Cue Biopharma, Inc. Annual Report 2012

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FY2012 Annual Report · Cue Biopharma, Inc.

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12 October 2012

PAGES (including this page): 83

A.B.N. 45 066 383 971

Company Announcements Office
10th Floor
20 Bond Street
Sydney NSW 2000

Annual Report for 2011/ 2012

Attached please find Cue Energy Resources Limited release with
respect to the above mentioned.

Yours faithfully

Andrew M Knox
Public Officer

CUE ENERGY OVERVIEW

Cue is an Australian based oil & gas
company with projects in Australia,
New Zealand, Indonesia and PNG.

THE COMPANY HAS:

• Long life production
• A strong balance sheet
• An active exploration program

CUE ENERGY DIRECTORS

• Richard Tweedie (Chairman)
• Timothy Dibb
• Geoffrey King
• Steve Koroknay
• Paul Moore
• Leon Musca
• Andrew Young

CUE ENERGY MANAGEMENT

• Mark Paton (CEO)
• Andrew Knox (CFO)
• David Whittam (Exp Man)

OFFICE

Level 21
114 William Street
Melbourne Vic 3000

CONTACT DETAILS

Tel: +61 3 9670 8668
Fax: +61 3 9670 8661

mail@cuenrg.com.au

WEBSITE

www.cuenrg.com.au

LISTINGS
CUE
ASX:
NZX:
CUE
POMSOX: CUE
ADR/OTCQX: CUEYY

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CUE ENERGY RESOURCES LIMITED

ABN 45 066 383 971

Level 21, 114 William Street
Melbourne Victoria 3000 Australia

Telephone: +61 3 9670 8668
Facsimile: + 61 3 9670 8661
Web Site: www.cuenrg.com.au
E-mail: mail@cuenrg.com.au

building on
our strength

CUE ENERGY RESOURCES LIMITED

Cue Energy Resources Limited
is an oil and gas exploration and
production company with a focus
on SE Asia and Australasia.

About
Cue Energy

Cue Energy Resources has petroleum assets in Papua
New Guinea, Indonesia, New Zealand and Australia.
The company has continuously grown over recent years
through a mix of acquisitions and discoveries.

It is Cue Energy’s objective to develop a
robust and substantial E & P company with
a focus on the Asia Pacific region and market
capitalisation in excess of A$1 Billion through:

- maximising value of existing assets

- building organisational capability

- aggressively pursuing new E & P assets

- developing a balanced portfolio of

exploration, development and production
opportunities

- increasing stakes in assets to 30-50%
rather than current levels of 5-40%
and take up operatorship as required

- actively pursuing value accretive acquisitions

2012
Results

Revenue of $44.27 million

Net profit after tax of $5.7 million

Cash on hand $33.7 million

Company now debt free

Inside
this report

Chairman’s Letter

Corporate Directory

Joint Venture Interests

2
4
5
6
Chief Executive Officer’s Review
16 Corporate Governance Statement
20 Annual Report Of Directors
33 Independence Declaration
34 Directors’ Declaration
35 Consolidated Statement
of Comprehensive Income
36 Consolidated Statement of
Financial Positions
37 Consolidated Statement of
Changes in Equity

38 Consolidated Statement of Cash Flows
39 Notes to the Financial Statements
76 Independent Audit Report
78 Shareholder Information

Cue Energy Resources Limited Annual Report 2012

Chairman’s
Letter

In 2010 and 2011 the company realised significant improvements
in cash flow, earnings and profits through increased production
from our Maari asset. However, in 2012 Cue’s results have been
impacted by a reduction in production volumes.

Total production volumes fell from 990,000 barrels of oil equivalent
in 2011 to 760,000 barrels of oil equivalent in 2012. Gas production
volumes were 2.9 bcf which were similar to last year but oil production
volumes fell substantially from 500,923 barrels in 2011 to 279,107
barrels in 2012. The reduction in oil volume was partly caused by
the natural decline of the Maari reservoir, the underperformance
of the water flood in the Maari-Moki reservoir and problems with
the electrical submersible pumps. It was also partly caused by an
increase in the Indonesian government’s share of profit oil from Oyong
production. All of the Oyong project costs have now been recovered
and under the terms of the production sharing contract the Indonesian
government starts to take its share of profit oil.

We have been working closely with the operator of our Maari asset,
OMV, to determine how we can improve asset performance. I am
pleased to report that these efforts seem to be working and that we
are gradually seeing a reduction in the rate of production decline
and substantially higher equipment uptime. Plans are being put in
place to further appraise the greater Maari area which should confirm
reserves additions in 2013 and result in additional production from
2014 onwards.

We also arrested our declining production to some extent by bringing
the Wortel gas field into production. The project was completed largely
on schedule and budget and commenced production on 31st January
2012 at a stabilised rate of 47 mmscfd from the two platform wells.
With a full year of production Wortel will contribute substantially to
Cue’s cash flow in 2013.

As a consequence of reduced production volumes our gross profit was
down to $27.4 million compared with the 2011 result of $43.4 million.
This reduction was despite the average realised oil prices being about
105 US dollars per barrel and approximately 10 per cent higher than
in 2011. Net profit after tax for the year was $5.7 million down from
$19.1 million for 2011.

The company’s balance sheet remains strong. At the end of the
financial year the company had cash reserves of $33.7 million and no
debt. The project finance facility taken out to fund Cue’s share of the
Maari project was completely repaid. Our cashflow forecast indicates
that the company has sufficient financial resources to deliver the
business plan based on current oil prices, over the next five years.

Conventional energy companies are continuously depleting their
reserves which need to be replaced to maintain production and cash
flow. In 2012 we increased our exploration activities significantly,
deploying some of our cash resources into moderate impact but low
risk exploration activities in an attempt to replenish our depleting
reserves base. The company participated in three exploration wells,
two within the Mahakam Hilir permit in the Kutei Basin in Indonesia
called Naga Utara-1 and Naga Selatan-1 and one on the North West
Shelf of Australia called Banambu Deep-1. Naga Utara-1 appears
to be a high pressure gas discovery but it is too early to be certain
regarding a commercial development or reserves volumes. However,
with further appraisal there is potential for Cue to book substantial
additional reserves in 2013. Naga Selatan and Banambu Deep-1 both
failed to encounter producible hydrocarbons although in the case of
Naga Selatan there were good oil and gas shows which caused us to
deepen the well to 8,300 feet. There is an up-dip potential in Naga
Selatan which may be appraised in the future.

In 2013, Cue will continue to explore for conventional oil and gas
resources onshore Indonesia in the Mahakam Hilir permit. The Naga
Utara high pressure gas discovery will be appraised via a well to be
called Naga Merah-1. The well, which is to be drilled in the first quarter
of 2013, will confirm the lateral extent of the high pressure gas sands
encountered in Naga Utara -1, will explore for deeper sands within the
existing Naga Utara structure and confirm via production testing the
sustainable flowrate from the well. Once this well has been drilled and
tested we are hopeful of being able to book substantial gas reserves
and firm up further exploration drilling within the permit.

In PEP51313, Cue and its partners funded the extension of the Maari
3D seismic survey to cover the Whio (formerly Pike) prospect and the
spill chain to the south including the Paua and Matariki stratigraphic
leads. The 3D survey is currently being processed and will be
interpreted later in 2012. We hope that the interpretation will confirm
a robust, low risk prospect at Whio and the leads to the south and

crystallise our plans to drill these prospects. In the same permit the 2D
seismic data over the Pukeko and Te Whatu leads obtained in 2011
have confirmed the existence of robust four way dip closures in both
leads which could potentially lead to drilling one of these prospects in
2013 or 2014. The Joint Venture is currently in discussion with OMV, the
operator of the Maari field, regarding access to Maari infrastructure for
the tie in of any discovery in PEP 51313.

In Australia, in June 2012, we had a disappointment in WA389-P
where the Banambu Deep-1 exploration well was a dry hole. The
well was operated by Woodside Petroleum and would have been
transformational for Cue had it discovered gas. BHP Billiton Petroleum
farmed in to the permit for a 40% interest in return for funding
the Banambu Deep-1 well to a capped amount and contributing to
Woodside’s back costs. The Movida 3D survey acquired by Woodside
in 2011 confirmed the existence of a number of prospects within
the permit including the Caterina prospect which could contain up
to 8 TCF of recoverable gas reserves. Cue still has 35% equity in
the permit and is hopeful that BHP and Woodside see additional
prospectivity within the permit and will participate in further drilling.
Cue has equity in five contiguous permits on the North West Shelf
which are adjacent to the Rankin and Goodwyn fields. We are of
the view that there is still strong potential for a significant discovery
within our permits and we are working hard to identify and drill
viable prospects within these permits.

In Papua New Guinea the PNG LNG facilities are being constructed
with commissioning expected in June 2014. The SE Gobe gas cap will
be depleted and sold to the PNG LNG joint venture. This will monetise
a static gas resource and also extend the economic life of the oilfield.
Gas sales from SE Gobe will commence at the rate of 35 mmscfd
from mid 2014. The PNG LNG project will ultimately permit a number
of static gas resources to be produced and to that end the PRL-9 joint
venture continues to seek early commercialisation for the Barikewa
gas discovery.

As Chairman of the board I can assure shareholders that the Board
and Management of Cue continue to work hard to build your company
and we believe that in 2013 we will deliver increased production
and with a little good fortune increased reserves. The company is
actively seeking new opportunities some of which we hope to be
able to announce in the near future. The company has a very solid
balance sheet and so will be able to take full advantage of these new
opportunities as they arise.

Finally, Terry White, our Exploration Manager since 2006, retired and
was replaced by David Whittam. David comes to Cue with over 30
years of experience having worked previously with BHP Petroleum and
Woodside and more recently Karoon Gas. The Board thanks Terry for
his service to Cue and wish him well in retirement.

Richard Tweedie
Chairman

28th of September 2012

Cue Energy Resources Limited Annual Report 2012Joint venture
interests

NEW ZEALAND

Maari Oil Field

PMP 38160 Oil Production
69%
OMV*
16%
Todd
10%
Horizon
Cue
5%
PEP 51149 Exploration
Todd*
Cue
PEP51313 Exploration
Todd*
Horizon
Cue

50%
30%
20%

80%
20%

(i) 8.181878% in the Jeruk field.

* Operator

^^ Title held by North West Shelf

Exploration Pty Ltd

INDONESIA

AUSTRALIA

40%
30%
30%

Carnarvon Basin Permits
WA-389-P Exploration
25%
Woodside*
Cue
35%
BHP Billiton Petroleum 40%
WA-359-P Exploration
Apache*
Cue
Exoil
WA-360-P Exploration
MEO*^^
Cue
WA-409-P Exploration
Apache*
Cue
Rankin Trend Pty Ltd
WA-361-P Exploration
MEO*^^
Mineralogy
Cue

50%
35%
15%

40%
30%
30%

62.5%
37.5%

Sampang PSC Oil, Gas Production

Santos*
SPC
Cue(i)

45%
40%
15%

Mahakam Hilir PSC Exploration

SPC*
Cue

60%
40%

PAPUA NEW GUINEA

PDL 3 Oil Production

Santos*
SHP
Oil Search
Cue
(SE Gobe Unit
PRG

15.921718%
40.149650%
36.35974%
5.568892%
3.285651%)
2.0%

PRL14 Gas Resources

Oil Search*
Murray
Cue

62.556%
26.497%
10.947%

PRL9 Gas Resources
Oil Search*
Santos
Cue

45.106%
40%
14.894%

Corporate
Directory

Directors
R.G. Tweedie LL.B – Chairman
T.E. Dibb BSc, PhD, Dip M’gmt
G.J. King LL.B
S.J. Koroknay BE(Hons)
P.D. Moore BSc, MBA
L. Musca LL.B
A.A. Young BE, MBA (Hons)

Chief Executive Officer
M.J. Paton B.SC (Hons), MIChemE

Chief Financial Officer/
Company Secretary
A.M. Knox B.Com

Registered Office
AUSTRALIA
Level 21, 114 William Street
Melbourne Victoria 3000
Telephone: + 61 3 9670 8668
Facsimile: + 61 3 9670 8661
Website: www.cuenrg.com.au
Email: mail@cuenrg.com.au
ABN 45 066 383 971

Stock Exchange Listings
AUSTRALIA
Australian Securities Exchange Ltd
525 Collins Street
Melbourne, Victoria 3000 Australia
ASX Code: CUE

NEW ZEALAND
New Zealand Exchange Limited
Level 2, NZX Centre, 11 Cable Street
PO Box 2959
Wellington, New Zealand

PAPUA NEW GUINA
Port Moresby Stock Exchange
Cnr of Champion Parade & Hunter Street
Port Moresby, Papua New Guinea

UNITED STATES OF AMERCIA
OTCQX
OTC Markets
304 Hudson Street 3rd Floor
New York, NY 10013-1015

Solicitors
Allens Linklaters
Level 37, 101 Collins Street
Melbourne, Victoria 3000 Australia

Auditor
BDO East Coast Partnership
Level 14, 140 William Street
Melbourne, Victoria 3000 Australia

Bankers
ANZ Banking Group Limited
91 William Street
Melbourne Victoria 3000 Australia

Investec Bank (Australia) Limited
Level 31, The Chifley Tower
2 Chifley Square
Sydney NSW 2000 Australia

ASB Bank Limited
PO Box 35, Shortland Street
Auckland 1140 New Zealand

National Australia Bank Limited
Level 4, 330 Collins Street
Melbourne Victoria 3000 Australia

Share Registry
AUSTRALIA
Computershare Investor Services Pty Ltd
Yarra Falls, 452 Johnston Street
Abbotsford, Victoria 3067 Australia
GPO Box 2975
Melbourne, Victoria 3000 Australia
Telephone: 1300 850 505 (within Australia)
or +61 3 9415 4000 (outside Australia)
Email: web.queries@computershare.com.au
Website: www.computershare.com.au

PAPUA NEW GUINEA
Computershare Investor Services Pty Limited
C/- Kina Securities
Level 2, Deloitte Tower
Douglas Street
(PO Box 1141)
Port Moresby, National Capital District
Papua New Guinea
Telephone: +67 5 308 3888
Facsimile: +67 5 308 3899

Cue Energy Resources Limited Annual Report 2012Chief Executive
Officer’s
Review

The 2011/12 financial year has certainly had its ups and downs.
In October 2011 we obtained Indonesian government approval to
farm-in for 40% of the highly prospective Mahakam Hilir pemit in
the Kutei Basin in Indonesia. The Kutei basin is the most prolific
oil and gas province in Indonesia. The block is operated by SPC
Mahakam Hilir Pte Ltd (SPC) which is a subsidiary of Petrochina.
SPC is also a major shareholder of Cue.

Two exploration wells were drilled in the permit during the
year called Naga Utara-1 and Naga Selatan-1. In February and
March we announced a discovery of high pressure gas bearing
sands in the Naga Utara-1 well, unfortunately due to the very
high pressures encountered, which were largely unexpected,
and poor hole conditions, difficulties were encountered in
obtaining the well logs and test data which are required to be
certain about the commercial significance of the discovery. We
did manage to obtain a sample of the gas which is sweet and
has a carbon dioxide content of less than 0.5%. Cue is of the

view that the sands encountered are likely to be able to sustain
commercial flowrates as evidenced by the gas kick and well
flow encountered during drilling and is working with SPC to plan
and execute an appraisal of the discovery via a well to be called
Naga Merah -1, to be drilled in early 2013. The Naga Merah-1
well will also explore deeper potential within the Naga Utara
structure with the possibility that further gas bearing sands will
be encountered. Naga Merah-1 will certainly be an exciting well
for Cue.

In June we completed the drilling of Naga Selatan-1, this was a
20 million barrel oil prospect which we rated as about a one in
three chance of commercial success. Unfortunately, whilst we
encountered oil and gas shows throughout the well, and as a
consequence deepened the well from the planned 6500 feet
to 8300 feet, wireline logs indicated that the oil and gas shows
were residual hydrocarbons and that we had drilled the well
down dip from the crest of the structure. Further drilling may be
justified at Naga Selatan after further seismic data processing and
possibly further acquisition.

Also in June, Cue participated in the drilling of Banambu Deep-
1 in WA-389-P offshore on the North West Shelf. Woodside
originally farmed into the 100% Cue owned permit to acquire a
65% working interest and operatorship. Woodside paid for Cue’s
back costs, the Movida 3D seismic survey and the drilling of the
Banambu Deep-1 well in return for their equity and operatorship
in the permit. Two weeks before the well spudded, BHP Billiton
acquired 40% of Woodside’s interest in return for funding the
Banambu Deep-1 well. Cue saw this as confirmation by a major
operator of the prospectivity of the permit. Banambu Deep-1 was
identified on 3D Seismic as a high amplitude channel sand within
the Triassic Mungaroo formation. Unfortunately the channel
sand intersected was water bearing. The joint venture is yet to
decide whether there will be further exploration drilling in the
permit, however, Cue still sees the Caterina prospect as a valid
exploration target.

Nevertheless, despite the ambiguous result in Indonesia and
the negative result on the North West Shelf, Cue did achieve
what it set out to do at the beginning of the year and that was
to participate in more exploration wells than in previous years,
thereby giving us a better chance of growing the company to
the next level. It is still my view that Cue needs to participate in
around 3-5 exploration wells per year at affordable equity levels
to give us a reasonable chance of transformational growth.

In WA-360-P, where Cue has a 37.5% working interest, Cue and
Operator, MEO Australia have acquired on permit and some off
permit data from the Foxhound 3D Survey. This data is being
evaluated to firm up the Maxwell lead with a view to potentially
farming out our interest and drilling a well on Maxwell in 2013
or 2014. Maxwell is potentially an extension of the Pluto and
Wheatstone trend and is currently mapped as a structure which
is capable of holding over 1 TCF of recoverable gas.

Next year, in addition to the Naga Merah-1 well, we expect to
commence the further appraisal and infill drilling in the producing
Maari and Manaia fields where Cue has a 5% working interest.
A rig is planned to be mobilised to New Zealand in the middle

of 2013 which will drill appraisal wells on Manaia and Maari
South and also drill Maari Mangehewa and Manaia Managhewa
development wells from the existing platform. There is the
potential to identify up to 90 million barrels of additional reserves
via this appraisal drilling, which may add material value to the
company. The development wells will also result in increased
production from the field in 2014.

The PEP 51313 Joint Venture where Cue has a 20% working
interest, is also working hard to assess the risks of drilling of the
Whio (formerly known as Pike) Pukeko and Te Whatu prospects.
These prospects have mean prospective resource in place
estimates of 42, 111 and 187 million barrels of oil respectively.
Whio is the most likely to be drilled because of its low risk and
proximity to the Maari Field infrastructure for a low cost tie back.

In addition to increasing exploration and appraisal activities
through the year, Cue has evaluated acquiring a number of
proven undeveloped resources and producing assets where
we can see incremental value to be added through doing so.
The aim is to accelerate the building of substantial cash flows
which may be reinvested in increased exploration activities
or further asset acquisitions. We hope to be able to announce
the successful acquisition of some of these assets in the next
financial year. We will continue to seek opportunities where
Cue has a competitive advantage through our technical
knowledge of the target assets or the relationships that we
have within the region.

In FY 2012 oil production sales were down substantially from
500,923 barrels in 2011 to 279,107 barrels in 2012. This was
in part due to the natural decline of the Maari, SE Gobe and
Oyong reservoirs. Maari production was particularly impacted
due to the apparent lack of pressure support provided to the
Moki cycle 1 producers through water injection into the Moki
cycle 2 formation. Well performance and reservoir studies have
confirmed that the intra Moki shale provides a barrier to pressure
support between the cycle 2 injectors and the cycle 1 producers.
The water injection wells were therefore reperforated where
possible in the Moki cycle 1 formation in the first quarter of 2012
and since this time we have observed a gradual improvement in
the performance of the production wells.

Also in Maari we experienced continued unreliability of the
electrical submersible pumps (ESP) A number of workovers to
replace ESP’s with a modified design were successfully executed
during the year and from April 27th we have had all wells
available for the first time in the field’s history.

Significant production downtime was also experienced in the
Oyong Field due to the tie in of the new Wortel facilities and the
drilling of the Oyong-11 infill well. Additionally, as Cue has now
recovered all of the capital costs from the Oyong development
the Indonesian government takes a much larger share of the
produced oil and gas in accordance with the terms of the
production sharing contract.

At the end of the financial year all oil producing assets were
producing reliably and the gradual improvement in the
performance of the Maari production wells has continued which
bodes well for higher oil production volumes in 2013.

Cue Energy Resources Limited Annual Report 20122012 Highlights in PNG
• SE Gobe gas sale negotiations near

completion

South East gobe gas sales
into the PNG LNG Project
to commence 2014

0100kmKumulOilterminalMt HagenGorokaElk AntelopeKeremaPort MoresbyP’nyangJuhaHidesMoranAgogoKutubuGobeSE GobeKimuBarikewaPNGLNGPDL3PRL14PRL9CORAL SEAAUSTRALIANEW GUINEAChief Executive Officers Review Continued

Papua New Guinea

Production
Cue’s share of oil sales from the SE Gobe field for the financial
year was 28,897 barrels (2011: 30,998 barrels). The lower
volume reflects the expected decline rate for the field. Workovers
were successfully completed on SEG-8 and SEG-1ST1 during
the year which is supporting production. Further workovers to
remove sand build up in the wellbores SEG-5ST1 and SEG-11 are
planned which will reduce the rate of field decline in the next
financial year.

Oil Search, the operator, has estimated field oil reserves at
31 December 2011 to be;

Million Barrels of Oil (Gross)

y
r
e
v
o
c
e
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t
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m

i
t
l
U

o
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n
o
i
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c
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d
o
r
P

1
1
0
2
c
e
D
1
3

e
v
i
t
a
l
u
m
u
C

Proved (1P)

44.181

42.215

Proved + Probable (2P)

44.891

42.215

Proved, Probable &
Possible (3P)

45.829

42.215

e
b
o
t
g
n
n
i
a
m
e
R

)
e
r
a
h
S
e
u
C
(

d
e
c
u
d
o
r
p

1.966
(0.065)

2.676
(0.088)

3.614
(0.119)

These reserves are consistent with SPE guidelines and definitions.

The Gas Sales Agreement for the sale of the SE Gobe gas cap gas
has been negotiated and is expected to be signed imminently.
The Gobe and SE Gobe gas cap is to be blown down to the PNG
LNG pipeline thus commercialising this static resource. Gas is
expected to be produced at a rate of 35 mmscfd gross from mid
2014. Oil Search are currently completing the processing facilities
necessary to process the Gobe field’s associated gas to achieve
the gas specification required as a feedstock to the LNG plant.
The total volume of gas reserves to be produced to the PNG LNG
plant is expected to be around 130 BCF over 10 years.

Appraisal
The gross recoverable contingent gas resource volume in the
Barikewa discovery is 611 billion cubic feet (2C). Cue’s share of
this resource is 91 billion cubic feet. At this stage the PNG LNG
operator ExxonMobil has stated that in the short term there is
currently no surplus LNG processing capacity in Port Moresby.
Cue and its partners continue to seek a commercial development
path for this resource. The PNG government has agreed to defer
the drilling of the commitment well in the permit, which was
scheduled to be drilled in the fourth quarter of 2012, into the
next permit term. Appraisal drilling will be completed once there
is more certainty regarding a commercialisation path.

Proved (1P)

Proved +
Probable (2P)

Proved, Probable & Possible
(3P)

OCIP
(MSTB)

Solution
OGIP (BCF)

Free OGIP
(BCF)

Total OGIP
(BCF)

Ultimate
Recovery
(BCF)

Remaining to be produced
(BCF) (Cue Share)

1,000

137.0

91.9

229.0

144.3

144.3 (3.760)

1,300

152.1

96.3

248.4

175.9

175.9 (4.584)

1,500

167.6

268.2

211.2

211.2 (5.504)

Note:
(1) OCIP is original condensate in place.
(2) Ultimate recovery is Raw Gas at the wellhead including condensate and LPG. No allowance has been made for fuel and flare consumption

Cue Energy Resources Limited Annual Report 2012

Chief Executive Officers Review Cont

Australia

2012 Highlights in Indonesia
• Two wells drilled in Mahakam Hilir PSC,

onshore Kalimantan

• Appraisal drilling planned commencing

Q1 2013

• Infill well drilled in Oyong field

increasing oil production by over 40%

• Wortel production commences Q1 2012

Wortel DevelopmentCompleted31/1/12Scale: 30kmEAST JAVAMADURA ISLANDMADURA STRAITSurabayaGratiProbolinggoSampangSumenepGresikLecesJAVA SEA7km pipelineOyongPlatformFSOProductionBargeOnshore gasProcessing plantEast Java pipelinePNG pipelineGASPHASEDEVELOPMENTCOMPLETEDOILPHASEWortelPlatformChief Executive Officers Review Continued

Indonesia

Production
Cue’s share of oil sales from the Oyong field for the financial
year was 44,225 barrels (2011: 197,720 barrels). Whilst field
production volumes continue to exceed that forecast due to
better than expected reservoir performance and very high facility
uptime, the volume of oil sold by Cue reduced significantly as
cost recovery was completed during the financial year and the
Indonesian government commenced taking its share of profit
oil. Oyong oil was also shut down completely during September
2011 to permit tie in of the Wortel project and further shutdowns
were required to permit drilling of the Oyong-11 infill oil
production well.

Drilling of the Oyong-11 was completed in February 2012 and
production from the well has been brought on-stream. The new
production from Oyong-11 has increased current oil production
from the field to over 2,800 bopd with a stabilised oil rate from
the well of almost 1000bopd.

The development of the Wortel gas field was completed during
the year with gas production commencing on 31st January 2012.
The project was completed within the originally anticipated
budget and within a few weeks of the original schedule. During
February the production rate from Wortel was gradually increased
up to a stable rate of approximately 47MMscf/d. The balance
of the gas production is from the Oyong Field, with the PSC
reliably producing the daily contract quantity of approximately 85
MMscf/d (90 Billion BTU per day) to the power station at Grati.

Cue’s share of gas sales from the Oyong and Wortel fields was
2.90 billion cubic feet ( 2011: 2.93 billion cubic feet). This was
made up from 1.96 bcf from Oyong and 0.93 bcf from Wortel.
The gas is being sold under a long term contract to the PT
Indonesia Power electricity generating station at Grati.

Estimated gross oil and gas reserves as at 31 December 2011
were;

In Place Volumes

Ultimate Recovery

Cumulative Production to 31 Dec 11

Remaining Reserves as at 31 Dec 11

Oil

Gas

Remaining oil

Cue Share

Remaining gas

Cue Share

Oil (million bbl)

Gas (BCF) (1)

43.6

8.04

6.8

55.4

8.33

6.8

59.7

8.69

6.8

1.24

1.53

1.89

0.066

0.082

0.101

100

42.9

27.1

2.54

117

42.9

52.1

4.88

136

103

42.9

60.1

5.63

(1) For gas, estimates of in-place and recoverable volumes include both free gas and solution gas, and recoverable volume estimates are shown as “Sales Gas” figures.

(2) Oil and gas volumes are net of Indonesian government share of production

These reserves are consistent with SPE guidelines and definitions.

Wortel

Non associated gas in place
(BCF)

Ultimate gas recovery
(BCF) (Cue share)

Condensate recovery
(Million barrels) (Cue share)

Proved (1P)

Proved + Probable (2P)

Proved, Probable & Possible (3P)

134

166

Note:

(1) Cue’s share is net of Indonesian government share of production.

77.2 (10.73)

113.6 (15.79)

132.4(18.40)

0.23 (0.02)

0.34(0.03)

0.39(0.04)

Cue Energy Resources Limited Annual Report 20122012 Highlights in New Zealand
• 3D Seismic acquired over Maari /Manaia

and Whio prospect in PEP51313

• 3D Matariki seismic completed and Te Whatu

2D Seismic interpretation completed in
PEP51313

Second stage development
planned for Maari

Chief Executive Officers Review Continued

New Zealand

Maari Oil Field
Cue’s share of oil production from the Maari field for the financial
year was 269,680 barrels (2011: 360,750 barrels). This was
below Cue’s forecast of 300,000 barrels and was a disappointing
result. Much of the lost production was attributable to failures of
electrical submersible pumps (ESP). A total of five workovers were
performed during the year to replace failed pumps. A smaller
pump was installed in each well with no coupling between the
two electric motors which drive the pump. Since the end of April
2012 there have been no further ESP failures indicating that the
reliability of the pumps is improving as we make improvements to
the well completion and the pump configuration.

During the year we also discovered that the waterflood was
not working as designed. The original development plan of the
Maari- Moki formation was that production was from horizontal
wells in the upper cycle sandstone and that water injection
was via vertical injectors in the lower cycle sandstone. The
assumption was that the thin intra-moki shale would permit
pressure communication between the injectors and producers.
The production history and reservoir modelling have indicated
that pressure support was inadequate. The pressure support of
the producers has been improved recently by adding perforations
to the water injection wells in the upper cycle sandstone and
this appears to be significantly improving the pressure support
to the production wells to the extent that modest increases in
production have been reported from the Maari-Moki wells.

Manaia
The Manaia -1 extended reach well commenced production in
October 2011 at a rate of around 3800bopd. Performance of this
well has been better than predicted with the well still producing
over 2000bopd. This is attributed to natural aquifer water influx
supporting production.

Maari Asset Development
A number of incremental development opportunities exist in the
Maari and Manaia fields. The Mangahewa sand below the current
Moki horizon in the Maari field is currently not being produced

Cue has estimated field reserves at 31 December 2011 to be:

Million Barrels of Oil (Gross)

but has been confirmed to contain producible oil via intersection
by other wells. Additionally, the Moki horizon in the Manaia
reservoir is not intersected by the extended reach well but Moki
reserves at Manaia were confirmed by the drilling of Maui 4.
There is also potential oil in the deeper F sands at Maari and
Manaia. The development of these additional reserves is being
studied and further appraisal is planned in 2013 to assess the
recoverable reserves in the non-producing horizons in the Manaia
and Maari South structures. After the appraisal wells have been
drilled a number of development wells will be drilled from the
platform to enhance production from Maari commencing in late
2013. A dual lateral well in the Maari- Mangahewa formation,
an additional well in the Manaia-Mangahewa formation and a
Maari Moki cycle 2 producer are planned. A new water injection
well for the Maari – Moki sandstone is also planned as part of
a project to improve the waterflood performance. The appraisal
and development wells have the potential to add significant
developed reserves and production in 2014. Cue’s estimate
of the incremental reserves which will be proven through the
appraisal and development programme is in the range of 20 to
90 million barrels recoverable.

Taranaki Basin Exploration
Cue farmed into the offshore PEP 51313 permit in the Taranaki
Basin in October, 2009. PEP 51313 is adjacent to the Maari and
Manaia fields. The permit contains several large prospects. In
March 2012 a 3D Seismic survey, acquired over the Maari field,
was extended to cover the Whio (formerly Pike) Paua and
Matariki stratigraphic prospects and leads in PEP 51313. This
data is being processed at present in order to mature the Whio
prospect for drilling in 2013. Discussions are underway with OMV
with a view to tying in any discovery at Whio into the Maari
FPSO. Additionally, the 2D seismic data acquired in 2011 over the
Te Whatu and Pukeko prospects has identified robust structures
which are being analysed with a view to drilling them in the
next one to two years.

In PEP 51149 permit the 2D seismic survey over the Pungarehu
prospect has been processed and interpreted. A near term decision
either drill or relinquish this portion of the permit is imminent.

Reservoir

Maari Moki

Maari M2A*

Manaia Mangahewa*

Ultimate recovery
Proved
(1P)

39.6
(28.5 developed)

1.4

1.57

Ultimate recovery
Proved + Probable
(2P)

Cumulative Production
to
31 Dec 2011

Remaining to be
produced (2P)
(Cue share)

57.5

3.0

6.27

15.4

0.7

0.8

42.1 (2.105)

2.3 (0.115)

5.47 (0.274)

These reserves are consistent with SPE guidelines and definitions.
Oil production between 31 December 2011 and 30 June 2012 was 2.00 million barrels.
Remaining to be produced at 30 June 2012 was 47.8 million barrels (2P) with Cue’s share being 2.39 million barrels.

Cue Energy Resources Limited Annual Report 2012Chief Executive Officers Review Cont

Australia

2012 Highlights in Australia
• Free carried exploration well drilled on
Banambu Deep Prospect in WA-389-P

• Foxhound 3D Seismic survey acquired

over WA-360-P

• Cash received from sale of 20% interest

in AC/RL7 to PTTEP of US$8 million

North west shelf 7,000 km2
contiguous 3D seismic
under review

Chief Executive Officers Review Continued

Australia

Carnarvon Basin
Cue has a participating interest in five large contiguous
offshore exploration permits in the Outer Rankin area of the
Carnarvon Basin. The permits have the potential to contain
large gas accumulations in a region where there are three LNG
developments proposed or under development.

In April 2010, Woodside Energy Ltd agreed to farm into Cue’s
100% interest in permit WA-389-P. Woodside earned a 65%
interest in the permit by paying US$5 million in past costs,
funding the reprocessing of the existing 3D seismic data, the
acquisition of the 1440 square kilometre Movida 3D seismic
data and the drilling of the Banambu Deep-1 exploration well.
Woodside subsequently farmed out 40% of its interest in the
permit to BHP Billiton Petroleum in return for BHP funding the
Banambu Deep-1 well to a capped amount. Woodside retained
operatorship of the permit and Cue retained a 35% free carried
interest through the drilling of the Banambu Deep-1 well.
Unfortunately, the Intra-Mungaroo Triassic channel sand observed
on the Movida 3D seismic data was found to be water bearing.

WA-389-P contains several additional prospects which have
been identified on the 3D data set including the large Caterina
prospect which has potential to contain up to 8 trillion cubic feet
of recoverable gas.

In WA-360-P permit, Cue (37.5%) and our partner MEO Australia,
have acquired part of the Foxhound 3D dataset to try and de-risk
the Maxwell lead for possible drilling in 2013.

In WA-359-P and WA-409-P, where Cue holds 30% equity in the
permit, the operator, Apache Northwest Pty Ltd have made an
application to extend the licenses and continue to try to identify
drillable prospects within the acreage using the newly acquired
Zeebries 3D seismic data.

Mark John Paton
Chief Executive Officer

28th of September 2012

Cue Energy Resources Limited Annual Report 2012Corporate
Governance
Statement

The Directors of Cue Energy Resources Limited recognise the
need for high standards of corporate governance and are focused
on fulfilling their responsibilities individually and as a Board to all
of the Company’s stakeholders.

The Company endorses the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations (with
2010 amendments) (“ASX Principles”).

Unless otherwise disclosed, the Company has in place corporate
governance practices which comply with the ASX Principles.

The following statement outlines the practices adopted by the
Company.

Principle 1: Laying Solid Foundations for
Management and Oversight.
Recommendation 1.1: Companies should establish the
functions reserved to the board and those delegated to
senior executives and disclose those functions.

The role of the Board is to lead and oversee the management
and direction of the Company.

After appropriate consultation with Executive Management the
Board:

• Defines and sets the Company’s business objectives and
subsequently monitors performance and achievement of
those Company’s objectives;

• Oversees the reporting on matters of compliance with
corporate policies and laws, takes responsibility for risk
management processes, review of Executive management
remuneration practices and insurance needs of the Company;

• Monitors and approves financial performance and budgets;

and

• Reports to shareholders

The Board has delegated authority for the running of the day to
day business to the CEO.

Recommendation 1.2: Companies should disclose
the process for evaluating the performance of senior
Management.

The performance of the senior executives is reviewed annually
as part of the duties performed by the Remuneration and
Nomination Committee. Performance measures and targets for
the Company and individual personnel are established annually.
Company and individual performance in achieving these targets
are assessed by the Board and line management.

Principle 2: Structure the Board to add value
Recommendation 2.1: A majority of the board should be
independent directors.

Recommendation 2.2: The Chair should be an independent
director.

Recommendation 2.3: The role of the Chairman and the
CEO should not be exercised by the same individual.

The current board is made up of 7 non-executive directors,
including 5 independent directors. The chairman is non-executive
and independent:

• Richard G. Tweedie (Chairman)

•

Timothy E. Dibb

• Geoffrey J. King

•

Steven J. Koroknay

Paul D. Moore

Leon Musca

• Andrew A. Young

The board comprises a broad base of industry, business, technical,
administrative, corporate skills and experience considered
necessary to represent the shareholders and fulfil the business
objectives of the Company. The details of background, experience
and professional skills of each Director are set out in the
Company website.

Each of the directors is entitled to seek independent advice
at Company expense to assist them to carry out their
responsibilities.

Recommendation 2.4: The board should establish a
nomination committee.

The board has established a Remuneration and Nomination
Committee and committee charter. The charter outlines the
responsibilities of the committee, and is available on the
Company website.

The committee is comprised of:

• Geoffrey J. King (Chairman)

•

Paul D. Moore

• Andrew A. Young

The Board at least annually reviews its composition to determine
if additional core strengths are required to be added in light of
the nature of the Company businesses and its objectives.

One third of the Directors retires annually and is free to seek
re-election by shareholders.

Recommendation 2.5: Companies should disclose the
process for evaluating the performance of the board, its
committees and individual directors.

The Remuneration and Nomination Committee have delegated
responsibility to the Chairman of the Board to undertake annual
performance evaluations. The performance evaluations are
designed to review the board performance and effectiveness
of achieving their set objectives and targets. The Chairman also
discusses with each Director their requirements, performance and
aspects of involvement in the Company. The Remuneration and
Nomination Committee is also responsible for the performance
evaluations of the senior executives, individually and together. This
is reviewed against the discussed and agreed objectives of the
Company and the effectiveness in carrying out those objectives.

Principle 3: Promotion of Ethical and
Responsible Decision Making
Recommendation 3.1: Companies should establish a code
of conduct and disclose the code or a summary of the code
as to the practices necessary to maintain confidence in
the Company’s integrity, the practices necessary to take
into account their legal obligations and the reasonable
expectations of their stakeholders and the responsibility
and accountability of the individuals for reporting and
investigating reports of unethical practices.

The Company has established a code of conduct which
recognises the Company’s commitment to business and
corporate ethics and recognition of the interests of shareholders.
Directors, senior management, employees and where relevant
and to the extent possible, contractors of the Company are
required to comply with the code of conduct.

Cue Energy Resources Limited Annual Report 2012Corporate Governance Statement Continued

Directors are required to disclose to the Board actual or potential
conflicts of interest that may or might reasonably be thought to
exist between the interests of the Director or the interests of any
other party in so far as it affects the activities of the Company
and to act in accordance with the Corporations act if conflict
cannot be removed or persists. That involves taking no part in
the decision making process or discussions where that conflict
does arise.

Directors are required to make disclosure of any share trading.
The Company policy in relation to share trading is that officers,
employees and contractors are prohibited from trading whilst in
possession of unpublished price sensitive information concerning
the Company. That is information which a reasonable person
would expect to have a material effect on the value of the
Company shares. An officer must discuss the proposal to acquire or
sell shares with the Chairman prior to doing so to ensure that there
is no price sensitive information of which that officer might not be
aware. The undertaking of any trading in shares must be notified
to the Company Secretary who makes disclosure to the ASX.

Recommendation 3.2: Companies should establish a policy
concerning diversity and disclose the policy or a summary
of that policy. The policy should include requirements
for the Board to establish measureable objectives for
achieving gender diversity for the board to assess annually
both the objectives in achieving them.

The Company established a formal policy on diversity in June
2012. This policy supports the existing equal opportunity policy
and non discrimination policy as well as states a commitment
to improving gender diversity within the Company. The
Remuneration Committee has adopted the policy and set annual
objectives for achieving gender diversity.

Recommendation 3.3: Companies should disclose in each
annual report the measureable objectives for achieving
gender diversity set by the Board in accordance with the
diversity policy and progress towards achieving them.

The measurable objectives set by the Board for achieving gender
diversity in 2012 include:

• Adopting a Company wide Diversity policy

• Disclosing the policy in the corporate governance section on

the website

•

Tracking and reporting on the percentages of women
employed by the Company as a whole, in senior
management positions and on the board.

Recommendation 3.4: Companies should disclose in each
annual report the proportion of women employees in the
whole organisation, women in senior management and
women on the board.

As at 30th June 2012 the proportion of women in the whole
organisation is 3 out of 11 (27%), the proportion of women
in senior executive positions is 0 of 4(0%) and proportion of
women on the Board is 0 of 7 (0%).

Principle 4: Safeguarding Integrity in
Financial Reporting
Recommendation 4.1: The board should establish an audit
committee

Recommendation 4.2: The audit committee should
be structured so that it consists only of non-executive
directors, a majority of independent directors, is chaired
by an independent chair who is not the chair of the board,
and has at least three members.

Recommendation 4.3: The audit committee should have a
formal charter.

An Audit and Risk Committee and charter have been established.
The charter is available on the Company website.

The Committee consists of:

•

Steven J. Koroknay (Chairman)

Leon Musca

Timothy E. Dibb

The primary role of the Audit and Risk Committee is to assist the
Board to fulfil its corporate governance responsibilities relating
to financial accounting practises, external financial reporting,
financial risk management and internal control, the internal and
external audit function, compliance with laws and regulations
relating to these areas of responsibility and identification and
development of strategies and actions to manage business risk.

All three members of the Audit and Risk Committee are non-
executive directors. It is chaired by an independent chair who is
not the chairman of the board.

Principle 5: Make timely and balanced
disclosure
Recommendation 5.1: Companies should establish written
policies designed to ensure compliance with ASX listing
rule disclosure requirements and to ensure accountability
at a senior executive level for that compliance and disclose
those policies or a summary of those policies.

The Company has in place an ASX Compliance procedure which
outlines the requirements to comply with the ASX listing rule
disclosure requirements and to ensure accountability at senior
executive level for that compliance.

The Public Officer, Company Secretary and Chief Financial Officer
A.M Knox have been nominated as the person responsible for
communications with the ASX. This role includes responsibility for
ensuring compliance with the ASX listing rules and overseeing and
co-ordinating information disclosure to the ASX, analysts, brokers,
shareholders, secondary exchanges, the media and the public.

Principle 6: Respect the rights of
shareholders
Recommendation 6.1: Companies should design
a communications policy for promoting effective
communication with shareholders and encouraging their
participation at general meetings and disclose their policy
or a summary of that policy.

The Company has established a Communications Policy for
promoting effective communication with shareholders and
encouraging their participation at general meetings.

and internal control and that the system is operating
effectively in all material respects in relation to financial
reporting risks.

The Company maintains a website which is kept up to date with
all relevant announcements to the market and related information
after release to the ASX. The web address is www.cuenrg.com.au.

A copy of the communications policy is available on the
Company website.

Principle 7: Recognising and Managing Risk
Recommendation 7.1 Companies should establish policies
for the oversight and management of material business
risks and disclose a summary of those policies.

Risk recognition and management are viewed by the Company
as integral to the Company’s objectives of creating and
maintaining shareholder value, and to the successful execution of
the Company’s strategies. The board is responsible for the overall
risk management framework and has delegated to the Audit and
Risk Committee the responsibility for:

•

reviewing the adequacy and effectiveness of the CUE’s risk
management framework;

• Assisting the Board with regards to oversight of the CUE’s
risk management by gaining assurance that all major
identified risks are being adequately managed and that
mitigation practices are appropriate.

Recommendation 7.2: The Board should require manage-
ment 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 to the effectiveness of
the Company’s management of its material business risks.

Management is responsible for designing, implementing and
reporting on the adequacy of the Company’s risk management
and internal control system and has to report to the Audit and
Risk Committee on

•

The risk management and internal control system during
the year; and

•

The Company’s management of its material business risks.

Management of the Company annually perform an assessment
of Company risks and identify measures to mitigate these risks
to as low as reasonably practicable. A risk register for the Company
is maintained to document the risks identified. The risk register
is reviewed as part of the Board meetings. A risk assessment
procedure is used to assess all risks when the Company is
contemplating a new business venture. Should the risk profile
of the Company change the risk register will be updated to
reflect this accordingly and any further controls required will be
implemented.

Recommendation 7.3: The Board should disclose whether
it has received assurance from the chief executive officer
and the chief financial officer that the declaration provided
in accordance with section 295A of the Corporations
Act is founded on a sound system of risk management

The CEO and CFO state in writing to the board every financial
year that the statements made by them regarding the integrity
of the financial statements are founded on a sound system of
risk management, internal compliance and control, which in all
material respects implements the policy as adopted by the Board
and that the risk management and internal compliance control
to the extent that they relate to financial reporting are operating
effectively and efficiently in all material respects.

Principle 8: Remunerate Fairly and
Responsibly
Recommendation 8.1: The board should establish a
remuneration committee

Recommendation 8.2: The remuneration committee
should be structured so that it: consists of a majority of
independent directors, is chaired by an independent chair
and has at least 3 members.

The board has established a Remuneration and Nomination
Committee. It consists of three non-executive members. The
chair is not the chairman of the overall board.

The committee consists of:

• Geoffrey J. King (Chairman)

•

Paul D. Moore

• Andrew A. Young

The Remuneration and Nomination Committee makes
recommendations to the full Board on remuneration packages
and other terms and conditions of employment and reviews
the composition of the Board having regard to the Company’s
present and future needs.

Remuneration and other terms and conditions of employment
are reviewed annually by the committee having regard to
the performance and relevant comparative data. As well as a
base salary, remuneration packages include superannuation,
termination entitlements, fringe benefits, annual cash bonuses
linked to short term performance and shares and options linked
to long term Company performance.

Remuneration packages are set at levels that are intended to
attract and retain high calibre staff and align the interest of the
executives with those of the Company shareholders.

Recommendation 8.3: Companies should clearly
distinguish the structure of non-executive director’s
remuneration from that of executive directors and senior
executives.

Remuneration of non-executive directors is determined by
the Board within the maximum amount approved by the
shareholders from time to time.

Further information on Directors and Executives remuneration is
set out in the Directors Report and Remuneration Report.

The Remuneration and Nomination committee charter is
available on the website.

Cue Energy Resources Limited Annual Report 2012Annual Report
of Directors

Your Directors present their report on the Company and
its controlled entities (“the Group”) for the financial year
ended 30 June 2012.

Directors
The names of Directors of the Company in office during the year
and up to the date of this report were:

Richard G. Tweedie
Timothy E. Dibb (appointed 24/11/2011)
Geoffrey J. King (appointed 24/11/2011
Steven J. Koroknay
Paul D. Moore (appointed 24/11/2011)
Leon Musca
Andrew A. Young (appointed 13/12/2011)

Company Secretary

Andrew M. Knox

Principal Activities
The principal activities of the group are petroleum exploration,
development and production. There has been no significant
change in the nature of these activities during the year.

Cue Energy Resources Limited (‘Cue’) is listed on the Australian
Securities Exchange, the New Zealand Stock Exchange and the
Port Moresby Stock Exchange. The Company has an American
Depositary Receipt (ADR) program sponsored by the Bank of New
York and these are traded via the OTCQX Market in the US.

Principal Place of Business
Level 21, 114 William Street
Melbourne 3000 Australia

Registered Office
Level 21, 114 William Street
Melbourne 3000 Australia

Dividends
No dividends were paid to members during the financial year
(2011: NIL) or have been approved subsequent to balance date.

Changes in State of Affairs
During the financial year, there was no significant change in the
state of affairs of the consolidated entity.

2011/2012 Results
Consolidated entity revenue for the year ended 30 June 2012 was
$44.270M (2011: $59.670M).

Consolidated entity expenses totalled $30.649M (2011:
$33.909M) including production and amortisation expenses and
impairment write downs.

The operating profit before income tax expense for the year was
$13.621M (2011: $25.761M). Consolidated entity tax expense
for the year was $7.958M (2011: $6.654M). Consolidated entity
profit after income tax expense was $5.663M (2011: $19.107M).

The Net Tangible Assets of the company on 30 June 2012 were
16.6 cents per share (2011: 17.3 cents).

Review of Operations
Information on the operations and financial position of the
group and its business strategies and prospects is set out in the
Chairman’s and Chief Executive Officer’s report sections of this
Annual Report.

Shareholders’ Equity & Capital Structure
Total Shareholders’ Equity as at 30 June 2012 was $125.178M
(2011: $118.833M). At balance date Cue had issued share capital
of $152.416M (2011: $151.768M). No further shares have been
issued up to the date of this report.

The total number of shares on issue at 30 June 2012 was
698,119,720 (2011: 694,819,718).

Options and Other Rights of Conversion
During the year 3,300,002 options were exercised for a total
consideration of 0.648M. As at 30 June 2012 there were no
options and 3,200,000 performance share rights outstanding of
which 800,000 lapsed post balance date. On 1 July 2012 a further
3,200,000 performance share rights were granted.

Environmental Regulation and Performance
This year has seen a renewed focus in the area of Health, Safety
and Environment (HSE). Within the last year there have been
zero incidents, zero lost time injuries and zero significant spills
within Cue Energy Resources. Among the joint venture operations
there have been a number of incidents that have been reported
and investigated by all the relevant parties. The increased
reporting is showing a growth in the reporting culture and an
openness to share learnings in order to reduce risk not only
within Cue Energy Resources but within the industry. Cue Energy
Resources continues to monitor the progress and close out of
these incidents and work with the JV partners and operators to
improve overall health and safety and minimise any impact on
the environment.

There have been a number of steps taken in order to improve
HSE and to implement an HSE Management system that is
suitable for all countries and all levels of operations that the
business may wish to be involved with. The overall aim of the
system is to not just meet legislative requirements but to show
a true commitment to HSE for the sake of Cue Energy Resources
personnel, contractors, assets and the environment.

Throughout this year, internally the HSE Management system
is also in effect and beginning to grow a proactive safety
culture with the business in line with industry best practice.
While Cue is still a relatively small business it has in place a
Management System that is fit for purpose regardless of the
size of the company. The System will now be able to grow
with the business.

Through ongoing commitment by both Senior Management
and staff alike, this system will move Cue Energy Resources
forward and will continually improve overall Health, Safety and
Environmental risk to the company. This will demonstrate that
Cue Energy Resources is a leader in all its current and projected
fields of expertise and will give Cue Energy Resources the ability
to remain competitive, whilst managing its risks to as low as
reasonably practicable.

Cue Energy Resources Limited Annual Report 2012Annual Report of Directors Continued

Future Developments
The particular information required by Section 299(1) (e) of the Corporations Act 2001 has been omitted from the report because the
Directors believe that it would result in unreasonable prejudice to the economic entity.

Directors Meetings
The following table sets out the number of meetings of the Board of Directors held during the year and the number of meetings
attended by each Director.

Timothy E. Dibb

Geoffrey J. King

Steven J. Koroknay

Paul D. Moore

Leon Musca

Richard G. Tweedie

Andrew A. Young

Board

Audit Committee

Remuneration and
Nomination Committee

Held

Attended

Held

Attended

Held

Attended

Information on directors and executives, including qualifications and experience is as follows:

Qualifications and Experience

Special
Responsibilities

Directors:

R.G. Tweedie

LL.B

Director of Todd Petroleum Mining Company Limited(ii)
– Appointed 04/09/1987 Retired 31/12/2010

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 16/07/2001

Non-Executive Chairman of
Board of Directors

Particulars of
Directors’ Interests
in shares and options
of Cue Energy Resources
Limited at the date of
this report

Direct

Indirect

568,784

3,363,477

T.E. Dibb(iii)

BSc, PhD, Dip M’gmt

Non-Executive Director

Nil Shares

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 24/11/2011

Member of the Audit and
Risk Committee

G.J. King

LL.B

Non-Executive Director

Nil

2,500

Non-Executive Chairman – Phoenix Oil and Gas Limited (ii)
- Appointed 17/12/2008

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 24/11/2011

Chairman of the
Remuneration and
Nomination Committee

S.J. Koroknay

BE(Hons)-Civil Eng (Sydney), FAICD, FIEA

Non-Executive Director

Nil

100,000

Non-Executive Director Innamincka Petroleum Limited (i)
- Appointed 15/05/08 – resigned 24/06/11

Non-Executive Chairman Galilee Energy Limited (i)
- Appointed 20/01/09

Non-Executive Director Metgasco Limited (i)
- Appointed 20/01/10

Non-Executive Director Cue Energy Resources Limited (i)
- Appointed 09/10/09

Chairman of the
Remuneration and
Nomination Committee

Qualifications and Experience

Special
Responsibilities

Directors:

Particulars of
Directors’ Interests
in shares and options
of Cue Energy Resources
Limited at the date of
this report

Direct

Indirect

P. D. Moore(iii)

BSc-Civil Eng, MBA

Non-Executive Director

Nil Shares

Director of Otto Energy Limited (i)
- Appointed 01/07/2009
- Resigned 01/07/2011

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 24/11/2011

Member of Remuneration
and Nomination Committee

L. Musca

LL.B

Non-Executive Director

Nil

12,771,227

Barrister and Solicitor

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 17/11/1999

Member of Audit and Risk
Committee

A.A.Young

BE (Chemical Engineering), MBA (Hons)

Non-Executive Director

Nil Shares

Member of Remuneration
and Nomination Committee

Non-Executive Director of National Safety Council of
Australia Limited(ii)
- Appointed March 2009

Non-Executive Director of Cliq Energy Berhad(ii)
- Appointed May 2012

Non-Executive Chairman of Real Energy
Corporation Limited(ii)
- Appointed 01/07/2012

Non-Executive Director of New Guinea Energy Limited(i)
- Appointed 20/10/2010

Non-Executive Director of Cue Energy Resources Limited(i)
- Appointed 13/12/2011

Executives:

M.J. Paton

B.SC (Hons), MIChemE

Chief Executive Officer
- Appointed 08/02/2011

Direct

Nil

Indirect

1,492,881

A.M. Knox

B.Com, CA, CPA, FAICD

Chief Financial Officer

2,737,245

1,500,000

Director of Cue Energy Resources Limited(i)
- Appointed 16/09/2009 and resigned 09/10/09

Company Secretary
Public Officer

Non-Executive Director of Rimfire Pacific Mining NL(i)
- Appointed 08/07/2005(i)
- Resigned 31/03/11

Non-Executive Director of Axis Mining NL(ii)
- Appointed 08/07/2005 Resigned 31/03/11

D.B. Whittam

BSc, MSc

Exploration Manager
- Appointed 18/06/2012

(i)

Refers to ASX listed directorships held over the past three years.

(ii) Refers to unlisted public company directorships held over the past three years.

(iii) T.E. Dibb and P.D. Moore are employees of the Todd Group of Companies which hold 189,023,314 shares in Cue Energy Resources Limited.

No shares in subsidiary companies are held by the Directors and no remuneration or other benefits were paid or are due and payable
by subsidiary companies. No options are held in the company by Directors or Executives. Performance Rights held by Executives are
detailed in the Remuneration Report.

Cue Energy Resources Limited Annual Report 2012Annual Report of Directors Continued

Remuneration Report (Audited)
This Remuneration Report, which forms part of the Directors
Report, sets out information about the remuneration of Cue
Energy Resources Limited’s Directors and its senior management
for the financial year ended 30 June 2012, in accordance with the
Corporations Act 2001 and its regulations.

The prescribed details for each person covered by this report are
detailed below under the following headings:

(A) Director and Executive Details

(B) Remuneration Policy

(D) Equity Based Remuneration

(E) Relationship between Remuneration Policy and Company

Performance

benefits and share based incentives in the form of share
options or performance rights. From 1 July 2011, the Company
has implemented a Performance Rights Plan as the primary
share based incentive for services provided from that date. The
Performance Rights Plan is described under heading (D) Equity
Based Remuneration.

Performance measures and targets applicable to the award of
performance rights and annual cash bonuses will be established
by the board on an annual basis.

However, the Board is conscious of its responsibility for the
performance of the Company. Directors and Executives are
encouraged to hold shares in the Company to align their interests
with those of shareholders.

No remuneration or other benefits are paid to Directors or Key
Executives by any subsidiary companies.

(A) Director and Executive Details

The following persons acted as Directors of the Company during
or since the end of the financial year:

R.G. Tweedie (Non-Executive Chairman)

T.E. Dibb (Non-Executive Director) – appointed 24/11/2011

G.J. King (Non-Executive Director) – appointed 24/11/2011

S.J. Koroknay (Non-Executive Director)

P.D. Moore (Non-Executive Director) – appointed 24/11/2011

L. Musca (Non-Executive Director)

A.A. Young (Non-Executive Director) – appointed 13/12/2011

The term “Key Management Personnel” is used in this
Remuneration Report to refer to the following persons:

M.J. Paton (Chief Executive Officer)

A.M. Knox (Chief Financial Officer/Company Secretary)

D.B. Whittam (Exploration Manager) – appointed 18/06/12

A.B. Parks (Chief Commercial Officer) – resigned 30/08/12

T. White (Exploration Manager) – retired 17/05/12

Unless otherwise stated the persons named above held their
current position for the whole of the financial year and since the
end of the financial year.

(B) Remuneration Policy

The Board’s policy for remuneration of Executives and Directors
is detailed below.

Remuneration packages are set at levels that are intended to
attract and retain high calibre Directors and employees and
align the interest of the Directors and Executives with those of
the Company shareholders. Remuneration policy is established
and implemented solely by the Remuneration and Nomination
Committee which is comprised of Non-Executive Directors only.

Remuneration and other terms and conditions of employment
are reviewed annually by the Remuneration and Nomination
Committee having regard to performance and relevant
employment market information. As well as a base salary,
remuneration packages include superannuation, annual
incentive plan cash bonuses, termination entitlements, fringe

Remuneration structure

The structure of non-executive Director and executive
remuneration is separate and distinct.

Non-Executive Directors

Remuneration of Non-Executive Directors is determined
by the Board within the maximum amount approved by
the shareholders from time to time. The amount currently
approved is $700,000, which was approved at the Annual
General Meeting held on 24 November 2011. The Company’s
policy is to remunerate Non-Executive Directors at a fixed fee
for time, commitment and responsibilities. Remuneration for
Non-Executive Directors is not linked to individual or company
performance, however, to align Directors’ interests with
shareholders’ interests, Non-Executive Directors are encouraged
to hold shares in the Company. The Board retains the discretion to
award options or performance rights to Non-Executive Directors
based on the recommendation of the Remuneration and
Nomination Committee subject always to shareholder approval.

Executives

Executives receive a mixture of fixed and variable pay and
a blend of short and long term incentives as appropriate.
Remuneration packages contain the following key elements:-

•

Fixed compensation component inclusive of base salary,
superannuation and non-monetary benefits.

Short term incentive programme incorporating performance
based cash bonuses.

Superannuation.

Long term incentives incorporating share based payments
including performance rights (from 1 July 2011) and share
options granted as long term performance incentives or in lieu
of services.

The award of long term incentives, such as share options
and/or performance rights (as discussed below from 1st July
2011) ensures that the total compensation package awarded
to executives matches the stage of development of the
Company at a given point in time. The grant of share options

or performance rights is designed to recognise and reward the
efforts of executives as well as to provide additional incentive.
These grants may be subject to the successful completion of
performance hurdles. Executives are prohibited from entering
into transactions or arrangements which limit the economic risk
of participating in unvested entitlements.

The Remuneration and Nomination Committee is responsible
for determining and reviewing remuneration arrangements.
The Remuneration and Nomination Committee assesses the
appropriateness of the nature and amount of remuneration
of executives on a periodic basis, by reference to relevant
employment market conditions, with the overall objective of
ensuring maximum stakeholder benefit from the retention of
a high quality, high performing director and executive team.
The charter adopted by the Remuneration and Nomination
Committee aims to align rewards with achievement of strategic
objectives and creation of shareholder wealth.

Fixed compensation

Fixed compensation consists of base salary (which is calculated
on a total cost base and including any FBT charges related
to employee benefits including motor vehicles), as well as
employer contributions to superannuation funds.

The base salary is reflective of market rates for companies of
similar size and industry which is reviewed annually to ensure
market competitiveness. During 2012, the Remuneration and
Nomination Committee reviewed the salaries paid to peer
company executives in determining the salary of Cue Key
Management Personnel. This base salary is fixed remuneration
and is not subject to performance of the Company. Base salary
is reviewed annually and adjusted as determined by the
Remuneration and Nomination Committee on 1st January each
year. There is no guaranteed base salary increase included in any
executive’s contracts.

Short term incentives

The Board at its sole discretion may elect to pay short term
incentives in the form of performance based cash bonuses to
executives based on the recommendation of the Remuneration
and Nomination Committee. Any payment of short term
incentives is dependent on the achievement of performance
targets as determined by the Board. These targets shall include a
combination of key strategic, financial and personal performance
measures which have major influence over company
performance in the short term. Short term incentive payments
may also be made at the discretion of the Board to reward an
executive’s participation in ad-hoc projects or activities. No short
term incentives were granted during the
30 June 2012 financial year.

Long term incentives

The Board implemented a Performance Rights Plan effective
from 1 July 2011. The Remuneration and Nomination Committee
recommends the grant of performance rights as incentives for
its executives, to maintain their long term commitment to the
Company. The use of long term incentives is considered a valuable
means of aligning the interest of shareholders and the individuals
to whom such long term incentives are provided. It also provides
the Remuneration and Nomination Committee with a range
of incentives to attract and retain key management, including
executives. The number of share options or performance rights
granted and their terms and conditions are determined by the
Board and defined in the Performance Rights Plan Rules and can
be adjusted to reflect specific performance hurdles (as discussed
below) in order to best match such awards with the actual
circumstances of the Company at a given point in time.

During the year ended 30 June 2012, 4 million Performance
Rights were granted to executives (for services provided
from 1 July 2011):

Vesting Date

Vesting Target

M.J. Paton

A.M. Knox

A.B. Parks(i)

T. White(ii)

2011
Performance
Rights Issue

Expire
30 June 2013
if not vested

(i)

(ii)

A.B. Parks resigned on the 30/08/2012.

T. White retired 17/05/2012.

ASX 0.53 cents

1,600,000

800,000

The Performance Rights granted will vest as ordinary shares on 30 June 2013 if the volume weighted average share price in
Cue Energy Resources Limited quoted on ASX increases, for thirty consecutive days, to 53 cents per share from 1 July 2012 to
30 June 2013. If the price target is not met the Performance Rights lapse. Employees receiving Performance Rights must also be
employees on the vesting date or rights will lapse. A.B. Parks resigned on 30 August 2012 and T. White retired on 17 May 2012
so their Performance Rights have lapsed.

Cue Energy Resources Limited Annual Report 2012Annual Report of Directors Continued

Post employment benefits

The Company makes superannuation contributions for the Australian based employees and directors as required by law.

Details of the nature and amount of each major element of remuneration of each Director of the Company and other Key Management
Personnel of the consolidated entity are:

Employment contracts

Remuneration and other terms of employment for M.J. Paton and D.B. Whittam is formalised in a service agreement.
Details of these agreements are as follows:

M.J. Paton

Title:

Chief Executive Officer

Agreement commenced:

8 February 2011

Details:

D.B. Whittam

Title:

Base salary of $480,000 including superannuation to be reviewed annually by the
Remuneration and Nomination Committee. 3 months termination notice by either party, short
term incentive up to 50% of base salary as per Remuneration and Nomination Committee
approval and KPI achievement. Eligible for Long Term Incentive Program. Non solicitation and
non compete clauses.

Exploration Manager

Agreement commenced:

16 June 2012

Details:

Base salary of $420,000 including superannuation to be reviewed annually by the
Remuneration and Nomination Committee. 3 months termination notice by either party, short
term incentive up to 40% of base salary as per Remuneration and Nomination Committee
approval and KPI achievement. Eligible for Long Term Incentive Program. Non solicitation and
non compete clauses.

No other Key Management Personnel at present has a service contract. Employment letters outline the components of compensation
paid to other Key Management Personnel but does not prescribe how compensation levels are modified year to year. Compensation
levels are reviewed each year to take into account cost of living changes, any change in the scope of the role performed and any
changes to meet the principles of the compensation policy.

Compensation of Key Management Personnel – 2012:

2012

Name

Short-Term

Annual
Incentive
Plan Bonus
(iii)
$

Cash
Salary and
Fees
$

Non-Executive Directors

R.G. Tweedie

T.E. Dibb

G. King

S.J. Koroknay

P.D. Moore

L. Musca

A.A. Young

Total

60,326

68,807

60,326

100,000

55,163

404,948

Other Key Management Personnel

M.J. Paton

A.M. Knox

A.B. Parks(v)

T. White(iv)

D.B. Whittam(vi)

368,121

281,940

409,224

200,970

15,547

Total

1,275,802

Total
Remuneration of
Executives and
Directors

1,680,750

Post Employment

Non
Monetary
Benefits (ii)
$

Super-
annuation
$

Retire-
ment
Benefits
$

Share
Purchases (i)
$

Performance
Rights (Vii)

Total
$

Total
Perfor-
mance
Based (viii)
%

42,918

31,193

50,000

15,204

45,837

607

42,918

161,648

42,918

192,841

100,000

22,400

11,200

100,000

60,326

100,000

60,326

100,000

55,163

536,141

440,521

386,058

424,428

246,807

16,154

33,600

1,513,968

100,000

33,600

2,050,109

(i)

Shares purchased on market (refer Directors Saving Plan below).

(ii) Non performance based salary sacrifice benefits, including motor vehicle expenses.

(iii) No bonuses were granted in the current period.

(iv)

T White retired on the 17/05/12.

(v)

A.B. Parks resigned on the 30/08/12.

(vi) D.B. Whittam appointed 18/06/12.

(vii) Performance Share Rights granted in the current period.

(viii) Performance Based Compensation is considered to be Annual Incentive Bonus and Performance Rights.

Cue Energy Resources Limited Annual Report 2012Annual Report of Directors Continued

Compensation of Key Management Personnel – 2011:

2011

Name

Cash
Salary and
Fees
$

Short-Term

Annual
Incentive Plan
Bonus (iii)
$

Non
Monetary
Benefits (ii)
$

Post Employment

Super-
annuation
$

Retirement
Benefits
$

Share
Purchases (i)
$

Total
$

Total
Performance
Based
%

Non-Executive Directors

R.G. Tweedie

S.J. Koroknay

L. Musca

Total

76,453

83,332

159,785

Other Key Management Personnel

179,963

170,207

326,803

114,800

344,141

1,135,914

R.J. Coppin(iv)

M.J. Paton

A.M. Knox

A.B. Parks

T. White

Total

Total
Remuneration of
Executives and
Directors

12,732

70,000

45,578

70,000

140,000

6,881

50,000

19,792

23,245

4,259

50,004

83,332

83,334

83,332

249,998

505,835

748,530

189,999

465,626

119,059

464,145

1,987,359

58,310

147,300

505,835

1,295,699

140,000

58,310

154,181

505,835

83,332

2,237,357

(i)

Shares purchased on market (refer Directors Saving Plan below).

(ii) Non performance based salary sacrifice benefits, including motor vehicle expenses.

(iii) Relates to cash bonuses granted in the 2011 financial year by the Board of Directors.

(iv) R.J. Coppin retired on 07/02/11. The retirement payment of $505,835 to Mr R.J. Coppin on the 30 June 2011 financial year was a discretionary ex gratia

payment resolved by the Board of Directors for services provided inclusive of statutory long service and annual leave payments.

All remuneration paid to M.J. Paton and A.M. Knox is incurred by the parent entity.

A.M. Knox is a Director of all the subsidiaries in the Group and an Executive of the parent company.

M.J. Paton is a Director of Cue Energy Malaysia Sdn Bhd and an Executive of the parent company.

(D) Equity Based Remuneration

Overview of Share Options and Performance Rights

For services provided from 1 July 2011, the Company has granted 4 million Performance Rights to certain Key Management Personnel
as detailed above. These Performance Rights were granted under a Performance Rights Plan which was approved by shareholders at
the Company’s Annual General meeting on 24 November 2011, which was the grant date for the 4 million Performance Rights. The
Performance Rights Plan is a mechanism for providing a share based performance incentive for Key Management Personnel and to
achieve alignment between Key Management and Shareholder objectives. Options were previously granted to the Executives as part
of their remuneration as approved by the Directors. Options granted were not related to a specific performance condition. Options were
granted to reward key management personnel for their contribution to achieving specific milestones.

Options are granted under the plan for no consideration. Options granted carry no dividend or voting rights. No options were granted in
the financial year to 30 June 2012 (2011: Nil).

Exercise of Share Options Granted as Compensation

The movement during the reporting period, by value, of options over ordinary shares in the company held by each Key Management
Personnel is detailed below:-

A.M. Knox

Grant Date

23/04/2007

12/02/2009

Opening
Balance
(Fully Vested)

333,334

333,333

500,000

1,500,000

Exercise Price

Granted in Year

0.20

0.225

0.25

0.15

2007

2009

Value of options
Exercised in
Year $ (i)

Exercise Date

$26,667

$18,333

$10,000

$65,000

$120,000

19/04/2012

(i)

The value of options exercised during the year is calculated as the market price of shares of the Company as at close of trading on the date options
were exercised after deducting the price paid to exercise the option.

Share Options and Performance Rights Granted as Compensation

Options Granted as Compensation

No share options were granted to Directors or other Key Management Personnel in the financial year to 30 June 2012 (2011: Nil).

No options were granted as remuneration to each Key Management personnel in prior financial years which were recorded as an
expense in the 30 June 2012 financial year.

No terms of equity settled share based payment transactions granted in prior years (including options granted to Key Management
Personnel) have been modified or altered during the reporting period or prior period.

Performance Rights Granted as Compensation

Performance rights over shares in Cue Energy Resources Limited granted during the 30 June 2012 financial year were granted under the
Cue Energy Resources Ltd Performance Rights Plan (“Plan”) for services provided from 1 July 2011 as approved by the Board on 22nd
June 2011. The performance rights were granted under the Company’s Performance Rights Plan which was approved by shareholders
at the Annual General Meeting on 24th November 2011.

The Plan is designed to align the interests of executives with shareholders by providing direct participation in the benefits of future
Company performance over the medium to long term. It is contemplated that Performance rights will be granted to Key Management
Personnel on an annual basis. Non-Executive Directors will not be eligible to participate in the 2011/12 Plan or the 2012/13 Plan.

Long term performance targets of the Company will be established every year and the future award of performance rights may be
made at the Board’s sole discretion.

Performance Rights – 30 June 2012 Financial Year

Performance rights granted to Executives during the 30 June 2012 financial year for services provided from 1 July 2011 were:

Grant Date

Expiry Date

Vesting Date

M.J. Paton

A.M. Knox

A.B. Parks

T. White(ii)

2011
Performance
Rights Issue

Expire
30 June 2013
if not vested

Expire 30 June
2013 if not
vested

Target ASX
53 cents(i)

1,600,000

800,000

(i)

The performance rights granted vest as ordinary shares on 30 June 2013 if a 30 day volume weighted average share price in Cue Energy Resources
Limited quoted on the ASX increases to 53 cents per share for the period 1 July 2012 to 30 June 2013. On 30 June 2011 the share price for Cue Energy
Resources Limited ordinary shares on the ASX were 26.5cents per share. If the ASX Price Target is not met the Performance Rights lapse. Executives
receiving performance rights must also be employees on the vesting date or the rights will lapse.

Cue Energy Resources Limited Annual Report 2012Annual Report of Directors Continued

Following exercise of a performance right, the Company must issue or transfer to the person exercising the performance right the
number of shares in respect of which the performance right has been exercised and credited as fully paid. All shares issued or
transferred to a participant under this Plan, will, from the date of issue or transfer, rank equally with all other issued shares. Once rights
have vested as shares in the company 50% of the shares may be sold on vesting but 50% must be held by the participant for a period
of 12 months.

Participants will not be required to make any payment for the grant of the performance rights or on the exercise of a vested
performance right.

The following performance rights granted to key management personnel of the Company lapsed during the year as a result of a failure
to meet a vesting condition:

Participant

Trance

Number of Performance
Rights Lapsed

Value at lapse date *

T. White

2011/2012 Plan

800,000

$184,000

The value at lapse date of the performance rights that were granted as part of remuneration and that lapsed during the year because a vesting
condition was not satisfied. The value is determined at the date of lapsing using the closing share price on the date of lapse multiplied by the number of
Performance Rights assuming the condition was satisfied. The performance rights lapsed due to the resignation of an employee.

Subsequent to 30 June 2012, a further 800,000 performance rights lapsed following the resignation of A.B. Parks on 30 August 2012.

The performance hurdles for the grant of performance rights under the Plan to participants, as described above, are classified as market-
based hurdles. In determining the value of the performance rights granted to participants, a risk based statistical analysis was used that
took into account, as at the grant date, the following variables and assumptions:

•

Expected life of the instrument – the performance rights will expire on 30 June 2013 should they not be exercised.

Share price of the underlying share on grant date of 22.5 cents

Expected volatility – the price volatility of the shares was approximately 45 percent

Expected dividends – there was no dividends presently expected to be paid in respect of the underlying shares

The risk free interest rate for the expected life of the instrument – the average risk free interest rate at grant date was
3.3 percent

On the basis the implied value of the 2011/2012 performance rights was 2.58 cents per right. The implied value of the performance
rights that could vest are:

Grant Date

Expiry Date

Vesting Date

M.J. Paton

A.M. Knox

A.B. Parks

T. White(ii)

1,600,000

$22,400

$44,800

800,000

$11,200

$22,400

800,000

(i)

(ii)

2011
Performance
Rights Issue

24/11/2011

Expire 30 June
2013 if not
vested

Target ASX
53 cents

30 June 2012 financial year

30 June 2013 financial year

Total

(i)

(ii)

Lapsed on 30 August 2012 on resignation of employee.

Lapsed on 17 May 2012 on retirement of employee.

Future Performance Rights – 30 June 2013 Financial Year

The participants in the 2012/13 plan are:

- M.J. Paton

A.M. Knox

D.B. Whittam (appointed 18/06/12)

For employee services provided from 1 July 2012 participants were granted performance rights under the Plan. On 30 June the closing
share price of Cue Energy Resources Ltd on the ASX (Code: CUE) was 18 cents. The performance rights granted to Key Management
Personnel will vest as ordinary shares in the company if the 30 day volume weighted average share price in Cue Energy Resources Ltd
quoted on the ASX increases to 60 cents during the period 1st July 2013 to 30th June 2014. In the event that the share price target is
not met within this period then the performance rights lapse.

The following performance rights were granted to Key Management Personnel on 1 July 2012.

Vesting Date

Vesting Target

M.J. Paton

A.M. Knox

D.B. Whittam

2012 Performance
Rights Issue

Expire if not
vested by
30 June 2014

ASX CUE
60 Cents

1,600,000

800,000

The maximum number of performance rights that could vest in future periods and hence be exercised by the
participants are as follows:

M.J. Paton

A.M. Knox

D.B. Whittam(i)

Total

Before
30 June 2013

Before
30 June 2014

1,600,000

800,000

2,400,000

1,600,000

800,000

3,200,000

Total

3,200,000

1,600,000

800,000

5,600,000

(i)

D.B. Whittam (Appointed 18/06/2012)

The ASX close price performance hurdles for the grant of performance rights under the Plan to participants, as described above,
are classified as market-based hurdles.

Directors Savings Plan

Pursuant to the Directors Savings Plan, Directors can purchase through an appointed trustee, Cue Energy Resources Limited- shares on
market in lieu of being paid Directors fees in cash.

The number of ordinary shares purchased for the Directors as part of the Plan during the financial year are set out below:

Directors

No of shares purchased

Value of shares purchased (i)

2012

2011

2012

2011

R.G. Tweedie

291,243

277,541

100,000

83,332

(i)

Value of shares purchased based on ASX market price on date of share purchases.

(E) Relationship Between Remuneration Policy and Company Performance

Company Performance Review

The tables below set out summary information about the company’s earnings and movements in shareholder wealth and key
management remuneration for the five years to 30 June 2012.

Profit Performance

Revenue

Net profit/(loss) before tax

Net profit/(loss) after tax

Key Management Remuneration

30 June 2012
$000’s

30 June 2011
$000’s

30 June 2010
$000’s

30 June 2009
$000’s

30 June 2008
$000’s

44,270

13,621

5,663

2,050

59,670

25,761

19,107

2,237

64,488

39,351

27,510

963

32,543

(20,905)

(24,958)

970

38,845

15,544

11,719

966

Share Performance

30 June 2012

30 June 2011

30 June 2010

30 June 2009

30 June 2008

Share price at start of year (cents)

Share price at end of year (cents)

Dividends (cents)

Basic earnings/(loss) share (cents)

Diluted earnings/(loss) share (cents)

26.5

18.0

0.81

25.0

26.5

2.7

14.5

25.0

4.0

22.5

14.5

(4.0)

17.5

22.5

1.9

The company’s remuneration policy seeks to reward staff members for their contribution to adding shareholder value so there is a
direct link between remuneration and company share price or financial performance.

This concludes the Remuneration Report which has been audited.

Cue Energy Resources Limited Annual Report 2012
Annual Report of Directors Continued

Auditor
In accordance with the provisions of the Corporations Act 2001
the Company’s auditor, BDO East Coast Partnership (formerly PKF
Chartered Accountants), continues in office.

Non-audit Services
The Company may decide to employ the auditor on assignments
additional to its statutory audit duties where the auditor’s
expertise and experience with the Company are important.

The Board of Directors has considered the position and 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 audit independence requirement, of the
Corporations Act 2001, based on advice received from the Audit
Committee, for the following reasons:

•

All non-audit services have been reviewed by the Board to
ensure they do not impact the impartiality and objectivity of
the auditor.

None of the services undermine the general principle relating
to auditor independence as set out in the Code of Ethics for
Professional Accountants, including reviewing or auditing the
auditor’s own work, acting in a management or a decision
making capacity for the Company, acting as advocate for the
Company or jointly sharing economic risk and reward.

Audit Services

Audit and review of financial reports

Non-Audit Services

Tax compliance services including review of tax
accounting, tax returns and tax advice regarding
tax losses

Total

65,000

39,250

104,250

Independence Declaration
A copy of the auditor’s independence declaration as required
under section 307C of the Corporations Act 2001, is set out on
page 33.

Rounding Off of Amounts
The Company is a company of the kind referred to in ASIC Class
Order 98/0100, dated 10 July 1998, and in accordance with the
Class Order amounts in the directors’ report and the financial
report are rounded off to the nearest thousand dollars, unless
otherwise indicated.

Directors’ Insurance and Indemnification of
Directors and Auditors
During the financial year, the company paid a premium in respect
of a contract insuring the directors of the company, the company
secretary, and all executive officers of the company and of any
related body corporate against a liability incurred as a director,
company secretary or executive officer to the extent permitted
by the Corporations Act 2001. In accordance with commercial
practice, the insurance policy prohibits disclosure of the terms of
the policy, including the nature of the liability insured against and
the amount of the premium.

The company has not otherwise, during or since the end of the
financial year indemnified or agreed to indemnify an officer or
auditor of the company or any related body corporate against a
liability incurred as an officer or auditor.

Events Subsequent to Balance Date
As a result of an economic project arrangement in the Jeruk
field within the Sampang PSC, Indonesia, Cue may in certain
circumstances have an obligation to reimburse certain monies
spent by the incoming party from future profit oil within the
Sampang PSC. There is a dispute between Cue and the incoming
party as to the quantum of monies that they may be entitled
to claim by way of such reimbursement and when any such
reimbursement would be payable. The Company is of the view
that any amount which might eventually become payable would
not be likely to exceed the amount of USD5.3M which has been
provided for in the accounts. The Company has taken legal advice
and is in discussions to resolve the matter with the incoming
party, which has given Notice of Arbitration.

Apart from the above, the Directors are not aware of any matter
or circumstance since the end of the financial year, not otherwise
dealt with in this report that has significantly or may significantly
affect the operations of Cue Energy Resources Limited, the results
of those operations or the state of affairs of the Company or
Group.

On behalf of the Board

Richard G. Tweedie
Chairman

28th September 2012

Cue Energy Resources Limited Annual Report 2012Directors’
Declaration

The directors of Cue Energy Resources Limited declare that:

(a)

in the Directors’ opinion the financial statements and notes
and the Remuneration report in the Directors Report set out
on pages 24 to 31, are in accordance with the Corporations
Act 2001, including:

(i)

(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

complying with Australian Accounting Standards (including
the Australian Accounting Interpretations) and Corporations
Regulations 2001.

(b)

(c)

the financial report also complies with International Financial
Reporting Standards as disclosed in Note 1; and

there are reasonable grounds to believe that the company
will be able to pay its debts as and when they become due
and payable.

The Directors have been given the declarations required by
Section 295A of the Corporations Act 2001 by the Chief Executive
Officer and Chief Financial Officer for the financial year ended
30 June 2012.

Signed in accordance with a resolution of the Directors.

Dated in Melbourne 28th day of September 2012

Richard G. Tweedie
Chairman

Financial Report
2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the financial year ended 30 June 2012

Production income

Production costs

Gross profit from production

Other income

Amortisation costs

Impairment expenses

Finance costs

• Interest expense

• Net realised gain/(loss) on oil hedge derivatives

• Change in fair value of derivatives

• Net foreign currency exchange gain/(loss)

Other expenses

Profit before income tax

Income tax expense

Net profit for the year

Other comprehensive income for the year net of tax

Total comprehensive income for the year

Net Profit is attributable to:
owners of Cue Energy Resources Limited

Total comprehensive income for the year is attributable to:
owners of Cue Energy Resources Limited

Basic earnings per share (cents)

Diluted earnings per share (cents)

Consolidated

Note

2012
$000’s

2011
$000’s

4,3

41,222

(13,778)

27,444

274

(10,500)

(84)

158

2,616

(6,287)

13,621

(7,958)

52,506

(9,113)

43,393

7,164

(9,644)

(2,838)

(173)

(1,209)

(935)

(5,328)

(4,669)

25,761

(6,654)

5,663

19,107

5,663

19,107

5,663

19,107

5,663

19,107

Note

0.81

2.70

The accompanying notes form part of and are to be read in conjunction with these Financial Statements.

Cue Energy Resources Limited Annual Report 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2012

Current Assets

Cash and cash equivalents

Trade and other receivables

Inventory

Total Current Assets

Non Current Assets

Property, plant and equipment

Deferred tax assets

Exploration and evaluation expenditure

Production properties

Total Non Current Assets

Total Assets

Current Liabilities

Trade and other payables

Other financial liabilities

Financial liability-secured

Tax liabilities

Provisions

Total Current Liabilities

Non Current Liabilities

Deferred tax liabilities

Provisions

Total Non Current Liabilities

Total Liabilities

Net Assets

Equity

Issued capital

Reserves

Accumulated losses

Total Equity

Note

26(b)

Consolidated

2012
$000’s

2011
$000’s

33,733

11,746

1,500

46,979

322

31,765

84,886

117,057

164,036

8,631

1,293

381

10,305

23,098

5,455

28,553

38,858

52,811

17,286

70,097

321

13,166

68,786

82,345

152,442

5,547

935

5,086

5,280

379

17,227

15,436

946

16,382

33,609

125,178

118,833

152,416

425

(27,663)

125,178

151,768

391

(33,326)

118,833

The accompanying notes form part of and are to be read in conjunction with these Financial Statements.

Financial Report 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the financial year ended 30 June 2012

Consolidated

Balance at 1 July 2011

Profit for the period

Other comprehensive income

Total comprehensive income for the period

Transactions with the owners in their capacity as owners:

Share based payments

Issue of shares, net of costs

Issued Capital
$’000

Accumulated
Losses
$’000

Share-based
Payments
Reserve
$’000

Total
$’000

151,768

(33,326)

391

118,833

648

5,663

648

Balance at 30 June 2012

152,416

(27,663)

425

125,178

Consolidated

Balance at 1 July 2010

Profit for the period

Other comprehensive income

Total comprehensive income for the period

Issued Capital
$’000

Accumulated
Losses
$’000

Share-based
Payments
Reserve
$’000

Total
$’000

151,468

(52,433)

391

19,107

99,426

19,107

300

Transactions with the owners in their capacity as owners:

Issue of shares, net of costs

300

Balance at 30 June 2011

151,768

(33,326)

391

118,833

The accompanying notes form part of and are to be read in conjunction with these Financial Statements.

Cue Energy Resources Limited Annual Report 2012CONSOLIDATED STATEMENT OF CASH FLOWS
for the financial year ended 30 June 2012

Consolidated

Note

2012
$000’s

2011
$000’s

Cash Flows From Operating Activities

Receipts from customers

Interest received

Payments to employees and other suppliers

Income tax paid

Royalties paid

Interest paid

Net Cash Provided by Operating Activities

26(a)

Cash Flows From Investing Activities

Payments for exploration expenditure

Payments for production property

Proceeds on refund of exploration expenditures

Proceeds on sale of exploration tenements

Payment for office equipment

Net Cash Used In Investing Activities

Cash Flows From Financing Activities

Proceeds from issue of shares

Repayment of borrowings

Net Cash Used In Financing Activities

Net Increase/(Decrease) in Cash and Cash Equivalents

Cash and cash equivalents at the beginning of the period

Effect of exchange rate change on foreign currency balances held at the beginning of the year

Cash and Cash Equivalents at the end of the Period

26(b)

The accompanying notes form part of and are to be read in conjunction with these Financial Statements.

41,548

266

(20,585)

(8,257)

(1,191)

(52)

11,729

(13,156)

(22,190)

7,407

(55)

49,026

349

(3,459)

(173)

(2,901)

(1,607)

41,235

(2,185)

(6,575)

5,050

(24)

(27,994)

(3,734)

648

(5,086)

(4,438)

(20,703)

52,811

1,625

33,733

300

(9,036)

(8,736)

28,765

29,373

(5,327)

52,811

Financial Report 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the finanical year ended 30 June 2012

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cue Energy Resources Limited is a for-profit Public Company listed
on the Australian Securities Exchange incorporated and domiciled
in Australia. The financial report was authorised for issue by the
Directors on the date the Directors’ Declaration was signed.

The accounting policies set out below have been applied
consistently to all periods presented in this report.

(a) Operations and principal activities

Operations comprise petroleum exploration, development and
production activities.

(b) Statement of compliance

The financial report is a general purpose financial report
presented in Australian dollars which has been prepared in
accordance with Australian Accounting Standards, Australian
Accounting Interpretations adopted by the Australian Accounting
Standards Board (“AASB”) and the Corporations Act 2001 as
appropriate for-profit oriented entities. International Financial
Reporting Standards (“IFRSs”) form the basis of Australian
Accounting Standards adopted by the AASB. The financial
reports of the consolidated entity also comply with IFRS
and interpretations adopted by the International Accounting
Standards Board.

Consolidated Statement Of Financial Position

The financial report has been prepared for a going concern
using the historical cost basis except for shares held in listed
companies, which are recognised at fair value.

Fair value means the amount for which an asset could be
exchanged, or liability settled, between knowledgeable, willing
partners in an arm’s length transaction.

(d) Restatement of comparative

The prior year balances of deferred tax assets and deferred tax
liabilities in the statement of financial position had been restated
to reflect the balances after offsetting the amounts consistent
with the current year presentation. In offsetting the amounts
there has been no change in prior year income tax balances or
net assets. Extracts (being only those line items affected) are
disclosed below:

Non Current Assets

Deferred tax assets

Total Non Current Assets

Total Assets

Non Current Liabilities

Deferred tax liabilities

Total Non Current Liabilities

Total Liabilities

Net Assets

2011
$000’s
Reported

Consolidated

2011
$000’s
Adjustment

2011
$000’s
Restated

11,612

93,636

163,733

26,727

27,673

44,900

(11,291)

321

82,345

152,442

15,436

16,382

33,609

118,833

The accompanying notes form part of and are to be read in conjunction with these Financial Statements.

Cue Energy Resources Limited Annual Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

(e) Critical accounting estimates and judgements

(v) Estimates of Reserve Quantities

The preparation of a financial report in conformity with
Australian Accounting Standards requires management to
make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
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 about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. These accounting policies have been
consistently applied by each entity in the consolidated entity.

The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods.

(i) Recovery of deferred tax assets

Deferred tax assets resulting from unused tax losses have
been recognised on the basis that management considers it is
probable that future tax profits will be available to utilise the
unused tax losses.

(ii) Share-based payment transactions

The Group measures the cost of equity settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. The fair value is determined
for options by using the Black Scholes Option Valuation Model
and for Performance Rights a risked statistical analysis technique
is used. The accounting estimates and assumptions relating to
equity-settled share-based payments would have no impact
on the carrying amounts of assets and liabilities within the next
annual reporting period but may impact expenses and equity.

The Group measures the cost of cash-settled share-based
payments at fair value at the grant date using the Black-Scholes
Option Valuation Model by taking into account the terms and
conditions upon which the instruments were granted.

(iii) Impairment Testing

Determining whether exploration expenditure and production
properties is impaired.

Production properties impairment testing requires an estimation
of the value in use of the cash generating units to which
deferred production property expenses have been allocated. The
value in use calculation requires the entity to estimate the future
cash flows expected to arise from the cash generating unit and a
suitable discount rate in order to calculate present value.

(iv) Useful Life of Production Property Assets

As detailed at Note 1 (n) “Production Properties”, production
properties are amortised on a unit of production basis, with
separate calculations being made for each resource. Estimates of
reserve quantities are a critical estimate impacting amortisation
of production property assets.

The estimated quantities of Proven and Probable hydrocarbon
reserves reported by the Company are integral to the calculation
of depletion and depreciation expense and to assessments of
possible impairment of assets. Estimated reserve quantities are
based upon interpretations of geological and geophysical models
and assessments of the technical feasibility and commercial
viability of producing the reserves. These assessments require
assumptions to be made regarding future development and
production costs, commodity prices, exchange rates and fiscal
regimes. The estimates of reserves may change from period
to period as the economic assumptions used to estimate the
reserves can change from period to period, and as additional
geological data is generated during the course of operations.
Reserves estimates are prepared in accordance with the
Company’s policies and procedures for reserves estimation
which conform to guidelines prepared by the Society of
Petroleum Engineers.

(f)

New, revised or amending Accounting Standards
and Interpretations adopted

The consolidated entity has adopted all of the new, revised or
amending Accounting Standards and Interpretations issued by
the Australian Accounting Standards Board (‘AASB’) that are
mandatory for the current reporting period.

The following Australian Accounting Standards and Interpretations
most applicable to the Group that have recently been issued
or amended but are not yet mandatory, have not been early
adopted by the consolidated entity for the annual reporting
period ended 30 June 2012:

•

AASB 9 Financial Instruments includes requirements for the
classification and measurement of financial assets resulting
from the first part of Phase 1 of the project to replace AASB
139 Financial Instruments: Recognition and Measurement,
which becomes mandatory for the Group’s 30 June 2016
financial statements.

AASB 10 Consolidated Financial Statements introduces
a new definition of control in regards to consolidation,
which becomes mandatory for the Group’s 30 June 2014
financial statements.

AASB 11 Joint Arrangements addresses joint operations and
joint ventures, which becomes mandatory for the Group’s
30 June 2014 financial statements.

AASB 12 Disclosure of Interests in Other Entities addresses
the disclosure requirements for all forms of interests in other
entities, which becomes mandatory for the Group’s 30 June
2014 financial statements.

AASB 13 Fair Value Measurement consolidates the
measurement and disclosure requirements in respect of fair
values into one standard, which becomes mandatory for the
Group’s 30 June 2014 financial statements.

Interpretation 20 Stripping Costs provides guidance on
stripping costs during the production phase of a surface mine,
which becomes mandatory for the Group’s 30 June 2014
financial statements.

Financial Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

The Group has not yet determined the eventual effect of the
above standards, amendments to standards and interpretations,
however at this stage it is not thought to be material.

(g) Principles of consolidation

The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of Cue Energy Resources Limited
(‘’company’’ or ‘’parent entity’’) as at 30 June 2012 and the
results of all subsidiaries for the year then ended. Cue Energy
Resources Limited and its subsidiaries together are referred to in
this financial report as the Group or the consolidated entity.

Subsidiaries are all those 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 that control ceases.

(h) Revenue recognition

Revenue is recognised in the statement of comprehensive
income when the significant risks and rewards of ownership
have been transferred to the buyer. Revenue is recognised and
measured at the fair value of the consideration or contributions
received, net of goods and service tax (“GST”), to the extent it is
probable that the economic benefits will flow to the Group and
the revenue can be reliably measured.

Sales revenue

Sales revenue is recognised on the basis of the Group’s interest
in a producing field (“entitlements” method), when the physical
product and associated risks and rewards of ownership pass to
the purchaser, which is generally at the time of ship or truck
loading, or in certain instances the product entering the pipeline.

Revenue earned under a production sharing contract (“PSC”) is
recognised on a net entitlements basis according to the terms of
the PSC.

Interest income

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. Refer to Note 1(y) for the details.

Interest revenue is recognised as interest accrues using the
effective interest method. This is a method calculating the
amortised cost of a financial asset and allocating the interest
income over the relevant period using the effective interest rate,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial assets to the
net carrying amount of the financial asset.

The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group (refer Note 1 (x)).

Other income

A change in ownership interest, without the loss of control, is
accounted for as an equity transaction, where the difference
between the consideration transferred and the book value of
the share of the non-controlling interest is recognised directly in
equity attributable to the parent.

Non-controlling interest in the results and equity of subsidiaries
are shown separately in the statement of comprehensive
income and statement of financial position of the consolidated
entity. Losses incurred by the consolidated entity are attributed
to the non-controlling interest in full, even if that results in a
deficit balance.

Where the consolidated entity loses control over a subsidiary,
it derecognises the assets including goodwill, liabilities and
non-controlling interest in the subsidiary together with any
cumulative translation differences recognised in equity. The
consolidated entity recognises the fair value of the consideration
received and the fair value of any investment retained together
with any gain or loss in profit or loss.

Investments in subsidiaries are accounted for at cost in the
individual financial statements of Cue Energy Resources Limited.

Other income is recognised in the statement of comprehensive
income at the fair value of the consideration received or
receivable, net of GST, when the significant risks and rewards
of ownership have been transferred to the buyer or when the
service has been performed.

The gain or loss arising on disposal of a non-current asset is
included as other income at the date control of the asset passes
to the buyer. The gain or loss on disposal is calculated as the
difference between the carrying amount of the asset at the time
of disposal and the net proceeds on disposal.

(i)

Exploration and evaluation project expenditure

Costs incurred during the exploration, evaluation and
development stages of specific areas of interest are accumulated.
Such expenditure comprises net direct costs and an appropriate
portion of related overhead expenditure, but does not include
general overheads or administrative expenditure not having a
specific nexus with a particular area of interest.

Expenditure is only carried forward as an asset where it
is expected to be fully recouped through the successful
development of the area, or where activities to date have not
yet reached a stage to allow adequate assessment regarding
existence of economically recoverable reserves, and active and
significant operations in relation to the area are continuing.

Cue Energy Resources Limited Annual Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

Ultimate recoupment of costs is dependent on successful
development and commercial exploitation, or alternatively, sale
of respective areas.

Costs are written off as soon as an area has been abandoned or
considered to be non-commercial.

No amortisation is provided in respect of projects in the
exploration, evaluation and development stages until they are
reclassified as production properties.

Restoration costs recognised in respect of areas of interest in
the exploration and evaluation stage are carried forward as
exploration, evaluation and development expenditure.

(j)

Impairment

The carrying amounts of the Company’s and consolidated entity’s
assets, are reviewed at each balance sheet date to determine
whether there is any indication of impairment. If any such
indications exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount
of an asset or its cash generating unit exceeds the recoverable
amount. Impairment losses are recognised in the statement of
comprehensive income, unless an asset has previously been
revalued, in which case the impairment loss is recognised as
a reversal to the extent of that previous revaluation with any
excess recognised through profit or loss.

Impairment losses recognised in respect of cash-generating units
are allocated to reduce the carrying amount of the assets in the
unit (group of units) on a pro rata basis.

(k) Calculation of recoverable amount

For oil and gas assets the estimated future cash flows are based
on value in use calculations using estimates of hydrocarbon
reserves, future production profiles, commodity prices, operating
costs and any future development costs necessary to produce
the reserves. Estimates of future commodity prices are based on
contracted prices where applicable or based on forward market
prices where available. The recoverable amount of other assets is
the greater of their net selling price and value in use.

In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does
not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.

(m) Capitalisation of borrowing costs

Borrowing costs, including interest and finance charges relating
to major oil and gas assets under development up to the date
of commencement of commercial operations, are capitalised
as a component of the cost of development. Where funds are
borrowed specifically for qualifying projects the actual borrowing
costs incurred are capitalised. Where the projects are funded
through general borrowings the borrowing costs are capitalised
based on the weighted average borrowing rates.

Borrowing costs incurred after commencement of commercial
operations are expensed.

(n) Production properties

Production properties are carried at balance date at cost less
accumulated amortisation and accumulated impairment
losses. Production properties represent the accumulation of all
exploration, evaluation, development and acquisition costs in
relation to areas of interest in which production licences have
been granted.

Amortisation of costs is provided on the unit-of-production basis,
separate calculations being made for each resource. The unit-of-
production basis results in an amortisation charge proportional to
the depletion of economically recoverable reserves (comprising
both proven and probable reserves).

Amounts (including subsidies) received during the exploration,
evaluation, development or construction phases which are in the
nature of reimbursement or recoupment of previously incurred
costs are offset against such costs.

(o) Property, plant and equipment

Class of Fixed Asset
Plant and equipment

Depreciation Rate
5-33%

All items of property, plant and equipment are initially recorded
at cost. Property, plant and equipment is carried at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is calculated on a diminishing value basis so as to
allocate the cost of each item of equipment over its expected
economic life. The economic life of equipment has due regard to
physical life limitations and to present assessments of economic
recovery. Estimates of remaining useful lives are made on a
regular basis for all assets, with annual reassessment for major
items. Gains and losses on disposal of property, plant and
equipment are taken into account in determining the operating
results for the year.

(l) Reversals of impairment

(p) Cash and cash equivalents

An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised. No
impairment loss is reversed in respect of goodwill.

For purposes of the statement of cash flows, cash includes
deposits at call which are readily convertible to cash on hand and
which are used in the cash management function on a day-to-
day basis, net of outstanding bank overdrafts.

(q) Receivables

Trade accounts receivable, amounts due from related parties and
other receivables represent the principal amounts due at balance
date plus accrued interest and less, where applicable, any
unearned income and allowance for doubtful accounts.

Financial Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

(r)

Inventories

Inventories consist of hydrocarbon stocks. Inventories are
valued at the lower of cost and net realisable value. Cost is
determined on a weighted average basis and includes direct
costs and an appropriate portion of fixed production overheads
where applicable.

(s) Payables

Payables represent the principal amounts outstanding at balance
date plus, where applicable, any accrued interest. Trade payables
are normally paid within 30 days.

are determined after taking into consideration estimated future
increase in wages and salaries and past experience regarding
staff departures. Related on-costs are included.

(v) Joint ventures

When a member of the group participates in a joint venture
arrangement, the member recognises its proportionate interest
in the individual assets, liabilities, revenue and expenses of the
joint venture. The liabilities recognised include its share of those
for which it is jointly liable.

Details of major joint venture interests are set out in Note 19.

(t) Provisions

(w) Income tax

A provision is recognised in the statement of financial position
when the Group has a present legal or constructive obligation
as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of
the amount of the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money
and, where appropriate, the risk specific to the liability.

Restoration

Provisions for future environmental restoration are recognised
where there is a present obligation as a result of exploration,
development, production, transportation or storage activities
having been undertaken, and it is probable that an outflow
of economic benefits will be required to settle the obligation.
The estimated future obligations include the costs of removing
facilities, abandoning wells and restoring the affected areas.

The provision of future restoration costs is the best estimate of
the present value of the future expenditure required to settle
the restoration obligation at the reporting date, based on current
legal requirements. Future restoration costs are reviewed
annually and any changes in the estimate are reflected in
the present value of the restoration provision at the balance
sheet date, with a corresponding change in the cost of the
associated asset.

The amount of the provision for future restoration costs
relating to exploration, development and production facilities
is capitalised and depleted as a component of the cost of
those activities.

(u) Employee benefits

The following liabilities arising in respect of employee benefits
are measured at their nominal amounts:

wages and salaries and annual leave expected to be settled
within twelve months of the reporting date; and

other employee benefits expected to be settled within
twelve months of the reporting date.

All other employee benefit liabilities expected to be settled
more than 12 months after the reporting date are measured
at the present value of the estimated future cash outflows in
respect of services provided up to the reporting date. Liabilities

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 for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.

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.

However, the deferred income tax is 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 reporting
date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability
is settled.

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 controlled entities where the parent
entity 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.

Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in equity.

Cue Energy Resources Limited (the ‘head entity’) and its wholly-
owned Australian controlled entities have formed an income tax
consolidated group under the tax consolidation regime effective
1 July 2010. The head entity and the controlled entities in the tax

Cue Energy Resources Limited Annual Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

consolidated group continue to account for their own current and
deferred tax amounts. The tax consolidated group has applied the
group allocation approach in determining the appropriate amount
of taxes to allocate to members of the tax consolidated group.

appropriate classification and designation in accordance with the
contractual terms, economic conditions, the consolidated entity’s
operating or accounting policies and other pertinent conditions in
existence at the acquisition-date.

In addition to its own current and deferred tax amounts, the
head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and
unused tax credits assumed from controlled entitles in the tax
consolidated group.

Where the business combination is achieved in stages, the
consolidated entity remeasures its previously held equity
interest in the acquiree at the acquisition-date fair value and
the difference between the fair value and the previous carrying
amount is recognised in profit or loss.

Assets or liabilities arising under tax funding agreement with the
tax consolidated entities are recognised as amounts receivable
from or payable to other entities in the tax consolidated group.
The tax funding arrangement ensures that the intercompany
charge equals the current tax liability or benefit of each tax
consolidated group member, resulting in neither a contribution
by the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.

(x) Foreign currency

Functional and presentation currency

The financial statements of each group entity are measured
using its functional currency, which is the currency of the
primary economic environment in which that entity operates.
The consolidated financial statements are presented in
Australian dollars, as this is the parent entity’s functional and
presentation currency.

Transactions and Balances

Transaction in foreign currencies of entities within the
consolidated entity are translated into functional currency at the
rate of exchange ruling at the date of the transaction.

Foreign currency monetary items that are outstanding at the
reporting date (other than monetary items arising under foreign
currency contracts where the exchange rate for that monetary
item is fixed in the contract) are translated using the spot rate at
the end of financial year.

Resulting exchange differences arising on settlement or
re-statement are recognized as revenues and expenses for the
financial year.

(y) Business combinations

The acquisition method of accounting is used to account for
business combinations regardless of whether equity instruments
or other assets are acquired.

The consideration transferred is the sum of the acquisition-date
fair values of the assets transferred, equity instruments issued
or liabilities incurred by the acquirer to former owners of the
acquiree and the amount of any non-controlling interest in the
acquiree. For each business combination, the non-controlling
interest in the acquiree is measured at either fair value or at the
proportionate share of the acquiree’s identifiable net assets. All
acquisition costs are expensed as incurred to profit or loss.

On the acquisition of a business, the consolidated entity
assesses the financial assets acquired and liabilities assumed for

Contingent consideration to be transferred by the acquirer is
recognised at the acquisition-date fair value. Subsequent changes
in the fair value of contingent consideration classified as an asset
or liability is recognised in profit or loss. Contingent consideration
classified as equity is not measured and its subsequent
settlement is accounted for within equity.

The difference between the acquisition-date fair value of assets
acquired, liabilities assumed and any non-controlling interest in
the acquiree and the fair value of the consideration transferred
and the fair value of any pre-exiting investment in the acquiree
is recognised as goodwill. If the consideration transferred and
the pre-existing fair value is less than the fair value of the
identifiable net assets acquired, being a bargain purchase to the
acquirer, the difference is recognised as a gain directly in profit
or loss by the acquirer on the acquisition-date, but only after a
reassessment of the identification and measurement of the net
assets acquired, the non-controlling interest in the acquiree, if
any, the consideration transferred and the acquirer’s previously
held equity interest in the acquirer.

Business combinations are initially accounted for on a provisional
basis. The acquirer retrospectively adjusts the provisional
amounts recognised and also recognises additional assets
or liabilities during the measurement period, based on new
information obtained about the facts and circumstances that
existed at the acquisition-date. The measurement period ends on
either the earlier of (i) 12 months form the date of acquisition
or (ii) when the acquirer receives all the information possible to
determine fair value.

(z) Share-based payment transactions

Equity settled transactions

The Group provides benefits in the form of share-based
payments to executives, senior management and general staff.
These personnel render services in exchange for shares or rights
over shares (equity-settled transactions).

The cost of these equity-settled transactions with employees is
measured by reference to the fair value of the equity instruments
at the date at which they are granted. The fair value for the
options over ordinary shares are determined using the Black-
Scholes Option Valuation Model and for Performance Rights a
risked statistical analysis pricing technique is used.

In valuing equity-settled transactions, no account is taken of any
performance conditions, other than conditions linked to the price
of the shares of the Company (market conditions) if applicable.
The cost of equity-settled transactions is recognised, together

Financial Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending
on the date on which the relevant employees become fully
entitled to the award (the vesting date).

Investments in equity instruments that do not have a quoted
market price in an active market, and whose fair value cannot
be reliably measured are not designated as at fair value though
profit or loss.

The cumulative expense recognised for equity-settled
transactions at each reporting date until vesting date reflects
(i) the extent to which the vesting date has expired and (ii) the
Group’s best estimate of the number of equity instruments that
will ultimately vest. No adjustment is made for the likelihood of
market performance conditions being met as the effect of these
conditions is included in the determination of fair value at grant
date. The profit and loss charge or credit for a period represents
the movement in cumulative expense recognised as at the
beginning and end of that period.

No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is only conditional upon a
market condition.

If the terms of an equity-settled award are modified, as a
minimum an expense is recognised as if the terms had not
been modified. In addition, an expense is recognised for any
modification that increases the total fair value of the share-
based payment arrangement, or is otherwise beneficial to the
employee, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it had
not vested on the date of cancellation, and any expense not yet
recognised for the award is not recognised. However, if a new
award is substituted for the cancelled award and designated as a
replacement award on the date that it is granted, the cancelled
and new award are treated as if they were a modification of the
original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options and
Performance Rights is reflected as additional share dilution in the
computation of earnings per share (see Note 22).

(aa) Financial instruments

Classification

The group classifies its financial instruments in the following
categories: financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments, and
available-for-sale financial assets. The classification depends
on the purpose for which the investments were acquired.
Management determines the classification of its financial
instruments at the initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are either:
i) held for trading, where they are acquired for the purpose of
selling in the short-term with an intention of making a profit; or
ii) designated as such upon initial recognition, where they are
managed on a fair value basis or to eliminate or significantly
reduce an accounting mis-match. Except for effective hedging
instruments, derivatives are also categorised as fair value through
profit or loss. Fair value movements are recognised in profit
or loss.

Present investment strategy is to keep assets in a highly liquid
state and almost all of the investment assets are held in cash.

A gain or loss arising from a change in the fair value of a financial
asset or financial liability classified as at fair value through profit
or loss is recognised in profit or loss.

Derivate financial instruments and hedging

The Group can use derivative financial instruments (including
forward currency contracts, forward commodity contracts and
interest rate swaps) to hedge its risks associated with foreign
currency, commodity prices and interest rate fluctuations. Such
derivate financial instruments are initially recognised at fair value
on the date at which a derivate contract is entered into and are
subsequently remeasured to fair value.

Certain other derivate instruments which are economic hedges
are also held for trading for the purpose of making short-term
gains. These derivatives do not qualify for hedge accounting and
changes in fair value are recognised immediately in profit or loss
in income or expenses.

Derivatives are carried as assets when their fair value is positive
and as liabilities when their fair value is negative.

Held for trading derivate assets and liabilities are classified as
current in the statement of financial position. Derivative assets
and liabilities are classified as non-current when the remaining
maturity is more than 12 months, or current when the remaining
maturity is less than 12 months.

The fair values of forward currency contracts are calculated by
reference to current forward exchange rates for contracts with
similar maturity profiles. The fair values of interest rate swaps
are determined using a valuation technique based on cash flows
discounted to present value using current market interest rates.
The fair value of commodity contracts are also determined using
a discounted cash flow valuation technique using cash flow
estimates based on observable and unobservable forward prices
for the commodity.

Any gains or losses arising from changes in the fair value of
derivatives, except for those that qualify as cash flow hedges, are
taken directly to profit or loss for the year.

Non-listed investments for which fair value cannot be reliably
measured, are carried at cost and tested for impairment.

Held-to-Maturity Investments

Fixed term investments intended to be held to maturity are
classified as held-to-maturity investments. They are measured at
amortised cost using the effective interest rate method.

Loans and Receivables

Loan and receivables are measured at fair value at inception and
subsequently at amortised cost using the effective interest rate

Cue Energy Resources Limited Annual Report 20121. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’)

(ac) Contributed equity

Ordinary share capital is recognised at the fair value of the
consideration received by the company. Any transaction costs
arising on the issue of ordinary shares are recognised directly in
equity as a reduction of the share proceeds received. Ordinary
share capital bears no special terms or conditions affecting
income or capital entitlements of the shareholders.

(ad) Earnings per share

Basic earnings per share is calculated as net profit attributable
to members of the parent, adjusted to exclude any costs of
servicing equity (other than dividends) and preference share
dividends, divided by the weighted average number of ordinary
shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable
to members of the parent, adjusted for:

•

costs of servicing equity (other than dividends) and
preference share dividends;

the after tax effect of dividends and interest associated with
dilutive potential ordinary shares that have been recognised
as expenses; and

other non-discretionary changes in revenues or expenses
during the period that would result from the dilution of
potential ordinary shares; divided by the weighted average
number of ordinary shares and dilutive potential ordinary
shares, adjusted for any bonus element.

(ae) Rounding

The amounts contained in this financial report have been
rounded to the nearest $1,000 (where rounding is applicable)
under the option available to the company under ASIC Class
Order 98/0100. The Company is an entity to which the Class
Order applies.

method. Interest income is recognised by applying the effective
interest rate method.

Available-for-Sale

Available-for-sale financial assets include any financial assets not
included in the above categories and are measured at fair value.
Unrealised gains and losses arising from changes in fair value
are taken directly to equity. The cumulative gain or loss is held
in equity until the financial asset is de-recognised, at which time
the cumulative gain or loss held in equity is recognised in profit
and loss. An impairment loss arising in relation to an “available-
for-sale” instrument is recognised directly in profit and loss for
the period.

Financial Liabilities

Financial liabilities include trade payables, other creditors and
loans from third parties including inter-company balances and
loans from or other amounts due to director-related entities.

Non-derivative financial liabilities are recognised at amortised
cost, comprising original debt less principal payments and
amortisation.

Impairment of financial assets

The Group assesses at each balance date whether there is
objective evidence that a financial asset or group of financial
assets is impaired. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair
value of a security below its cost is considered as an indicator
that the securities are impaired. If any such evidence exists for
available-for-sale financial assets, the cumulative loss - measured
as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset
previously recognised in profit or loss - is removed from equity
and recognised in the statement of comprehensive income.
Impairment losses recognised in the statement of comprehensive
income on equity instruments classified as available-for-sale are
not reversed through the statement of comprehensive income.

Full disclosure of information about financial instruments to
which the Group is a party is provided in Note 2.

(ab) Leases

Leases of property, plant and equipment where substantially
all the risks and benefits incidental to ownership of the asset,
are classified as finance leases. Finance leases are capitalised,
recorded as an asset and a liability equal to the present value of
the minimum lease payments, including any residual payments
as determined by the lease contract. Leased assets are amortised
on a straight line basis over the estimated useful lives where it
is likely that the consolidated entity will obtain legal ownership
of the asset on expiry of the lease. Lease payments are allocated
over both the lease interest expense and the lease liability.

Lease payments for operating leases where substantial risks and
benefits remain with the lessor are charged as expenses in the
periods in which they are incurred.

Financial Report 20122. FINANCIAL INSTRUMENTS
The Group’s principal financial instruments comprise receivables, payables, borrowings, available for sale financial assets, cash and short
term deposits.

The Group manages its exposure to key financial risks, including interest rate and currency risk through management’s regular
assessment of financial risks. The objective of the assessment is to support the delivery of the Group’s financial targets whilst protecting
future financial security.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, commodity price risk, other
price risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risk to which it is
exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts
for interest rate, foreign exchange and commodity prices. Aging analyses and monitoring of specific credit allowances are undertaken to
manage credit risk and liquidity risk is monitored through the development of future rolling cash flow forecasts.

These risks are summarised below.

Primary responsibility for identification and control of financial risks rests with the Chief Financial Officer under the authority of the
Board. The Board reviews and agrees management’s assessment for managing each of the risks identified below, including foreign
currency risk, interest rate risk, credit allowances, and future cash flow forecast projections.

The carrying amounts and net fair values of the economic entity’s financial assets and liabilities at balance date are:

Consolidated

Financial assets

Cash and cash equivalents

Trade and other receivables

Non-traded financial assets

Financial liabilities

Trade and other payables

Other financial liabilities-derivatives

Current liability - tax

Financial liabilities-secured

Non-traded financial liabilities

Risk Exposures and Responses

(a) Fair Values

Carrying Amount

Net Fair Value

2012
$’000

2011
$’000

2012
$’000

2011
$’000

33,733

11,746

45,479

8,631

1,293

9,924

52,811

17,286

70,097

5,547

935

5,280

5,086

16,848

33,733

11,746

45,479

8,631

1,293

9,924

52,811

17,286

70,097

5,547

935

5,280

5,086

16,848

The financial assets and liabilities of the Group are recognised on the statement of financial position at their fair value in accordance
with the accounting policies in Note 1.

Net Fair Values

The net fair value of traded instruments have been valued at the quoted market bid price at balance date adjusted for transaction costs
expected to be incurred. For other assets and other liabilities the net fair value approximates their carrying value.

Basis for determining fair values

The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments:

Trade and other receivables

The carrying value less impairment provision of trade receivables is a reasonable approximation of their fair values due to the short-
term nature of trade receivables.

Available-for-sale financial assets

The fair value of available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date.

Cue Energy Resources Limited Annual Report 20122. FINANCIAL INSTRUMENTS (cont’)
Derivatives

10,000 barrels per month have been sold forward up until 31 December 2011 at Dated Brent USD98 per barrel. Fair value is determined
by reference to active market pricing at balance date. No derivatives were outstanding at balance date.

Financial liabilities

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest
at the reporting date. Where these cash flows are in a foreign currency the present value is converted into Australian dollars at the
foreign exchange spot rate prevailing at reporting date.

Trade and other payables

The carrying value of trade payables is a reasonable approximation of their fair values due to the short term nature of trade payables.

The following table details the entities fair value of financial instruments categorised by the following levels:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices)

or indirectly (derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

30 June 2012

Level 1

Level 2

Level 3

Financial liabilities held at fair value through profit & loss

Forward Sale (Swap) instrument

Total

30 June 2011

Financial assets held at fair value through profit & loss

Forward Sale (Swap) instrument

Total

(b) Interest Rate Risk

Level 1

Level 2

Level 3

(935)

The Group’s exposure to market interest rate is related primarily to the Group’s cash deposits (Note 26b) and borrowings (Note 17).

At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian and overseas variable interest
rate risk that are not designated in cash flow hedges:

Financial Assets

Cash & cash equivalents

Financial Liabilities

Other financial liabilities

Financial liabilities-secured

Net exposure

Consolidated

2012
$’000

2011
$’000

33,733

52,811

33,733

(935)

(5,086)

46,790

The Group constantly analyses its interest rate opportunity and exposure. Within this analysis consideration is given to existing positions
and alternative arrangement on fixed or variable deposits.

The following sensitivity analysis is based on the interest rate opportunity/risk in existence at balance date.

Financial Report 20122. FINANCIAL INSTRUMENTS (cont’)
Based upon the average balance of net exposure during the year, if interest rates changed by +/-1%, with all other variables held
constant, the estimated impact on post-tax profit and equity would have been:

Impact on post-tax profit

Interest rates +1%

Interest rates –1%

Impact on equity

Interest rates +1%

Interest rates –1%

Consolidated

2012
$000’s

2011
$000’s

510

(510)

510

(510)

519

(519)

519

(519)

A movement of + and – 1% is selected because this historically is within a range of rate movements and available economic data
suggests this range is reasonable.

The Group is subject to foreign exchange rate risk on its international exploration and appraisal activities where costs are incurred in
foreign currencies, in particular United States dollars.

The Board approved the policy of holding certain funds in United States dollars to manage foreign exchange risk.

The Group’s exposure to foreign exchange risk at the reporting date was as follows (holdings are shown in AUD equivalent):

Consolidated

Financial assets

Cash and cash equivalents

Receivables

Financial liabilities

Current payables

Financial liabilities-secured

30 June 2012

30 June 2011

USD
$’000

NZD
$’000

PNG KINA
$’000

USD
$’000

NZD
$’000

PNG KINA
$’000

32,385

9,268

1,621

1,152

171

731

49,571

9,557

2,889

5,086

1,229

216

1,205

For the year ended as at 30 June, if the currencies set out in the table above, strengthened or weakened against the US dollar by the
percentage shown, with all other variables held constant, net profit for the year would increase/(decrease) and net assets would
increase / (decrease) by:

Impact on post-tax profit

AUD/USD +10%

AUD/USD -10%

Impact on equity

AUD/USD +10%

AUD/USD -10%

Consolidated

2012
$000’s

2011
$000’s

(3,303)

3,303

(3,303)

3,303

(2,195)

2,195

(2,195)

2,195

Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.
A movement of + and – 10% is selected because a review of recent exchange rate movements and economic data suggests this range
is reasonable.

Cue Energy Resources Limited Annual Report 2012

2. FINANCIAL INSTRUMENTS (cont’)
(d) Commodity Price Risk

The Group is involved in oil and gas exploration and appraisal and since April 1998 has received revenue from the sale of hydrocarbons.
Exposure to commodity price risk is therefore limited to this production and from successful exploration and appraisal activities the
quantum of which at this stage cannot be measured.

Commodity price risk exposure

The Group is exposed to commodity price fluctuations through the sale of petroleum products denominated in US dollars. The Group
may enter into commodity crude oil price swap and option contracts to manage its commodity price risk.

At 30 June 2012 the Group had no open oil price swap contracts (2011: 60,000 bbls at Dated Brent USD98 per bbl). Sensitivity of the oil
swap contract to changes of +/- 20% would impact on post tax profit and equity as follows:

Impact on post-tax profit

US dollar oil price +20%

US dollar oil price –20%

Impact on equity

US dollar oil price +20%

US dollar oil price –20%

Consolidated

2012
$000’s

2011
$000’s

429

(429)

429

(429)

If the US dollar oil price changed by +/-20% from the average oil price during the year, with all other variables held constant, the
estimated impact on post-tax profit and equity would have been:

Impact on post-tax profit

US dollar oil price +20%

US dollar oil price –20%

Impact on equity

US dollar oil price +20%

US dollar oil price –20%

Consolidated

2012
$000’s

2011
$000’s

3,683

(3,683)

3,683

(3,683)

4,674

(4,674)

4,674

(4,674)

Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.
A movement of + and – 20% is selected because a review of historical oil price movements and economic data suggests this range
is reasonable.

Other price risks

The Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading
purposes. The Group does not actively trade these investments and the potential impact of any movements in equity market prices
would have an insignificant impact on profit and equity.

The Group’s sensitivity to equity prices has not changed significantly from the prior year and is not material.

Financial Report 2012

2. FINANCIAL INSTRUMENTS (cont’)
(e) Liquidity Risk

Liquidity Risk is the risk that the group, although balance sheet solvent, cannot meet or generate sufficient cash resources to meet its
payment obligations in full as they fall due, or can only do so at materially disadvantageous terms.

Ultimate responsibility for liquidity risk management rests with the board of directors, who have established an appropriate liquidity
risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities and
by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Group predominantly funded the Maari oil field development from external borrowings as part of its liquidity risk management
process. As the field is now in production, the production receipts are being used to directly pay down the project borrowings directly
reducing the Group’s exposure to liquidity risk. At 30 June 2012, all borrowings have been repaid.

During the year the Company received equity of $0.65 million on conversion of options.

The Group is consequently more than sufficiently solvent to meet its payment obligations in full as they fall due.

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims to maintain flexibility
in funding to meet ongoing operational requirements, exploration and development expenditure, and small-to-medium-sized
opportunistic projects and investments, by keeping committed credit facilities available.

The following table analyses the contractual maturities of the Group’s financial liabilities into relevant groupings based on the remaining
period at the reporting date to the contractual undiscounted cash flows comprising principal and interest repayments. Estimated variable
interest expense is based upon appropriate yield curves existing as at 30 June 2012.

Consolidated

2012

Non-derivative financial liabilities

Trade and other payables (i)

Current liability-tax

2011

Non-derivative financial liabilities

Trade and other payables (i)

Current tax liability

Financial liability secured

Derivative financial liabilities

Other financial liabilities-derivatives

12 months
or less
$000’s

1 to 2
years
$000’s

2 to 5
years
$000’s

More than
5 years
$000’s

8,631

1,293

9,924

5,547

5,280

5,086

15,913

935

(i)

Repayment within 3 months, except for the Medco liability of AUD5.2M which is expected to be repaid in 12 months.

Cue Energy Resources Limited Annual Report 2012
2. FINANCIAL INSTRUMENTS (cont’)
(f) Credit Risk

Credit risk arises from the financial assets of the group, which comprise cash and cash equivalents, trade and other receivables and
available-for-sale financial assets. The Group’s exposure to credit risk arises from potential default of the counter party, with maximum
exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

The Group does not hold any credit derivatives to offset its credit exposure.

The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to
securitize its trade and other receivables.

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including
an assessment of their independent credit rating, financial position, past experience and industry reputation. The risks are
regularly monitored.

At balance date there are no significant concentrations of credit risk within the Group.

3. REVENUE

Operating Revenue

Production income

Interest from cash and cash equivalents

Other Income

Management fees

Profit on sale of exploration assets

Oil Hedge Recognition (at fair value) Income:

–

realised

Net foreign currency gain

Total Revenue

Consolidated

2012
$000’s

2011
$000’s

41,222

52,506

274

312

158

2,616

2,774

44,270

6,779

6,852

59,670

Financial Report 20124. EXPENSES

Operating Expenses

Production costs

Amortisation production properties

Interest expense

Net realised loss on oil hedge derivatives

Change in fair value of derivatives

Net foreign currency loss

Exploration and evaluation costs written off (Note 13)

Other Expenses

Depreciation

Employee expense (net of superannuation)

Superannuation contribution expense

Administrative expenses

Operating lease expense

Business development expenses

Other expense

Total Operating Expenses

5. AUDITORS REMUNERATION

Amounts paid or due and payable to the auditor – BDO (1) for:

Audit or review of the financial reports

Other Services:

Tax compliance services

(1) BDO East Coast Partnership previously traded as PKF East Coast Practice.

No other services were provided by the auditor during the period, other than those set out above.

Consolidated

2012
$000’s

2011
$000’s

13,778

10,500

3,141

182

693

203

2,024

6,287

30,649

9,113

9,644

173

1,209

935

5,328

2,838

2,791

191

886

150

627

4,669

33,909

Consolidated

2012
$000’s

2011
$000’s

65,000

71,000

39,250

104,250

42,682

113,682

Cue Energy Resources Limited Annual Report 2012

6. TAXATION

Income Tax Expense

Current tax

Adjustment to prior periods

Deferred tax

Income tax expense/(benefit) is attributable to:

Profit from continuing operations

Aggregate income tax expense

Deferred Income tax (revenue)/expenses included in income tax comprises:

Decrease/(increase) in deferred tax assets

(Decrease)/increase in deferred tax liabilities

Consolidated Entity

2012
$’000

2011
$’000

1,967

(1,670)

7,661

7,958

3,632

3,022

6,654

7,958

6,654

1,782

5,879

7,661

3,512

(490)

3,022

Numerical reconciliation of income tax expense to prima facie tax on accounting profit/(loss)

Profit/(loss) from continuing operations before income tax expense

13,621

25,761

Tax expense/(benefit) at Australian tax rate of 30% (2011: 30%)

4,086

7,742

Unrealised timing differences

Difference in overseas tax rates

Non-Allowable/(Allowable) mining deductions

Tax losses carried forward

Adjustments to current tax from prior periods

Previously unrecognised tax losses now recognised to reduce tax expense

4,688

1,701

(629)

(1,670)

(218)

3,501

(767)

(2,337)

870

(2,442)

Income tax expense/(benefit)

7,958

6,654

Tax losses

Unused tax losses for which no deferred tax asset has been recognised

Potential tax benefit at 30%

Current tax liabilities

Income tax payable attributable to:

Other wholly owned subsidiaries

19,988

5,996

14,257

4,277

1,293

5,280

Financial Report 20126. TAXATION (cont’)

Non-current assets – deferred tax assets

Movements - Consolidated

Opening balance

(Debit)/credit to the income statement

Closing balance

Non-current liabilities – deferred tax liabilities

Movements - Consolidated

Opening balance

(Debit)/credit to the income statement

Net

(i) Presentation in the consolidated statement of financial position as follows:

Deferred tax asset

Deferred tax liability

Net

Tax Losses
$’000

Total
$’000

11,612

(1,782)

9,830

15,124

(3,512)

11,612

(26,727)

(5,879)

(27,217)

490

(32,606)

(26,727)

(22,776)

(15,115)

322

(23,098)

(22,776)

321

(15,436)

(15,115)

(i)

The Company has also prepared forward projections of taxable future profits over 5 years to determine whether it will have sufficient
taxable profits to recoup the losses it has recorded in the current period as deferred tax assets. These projections are based upon
taxable income to the subsidiary entity in the form of hydrocarbon receipts.

Cue Energy Resources Limited Annual Report 2012

7. CAPITAL AND RESERVES

(a) Share capital

Issued and paid up 698,119,720
(2011: 694,819,718) ordinary fully paid shares

Balance at 1 July

3,300,002 options exercised

1,500,000 options exercised

Consolidated

2012
$000’s

2011
$000’s

2012
$000’s

2011
$000’s

151,768

151,468

694,819,718

693,319,718

648

300

3,300,002

1,500,000

Closing balance

152,416

151,768

698,119,720

694,819,718

Movements in contributed capital since 1 July 2011 were as follows:

01/07/11 balance at beginning period

30/08/2011 shares issue

19/04/2012 shares issue

Ordinary
Shares

694,819,718

166,668

166,667

1,033,333

533,334

866,667

533,333

Issue price

$’000

20 cents

15 cents

20 cents

22.5 cents

25 cents

151,768

155

107

195

133

30/06/12 balance at end period

698,119,720

152,416

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the
proceeds from the sale of all surplus assets in proportion to the number of and moneys paid up on shares held. Ordinary shares entitle
holders to one vote, either in person or by proxy at a meeting of the Company. The Company has an unlimited authorised capital and
the shares have no par value.

(b) Share based payment reserve

Balance at 1 July

Performance share rights payment expense

Closing balance

Share based payment reserve

Nature and purpose of reserve

Consolidated

2012
$000’s

2011
$000’s

391

425

391

This reserve is used to record the value of equity benefits provided as part of agreements entered into by the company during the year.
Refer to Note 24 and the remuneration section of the Director’s Report for details.

Financial Report 2012

7. CAPITAL AND RESERVES (cont’)
The following reconciles the outstanding options and share rights granted as remuneration in the current and prior financial years at the
beginning and end of the year.

Balance at beginning of the Year

Granted during the Year

Forfeited during the Year

Exercised during the Year

Expired during the Year

Issued Shares during the Year

Balance at end of the Year

2012
Number of Share Rights

2012
Number of Options

4,000,000

(800,000)

3,200,000

4,300,000

(3,300,002)

(999,998)

When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal
returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the
lowest cost of capital available to the entity.

Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets.
As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.

During 2012 management did not pay any dividends.

There has been no change to the strategy adopted by management to control the capital of the entity.

The gearing ratios for the year ended 30 June 2012 and 30 June 2011 are as follows:

Financial liabilities-secured

Other current liabilities (excluding provisions)

Total

Less cash and cash equivalents

Surplus cash

Total equity

Total capital

Gearing ratio

Consolidated Group

2012
$000’s

2011
$000’s

(9,924)

33,733

23,809

125,178

152,416

(5,086)

(11,762)

(16,848)

52,811

35,963

118,833

151,768

Cue Energy Resources Limited Annual Report 20128. TRADE AND OTHER RECEIVABLES

Current receivables
Trade receivables

Non-trade receivables and prepayments

The ageing of trade receivables at the reporting date was as follows:

Less than one month

Consolidated Group

2012
$000’s

2011
$000’s

11,180

566

11,746

11,180

8,782

8,504

17,286

8,782

Trade receivables are non-interest-bearing and settlement terms are generally within 30 days.

Trade receivables are neither past due nor impaired and relate to a number of independent customers for whom there is no recent
history of default.

Impaired receivables

At 30 June 2012 there were no current trade receivables that were impaired (2011: $Nil).

The balance of the allowance for impairment in respect of trade receivables at 30 June 2012 was $Nil (2011: $Nil). There has been no
movement in the allowance during the year.

The Directors consider the carrying value of receivables reflect their fair values.

9. PROPERTY, PLANT AND EQUIPMENT

Office and computer equipment

Cost

Accumulated depreciation

Consolidated

2012
$000’s

2011
$000’s

338

(254)

312

(240)

Reconciliation of the carrying amounts of each class of property plant and equipment at the beginning and end of the current financial
year are set out below:

Balance at beginning of year

Additions

Depreciation expense

Balance at end of year

10. INVENTORY

Current Assets

Inventory

Consolidated

2012
$000’s

2011
$000’s

(43)

(24)

Consolidated

2012
$000’s

2011
$000’s

1,500

Financial Report 201211. OTHER FINANCIAL LIABILITIES

Consolidated

2012
$000’s

2011
$000’s

Current Liability

Recognition of oil swap based on market price at balance date

935

12. SHARES IN SUBSIDIARIES AT BALANCE DATE
Shares held by the parent entity at balance date:

Subsidiary Companies

2012
$

2011
$

Interest
Held

Country of
Incorporation

Principal
Activity

Parent

Petroleum
production and
exploration

Australia

Administration

100%

Cue PNG Oil Company Pty Ltd

Cue Energy Holdings Ltd

Cue Mahakam Hilir Pty Ltd

Cue (Ashmore Cartier) Pty Ltd

Cue Sampang Pty Ltd

Cue Taranaki Pty Ltd

Toro Oil Pty Ltd

Cue Energy Malaysia Sdn Bhd

100%

Australia

100%

Australia

100%

Australia

100%

Australia

100%

Australia

100%

Malaysia

Galveston Mining Corporation Pty Ltd

1,286,678

100%

Australia

Less accumulated impairment losses

(1,286,678)

Cue Exploration Pty Ltd

1,929,077

100%

Australia

Less accumulated impairment losses

(1,343,808)

Total

All companies in the Group have a 30 June balance date.

585,269

585,279

Petroleum
production and
exploration

Petroleum
exploration

Petroleum
production

Petroleum
exploration

Cue Energy Resources Limited Annual Report 201213. EXPLORATION AND EVALUATION EXPENDITURE

Costs carried forward in respect of areas of interest in exploration and evaluation phase

Expenditure incurred during the year

Expenditure transferred to Production properties during the year

Expenditure refunded during the year

Expenditure reversed on sale of exploration licence

Closing balance

Accumulated costs incurred on current areas of interest net of amounts written off -

- Sampang PSC

- Mahakam Hilir PSC

- PNG PRL 9

- PNG PRL14

- PNG PDL 3 (non unitized)

- WA-359-P

- WA-360-P

- WA-361-P

- WA-389-P

- WA-409-P

- PEP 51313

- PEP 51149

Consolidated

2012
$000’s

2011
$000’s

13,166

18,599

31,765

8,709

9,572

2,080

326

209

133

1,894

382

2,667

148

4,233

1,412

24,817

1,791

(5,109)

(5,050)

(445)

13,166

3,023

1,977

220

209

120

470

143

1,677

135

3,768

1,398

Net accumulated exploration and evaluation expenditure

31,765

13,166

14. IMPAIRMENT OF PRODUCTION PROPERTY ASSETS
At 30 June 2012 the Group reassessed the carrying amount of its oil and gas assets, Production Properties (refer Note 15 and Note 1(j)),
for indicators of impairment such as changes in future prices, future costs and reserves. As a result, the recoverable amounts of cash-
generating units were formally reassessed but no impairment write-downs were required.

Estimates of recoverable amounts are based on the assets’ value in use, determined by discounting each asset’s estimated future cash
flows at asset specific discount rates. The pre-tax discount rates applied were 14.3% (2011: 14.3%) equivalent to post-tax discount rates
of 10% (2011: 10%) depending on the nature of the risks specific to each asset. Where an asset does not generate cash flows that are
largely independent from other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which
the asset belongs.

Financial Report 2012

15. PRODUCTION PROPERTIES

Balance at beginning of year

Expenditure incurred during the year

Expenditure transferred from exploration expenditure

Amortisation and restoration expense

Balance at end of year

Net accumulated costs incurred on areas of interest

- PNG PDL 3 (unitized)

- Oyong – Sampang PSC

- Maari – PMP 38160

Total

16. TRADE AND OTHER PAYABLES

Current

Trade creditors and accruals

Directors and Director related entities

Consolidated

2012
$000’s

2011
$000’s

68,786

26,600

(10,500)

84,886

500

34,978

49,408

84,886

66,714

6,607

5,109

(9,644)

68,786

488

21,093

47,205

68,786

Consolidated

2012
$000’s

2011
$000’s

8,606

8,631

5,472

5,547

The Directors consider the carrying amount of payables reflect their fair values. Trade creditors are generally settled within 30 days. The
Group does not have any significant concentration of credit risks.

17. INTEREST-BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information
about the Group’s exposure to interest rate and foreign currency risk, see Note 2.

Interest bearing liabilities

Bank loans – secured - current

Consolidated

2012
$000’s

2011
$000’s

5,086

Cue Energy Resources Limited Annual Report 201218. PROVISIONS

Current

Employee benefits

Non-Current

Employee benefits

Restoration

Consolidated

2012
$000’s

2011
$000’s

381

379

5,411

5,455

106

840

946

Movements in each class of provision during the financial year, other than provisions relating to employee benefits are set out below:

Consolidated

Balance at 1 July 2011

Provisions made during the year

Provisions used during the year

Balance at 30 June 2012

Restoration

Total
Restoration
$000’s

840

4,571

5,411

Provisions for future removal and restoration costs are recognised where there is a present obligation as a result of exploration,
development, production, transportation or storage activities having been undertaken, and it is probable that an outflow of economic
benefits will be required to settle the obligation. The estimated future obligations include costs of removing facilities, abandoning wells
and restoring the affected areas. Expected timing of outflow of restoration liabilities is not in the next 12 months from balance date.

Financial Report 201219. INTERESTS IN JOINT VENTURES

Property

Operator

Petroleum Exploration Properties

Carnarvon Basin – Western Australia

Cue
Interest
(%)

Gross Area
(Km2)

Net Area
(Km2)

Permit
Expiry Date

WA-359-P*

WA-360-P

WA-361-P

WA-389-P

WA-409-P

New Zealand

PEP 51149

PEP 51313

Indonesia

Mahakam Hilir PSC

Papua New Guinea

PRL 9

PRL 14

Apache Northwest Pty Ltd

North West Shelf Exploration Pty Ltd

Woodside Burrup Pty Ltd

Apache Northwest Pty Ltd

Todd Exploration Limited

SPC Mahakam Hilir Pte. Ltd

Oil Search Ltd

37.50

14.894

10.947

648

649

3,825

569

435

2,593

275

598

427

365

243

1,339

171

519

110

46.8

31/07/2012

05/03/2017

30/01/2016

29/07/2013

29/04/2014

22/09/2013

29/07/2014

12/11/2014

17/12/2012

21/11/2015

Petroleum Production and Exploration Properties

New Zealand

PMP 38160

Madura - Indonesia

OMV New Zealand Limited

02/12/2027

Sampang PSC

Santos (Sampang) Pty Ltd

Papua New Guinea

PDL 3

Oil Search Ltd

15
(8.181818
Jeruk field)

5.568892

534

4.7

04/12/2027

23/12/2021

The WA-359-P Joint Venture has submitted an application to renew the permit with a reduced surface area. This application is being
considered by NOPTA.

Cue Energy Resources Limited Annual Report 201219. INTERESTS IN JOINT VENTURES (cont’)

The share of assets and liabilities of the joint ventures and other financial liabilities attributed to
Joint Ventures have been included under the relevant headings:

Current Assets:

Receivables

Non Current Assets:

Exploration and Evaluation Expenditure (Note 13)

Production Properties (Note 15)

Total Assets

Current Liabilities:

Payables

Other financial liabilities

Financial liabilities-secured

Total Liabilities

Net Assets

Income and expenses of the consolidated entity attributable to joint ventures:

Income

Expenses

No contingent liabilities exist. Commitments are disclosed in Note 20.

20. COMMITMENTS FOR EXPENDITURE

a) Exploration Tenements

Consolidated

2012
$000’s

2011
$000’s

11,180

8,782

31,765

84,886

127,831

8,347

119,484

41,222

13,778

13,166

68,786

90,734

5,140

935

5,086

11,161

79,573

52,506

9,113

In order to maintain current rights of tenure to petroleum exploration tenements, the Group has discretionary exploration expenditure
requirements up until expiry of the primary term of the tenements. These requirements, which are subject to renegotiation and are not
provided for in the financial statements, are payable as follows:

Not later than one year

Later than one year but not later than 2 years

Later than 2 years but not later than 5 years

Later than 5 years

Consolidated

2012
$000’s

2011
$000’s

4,891

494

21,015

921

5,385

21,962

If the economic entity decides to relinquish certain tenements and/or does not meet these obligations, assets recognised in the
Statement of Financial Position may require review in order to determine the appropriateness of carrying values. The sale, transfer or
farm-out of exploration rights to third parties could potentially reduce or extinguish these obligations.

All commitments relate to Joint Venture projects.

Financial Report 201220. COMMITMENTS FOR EXPENDITURE (cont’)

b) Development Expenditure

Not later than one year

Later than one year but not later than 2 years

Later than 2 years but not later than 5 years

Later than 5 years

All development expenditure commitments relates to the development of oil and gas fields.

c) Operating Lease Commitments

Non-cancellable operating lease relating to rental of premises are payable as follows:

Not later than one year

Later than one year but not later than five years

Consolidated

2012
$000’s

2011
$000’s

412

9,964

412

9,964

Consolidated

2012
$000’s

2011
$000’s

123

185

123

185

308

During the year ended 30 June 2012 the Group recognised $0.20M (2011:$0.15M) as an expense in the income statement in respect of
operating leases relating to the lease over the company’s business premises.

21. EVENTS SUBSEQUENT TO BALANCE DATE
As a result of an economic project arrangement in the Jeruk field within the Sampang PSC, Indonesia, Cue may in certain circumstances
have an obligation to reimburse certain monies spent by the incoming party from future profit oil within the Sampang PSC. There
is a dispute between Cue and the incoming party as to the quantum of monies that they may be entitled to claim by way of such
reimbursement and when any such reimbursement would be payable. The Company is of the view that any amount which might
eventually become payable would not be likely to exceed the amount of USD5.3m which has been provided for in the accounts.
The Company has taken legal advice and is in discussions to resolve the matter with the incoming party, which has given Notice
of Arbitration.

Apart from the above, the Directors are not aware of any matter or circumstance since the end of the financial year, not otherwise dealt
with in this report that has significantly or may significantly affect the operations of Cue Energy Resources Limited, the results of those
operations or the state of affairs of the Company or Group.

Cue Energy Resources Limited Annual Report 201222. EARNINGS PER SHARE

Basic earnings per share

Diluted earnings per share

Net profit after tax ($’000)

Consolidated

2012

2011

$0.0081

$5,663

$0.027

$19,107

Weighted average number of ordinary shares outstanding during the year (adjusted for ordinary shares issued
during the year) used in the calculation of basic earnings per share

698,119,720

698,112,869

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent
by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity of the Parent by the
weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Consolidated

2012

2011

Earnings used in the calculation of basic and diluted earnings per share reconciles to the net profit after tax in
the income statement as follows:

Net profit/(loss) attributable to ordinary equity holders of the Parent from continuing operations ($’000)

5,663

19,107

The weighted average number of shares used for the purposes of calculating diluted earnings per share
reconciles to the number used to calculate basic earnings per share as follows:

698,119,720

698,112,869

Share options on issue (i)

Performance Rights on issue (ii)

Diluted earnings per share

4,300,000

3,200,000

$0.0081

$0.027

(i)

(ii)

Options issued under the Cue Energy’s Executive Share Option Plan issued to eligible executives have been classified as potential ordinary shares
and included in the calculation of diluted earnings per share.

Performance Rights issued under the Cue Energy Resources Limited Share Performance Rights Plan issued to eligible executives have been classified
as potential ordinary shares and included in the valuation of diluted earnings per share in 2012.

During the year, 3.3 million (2011:Nil) options and no Performance Rights were converted to ordinary shares. The diluted earnings per
share calculation includes that portion of these options and Performance Rights assumed to be issued for nil consideration weighted
with reference to the date of conversion. The weighted average number to be included in 2012 is 870,960 (2011: 493,151) options and
3,200,000 (2011: Nil) Performance Rights respectively. No options were on issue as at 30 June 2012.

Information Concerning the Classification of Securities

All outstanding Options and Performance Rights are considered to be potential ordinary shares and have been included in the
determination of diluted earnings per share. However diluted earnings per share is not materially different from basic earnings
per share.

Financial Report 2012

23. FINANCIAL REPORTING BY SEGMENTS

Segment Information

The Group has adopted AASB 8 Operating Segments with effect from 1 July 2009. AASB 8 requires operating segments to be
identified on the basis of internal reports about components of the Group that are regularly reviewed and used by the Board of
Directors (who are identified as the Chief Operating Decision Makers (“CODM”)) in assessing performance and in determining the
allocation of resources.

The CODM assesses the performance of the operating segments based upon a measure of earnings before interest, tax, depreciation
and amortisation. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the
financial statements.

The principal business of the group is the production and exploration for hydrocarbons in Australia, New Zealand, Indonesia and
PNG. The board considers the business from both a product and geographic perspective and has identified four reportable segments.
Information regarding the Group’s reportable segments is presented below:

2012

Production Revenue

Production Expenses

Gross Profit

Other revenue

AUSTRALIA
$’000

NZ
$’000

INDONESIA
$’000

PNG
$’000

3,048

21,874

(6,085)

15,789

16,106

(6,769)

9,337

3,242

(924)

2,318

Earnings before interest, tax, depreciation
and amortisation

(3,195)

15,789

9,337

2,318

2011

Production Revenue

Production Expenses

Gross Profit

Other revenue

AUSTRALIA
$’000

NZ
$’000

INDONESIA
$’000

PNG
$’000

7,164

23,969

(5,047)

18,922

25,584

(3,202)

22,382

2,953

(864)

2,089

Earnings before interest, tax, depreciation
and amortisation

(4,952)

18,922

22,382

2,089

Total segment assets

30 June 2012

30 June 2011

Total segment liabilities

30 June 2012

30 June 2011

38,216

63,682

1,116

2,737

60,554

55,631

11,851

14,710

61,336

29,704

24,322

14,903

3,930

3,425

1,569

1,259

All Other
Segments
$’000

TOTAL
$’000

41,222

(13,778)

27,444

3,048

24,249

TOTAL
$’000

52,506

(9,113)

43,393

7,164

38,441

164,036

152,442

38,858

33,609

Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA) to Net Profit before Income Tax:

EBITDA

Interest expense

Depreciation

Amortisation

Impairment writedowns

Net Profit before Income Tax

2012
$’000

2011
$’000

24,249

(84)

(44)

(10,500)

13,621

38,440

(173)

(24)

(9,644)

(2,838)

25,761

The Board assesses the performance of the operating segments based upon a measure of earnings before interest, tax, depreciation
and amortisation.

The Company operated predominantly in one industry, exploration and production of hydrocarbons.

Cue Energy Resources Limited Annual Report 201224. SHARE BASED PAYMENTS

Directors and Employee Benefits – Share Based Payment Plans

Performance rights over shares in Cue Energy Resources Limited were granted under the Cue Energy Resources Limited Performance
Rights Plan (Plan) which was approved by shareholders at the general meeting held on 24th November 2011. The Plan is designed to
align the interests of executives with shareholders by providing direct participation in the benefits of future Company performance over
the medium to long term.

Ownership based compensation payments for employees and executives of the group are made at the discretion of the Board. The
current participants in the Plan are M.J. Paton, A.M. Knox and D.B. Whittam.

Under the Plan participants were granted performance rights which only vest if certain performance standards (as disclosed in the
Remuneration Report) are met and the executive remains employed by the Company to the end of the vesting period. The selection of
suitable performance benchmarks was considered critical to securing the objectives of this Plan, and benchmark price levels for vesting
were set at significantly higher levels than those prevailing at the time of structuring the Plan.

Options and performance rights are not listed and carry no dividend or voting rights. Upon exercise, each option or performance right is
convertible into one ordinary share to rank pari passu in all respects with the Company’s existing fully paid ordinary shares.

Share-based payments

Performance rights can only be exercised if they have vested and only in such form and manner as prescribed by the Board.
Participants will not be required to make any payment for the grant of the performance rights or on the exercise of a vested
performance right.

The following reconciles the outstanding options and share rights granted as remuneration in the current and prior financial years at the
beginning and end of the year.

Balance at beginning of the Year

Granted during the Year

Forfeited during the Year

Exercised during the Year

Expired during the Year

Issued Shares during the Year

Balance at end of the Year

2012
Number of Share Rights

2012
Number of Options

4,000,000

(800,000)

3,200,000

4,300,000

(3,300,002)

(999,998)

Subsequent to the year end a further 800,000 performance rights were forfeited following resignation of A.B. Parks.

Also subsequent to year end a further 3.2 million performance rights were granted on 1 July 2012 as disclosed in the Director’s Report.

None of the performance rights have vested at 30 June 2012.

The fair value of performance rights granted was calculated using a risked statistical analysis. This expense has been apportioned
pro-rata to reporting periods where vesting periods apply.

Weighted average remaining contractual life of share rights is one year (2011:nil) and the remaining weighted average contracted life
of options is nil (2011: nil). Range of exercise prices for options and performance rights are disclosed in the Remuneration Report.

Balance at beginning of the Year

150,000

5,800,000

2011
Number of Share Rights

2011
Number of Options

Granted during the Year

Forfeited during the Year

Exercised during the Year

Expired during the Year

Issued Shares during the Year

Balance at end of the Year

(150,000)

(1,500,000)

4,300,000

Financial Report 201224. SHARE BASED PAYMENTS (cont’)

Performance rights

Key inputs to the model used in the calculation were as follows (see also Directors’ Report):

Grant date:

Expected price volatility (i)

Exercise price

Expiry date

Share price at grant date

Risk free interest rate (ii)

2011/2012 Participation Rights 24 November 2011

45%

Nil

30 June 2013

A$0.225

3.3%

(i)

Expected price volatility was 45% (based on the historical volatility adjusted for any expected changes to future volatility due to
publicly available information).

(ii)

Risk free rates of securities with comparable terms to maturity.

Performance rights can only be exercised if they have vested and can be exercised at any time until their expiry. The exercise of any
vested performance right may only be effected in such form and manner as the Board prescribed.

Participants will not be required to make any payment for the grant of the performance rights on the exercise of a vested performance
right. The maximum number of performance rights that could vest in future periods and hence be exercised by the Participants are
as follows:

Earliest exercise date:

M.J. Paton

A.M. Knox

30 June 2012 Financial Year

1,600,000

800,000

For the full entitlement of these performance rights to vest, the top range of the Performance Hurdle would need to be met of a
volume weighted average price of 53 cents for thirty consecutive days between 1 July 2012 and 30 June 2013.

On this basis the weighted average fair value of each of the performance rights at the date of grant is as follows:

Vesting date:

Weighting average fair value

Grant Date

2011/2012

Performance Rights
24/11/2011

2011/2012 Performance Rights

Balance at
start of the
period/year
Number

Granted
during the
period/year
Number

Exercised
during the
period/year
Number

Net other
Changes (1)

Expiry Date

A$0.028

Balance at
end of the
period/year
Number

Vested and
exercisable
at end of the
period/year
Number

30/06/13

4,000,000

800,000

3,200,000

(1)

Included as net other changes are 800,000 performance rights that lapsed as a result of failure to meet the employment vesting condition. No
performance rights expired during the year. 800,000 performance rights lapsed after year end due to failure to meet employment vesting conditions.

Cue Energy Resources Limited Annual Report 201225. KEY MANAGEMENT PERSONNEL AND RELATED PARTY DISCLOSURES

Key Management Personnel

The following were Directors of Cue Energy Resources Limited during the financial year:

Chairman

R.G. Tweedie (Non-Executive)

Non-Executive Directors

T.E. Dibb (appointed 24/11/2011)

G.J. King (appointed 24/11/2011)

S.J. Koroknay

P.D. Moore (appointed 24/11/2011)

L. Musca

A.A. Young (appointed 13/12/2011)

Key Management Personnel

Executives (other than Directors with the authority for strategic direction and management).

Name

M.J. Paton

A.M. Knox

D. Whittam (appointed 18/06/12)

A.B. Parks (resigned 30/08/12)

T. White (retired 17/05/12)

Remuneration

Management Personnel

Position

Chief Executive Officer

Company Secretary and Chief Financial Officer

Exploration Manager

Chief Commercial Officer

Exploration Manager

Total remuneration payments and equity issued to Directors and Key Management personnel are summarised below:

Elements of Directors and executives remuneration:

•

Short term employments benefits, including non monetary benefits

Post employment benefits – superannuation

Share based payments

Retirement benefits

Directors and Key Management Personnel Compensation

The aggregate compensation of the directors and key management personnel of the entity is set out below:

Short term employment benefits

Post employment benefits

Retirement benefits

Share purchase

Share based payments

Consolidated Entity

2012
$

2011
$

1,784,709

1,494,009

131,800

100,000

33,600

154,181

505,835

83,332

2,050,109

2,237,357

Refer to the Remuneration Report in the Director’s Report for detailed compensation disclosures on key management personnel.

Financial Report 201225. KEY MANAGEMENT PERSONNEL AND RELATED PARTY DISCLOSURES (cont’)

Options holdings

The number of options in ordinary shares in the Company held during the financial year by each Director of Cue Energy Resources
Limited and each of the Executives including their personally related entities are set out below:

2012

Directors

R.G. Tweedie

T.E. Dibb

G.J. King

S.J. Koroknay

L. Musca

P.D. Moore

A.A. Young

Executives

M.J. Paton

A.M. Knox

2011

Directors

R.G. Tweedie

S.J. Koroknay

L. Musca

Executives

M.J. Paton

A.M. Knox

Balance at
start of year

Granted during
year as
remuneration

Exercised
during year

Expired
during year

Balance at end
of year

Vested and
exercisable
at end of year

Balance at
start of year

1,500,000

Granted during
year as
remuneration

Exercised
during year

Expired
during year

1,500,000

Vested and
exercisable
at end of year

Balance at end
of year

1,500,000

Options issued have been valued using the Black Scholes option valuation methodology in prior financial years and are not based on
Company performance, but industry practice. There are no further conditions attached to the options.

Performance Rights holdings

Grant Date

Expiry Date

Balance at start
of the period/
year Number

Granted during
the period/
year Number

Exercised
during the
period/year
Number

Net other
Changes (1)

Balance at end
of the period/
year Number

Vested and
exercisable
at end of the
period/year
Number

2011/2012
Performance Rights

M.J. Paton

A.M. Knox

A.B. Parks (ii)

T. White (i)

D.B. Whittam (iii)

30/06/13

4,000,000

1,600,000

800,000

(800,000)

3,200,000

1,600,000

800,000

(i)

(ii)

T. White retired 17/05/12

A.B. Parks resigned 30/08/12

(iii) D.B. Whittam appointed 18/06/12

Cue Energy Resources Limited Annual Report 201225. KEY MANAGEMENT PERSONNEL AND RELATED PARTY DISCLOSURES (cont’)

Shareholdings

Directors 2012

R.G. Tweedie

T.E. Dibb

G.J. King

S.J. Koroknay

P.D. Moore

L. Musca

A.A. Young

Directors 2011

R.G. Tweedie

S.J. Koroknay

L. Musca

M.J. Paton

A.M. Knox

A.B. Parks (ii)

T. White (i)

D.B. Whittam (iii)

M.J. Paton

A.M. Knox

A.B. Parks (ii)

T. White (i)

Key Management Personnel 2012

Key Management Personnel 2011

Balance at
start of year

Acquired during
year on exercise
of options

Other Purchases

Purchases as
part of Directors
Savings Plan*

Sales during
the year

Balance at
Report Date

3,641,018

2,500

100,000

12,771,227

3,363,477

100,000

12,771,227

1,492,881

2,337,245

139,421

24,000

2,337,245

106,378

24,000

291,423

277,541

1,500,000

400,000

1,492,881

33,043

3,932,441

2,500

100,000

12,771,227

3,641,018

100,000

12,771,227

1,492,881

4,237,245

139,421

24,000

1,492,881

2,337,245

139,421

24,000

(iv)

T. White retired 17/05/12

(v)

A.B. Parks resigned 30/08/12

(vi) D.B. Whittam appointed 18/06/12

Share purchases made on behalf of Directors as part of their remuneration for the year ended 30 June 2012.

Related party transactions and balances.

Members of the Board of Directors

The Directors in office during the year were R.G. Tweedie, L. Musca, S.J. Koroknay, A.A. Young, T.E. Dibb, P.D. Moore and G.J. King.
During the year Directors’ fees were paid by the parent company of $536,104 (2011: $249,998). Included in this amount are cash
payments of $100,000 to Leon Nominees Pty Ltd of which one Director is associated, $68,807 to S.J. Koroknay and $31,193 to
SJK Superannuation Funds of which one Director is associated, $55,163 to Andrew A.Young & Associates of which one Director is
associated, $120,652 to Heriot Nominees Limited of which two Directors are associated and $60,326 to G.J. King & Associates of
which one Director is associated.

Financial Report 2012

25. KEY MANAGEMENT PERSONNEL AND RELATED PARTY DISCLOSURES (cont’)
Consolidated Entities

Details of controlled entity companies are shown in Note 12.

Advances to/(from) controlled entities net of provisions at balance date by Cue Energy Resources Limited are as follows:

Cue Exploration Pty Ltd

Cue PNG Oil Pty Ltd

Cue (Ashmore Cartier) Pty Ltd

Cue Mahakam Hilir Pty Ltd

Cue Sampang Pty Ltd

Cue Taranaki Pty Ltd

Cue Energy Holdings Ltd

Cue Energy Malaysia Sdn Bhd

2012
$

4,745,227

1,166,146

(6,778,780)

9,555,953

$16,293,891

2011
$

2,042,812

1,678,343

534,304

25,768

16,028,376

19,090,157

(573,720)

747,171

41,184,264

22,797,664

Repayment of amounts owing to the Company at 30 June 2012 and all future debts due to the Company, by the controlled entities are
subordinated in favour of all other creditors. Cue Energy Resources has agreed to provide sufficient financial assistance to the controlled
entities as and when it is needed to enable the controlled entities to continue operations.

The parent company has provided a financial guarantee for Cue Taranaki’s performance, as required by the Maari FPSO lease
and contract.

The parent company provides management, administration and accounting services to the subsidiaries. A management fee of $480,000
(2011: $480,000) and interest of $385,561 (2011: $367,544) was charged respectively by the parent company to Cue PNG Oil
Company Pty Ltd. Management fees of $1,406,289 (2011: $2,423,115) and interest of $Nil (2011: $373,832) was charged respectively
by the parent company to Cue Taranaki Pty Ltd.

Cue Energy Resources Limited Annual Report 201226. NOTES TO THE STATEMENT OF CASH FLOWS

Notes to Cash Flow Statement for the financial year ended 30 June 2012

(a) Reconciliation of operating profit / (loss) to net cash flows from operating activities:

Reported profit / (loss) after tax

Impact of changes in working capital items

Decrease/(increase) in assets

Increase/(decrease) in liabilities

Items not involving cash flows

Depreciation

Amortisation

Share based payments

Employee benefits

Net loss/(gain) on foreign currency conversion

Write down/(up) value of exploration expenditure

Net cash flows from operating activities

(b) Cash comprises cash balances held in Australia and foreign currencies, principally US dollars,

within Australia and overseas:

Australia

New Zealand

Papua New Guinea

Cash and bank balances

Consolidated

2012
$000’s

2011
$000’s

5,663

19,107

(4,967)

2,139

10,500

(59)

(1,625)

11,729

32,573

1,152

33,733

13,336

(9,144)

9,644

103

5,327

2,838

41,235

52,804

52,811

Cash Flow Statement cash balance

33,733

52,811

Financial Report 2012

27. NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2012

PARENT ENTITY INFORMATION

Information relating to Cue Energy Resources Limited:

Financial position

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

Net assets

Contributed equity

Reserves

Accumulated losses

Net assets

Financial performance

Total revenue

Profit/(loss) for the period

Comprehensive income/(loss) for the period

Parent Entity

2012
$’000

2011
$’000

33,977

39,967

73,944

(664)

(44)

(708)

52,846

23,455

76,301

(1,721)

(105)

(1,826)

73,236

74,475

152,416

151,768

425

391

(79,605)

(77,684)

73,236

74,475

5,162

(1,921)

4,029

(6,225)

Repayment of amounts owing to the Company at 30 June 2012 and all future debts due to the Company, by the controlled entity are

subordinated in favour of all other creditors. Cue Energy Resources has agreed to provide sufficient financial assistance to the controlled entities

as and when it is needed to enable the controlled entities to continue operations.

Capital Commitments

There are no commitments for the acquisition of plant and equipment contracted for at the reporting date.

Finance Leases

There are no commitments in relation to finance leases.

Contingent Liabilities

The parent entity is not subject to any liabilities that are considered contingent upon events known at balance date.

Cue Energy Resources Limited Annual Report 2012Independent Auditor’s Report

76
76

Cue Energy Resources Limited Annual Report 2011

7777

Cue Energy Resources Limited Annual Report 2012Shareholder
Information

1) Spread of Shareholdings

4) Voting Rights

Spread of Holdings of quoted shares of no par value in the
Company as at 30th of September 2012.

Number Held

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

Over 100,000

Total

2) Unmarketable Parcels

Ordinary

276

1,337

1,013

2,685
530

5,841

At meeting of members or classes of members:

(a) each member entitled to vote may vote in person or by

proxy, attorney or representative;

(b) on a show of hands, every person present who is a member
or a proxy, attorney or representative of a member has one
vote; and

attorney or representative of a member has:

(i)

(ii)

for each fully paid share held by person, or in
respect of which he is appointed a proxy, attorney or
representative, one vote for the share;

for each partly paid share, only the fraction of one vote
which the amount paid (not credited) on the share
bears to the total amounts paid and payable on the
share (excluding amounts credited),

The number of shareholders holding less than a marketable
parcel as at 30th of September 2012 is 1,161.

Subject to any rights or restrictions attached to any shares or
class or classes of shares.

3) Substantial Shareholders

The names and holdings of substantial shareholders in the
Company as at 30th of September 2012:

Todd Petroleum Mining Company Limited

UOB Kay Hian Private Limited

Quoted Shares
Fully Paid

163,103,314

114,966,671

5) Registered Top 20 Shareholders

The registered names and holdings of the 20 largest holdings of quoted ordinary shares in the Company as at 1st of October 2012

Shareholder

Todd Petroleum Mining Company Limited

UOB Kay Hian Private Limited

Todd Tasman Oil Ltd

Portfolio Securities Pty Ltd

Berne No 132 Nominees Pty Ltd

JP Morgan Nominees Australia Limited

Custodial Services Limited

Gascorp Australia Pty Ltd

Citicorp Nominees Pty Ltd

Ernest Geoffrey Albers

Finot Pty Ltd

HSB Custody Nominees (Australia) Limited

Grizzley Holdings Pty Limited

Bass Strait Group Pty Ltd

Douglas Financial Consultants Pty Ltd

SCFI Pty Ltd

Colin Robert MacEwan & Bronwyn Beder

Reviresco Nominees Pty Ltd

Great Missenden Holdings Pty Ltd

Richard Tweedie

Ordinary Shares

Percentage Held

163,103,314

114,966,671

25,920,000

10,737,130

8,490,573

8,315,856

7,918,675

7,609,742

7,148,657

6,036,205

5,000,000

4,922,741

4,312,604

4,000,168

4,000,000

3,800,000

3,696,998

3,400,000

3,392,859

3,363,477

400,135,670

23.36%

16.47%

3.71%

1.54%

1.22%

1.19%

1.13%

1.09%

1.02%

0.86%

0.72%

0.71%

0.62%

0.57%

0.54%

0.53%

0.49%

0.48%

57.32%

6) Holders

The number of holders of each class of equity securities as at 1st of October 2012 was:-

Class of Security

Ordinary Fully Paid Shares

Unlisted Performance Rights

Number

5,841

7) Vendor Securities

There are no restricted securities on issue as at 30th of September 2012.

8) Unquoted Securities

20 largest holders of Unlisted Performance Rights as at 30th of September 2012.

Name

M.J. Paton

A.M. Knox

Number of Unlisted
Performance Rights Held
Expiring 30/06/2013

% Held of Total
30/06/2013 Issued
Unlisted Performance
Rights

Total Number of
Performance Rights/
Shares Held

% Held of Total Issued
Unlisted Performance
Rights/Shares

1,600,000

800,000

2,400,000

100

1,600,000

800,000

2,400,000

100

Cue Energy Resources Limited Annual Report 2012C
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CUE ENERGY RESOURCES LIMITED

ABN 45 066 383 971

Level 21, 114 William Street
Melbourne Victoria 3000 Australia

Telephone: +61 3 9670 8668
Facsimile: + 61 3 9670 8661
Web Site: www.cuenrg.com.au
E-mail: mail@cuenrg.com.au

building on
our strength

CUE ENERGY RESOURCES LIMITED