180,235 1,578,759 3,468,537 76,159 975,280 1,051,439 - 853,995 853,995 9. Property, plant and equipment Freehold Land $ Freehold Buildings $ Plant and equipment $ Leasehold Improvements $ Total $ Year ended 30 June 2011 Opening net book amount - - 440,570 4,542 445,112 - - 578,079 (2,309) Additions 230,000 191,452 156,627 Disposals, write offs and adjustments Depreciation charge - - - (2,309) (4,786) (186,185) (1,553) (192,524) Closing net book amount 230,000 186,666 408,703 2,989 828,358 At 30 June 2011 Cost 230,000 191,452 877,332 12,670 1,311,454 Accumulated depreciation - (4,786) (468,629) (9,681) (483,096) Net book amount 230,000 186,666 408,703 2,989 828,358 52 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 9. Property, plant and equipment (continued) Freehold Land $ Freehold Buildings $ Plant and equipment $ Leasehold Improvements $ Total $ Year ended 30 June 2012 Opening net book amount 230,000 186,666 408,703 2,989 828,358 Additions Disposals, write offs and adjustments Depreciation charge - - - 9,495 1,294,406 800 1,304,701 - (71,508) - (71,508) (820) (278,782) (1,184) (280,786) Closing net book amount 230,000 195,341 1,352,819 2,605 1,780,765 At 30 June 2012 Cost 230,000 200,947 2,100,231 13,470 2,544,648 Accumulated depreciation - (5,606) (747,412) (10,865) (763,883) Net book amount 230,000 195,341 1,352,819 2,605 1,780,765 2012 $ 2011 $ 10. Exploration assets Acquisition costs of rights to explore 10,488,500 10,488,500 Movements for the year: Balance at the beginning of the year Expenditure incurred during the year Expenditure written off during the year Balance at the end of the year 10,488,500 10,237,492 - - 319,718 (68,710) 10,488,500 10,488,500 53 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 11. Intangible assets Software At the beginning of the year Cost Accumulated amortisation Net book value Movements for the year: Opening net book amount Additions Disposals, write offs and other adjustments Amortisation Closing net book amount At the end of the year Cost Accumulated amortisation Net book value 2012 $ 2011 $ 264,456 269,174 (192,050) (121,054) 72,406 148,120 72,406 16,803 (883) (36,541) 51,785 148,120 5,565 (8,909) (72,370) 72,406 280,376 264,456 (228,591) (192,050) 51,785 72,406 12. Other financial assets Security bonds on exploration permits 1,318,941 2,412,746 Security bonds are provided to State or Territory governments in respect of certain performance obligations arising from awarded petroleum and mineral tenements. The bonds are typically provided as cash or as bank guarantees in favour of the State or Territory government secured by term deposits with the financial institution providing the bank guarantee. 13. Trade and other payables Trade payables Other payables Trade payables are usually non-interest bearing provided payment is made within the terms of credit. The consolidated entity’s exposure to liquidity and currency risks related to trade and other payables is disclosed in Note 29. 3,583,832 143,795 806,588 450,741 3,727,627 1,257,329 54 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 14. Current liabilities - Provisions Employee entitlements Restoration and rehabilitation 2012 $ 2011 $ (b) (a) 301,027 60,000 361,027 326,128 60,000 386,128 (a) Movements in restoration and rehabilitation provision Carrying amount at start of year Charged/(credited) to profit or loss Carrying amount at end of year 60,000 - 60,000 - 60,000 60,000 (b) Amounts not expected to be settled within the next 12 months The current provision for employee entitlements includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service. The amount is presented as current, since the consolidated entity does not have an unconditional right to defer settlement for these obligations. However, based on past experience the consolidated entity does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months. Leave obligations expected to be settled after 12 months - 102,131 15. Non-current liabilities - Provisions Employee entitlements – long service leave 82,960 49,862 16. Contributed equity (a) Share Capital 1,383,376,265 (2011: 982,298,842) fully paid ordinary shares 122,700,723 99,105,548 55 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 16. Contributed equity (continued) (b) Movements in ordinary share capital Balance at start of year Exercise of listed options at 16 cents per share Placement of share to sophisticated investors on 21 September 2011 at 5.5 cents Share purchase plan placement of share to existing shareholders on 3 February 2012 at 5.5 cents Placement of share to sophisticated investors on 3 February 2012 at 5.5 cents Placement of share to institutional investors on 4 April 2012 at 5.5 cents Placement of shares to sophisticated investors on 30 September 2010 at 8.6 cents per share Capital raising costs Number of shares 2012 2011 $ 2012 $ 2011 982,298,842 907,289,333 99,105,548 93,209,470 6,000 9,509 960 1,281 91,000,000 130,071,423 50,000,000 130,000,000 - - - - 5,005,000 7,153,900 2,750,000 11,050,000 - - - - - - 75,000,000 - - (2,364,685) 6,450,000 (555,203) 1,383,376,265 982,298,842 122,700,723 99,105,548 (c) Options granted during the year The following options over unissued ordinary shares were granted by the Company during the year: Date of Issue Class Expiry Date Exercise Price 20 Jul 2011 Unlisted Employee options 19 Aug 2011 Unlisted Employee options 30 Aug 2011 Unlisted Employee options 15 Nov 2011 Unlisted Employee options 30 Nov 2011 Unlisted Employee options 20 Jul 2016 19 Aug 2016 30 Aug 2016 15 Nov 2016 30 Nov 2016 31 Mar 2012 Unlisted Shareholder options 31 Mar 2015 29 Jun 2012 Listed options (CTPO) 31 Mar 2014 $0.110 $0.115 $0.115 $0.095 $0.095 $0.125 $0.160 (d) Options exercised during the year The following options over unissued ordinary shares were exercised during the year: Class Expiry Date Exercise Price Listed options (CTPO) 31 Mar 2014 $0.160 Number of Options 7,646,665 2,000,000 4,000,000 12,993,335 6,000,000 65,000,000 28,571,431 Number of Options 6,000 56 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 16. Contributed equity (continued) (e) Options lapsed during the year The following options over unissued ordinary shares lapsed during the year: Class Expiry Date Exercise Price Unlisted Employee Options Unlisted Employee Options Unlisted Employee Options Unlisted Employee Options Unlisted Employee Options Unlisted Employee Options Unlisted Director Options Unlisted Employee Options1 31 Jul 2011 31 Aug 2011 17 Nov 2011 19 Jan 2012 16 Feb 2012 23 Feb 2012 3 Jan 2012 - $0.330 $0.300 $0.250 $0.250 $0.250 $0.250 Various $0.110 1 options forfeited during the year (f) Unissued shares under option At year end, options over unissued ordinary shares of the Company are as follows: Class Expiry Date Exercise Price Listed options (CTPO) Unlisted Employee options Unlisted Director options 31 Mar 2014 31 Mar 2014 31 Mar 2014 Unlisted Shareholder options 31 Mar 2015 Unlisted Employee options Unlisted Employee options Unlisted Employee options Unlisted Employee options Unlisted Employee options Unlisted Employee options Unlisted Employee options Unlisted Employee options 31 May 2015 31 Oct 2015 12 May 2016 20 Jul 2016 19 Aug 2016 30 Aug 2016 15 Nov 2016 30 Nov 2016 $0.160 $0.200 Various $0.125 $0.122 $0.110 $0.120 $0.110 $0.115 $0.115 $0.095 $0.095 Number of Options 200,000 500,000 666,666 1,000,000 250,000 200,000 11,000,000 2,200,000 Number of Options 302,875,956 8,366,666 7,500,000 65,000,000 6,340,000 600,000 300,000 5,646,665 2,000,000 4,000,000 12,993,335 6,000,000 None of the options entitle holders to participate in any share issue of the Company or any other entity. (g) Capital risk management The Group’s objective when managing capital is to safeguard the ability to continue as a going concern to ultimately add value for shareholders through the exploitation of hydrocarbon resources. This is monitored through the use of cash flow forecasts. In order to maintain the capital structure, the Group may issue new shares or other equity instruments. Given the Group is still in the exploration phase, equity is the sole source of funding. Debt is not a viable option and therefore gearing ratios are not currently applicable. 57 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 2012 $ 2011 $ 17. Reserves Share options reserve 7,964,729 6,893,100 Movements: Balance at start of year Share based payments costs Share based capital raising costs Balance at end of year 6,893,100 6,763,432 705,904 365,725 129,668 - 7,964,729 6,893,100 The reserve is used to record the value of share based payments provided to employees and directors as part of their remuneration and underwriters of share placements. Refer to note 28 for further details of share based payments. 18. Accumulated losses Movements in accumulated losses were as follows: Balance at the start of the year Net loss for the year Balance at the end of the year (80,103,476) (43,459,953) (26,358,168) (36,643,523) (106,461,644) (80,103,476) 19. Loss per share (a) Basic loss per share (cents) (2.28) (3.80) (b) Diluted loss per share (cents) (2.28) (3.80) (c) Loss used in loss per share calculation Loss attributable to ordinary equity holders of the Company (26,358,168) (36,643,523) (d) Weighted average number of ordinary shares Weighted average number of shares used as the denominator in calculating basic and diluted earnings per share 1,157,003,501 963,598,282 Options on issue are considered to be potential ordinary shares and have not been included in the calculation of basic earnings per share. Additionally, any exercise of the options would be antidilutive as their exercise to ordinary shares would decrease the loss per share. In accordance with AASB 133 they are also excluded from the diluted loss per share calculation. Refer to Note 16 for details of options on issue. 58 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 20. Segment reporting Management has considered the operating segments based on the reports reviewed by the chief operating decision maker, being the board of directors that are used to make strategic decisions. As the consolidated entity is in the exploration phase of operations, the board considers the business as a whole, and makes decisions on the allocation of resources based on its strategic objectives. The operations of the consolidated entity involve a single industry segment being that of exploration for hyrdrocarbons. The consolidated entity’s operations are wholly in one geographical location being Australia. 21. Parent entity information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: 2012 $ 2011 $ Balance Sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Shareholders’ equity: Issued capital Reserves Accumulated losses Total equity Loss for the year Total comprehensive loss 11,448,146 5,582,000 12,569,131 12,994,160 24,017,277 18,576,160 (3,281,899) (1,238,240) - (49,862) (3,281,899) (1,288,102) 20,735,378 17,288,058 122,700,723 99,105,548 7,964,729 6,893,100 (109,930,074) (88,710,590) 20,735,378 17,288,058 (21,219,484) (19,587,026) (21,219,484) (19,587,026) (b) Guarantees entered into by the parent entity No guarantees have been provided by the parent entity (2011: Nil). (c) Contingent assets and liabilities of the parent entity A contingent asset exists in relation to proceedings brought against a supplier. Details are set out in Note 26 (b). There are no contingent liabilities (2011: Nil). (d) Commitments of the parent entity Operating lease commitments of the parent entity are set out in note 27 (b). 59 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 22. Related party transactions (a) Parent entity The parent entity is Central Petroleum Limited. (b) Subsidiaries The consolidated financial statements include the financial statements of Central Petroleum Limited and the subsidiaries listed in the following table. Name of entity Place of Incorporation Merlin Energy Pty Ltd Merlin West Pty Ltd Western Australia Western Australia Helium Australia Pty Ltd Victoria Ordiv Petroleum Pty Ltd Western Australia Frontier Oil & Gas Pty Ltd Western Australia Central Green Pty Ltd Western Australia Central Geothermal Pty Ltd Western Australia Merlin Coal Pty Ltd Western Australia Central Petroleum Services Pty Ltd Western Australia Class of Shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary (c) Key management personnel Disclosures relating to key management personnel are set out in note 23. Equity holding 2012 2011 % 100 100 100 100 100 100 100 100 100 % 100 100 100 100 100 100 100 100 100 (d) Transactions with other related parties Superannuation contributions 2012 $ 2011 $ Contributions to superannuation funds on behalf of employees 283,113 242,169 60 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 23. Key management personnel (continued) (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Share based payments 2012 $ 2011 $ 2,074,783 1,186,032 218,246 11,601 268,426 87,819 20,393 31,108 2,573,056 1,325,352 Detailed remuneration disclosures are provided in the remuneration report on pages 17 to 26. (b) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with the terms and conditions of the options, can be found in the remuneration report on pages 17 to 26. (ii) Option holdings The number of options over ordinary shares in the Company held during the financial year by each director of Central Petroleum Limited and other key management personnel of the consolidated entity, including their personally related parties, are set out below. Balance at start of year Granted as compensation Exercised Other changes Held at date of departure Balance at end of year Vested and exercisable Unvested Non-Executive Directors Henry Askin 2012 2011 William Dunmore 2012 2011 Michael Herrington 2012 2011 Wrixon Gasteen 2012 2011 Andrew Whittle 2012 2011 Richard Faull 2012 2011 Edmund Babington 2012 2011 5,340,000 5,340,000 3,400,000 3,400,000 N/A N/A N/A N/A N/A N/A 3,580,550 3,580,550 N/A N/A - - - - - - - - - - N/A N/A - N/A - N/A - - - - N/A - N/A - - - (2,000,000) - (2,000,000) - - N/A - N/A - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3,340,000 3,340,000 5,340,000 5,340,000 1,400,000 1,400,000 3,400,000 3,400,000 - N/A - N/A - N/A - N/A - N/A - N/A N/A (2,000,000) 1,580,550 N/A - - N/A 3,580,550 3,580,550 - N/A N/A N/A N/A N/A N/A N/A N/A 61 - - - - - N/A - N/A - N/A N/A - N/A N/A C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 23. Key management personnel (continued) (b) Equity instrument disclosures relating to key management personnel Balance at start of year Granted as compensation Exercised Other changes Held at date of departure Balance at end of year Vested and exercisable Unvested Executive Directors and Other Key Management Personnel Richard Cottee 20121 2011 Daniel White 2012 2011 Bruce Elsholz 2012 2011 Dalton Hallgren 2012 2011 Trevor Shortt 2012 2011 John Heugh 2012 2011 N/A N/A - N/A - N/A - N/A 3,096,000 1,550,000 3,096,000 - 2,000,000 1,000,000 2,000,000 - - N/A - N/A 4,000,000 N/A 4,000,000 N/A 7,803,978 7,503,978 - - - - - - - N/A - N/A - - - - - - - N/A - N/A N/A N/A N/A N/A N/A N/A - N/A - N/A - N/A 4,646,000 4,646,000 - 3,096,000 2,096,000 1,000,000 3,000,000 3,000,000 - 2,000,000 1,333,332 666,668 N/A N/A 4,000,000 N/A 2,000,000 N/A 2,000,000 N/A N/A N/A 4,000,000 N/A 2,000,000 N/A 2,000,000 N/A (5,000,000) 2,803,978 N/A N/A 300,000 N/A 7,803,978 7,803,978 N/A - 1 172,922,033 unlisted options exercisable at $0.09 on or before 15 November 2015 and 15 November 2017 were issued to FEP on 8 August 2012, a company in which Richard Cottee has a beneficial equity interest. 62 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 23. Key management personnel (continued) (iii) Share holdings The number of shares in the Company held during the financial year by each director of Central Petroleum Limited and other key management personnel of the consolidated entity, including their personally related parties, are set out below. There were no shares granted as compensation during the year. Held at beginning of year Held at date of appointment Share purchase plan issue Received on exercise of options Net change other Held at date of departure Held at end of year N/A N/A - N/A N/A N/A N/A N/A 766,666 766,666 3,600,000 3,600,000 Non-Executive Directors Henry Askin 2012 2011 William Dunmore 2012 2011 Michael Herrington 2012 2011 Wrixon Gasteen 2012¹ 2011 Andrew Whittle 2012 2011 Richard Faull 2012 2011 Edmund Babington N/A 2012 N/A 2011 Executive Directors and Other Key Management Personnel 2,386,100 2,386,100 N/A N/A N/A N/A N/A N/A - N/A - N/A - N/A Richard Cottee 2012 2011 Daniel White 2012 2011 Bruce Elsholz 2012 2011 Dalton Hallgren 2012 2011 Trevor Shortt 2012 2011 John Heugh 2012 2011 N/A N/A 1,440,000 1,440,000 - - N/A N/A N/A N/A 5,741,429 5,703,693 - N/A N/A N/A N/A N/A - N/A - N/A N/A N/A ¹200,000 ordinary shares purchased on 11 July 2012 272,728 - 90,910 - - - - N/A - N/A - N/A - N/A - N/A - - - - - N/A - N/A 272,728 - 63 - - - - - N/A - N/A - N/A - - - N/A - N/A - - - - - N/A - N/A - - - - - - - N/A - N/A 400,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3,872,728 3,600,000 776,666 776,666 - N/A - N/A 400,000 N/A - - 2,477,010 N/A N/A 2,386,100 - N/A - N/A - - - - - N/A - N/A - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A - 6,014,157 N/A N/A - N/A 1,440,000 1,440,000 - - - N/A - N/A - 37,736 N/A 5,741,429 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 (c) Other transactions with key management personnel (i) During the year ended 30 June 2012 the consolidated entity paid $46,528 (2011: $59,423) to Dunmore Consulting, a business in which Mr Dunmore is the principal, for the provision of technical and corporate advisory services. This transaction was on normal commercial terms and conditions no more favourable than those available to other parties. (ii) During the year ended 30 June 2012 the consolidated entity paid $25,000 (2011: $nil) to Jabiru Energy, Development and Innovation Pty Ltd, a business in which Mr Herrington is the principal, for the provision of corporate advisory services prior to appointment to the board of directors of the Company. This transaction was on normal commercial terms and conditions no more favourable than those available to other parties. (iii) FEP has provided the services of Richard Cottee on the basis of a secondment to the Company. As such compensation is made to FEP in line with Richard Cottee’s service agreement shown on page 25. Richard Cottee has a beneficial equity interest in FEP. During the year ended 30 June 2012 FEP have received compensation of $158,913 with $29,796 expensed for services provided to 30 June 2012. $129,117 has been treated as a prepayment in the reporting period as it relates to future service for the period 1 July 2012 to 30 September 2012. An accrual for $435,000 exists in relation to Mr Cottee’s sign on payment of $250,000, and incidental expenses incurred by FEP of $185,000. 24. Reconciliation of loss after income tax to net cash outflow from operating activities 2012 $ 2011 $ Loss after income tax Adjustments for: Depreciation and amortisation Share-based payments Write off of property, plant and equipment Write off of intangible assets Changes in assets and liabilities relating to operating activities: Decrease in trade and other receivables (Increase) / decrease in inventories Decrease in exploration assets Increase / (decrease) in trade and other payables (Decrease) / increase in provisions (26,358,168) (36,643,523) 317,327 705,904 9,297 - 264,894 129,668 5,058 6,159 1,889,778 9,464,834 (197,444) - 114,381 68,709 2,428,928 (7,780,978) (25,101) 210,261 Net cash outflow from operating activities (21,229,479) (34,160,537) 25. Non-cash investing and financing activities There were no non-cash investing and financing activities (2011: Nil). 64 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 26. Contingencies (a) Contingent liabilities (i) The consolidated entity had contingent liabilities at 30 June 2012 in respect of certain joint venture payments. As partial consideration under the terms of the purchase agreement for EPs 105, 106 and 107, there is a requirement to pay the vendor the sum of $1,000,000 (2011: $1,000,000) within twelve months following the commencement of any future commercial production from the permits. (ii) During the 2012 financial year various legal claims were made against the Company by Petroleum Nominees Pty Ltd (“PNPL”), a Clive Palmer company. On 31 August 2012 the Company announced to the ASX that all legal proceedings with PNPL had been settled with no material financial outflow to the Company incurred. (iii) On 26 March 2012 the Company advised that it had terminated the employment of Mr John Heugh. Mr John Heugh commenced an action in the Supreme Court of Western Australia against the Company disputing the Company's termination of his employment. The Company is defending the action vigorously. On 13 April 2012 the Company advised that Mr John Heugh had served an application seeking an injunction in the Supreme Court of Western Australia to restrain the Company from: • • taking any steps to call a general meeting of members of the Company to consider a resolution that Mr John Heugh be removed as a director of the Company; or further or alternatively from moving such resolution at any general meeting, pending the hearing and determination of Mr John Heugh’s legal action disputing the Company's termination of his employment (as announced on 26 March 2012). On 17 April 2012 the Company advised that the injunction application brought by Mr John Heugh had been dismissed by the Court. Mr John Heugh was ordered to pay the Company’s costs of the application. The directors believe that a favourable outcome to the dispute is probable and no material amounts will be payable by the Company. (b) Contingent assets On 31 March 2011, the Company announced it had initiated legal proceedings against Century Energy Services Pty Ltd to protect its interests. The proceedings follow an unplanned incident which occurred during the drilling of Surprise-1 in EP 115 whereby the monkey board and 129 stands of racked drill pipe twisted around the rig mast by thirty degrees whilst the wireline sheaves were being repositioned. This incident resulted in the Company having to necessarily terminate the drilling contract with Century Energy Services Pty Ltd for performance related issues. The Company is currently preparing for its arbitration proceedings against Century Energy Services Pty Ltd and MB Century Drilling Pty Ltd. The matter is currently expected to proceed to an arbitration hearing in the first quarter of 2013. The directors believe a favourable outcome is probable. However, the contingent asset has not been recognised as a receivable at 30 June 2012 as receipt of the amount is dependent on the outcome of the proceedings. There were no other contingent assets at 30 June 2012 (30 June 2011 - $nil). 65 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 2012 $ 2011 $ 27. Commitments (a) Capital commitments The consolidated entity has exploration expenditure commitments on the following permits: Petroleum EPs 82, 93, 97, 105, 106, 107, 112, 115, 118, and 125. Mineral ELs 27094, 27100, 27101, 27102, 27103, 27104, 27105, 27107, 27108, 27109, 27110, 27114, 28095, 28096 and 28097. The following amounts are due: Within one year Later than one year but not later than five years 18,291,583 11,634,000 60,528,250 57,041,000 78,819,833 68,675,000 In the petroleum industry it is common practice for entities to farm-out, transfer or sell a portion of their rights to third parties or relinquish them altogether and, as a result, obligations may be reduced or extinguished. (b) Operating lease commitments The consolidated entity, through its parent entity Central Petroleum Limited, has non-cancellable operating leases for office premises in Perth, Alice Springs and Brisbane. The leases have varying terms, escalation clauses and renewal rights. Commitments for minimum lease payments in relation to non- cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years 661,627 751,446 1,413,073 384,494 185,364 569,858 66 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 28. Share based payments (a) Employee options An Incentive Option Scheme operates to provide incentives for employees. Participation in the plan is at the board’s discretion; however the plan is open to all employees and directors of the Company. At the discretion of the Company, performance criteria may or may not be established in respect of options that vest under the Incentive Option Scheme. Options are granted for no consideration. Options that have been granted to date to employees, excluding directors, have contained service conditions in respect of their vesting. Options have vested progressively from grant date to, in some cases, an employee’s third anniversary. As of the date of this report no options issued under the Incentive Option Scheme have contained any performance criteria in respect of their vesting. There are no rules imposing a restriction on removing the ‘at risk’ aspect of options granted to employees or directors. One ordinary share is issued upon exercise of one option. Set out below are summaries of options that have been granted to directors and employees. Expiry Date Exercise price Balance at start of the year Number Granted during the year Number Exercised during the year Number 2012 31 July 2011 31 August 2011 17 November 2011 3 January 2012 3 January 2012 3 January 2012 3 January 2012 3 January 2012 19 January 2012 16 February 2012 23 February 2012 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 May 2015 31 October 2015 12 May 2016 20 Jul 2016 19 Aug 2016 30 Aug 2016 15 Nov 2016 30 Nov 2016 Totals $0.33 $0.30 $0.25 $0.28 $0.33 $0.37 $0.43 $0.50 $0.25 $0.25 $0.25 $0.22 $0.25 $0.28 $0.32 $0.37 $0.20 $0.122 $0.11 $0.12 $0.11 $0.115 $0.115 $0.095 $0.095 200,000 500,000 666,666 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 1,000,000 250,000 200,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,366,666 6,340,000 800,000 300,000 - - - - - - - - - - - - - - - - - - - - - - - - - 7,646,665 2,000,000 4,000,000 12,993,335 6,000,000 37,123,332 32,640,000 Weighted average exercise price $0.261 $0.102 - - - - - - - - - - - - - - - - - - - - - - - - - - - Expired or forfeited during the year Number (200,000) (500,000) (666,666) (2,200,000) (2,200,000) (2,200,000) (2,200,000) (2,200,000) (1,000,000) (250,000) (200,000) - - - - - - - (200,000) 1 - (2,000,000)1 - - - - Balance at end of the year Number Vested and exercisable at the end of the year - - - - - - - - - - - 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,366,666 6,340,000 600,000 300,000 5,646,665 2,000,000 4,000,000 - - - - - - - - - - - 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,366,666 6,290,000 433,333 200,000 4,431,110 2,000,000 2,000,000 12,993,335 12,993,335 6,000,000 3,000,000 (16,016,666) 53,746,666 47,214,444 $0.324 $0.146 $0.151 Weighted average remaining contractual life (years) at the end of the year 3.829 1 Options were forfeited during the year 67 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 28. Share based payments (continued) Expiry Date Exercise price Balance at start of the year Number Granted during the year Number Exercised during the year Number Expired or forfeited during the year Number Balance at end of the year Number Vested and exercisable at the end of the year 2011 30 November 2010 20 February 2011 31 March 2011 31 July 2011 31 August 2011 17 November 2011 3 January 2012 3 January 2012 3 January 2012 3 January 2012 3 January 2012 19 January 2012 16 February 2012 23 February 2012 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 March 2014 31 May 2015 31 October 2015 12 May 2016 Totals $0.30 $0.20 $0.30 $0.33 $0.30 $0.25 $0.28 $0.33 $0.37 $0.43 $0.50 $0.25 $0.25 $0.25 $0.22 $0.25 $0.28 $0.32 $0.37 $0.20 $0.122 $0.11 $0.12 1,800,000 7,000,000 1,450,000 200,000 500,000 666,666 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 1,000,000 250,000 200,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,366,666 6,340,000 - - - - - - - - - - - - - - - - - - - - - - 800,000 - 300,000 46,273,332 1,100,000 Weighted average exercise price $0.258 $0.113 - - - - - - - - - - - - - - - - - - - - - - - - - (1,800,000) (7,000,000) (1,450,000) - - - - - - - - - - - - - - - - - - - - - - 200,000 500,000 666,666 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 1,000,000 250,000 200,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,366,666 6,340,000 800,000 - 300,000 - - - 200,000 500,000 666,666 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 1,000,000 250,000 150,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 8,316,666 4,369,999 266,667 200,000 (10,250,000) 37,123,332 34,419,998 $0.232 $0.261 $0.271 Weighted average remaining contractual life (years) at the end of the year 2.330 68 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 28. Share based payments (continued) (b) Employee options granted during the year Options granted during the year ended 30 June 2012 and 30 June 2011 were valued using a binomial option pricing model. The model inputs for option issued during the year included: Grant date Expiry date Number of options 2012 20 Jul 2011 19 Aug 2011 30 Aug 2011 15 Nov 2011 30 Nov 2011 2011 20 Jul 2016 19 Aug 2016 30 Aug 2016 7,646,665 2,000,000 4,000,000 15 Nov 2016 12,993,335 30 Nov 2016 6,000,000 Average fair value per option $0.0278 $0.0342 $0.0351 $0.0232 $0.0243 Exercise price Price of shares on grant date Estimated volatility* Risk free interest rate Dividend yield $0.110 $0.115 $0.115 $0.095 $0.095 $0.065 $0.065 $0.066 $0.057 $0.057 87.44% 92.06% 92.16% 72.93% 70.04% 4.37% 3.74% 3.99% 3.60% 3.38% 0.0% 0.0% 0.0% 0.0% 0.0% 9 Nov 2010 31 Oct 2015 800,000 12 May 2011 12 May 2016 300,000 $0.031 $0.029 $0.110 $0.120 $0.07 $0.07 85.56% 85.40% 5.10% 5.05% 0.0% 0.0% * The estimated price volatility is based on the historical price volatility for the 12 months prior to the date of granting of the options, adjusted for any expected changes to future volatility due to publicly available information. (c) Expenses arising from share-based payment transactions Total expenses arising from share based transactions recognised during the year were: Options issued to directors and employees 2012 $ 2011 $ 705,904 129,668 69 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 29. Financial risk management The consolidated entity’s principal financial instruments are cash and short-term deposits. The consolidated entity also has other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The consolidated entity’s risk management objective with regard to financial instruments and other financial assets include gaining interest income and the policy is to do so with a minimum of risk. (a) Credit Risk The credit risk on financial assets of the consolidated entity which have been recognised in the balance sheet is generally the carrying amount, net of any provision for doubtful debts. The consolidated entity trades only with recognised banks and it is considered that the credit risk is minimal. There are no significant concentrations of credit risk within the consolidated entity. The aging of the consolidated entity’s receivables at reporting date was: Trade and other receivables Gross Past due: 0 – 30 days Past due: 31 – 150 days Past due: 151 – 365 days Past due: More than 1 year 2012 $ 1,104,007 229,226 30,074 - 2011 $ 117,131 538,458 1,575,927 1,056,786 1,363,307 3,288,302 Impairment 2012 $ 2011 $ - - - - - - - - - - Based on historic default rates, the consolidated entity believes that no impairment allowance is necessary in respect of receivables past due by up to 150 days. The receivables at 30 June 2012 relate predominantly to Research & Development and GST refunds due from the Australian Tax Office. Over 97% of trade and other receivables have been received to date. (b) Liquidity Risk The following are the contractual maturities of financial assets and liabilities: 2012 Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities Trade and other payables ≤ 6 months $ 6 - 12 months $ 1 - 5 years $ ≥ 5 years $ Total $ 12,105,232 1,363,307 - 13,468,539 (3,727,627) (3,727,627) - - - - - - - - 1,318,941 1,318,941 - - - - - - - - 12,105,232 1,363,307 1,318,941 14,787,480 (3,727,627) (3,727,627) 70 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 29. Financial risk management (continued) ≤ 6 months $ 6 - 12 months $ 1 - 5 years $ ≥ 5 years $ Total $ 9,463,949 3,288,302 - 12,752,251 (1,257,329) (1,257,329) - - - - - - - - 2,412,746 2,412,746 - - - - - - - - 9,463,949 3,288,302 2,412,746 15,164,997 (1,257,329) (1,257,329) 2011 Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities Trade and other payables (c) Interest Rate Risk The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: Consolidated Weighted Average Effective Interest Rate Floating interest rate Fixed interest Non-interest bearing Total 2012 % 2011 % 2012 $ 2011 $ 2012 $ 2011 $ 2012 $ 2011 $ 2012 $ 2011 $ Financial Assets: Cash and cash equivalents Trade and other receivables Other financial assets 3.1 2.7 12,105,232 9,463,949 - - 3.6 5.7 - - - - - - - - - - 12,105,232 9,463,949 1,363,307 3,288,302 1,363,307 3,288,302 912,239 2,271,438 406,702 141,308 1,318,941 2,412,746 Financial Liabilities: Trade and other payables - - Net Financial Assets/(Liabilities) 12,105,232 9,463,949 912,239 2,271,438 1,770,009 3,429,610 14,787,480 15,164,997 - - - - - - - - 3,727,627 1,257,329 3,727,627 1,257,329 3,727,627 1,257,329 3,727,627 1,257,329 12,105,232 9,463,949 912,239 2,271,438 (1,957,618) 2,172,281 11,059,853 13,907,668 Interest Rate Sensitivity A sensitivity of 10 per cent has been selected as this is considered reasonable given the current level of both short term and long term interest rates. A 10% movement in interest rates at the reporting date would have increased (decreased) equity and profit and loss by the amounts shown below based on the average amount of interest bearing financial instruments held. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed only on those financial assets and liabilities with floating interest rates and is prepared on the same basis as for 2011. 2012 Profit or Loss Equity 10% Increase 10% Decrease 10% Increase 10% Decrease Cash and cash equivalents 37,526 (37,526) 2011 Cash and cash equivalents 25,309 (25,309) - - - - 71 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 29. Financial risk management (continued) (d) Currency Risk The consolidated entity’s exposure to currency risk is limited due to its ongoing operations being in Australia and all associated contracts completed in Australian dollars. A small foreign exchange risk arises from liabilities denominated in a currency other than Australian dollars. The Group generally does not undertake any hedging or forward contract transactions as the exposure is considered immaterial, however individual transactions are reviewed for any potential currency risk exposure. (e) Fair Values The carrying amounts of cash, cash equivalents, financial assets and financial liabilities, approximate their fair values. 30. Interests in joint ventures Details of joint ventures in which the consolidated entity has an interest are as follows: EP 97 Joint Venture (Rawson) EP 82 Magee Joint Venture (OGE) EP 125 Mt Kitty Joint Venture (OGE) Principal activities Oil & gas exploration Oil & gas exploration Oil & gas exploration 2012 % 80.00 86.12 76.54 2011 % 80.00 86.12 76.54 Rawson = Rawson Resources Limited OGE = Oil and Gas Exploration Limited (formerly He Nuclear Limited) The share in the assets and liabilities of the joint ventures where less than 100% interest is held by the Company are included in the consolidated entity’s balance sheets in accordance with the accounting policy described in note 1(b) under the following classifications: 2012 $ 256,888 124,289 381,177 589,995 (208,818) 2011 $ 228,707 371,323 600,030 87,919 512,111 20,323 110,021 (1,676,279) (18,794,907) (1,655,956) (18,684,886) Current assets Cash and cash equivalents Trade and other receivables Total assets Current liabilities Trade and other payables Net assets Joint venture contribution to loss before tax Revenue Expenses Loss before income tax 72 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 N O T E S T O T H E C O N S O L I D AT E D F I N AN C I AL S T AT E M E N T S F O R T H E Y E AR E N D E D 3 0 J U N E 2 0 1 2 31. Events occurring after the reporting period Subsequent to 30 June 2012 the following events have occurred: (i) Option issues The Company issued unlisted options to FEP on 8 August 2012, a Company in which Mr Richard Cottee has a beneficial interest. The issued unlisted options are set out below; Grant Date 8 Aug 2012 8 Aug 2012 8 Aug 2012 Number of options issued 48,418,169 55,335,051 69,168,813 Exercise price Fair value per option Expiry Date $0.09 $0.09 $0.09 $0.022 $0.027 $0.024 15 Nov 15 15 Nov 17 15 Nov 17 (ii) Legal Actions with Petroleum Nominees Pty Ltd (a Clive Palmer company) (“PNPL”) Please refer to note 26(a)(ii). Other than the matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 73 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 DIRECTORS’ DECLARATION In the directors opinion: a) the financial statements and notes set out on pages 34 to 73 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with the International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors: Richard Cottee Executive Director Perth, 14 September 2012 74 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 AS X AD D I T I O N AL I N F O R M AT I O N AT 3 1 AU G U S T 2 0 1 2 Details of shares and options as at 31 August 2012: Top holders The 20 largest registered holders of each class of quoted equity security as at 31 August 2012 were: Ordinary fully paid shares Name Merrill Lynch (Australia) Nominees Pty Limited Citicorp Nominees Pty Limited National Nominees Limited Petroleum Nominees Pty Limited Marford Group Pty Limited Brighten International Pty Limited Mr Mark Philip Shawcross JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Franze Holdings Pty Limited RBJ Nominees Pty Limited Renlyn Bell Investments Pty Limited AMG International Pty Limited Petroleum Nominees Pty Limited Salavente Pty Limited Mr Geoffrey Rol UBS Nominees Pty Limited Brispot Nominees Pty Limited EPS Management Pty Limited Advent Energy Limited 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. No. of Shares 67,224,594 40,397,487 29,820,530 27,413,896 14,832,421 13,841,551 13,070,001 11,351,676 11,058,113 10,232,728 10,050,000 10,016,670 8,915,000 8,700,000 8,625,000 7,966,731 7,572,897 6,817,525 6,416,638 6,250,000 % 4.86 2.92 2.16 1.98 1.07 1.00 0.94 0.82 0.80 0.74 0.73 0.72 0.64 0.63 0.62 0.58 0.55 0.49 0.46 0.45 320,573,458 23.17 Options exercisable at $0.16 each on or before 31 March 2014 Name No. of Options % 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Franze Holdings Pty Limited Mr Philip Howard Robson Avatar Equities Pty Limited Victor M Lewis Pty Limited Mrs Melanie Mullins Mrs Yoke Khaw Lo + Dr Kelvin Lo Mr James David Harry Boddam-Whetham Renlyn Bell Investments Pty Limited Dr Kelvin Lo + Mrs Yoke Lo Citicorp Nominees Pty Limited Madeiros Pty Limited Mr Robert Baskerville Long National Nominees Limited Merrill Lynch (Australia) Nominees Pty Limited Mr Terrence McCarthy Advent Energy Limited Mr Brian Douglas Hill Dr Kelvin Lo Atlantis Investigations Pty Limited Mr David Christopher Kemp 9,230,000 6,671,446 5,662,526 5,000,000 4,952,663 4,500,000 4,443,898 4,350,000 4,250,000 4,245,606 4,125,000 3,617,929 3,279,750 3,255,563 3,250,000 3,125,000 3,000,000 3,000,000 2,906,904 2,904,423 3.05 2.20 1.87 1.65 1.64 1.49 1.47 1.44 1.40 1.40 1.36 1.19 1.08 1.07 1.07 1.03 0.99 0.99 0.96 0.96 85,770,708 28.32 77 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 AS X AD D I T I O N AL I N F O R M AT I O N AT 3 1 AU G U S T 2 0 1 2 Distribution schedules A distribution schedule of each class of equity security as at 31 August 2012: Ordinary fully paid shares Range Holders Units % 1 1,001 5,001 10,001 100,001 - 1,000 - 5,000 - 10,000 - 100,000 - Over 225 638 1,258 4,566 1,942 31,554 2,432,178 10,477,933 197,030,892 1,173,403,708 0.00 0.18 0.76 14.24 84.82 Total 8,629 1,383,376,265 100.00 Listed options exercisable at $0.16 each on or before 31 March 2014 Range Holders Units % 1 1,001 5,001 10,001 100,001 - 1,000 - 5,000 - 10,000 - 100,000 - Over 605 782 362 772 406 379,488 2,150,069 2,814,549 30,145,040 267,386,810 0.13 0.71 0.93 9.95 88.28 Total 2,927 302,875,956 100.00 Substantial shareholders As at 31 August 2012, there are no substantial shareholders in the Company. Restricted Securities As at 31 August 2012, the Company had no restricted securities. Unmarketable parcels Holdings less than a marketable parcel of ordinary shares (being 4,762 shares as at 31 August 2012): Holders Units 679 1,548,508 Holdings less than a marketable parcel of listed options exercisable at $0.16 each on or before 31 March 2014 (being 16,130 options as at 31 August 2012): Holders Units 1,918 7,576,240 Voting Rights Subject to any rights or restrictions for the time being attached to any class or classes of shares, at meetings of shareholders or classes of shareholders: • • • each shareholder entitled to vote may vote in person or by proxy, attorney or representative of a shareholder; on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and on a poll, every person present who is a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for their share, but in respect of partly paid shares, shall have such number of votes being equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable in respect of those shares (excluding amounts credited).. On-Market Buy Back There is no current on-market buy-back. 78 C E N T R AL P E T R O L E U M L I M I T E D AB N 7 2 0 8 3 2 5 4 3 0 8 INTERESTS IN PETROLEUM PERMITS, MINERAL LICENSES AND GEOTHERMAL PERMITS AT 31 AUGUST 2012 Permits and Licenses Granted Location Tenement Operator EP 82 (1) EP 93 EP 97 (2) EP 105 EP 106 EP 107 EP 112 EP 115 EP 118 EP 125 (1) EL-27094 EL-27100 EL-27101 EL-27102 EL-27103 EL-27104 EL-27105 EL-27106 EL-27107 EL-27108 EL-27109 EL-27110 EL-27114 EL-28095 EL-28096 EL-28097 EL-28472 Amadeus Basin NT Pedirka Basin NT Pedirka Basin NT Amadeus/Pedirka Basin NT Amadeus Basin NT Amadeus/Pedirka Basin NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Permits and Licenses Under Application Tenement Location Operator EPA 92 EPA 111 EPA 120 EPA 124 EPA 129 EPA 130 EPA 131 EPA 132 EPA 133 EPA 137 EPA 147 EPA 149 EPA 152 EPA 160 ATP 909 ATP 911 ATP 912 PELA 77 16/08-9 17/08-9 18/08-9 EL 27095 EL 27096 EL 27097 EL 27098 EL 27099 Lander Trough NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Lander Trough NT Pedirka Basin NT Pedirka Basin NT Georgina Basin NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Amadeus Basin NT Lander Trough NT Georgina Basin QLD Georgina Basin QLD Georgina Basin QLD Pedirka Basin SA Amadeus Basin WA Amadeus Basin WA Amadeus Basin WA Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Pedirka Basin NT Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central Central CTP Consolidated Entity Registered Interest (%) Other JV Participants Participant Name Beneficial Interest (%) Rawson Resources Ltd 20% Beneficial Interest (%) 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 CTP Consolidated Entity Projected Projected Registered Beneficial Interest (%) Interest (%) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (1) For the Magee prospect Block within EP 82 and the Mt Kitty prospect Block within EP 125 the beneficial interest is 86.12% and 76.54% respectively. The remaining beneficial interest is held by Oil & Gas Exploration Limited (formerly known as He Nuclear Limited). (2) For the Simpson, Bejah and Pelinor Sub- Blocks within EP 97. 79 

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