Cue Energy Resources LimitedAnnual Report 2016/17 About Us Cue Energy Resources is an oil and gas production and exploration company with production assets in Indonesia and New Zealand and exploration assets in Australia and Indonesia. Offices are located in Melbourne, Australia and Jakarta, Indonesia. Cue Energy Resources aims to grow our shareholder value through implementing a strategy of: • Maintaining a sustainable business; • Delivering disciplined growth; • Pursuing step-change return opportunities 12 Month Trading Range 5.3¢-10.0¢ Ordinary Shares 698,119,720 Avg FY17 Production ~1600 boe/day Contents Joint Operations Chairman’s Overview CEO Report and Overview of Operations Reserves and Resources Summary Directors’ Report Auditor’s Independence Declaration Directors’ Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Independent Auditor’s Report Shareholder Information 2 3 5 9 14 25 26 27 29 30 31 32 63 67 1 Cue Energy Resources Limited Annual Report 2016/17 Joint Operations INDONESIA Mahato PSC Interests Texcal (Operator) Central Sumatra Energy Bow Energy* Cue Mahakam Hilir PSC Interests Cue (Operator) Sampang PSC Interests Santos (Operator) SPC Cue 51% 16.5% 20% 12.50% 100% 45% 40% 15% *Subject to Government of Indonesia approval of transfer from Bukit Energy AUSTRALIA Carnarvon Basin Permits Interests WA-359-P Cue (Operator) WA-389-P Cue (Operator) WA-409-P Cue BP (Operator) 100% 100% 20% 80% 2 Cue Energy Resources Limited Annual Report 2016/17 NEW ZEALAND Maari and Manaia Oil Fields Interests PMP 38160 OMV (Operator) Todd Horizon Cue 69% 16% 10% 5% Head OfficeMelbourneINDONESIAAUSTRALIANEW ZEALAND Chairman’s Overview Chairman’s Overview Grant Worner Dear shareholder, I am pleased to present to you the 2017 Annual Report of Cue Energy Resources Limited and wish to thank you for your support throughout the year. Oil traded between US$45 and US$55 per barrel throughout 2017 and current industry consensus is that prices will remain in the vicinity of US$50 per barrel for the rest of this decade, forcing companies to adapt to operating in a longer, lower oil price environment. Cue’s portfolio provides a somewhat hedged position in these economic conditions with more than two thirds of its income emanating from gas sales that are independent of oil price. After assessing the economic environment and its internal capabilities, in June 2016 Cue reset its strategy and announced three objectives to deliver short, medium, and long-term prosperity: 1. To have a sustainable business operating within its means; 2. To deliver disciplined growth; whilst 3. Pursuing opportunities that offer step-change returns to shareholders. 2016/2017 Performance The last two years have been particularly challenging for Cue after re-setting its strategy and completing material transformation activities. Cue impaired the exploration and evaluation expenditure previously capitalised, expensed current exploration and impaired production assets owing to the lower oil price and diminishing reserves. In addition, exploration activities and overhead costs were right- sized to match the Company’s simplified portfolio and maximise shareholder value by creating a sustainable business that could operate within its means, deliver disciplined growth, and retain step-change growth options. The impairments are the largest factor of over A$100m of ordinary activity losses in the last two years. In addition, since June 2015, our cash position has continued to reduce from A$27m to $12.1m at June 2017 as we resolved & settled long outstanding commercial disputes from 2011, paid redundancy payments and sold loss making overseas assets. This year we have continued last year’s important overhead cost reduction initiatives, including reducing staff numbers and relocating to cheaper offices and thereby aligning our cost base with our lower exploration activity levels, future production receipts and the expected commodity price outlook. The following material events and achievements through the year were: • Securing funding for 50% of a well in the potentially high impact WA-359-P offshore licence in the North West Shelf if BP exercise their equity option; • Farming out 80% of North West Shelf WA-409-P licence to BP and securing funding to fully cover the primary work commitment on a renewed 5-year tenure; Identifying an appraisal well opportunity in the Naga Utara prospect in the Mahakim Hilir PSC; • • Funding the Company’s share of the conversion of the Oyong and Wortel fields to gas only production, reducing costs by approximately 50% per annum, increasing 2P reserves by 37%, and increasing operating margins by 34%; • Funding the Company’s share of the integrity repairs to the Maari Well Head Platform; • Selling the loss making Pine Mills asset in the US; • Exiting the high risk exploration licences in New Zealand; • Resolving commercial disputes dating as far back as 2011; and 3 Cue Energy Resources Limited Annual Report 2016/17 Chairman’s Overview • Lowering corporate overheads and administration expenses from the historic average of A$7.2 million to circa A$2 million per annum by; Lowering the cumulative Board fees to $160k per annum compared with 2016 fees of $501k; • • Right-sizing the organization and making redundant many of the higher paid personnel who’s remuneration was set in better economic times; and • Moving to a fit-for-purpose head office in Melbourne and lowering lease costs by more than 75%. Cue is now in a far more robust position to capture growth opportunities and manage future challenges. 2017/18 Expectations Shareholders should expect to see further progress in all three strategic objectives in the 2017/18 year. Cue’s cashflow from production now exceeds its operating expenses and the Company will continue to seek initiatives to lower its overall cost of operations. Production growth options are being pursued in the Maari and Sampang fields over the next 12 months and exploration and appraisal wells are options in the other two Indonesian licences that Cue has a presence in. The largest potential impact on the Company is the Ironbark prospect on the North West Shelf, offshore Western Australia. Despite the limited appetite for large exploration plays the Company is hopeful that it will make further progress in attracting suitable partners to WA-359-P in the next financial year. In summary, Cue has undergone a significant transformation over the last 12 months and is now in a robust position. It retains a solid cash position, earns significant free cash flow from its production of oil in New Zealand and gas in Indonesia, is debt free, retains an attractive portfolio of assets and opportunities, and is strongly supported by shareholders who have taken large stakes in the Company. In 2017/18 Cue will continue to deliver its three part strategy of; controlling costs to ensure there is a sustainable business that is funded by producing assets, operating with a more focused portfolio investing in near term and affordable growth opportunities, and seeking industry partnerships capable of executing and funding our high impact step change opportunity. I would like to take this opportunity to thank the small but dedicated Cue team for their contributions over the year during a period of significant transformation. At the end of 2017 I stepped back from the position of Executive Chairman and was very pleased to appoint Mr Matthew Boyall into the CEO position. Matt has been integral to the changes at Cue and the Board and I are confident the Company is in good hands and has a bright future under Matt’s leadership. Grant A. Worner Non-Executive Chairman 27 September 2017 4 Cue Energy Resources Limited Annual Report 2016/17 CEO Report and Overview of Operations Matthew Boyall Cue’s priorities during FY2017 were to simplify our portfolio, reduce costs and transform into a sustainable business which can take advantage of growth and step change opportunities. The Maari and Sampang assets continued to provide steady revenue during the year, with the Sampang fixed gas price providing natural revenue protection in the current low oil price environment. In New Zealand, at Maari, maintenance and repairs on the WHP were conducted during FY2017 to repair existing issues and deal with a crack that was identified in a leg of the WHP. This expenditure will be the subject of insurance claims, which are likely to be resolved during FY2018. Production from the Sampang PSC, Indonesia, was strong and the conversion of the facilities to gas only production is proceeding on time and budget. Unfortunately Cue was unable to achieve stable increased production and cost reductions during its two years of ownership of the Pine Mills oilfield in the United States and therefore, in October 2016, Cue sold it 80% interest. Cue successfully farmed out equity in WA-409-P to BP Developments Australia Pty Ltd (BP) to cover the primary work commitment on a renewed 5 year term and executed an option agreement for 42.5% equity in WA-359-P, also to BP. If executed, this option agreement provides funding for 50% of the Ironbark-1 well. These transaction show the confidence that BP has in the Ironbark gas prospect. WA-359-P and WA-409-P offer the largest step change value opportunities for Cue. The Paus exploration well in Sampang PSC and the potential low cost wells in Mahato and Mahakam Hilir PSCs provide further near term growth options for Cue, which can be funded from cashflows from existing oil and gas production. Cue finalised withdrawal from all remaining exploration permits in New Zealand during the year as their low prospectivity did not make them a suitable part of a focussed portfolio. With revenue from two production assets and reduced administration costs of approximately $2 million per year forecast, the Company’s operations should be cashflow positive in FY2018. There are multiple avenues for near term company growth through a farmout of WA-359-P, and drilling of a potentially company changing well, and participation in exploration and appraisal wells in the Indonesia permits. Further details on individual assets are provided in the following sections. Financials In the 2016/17 year, the Company’s production revenues from continuing operations, fell by approximately 23% as a result of natural field decline and production interruption at Maari and gross profit fell by 11%. Cue’s net loss after tax was $17.3 million as a result of impairment of Maari production assets, expensed exploration expenditure and loss on sale of the Pine Mills asset. Material one-off payments of $11.4 million were incurred to settle long standing disputes and to pay for restructuring redundancies. At year end Cue’s cash balance was $12.4 million, down from $20.5 million the previous year Production NEW ZEALAND PMP 38160 During the year, average oil production from Maari field was approximately 420 barrels of oil per day (bopd) net to Cue, which was down from the previous year due to natural field decline and a shut in period at the end of CY2016. Planned repairs to the production risers and temporary repairs to stabilise a crack found in the Well Head Platform (WHP) were undertaken during this period. Permanent repairs to the WHP have been completed after the end of the 2017 fiscal year. At June 30 2017, the Maari field was producing approximately 9000 bopd gross. A number of initiatives to perforate and complete additional zones in existing wells are planned for FY2018, aimed at low cost incremental production increases. 5 Cue Energy Resources Limited Annual Report 2016/17 CEO Report and Overview of Operations Production (Cont’) NEW ZEALAND (CONT’) PMP 38160 (Cont’) The most significant planned increase, expected to be in the vicinity of 2000 bopd, should come from the t the installation of compression on the Maari WHP to lower the production pressure of the wells. Preliminary work has been undertaken during the year, with the final installation expected to be completed by March 2018. A number of sidetrack drilling opportunities are also being investigate by the operator to target unproduced reservoirs in existing well bores. These operations can be undertaken using the WHP workover unit and coiled tubing. The target wells for this drilling are likely to be finalised during the first quarter of 2018. The Joint Venture partners are reviewing a preliminary proposal to develop the Moki reservoir at the Manaia field, approximately 6 km from Maari, where the Manaia-2 well was drilled in 2013. The proposal has passed the first stage of the Operator’s tollgate process and could include an appraisal well within 18-24 months and a further standalone or integrated development. Cue will carefully review this project as preliminary studies progress. New Zealand TARANAKI PENINSULA LOCATION MAP – NEW ZEALAND Tui Maui Taranaki Peninsula 10km INDONESIA Sampang PSC The Oyong and Wortel fields continued to provide stable revenue and be operated in a safe and reliable manner. In times of lower oil price, fixed, high price gas production from these established, well managed fields provides sustainable cashflow. During FY2017, Oyong production averaged 120 bopd and 4mmcf/d of gas net to Cue. Wortel field production averaged 5 mmcf/d net. High cost oil production from Oyong ceased in June 2017 as part of the conversion to gas only production. The project is expected to be completed by December 2017. Operating costs are expected to halve due to gas production requiring significantly fewer production facilities. Installation of a new compressor at the Grati processing plant will also allow gas to be produced at lower reservoir pressures, adding to recoverable reserves and making the field economic well past 2020. Drilling at the Paus near field exploration prospect is in the final stages of review by the Joint Venture and a decision is expected during the 2018 fiscal year. The well would target the Mundu reservoir which provides the gas production at Oyong. Cue is optimistic about the future production from the Sampang PSC. We have increased our estimate of Wortel 2P gas reserves by 36% this year, based on the continued high performance of the reservoir and plan to undertake independent analysis of Oyong field reserves after the current gas conversion project is complete and the wells have stabilised in gas only mode. SAMPANG PSC LOCATION MAP – INDONESIA Java Madura Island PMP 38160 Maari Manaia East Java Wortel Oyong Jeruk Maleo Peluang LEGEND LEGEND LEGEND LEGEND Cue Permit Gas Field Prospect Cue Permit Oil Field Gas Field Prospect Cue Permit Oil Field Gas Field Gas Condensate Field Onshore Gas Cue Permit Oil Field Gas Field Gas Discovery SEG Unitisation Gas Line Liquids Line 6 Grati Onshore Gas Facilities 30km Cue Energy Resources Limited Annual Report 2016/17 CEO Report and Overview of Operations WA-389-P The operator, BHP Billiton, notified Cue of their withdrawal from WA-389-P during the year. All work commitments have been completed to date. Cue believes that WA-389-P contains a structure and reservoir similar to the Ironbark prospect in WA-359-P and have taken 100% equity and operatorship of this licence. To allow time to further review the prospectivity of the Deep Mungaroo Triassic in WA-389-P, Cue have applied to the National Offshore Petroleum Titles Administrator (NOPTA) for a suspension and extension of the current permit year. CARNARVON BASIN LOCATION MAP – AUSTRALIA WA-389-P WA-389-P WA-389-P WA-359-P WA-409-P WA-359-P North Rankin Angel 25km Goodwyn Exploration AUSTRALIA WA-359-P The Ironbark Prospect in WA-359-P is a Deep Mungaroo Triassic gas prospect that can be correlated to the Gorgon field further south, which supports the Gorgon LNG plant. These reservoirs have not been tested in the WA-359-P area and Cue’s analysis shows that the numerous dry holes drilled to shallower targets were unsuccessful due to a thick regional seal which has inhibited the penetration of hydrocarbons into the upper sections. Based on the areal size of the fault bound closure, Cue’s estimate of the prospective recoverable gas resource is 15Tcf in WA-359-P. If this is correct, then this prospect would be larger than several existing LNG developments, such as Pluto and Wheatstone. Located 50km from the North West Shelf gas infrastructure, which is speculated to have spare capacity in the early 2020s, Ironbark is geographically and commercially well positioned. Cue’s estimate of the geological chance of success for this giant prospect is 25% and the value that a success would bring to the company is many times Cue’s current market value. BP shares our enthusiasm for WA-359-P and Cue has granted them an option over 42.5% equity, exercisable by the end of October 2017. A process to find other partners to form a Joint Venture with BP is ongoing during a very difficult time in the farmout market in Australia. A commitment exploration well is currently due in the first half of 2018. If BP exercises their option, 50% of this well will be funded. WA-409-P WA-409-P contains a portion of the Ironbark structure that could contain significant gas resource if Ironbark is successful in WA-359-P. Io/Jansz The permit was renewed for a further 5 year exploration period in October 2016. During the year, Cue farmed out 80% equity in WA-409-P to BP in exchange for BP funding the primary term commitment of the renewal, which includes seismic reprocessing. The reprocessing is expected to be completed during before the end of 2017. Eurytion Wheatstone Pluto Iago LEGEND LEGEND LEGEND LEGEND West Tryal Rocks Cue Permit Gas Field Prospect Cue Permit Oil Field Gas Field Prospect Cue Permit Oil Field Gas Field Gas Condensate Field Onshore Gas Cue Permit Oil Field Gas Field Gas Discovery SEG Unitisation Gas Line Liquids Line 7 Cue Energy Resources Limited Annual Report 2016/17 CEO Report and Overview of Operations Exploration (Cont’) INDONESIA Mahakam Hilir PSC Fieldwork and data acquisition was undertaken during the year resulting in a positive review of the prospectively in the Naga Utara prospect, adjacent to the producing Sambutan gas field. Gravity Gradiometry data collection and analysis revealed a gravity anomaly in the northen area of the permit, which aligns with the location of the Sambutan field. This feature was previously unnoticeable on the available seismic data and renewed Cue’s technical interest in the Naga Utara prospect area. Reprocessing of existing seismic data has providing a clearer understanding of why the Naga Utara 1 and 2 wells, drilled in 2012/2013 did not discover commercial quantities of hydrocarbons. Cue has also received an additional 9 lines of seismic data which ties the well data from the neighbouring Sambutan field through the Naga Utara prospect and allows correlation of the gas bearing sands. Additional fieldwork undertaken has uncovered the locations and logs of wells drilled in the 1930s including Sambutan-8, which lies within the Mahakam Hilir PSC and contains valuable log data showing interpreted gas sands over a 100m interval that has never been tested or produced from. Cue is currently planning for an appraisal well to assess the the reservoirs shown in the Sambutan-8 well. Pelarang Samarinda MAHAKAM HILIR PSC LOCATION MAP – INDONESIA Sambutan 5km Naga Utara-4 Prospect Mahakam Hilir PSC Sanga Sanga Pamaguan Nangka To allow further time to integrate all new data, confirm the prospectivity of the Naga Utara prospect and plan for a potential well, Cue has initiated discussions with the Indonesian Government for a variation to the 2 well work programme which is currently due by May 2018. Cue has also commenced a farmout process to attract a partner to participate in the permit. After a negative outcome from further analysis of the results of the Naga Selatan-2 well in January 2016, Cue has decided to plug and abandon the well. Mahato PSC The Mahato PSC is in a highly prospective area close to several large producing oilfields. During the year, progress continued to be delayed by the lack of a legally binding agreement between the partners in the PSC. Cue is continuing to work with the partners to solve outstanding issues to enable the drilling of a well in the Petapahan area during the 2018 fiscal year. MAHATO PSC LOCATION MAP – INDONESIA Mahato PSC 40km Bangko Balam South Duri Libo SE Minas Kotabatak Petapahan LEGEND LEGEND LEGEND LEGEND Cue Permit Gas Field Prospect Cue Permit Oil Field Gas Field Prospect 8 Cue Permit Oil Field Gas Field Gas Condensate Field Onshore Gas Cue Permit Oil Field Gas Field Gas Discovery SEG Unitisation Gas Line Liquids Line Cue Energy Resources Limited Annual Report 2016/17 Reserves and Resources Summary Net To Cue Energy Resources Limited As At 30 June 2017 RESERVES PROVED (1P) PROVED & PROBABLE (2P) DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED FIELD (LICENCE) INDONESIA Oyong (1)(3) (Sampang PSC) Wortel (1)(2) (Sampang PSC) NEW ZEALAND Maari (2) (PMP 38160) Total Reserves CUE INTEREST OIL & CONDEN- SATE MMBBL 15% 15% 5% 0.00 0.01 0.37 0.38 OIL & CONDEN- SATE MMBBL - - 0.09 0.09 GAS BCF 0.06 3.2 - 3.26 OIL & CONDEN- SATE MMBBL 0.00 0.02 0.69 0.71 GAS BCF 0.42 1.22 - 1.64 OIL & CONDEN- SATE MMBBL - 0.01 0.13 0.14 GAS BCF 1.18 4.53 - 5.71 CONTINGENT RESOURCES FIELD (LICENCE) CUE INTEREST INDONESIA Jeruk (Sampang PSC) 8% Total Contingent Resources Table numbers may not add up due to rounding BEST ESTIMATE (2C) OIL & CONDENSATE MMBBL 1.24 1.24 GAS BCF 0.37 2.15 - 2.52 GAS BCF - 0 (1) Cue reserves are net of Indonesian Government share of production. (2) Maari and Wortel reserves are based on an independent technical review conducted by New Zealand Oil & Gas Limited (NZOG) and calculated using NZOG’s technical recoverable quantities and Cue’s cost and oil price assumptions. Deterministic methods were used for reserves. (3) Oyong reserves are based on the Operator’s reserve reporting at 1 Jan 2017 adjusted for production to 30 June 2017 (4) Contingent resources are quantities of petroleum estimated to be potentially recoverable through development of known accumulations but which are not currently considered to be commercially recoverable due to one or more contingencies. The term 2C refers to a best estimate scenario of contingent resources. A ‘best estimate’ is the most realistic assessment of recoverable quantities if only a single result were reported. If probabilistic methods are used, there should be at least a 50% probability (P50) that the quantities actually recovered will equal or exceed the best estimate. 9 Cue Energy Resources Limited Annual Report 2016/17 Reserves and Resources Governance Arrangements and Internal Controls Cue estimates and reports its petroleum reserves and resources in accordance with the definitions and guidelines of the Petroleum Resources Management System 2007 (SPE-PRMS), published by the Society of Petroleum Engineers (SPE). All estimates of petroleum reserves reported by Cue are prepared by, or under the supervision of, a qualified petroleum reserves and resources evaluator. Cue has engaged the services of New Zealand Oil & Gas Limited (NZOG) to independently assess the Maari and Wortel reserves. Cue reviews and updates its oil and reserves position on an annual basis, or as frequently as required by the magnitude of the petroleum reserves and changes indicated by new data and reports the updated estimates as of 30 June each year as a minimum. Qualified Petroleum Reserves and Resources Evaluator Statement The reserves assessment has been completed and approved by Daniel Leeman and is based on, and fairly represents, information and supporting documentation reviewed. Daniel has 9 years of experience within the petroleum industry. Daniel has a MENG in Mechanical Engineering with a diploma in Business Management, a MSc in Petroleum Engineering and is a certified professional Engineer with the Institute of Professional Engineers New Zealand. Daniel is also an active member of the Society of Petroleum Engineers, Association of International Petroleum Negotiators and the Royal Society of New Zealand. Reserves are quantities of petroleum anticipated to be commercially recoverable from known accumulations from a given date forward; that are judged to be discovered, recoverable, commercial and remaining. Probable (2P) reserves have a 50 per cent chance or better of being technically and economically producible. Proven (1P) reserves are those with a 90 per cent chance or higher and Possible (3P) are those with a 10 per cent chance or lower of being technically and economically producible. Developed reserves are expected to be recovered from existing wells and facilities. Undeveloped reserves are quantities expected to be recovered through future investments (e.g. new wells, compressors, and other facilities). Total reserves are the sum of developed and undeveloped reserves at a given level of certainty. Oil and gas reserves reported in this statement are as at 1 July 2017. All reserves and resources reported refer to hydrocarbon volumes post-processing and immediately prior to point of sale. The volumes refer to standard conditions, defined as 14.7psia and 60°F. All reserves reported are net of equity and government take, where summation has been applied it has been conducted arithmetically, so some numbers presented in tables may not add due to rounding. Daniel is currently an employee of New Zealand Oil & Gas Limited whom, at the time of this report, are a related party to Cue Energy. Daniel has been retained under a services contract by Cue Energy Resources Ltd (Cue) to prepare an independent report on the current status of the entity’s reserves. As of the 6th of September 2017, NZOG held an equity of 50.04% of Cue. 10 Cue Energy Resources Limited Annual Report 2016/17 Reserves and Resources TABLE 1: Oil and Condensate Reserves and Resources Reconciliation with 30 June 2016 Proved Oil and Condensate Reserves (MMBBL) 30 JUNE 2016 CUE INTEREST RESERVES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 RESERVES Total Proved Oil and Condensate Reserves Proved & Probable Oil and Condensate Reserves (MMBBL) FIELD (LICENCE) INDONESIA Oyong (Sampang PSC) Wortel (Sampang PSC) NEW ZEALAND Maari (PMP 38160) US Pine Mills FIELD (LICENCE) INDONESIA Oyong (Sampang PSC) Wortel (Sampang PSC) NEW ZEALAND Maari (PMP 38160) US Pine Mills FIELD (LICENCE) INDONESIA Jeruk (Sampang PSC) NEW ZEALAND Maari (PMP 38160) Total Proved & Probable Oil and Condensate Reserves 2C Contingent Oil and Condensate Resources (MMBBL) Total Contingent Oil and Condensate Resources 15% 15% 5% 80% 0.04 0.00 0.51 0.37 0.93 (0.04) (0.00) (0.15) - (0.19) 0.00 0.00 0.10 - 0.11 - - - (0.37) (0.37) 0.00 0.01 0.46 0.00 0.47 30 JUNE 2016 CUE INTEREST RESERVES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 RESERVES 15% 15% 5% 80% 0.06 0.01 1.30 0.48 1.84 (0.04) 0.00 (0.02) 0.02 (0.15) (0.21) - - - - (0.19) - (0.32) (0.48) (0.48) 0.00 0.03 0.82 - 0.85 30 JUNE 2016 CONTINGENT CUE INTEREST RESOURCES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 CONTINGENT RESOURCES 8% 5% 1.24 1.32 2.56 - - - - (1.32) (1.32) - - - 1.24 - 1.24 11 Cue Energy Resources Limited Annual Report 2016/17 Reserves and Resources TABLE 2: Gas Reserves and Resources Reconciliation with 30 June 2016 Proved Gas Reserves (BCF) FIELD (LICENCE) INDONESIA Oyong (Sampang PSC) Wortel (Sampang PSC) Total Proved Gas Reserves Proved & Probable Gas Reserves (BCF) FIELD (LICENCE) INDONESIA Oyong (Sampang PSC) Wortel (Sampang PSC) Total Proved & Probable Gas Reserves 2C Contingent Gas Resources (BCF) FIELD (LICENCE) INDONESIA Oyong (Sampang PSC) Total Contingent Gas Resources 30 JUNE 2016 CUE INTEREST RESERVES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 RESERVES 15% 15% 0.91 5.63 6.54 (0.91) (1.33) (2.24) 0.47 0.12 0.60 - - - 0.48 4.42 4.90 30 JUNE 2016 CUE INTEREST RESERVES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 RESERVES 15% 15% 1.85 6.29 8.13 (1.00) (1.37) (2.24) 0.70 1.76 2.47 - - - 1.55 6.68 8.23 30 JUNE 2016 CONTINGENT RESOURCES PRODUCTION DISCOVERIES/ EXTENSIONS/ REVISIONS ACQUISITIONS/ DIVESTMENTS 30 JUNE 2017 CONTINGENT RESOURCES CUE INTEREST 15% 1.90 1.90 - - (1.90) (1.90) - - 0 0 12 Cue Energy Resources Limited Annual Report 2016/17 Cue Energy Resources Limited Corporate directory 30 June 2017 Directors Mr. Grant A. Worner (Non-Executive Chairman) Mr. Koh Ban Heng (Non-Executive Director) Mr. Duncan Saville (Non-Executive Director) Chief Executive Officer Mr. Matthew Boyall Company secretary Ms. Melanie Leydin Registered office Principal place of business Level 3, 10-16 Queen Street Melbourne, VIC 3000 Australia Level 3, 10-16 Queen Street Melbourne, VIC 3000 Australia Share register Auditor Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford, VIC 3067 Australia BDO East Coast Partnership Collins Square, Tower Four Level 18, 727 Collins Street Melbourne, VIC 3008 Australia Stock exchange listing Cue Energy Resources Limited shares are listed on the Australian Securities Exchange (ASX code: CUE) Website www.cuenrg.com.au Cue Energy Resources Limited Annual Report 2016/1713 Cue Energy Resources Limited Directors' report 30 June 2017 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of Cue Energy Resources Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2017. Directors The names of Directors of the Company in office during the year and up to the date of this report were: Executive Chairman and interim CEO (appointed 23 March 2016, completed 30 June 2017) Non-Executive Chairman (appointed 1 July 2017) Mr. Grant A. Worner - - Mr. Koh Ban Heng Mr. Duncan Saville (appointed 18 August 2016) Mr. Brian L. Smith (resigned 24 November 2016) Mr. Andrew T.N. Knight (resigned 18 August 2016) Chief Executive Officer Mr. Matthew Boyall (appointed 1 July 2017) Mr. Grant A. Worner (Interim CEO, appointed 23 March 2016 and completed 30 June 2017) Chief Financial Officer/Company Secretary Mr. Andrew M. Knox (contract terminated on 3 July 2017) Ms. Melanie Leydin (appointed 3 July 2017) Principal activities The principal activities of the group are petroleum exploration, development and production. Cue Energy Resources Limited (‘Cue’) is listed on the Australian Securities Exchange. The Company has an American Depositary Receipt (ADR) programme sponsored by the Bank of New York and these are traded via the OTC Market in the US. Corporate governance statement Details of the Company's corporate governance practices are included in the Corporate Governance Statement set out on the Company's website. This URL on located at: www.cuenrg.com.au/irm/content/corporate- governance.aspx?RID=296 the website is Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Financial performance The last two years have been particularly challenging for Cue as the Company re-set its strategy and completed material transformation activities. Cue impaired the exploration and evaluation expenditure previously capitalised, expensed current exploration and impaired production assets owing to the lower oil price and diminishing reserves, resulting in over $100m of ordinary activity losses in FY 16 and FY 17. In addition, exploration activities and overhead costs were right-sized to match the Company’s simplified portfolio and maximise shareholder value by creating a sustainable business that could operate within its means, deliver disciplined growth, and retain step-change growth options. Since June 2015, the Company’s cash position has continued to reduce from $27m to $12.4m at 30 June 2017 as long outstanding commercial disputes from 2011 were resolved and settled, redundancy payments paid and loss making overseas assets sold. This year, important overhead cost reduction initiatives initiated during FY 16 continued, including reducing staff numbers and relocating to cheaper offices; aligning our cost base with our lower exploration activity levels, future production receipts and the expected commodity price outlook. Cue Energy Resources Limited Annual Report 2016/1714 Cue Energy Resources Limited Directors' report 30 June 2017 Summary of Results for Year ended 30 June 2017 Revenues from ordinary activities of continuing operations Loss from ordinary activities after tax attributable to the owners of Cue Energy Resources Limited Loss for the year attributable to the owners of Cue Energy Resources Limited EBITDA Down 22.9% to 2017 $ ‘000 35,000 2016 $ ‘000 45,412 Down 80.1% to (17,299) (86,835) Down 80.1% to Up 96% to (17,299) (2,835) (86,835) (71,445) Cash Position Excluding one off items associated with restructuring and the Jeruk Project reimbursement, Cue achieved positive cashflow of $4.3 million, in a year when the price of oil continued to remain low and Maari production suffered a 6-week interruption. Net Cash Outflow for the year Addback: Non-Recurring Cash Expenditure - Jeruk Project Reimbursement - Restructuring Normalised Net Cash inflow/(outflow) for the year The company ended the year with cash and cash equivalents of $12.4 million and no debt. Refer to the detailed Review of Operations preceding this Director’s Report. Significant changes in the state of affairs During the financial year the Company: - • Sold its interest in the Pine Mills Field in East Texas USA. 2017 $ ‘000 (7,121) 9,631 1,750 4,260 2016 $ ‘000 (6,167) - 202 115 (5,850) There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Likely developments and expected results of operations The following activities may affect the expected results of operations: ● ● ● Farming down WA-359-P permits with the option to be exercisable by 25 October 2017 and can be extended to 1 December 2017 subject to certain conditions Farming down the Mahakam Hilir PSC, Indonesia Actively seeking to acquire additional production Environmental regulation 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 joint venture operation partners and operators to improve overall health and safety and minimise any impact on the environment. Cue Energy Resources Limited Annual Report 2016/1715 Cue Energy Resources Limited Directors' report 30 June 2017 Information on directors Name: Title: Qualifications: Experience and expertise: Mr. Grant A. Worner Executive Chairman and interim CEO (appointed 23 March 2016, completed 30 June 2017) Non-Executive Chairman (appointed 1 July 2017) BE (Chemical 1st Hons), MBA, GAICD Mr Worner has more than 25 years’ experience in the oil industry with more than 22 years working for BP in 3 continents. He has led teams and businesses in exploration, trading, refining, and marketing in Europe, the US, Papua New Guinea, New Zealand and Australia. Pan Pacific Petroleum NL Other current directorships: Former directorships (last 3 years): New Guinea Energy Ltd Special responsibilities: Interests in shares: Member of Audit and Risk Committee None Name: Title: Qualifications: Experience and expertise: Other current directorships: Mr. Koh Ban Heng Non-Executive Director BSc, GDipBA Mr Koh joined Singapore Petroleum Co Ltd (SPC) in March 1974 and held several key positions in the company before being appointed CEO in August 2003. He retired as CEO on 30 June 2011 and subsequently served as Senior Advisor from 1 July 2011 until 31 December 2014. Currently Mr Koh is an independent director of Keppel Infrastructure Holdings Pte Ltd, a fully owned subsidiary of Keppel Corporation, Independent Director and Non-Executive Chairman of Keppel Infrastructure Fund Management Pte Ltd as Trustee-Manager of Keppel Infrastructure Trust which is listed on SGX and an independent director of Tipco Asphalt PLC, a listed company in Thailand. He also serves as Advisor to Dialog Group Berhad of Malaysia. Tipco Asphalt Ltd PLC Keppel Infrastructure Holdings Pte Ltd Keppel Infrastructure Fund Management Pte Ltd Former directorships (last 3 years): None Special responsibilities: Interests in shares: Chair of Audit and Risk Committee None Name: Title: Qualifications: Experience and expertise: Other current directorships: Mr. Duncan P. Saville Non-Executive Director BCom (Hons), BSc (Hons), FCA, F FIn, FAICD Mr Saville is a Chartered Accountant and director of New Zealand Oil & Gas Limited, the Company’s largest shareholder. He is an experienced non-executive director who has held directorships in the resource, utility & technology sectors, both in listed and unlisted companies. In addition, he is Chairman of ICM Limited an international Funds Management Company. Duncan is a Fellow of both Chartered Accountants Australia and New Zealand and the Australian Institute of Company Directors. New Zealand Oil & Gas Limited ICM Limited Somers Limited Homeloan Limited (Alternate) West Hamilton Holdings Limited Former directorships (last 3 years): Infratil Limited Special responsibilities: Interests in shares: Interests in options: Touchcorp Limited Member of Audit and Risk Committee 349,368,803 fully paid ordinary shares None Cue Energy Resources Limited Annual Report 2016/1716 Cue Energy Resources Limited Directors' report 30 June 2017 Name: Title: Experience and expertise: Name: Title: Qualifications: Experience and expertise: Mr. Brian L. Smith - resigned 24 November 2016 Non-Executive Director Mr Smith is a solicitor admitted to practice in 1975 who has had more than 30 years’ experience in the energy industry. He has had experience working in private practice, government and corporate fields and was the General Counsel to the Australian Gas Light Company, a listed entity, for over 17 years. He currently runs his own practice in Sydney specialising in commercial, energy and corporations law. Mr. Andrew T.N. Knight - resigned 18 August 2016 Non-Executive Director BMS (Hons) CA Mr Knight was CEO of New Zealand Oil and Gas Limited between 2011 and 2016 and was on their Board from 2008 to 2015. He has previously held executive management roles with Vector and NGC and worked in New Zealand and Australia with The Australian Gas Light Company, Fletcher Challenge Energy and Coopers & Lybrand. Mr Knight is a director of the Petroleum Exploration and Production Association of New Zealand, Gas Industry Company Ltd, Taranaki Iwi Holdings Management Ltd, and Sea Group Holding Ltd. Mr Knight is a chartered accountant and graduate of Waikato University with a BMS (Hons) and is a member of Chartered Accountants Australia and New Zealand. 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Ms. Melanie Leydin was appointed Company Secretary on 3 July 2017. Ms. Leydin holds a Bachelor of Business majoring in Accounting and Corporate Law. She is a member of the Institute of Chartered Accountants and is a Registered Company Auditor. She graduated from Swinburne University in 1997, became a Chartered Accountant in 1999 and since February 2000 has been the principal of Chartered accounting firm, Leydin Freyer. The practice provides outsourced company secretarial and accounting services to public and private companies specialising in the resources, technology, bioscience and biotechnology sector. Melanie has over 25 years' experience in the accounting profession and has extensive experience in relation to public company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, reorganisation of Companies and shareholder relations. Mr Andrew Knox was the CFO and Company Secretary for the year ending 30 June 2017. His contract with the Company was terminated on 3 July 2017. Ms Pauline Moffatt was the Co Company Secretary for the period between 1 July 2016 and 17 February 2017. Meetings of directors The number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2017, and the number of meetings attended by each director were: Full Board Audit and Risk Committee Attended Held Attended Held Grant A. Worner Koh Ban Heng Duncan P. Saville* Brian L. Smith** Andrew T.N. Knight*** 7 7 5 3 2 7 7 5 3 2 2 2 1 1 1 2 2 1 1 1 Held: represents the number of meetings held during the time the director held office. * Duncan P. Saville (appointed 18 August 2016) ** Brian L. Smith (resigned on 24 November 2016) *** Andrew T.N. Knight (resigned 18 August 2016) Cue Energy Resources Limited Annual Report 2016/1717 Cue Energy Resources Limited Directors' report 30 June 2017 Remuneration report (audited) This Remuneration Report which has been audited, and 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 2017, in accordance with the Corporations Act 2001 and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. 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 (C) Details of Remuneration (D) Equity Based Remuneration (E) Relationship between Remuneration Policy and Company Performance (A) Director and executive details The following persons acted as Directors of the company during or since the end of the financial year: ● Grant A. Worner - Executive Chairman and interim CEO (appointed 23 March 2016, completed 30 June 2017) Non-Executive Chairman (appointed 1 July 2017) Duncan P. Saville (Non-Executive Director) - appointed 18 August 2016 Koh Ban Heng (Non-Executive Director) - appointed 29 July 2015 Brian L. Smith (Non-Executive Director) - resigned 24 November 2016 Andrew T.N. Knight (Non-Executive Director) - resigned 18 August 2016 ● ● ● ● 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. The term “Key Management Personnel” is used in this Remuneration Report to refer to the following persons: Andrew Knox (Chief Financial Officer/Company Secretary) – contract terminated on 3 July 2017 ● Matthew Boyall (Chief Executive Officer) - appointed 1 July 2017 ● ● Melanie Leydin (Chief Financial Officer/Company Secretary) - appointed 3 July 2017 ● Jeffrey Schrull (Production and Exploration Manager) - resigned 5 December 2016 (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’s shareholders. The Remuneration policy is established and implemented solely by the Board. Remuneration and other terms and conditions of employment are reviewed annually by the Board having regard to performance and relevant employment market information. As well as a base salary, remuneration packages include superannuation, termination entitlements and fringe benefits. The Board is conscious of its responsibilities in relation to 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 Executives by any subsidiary companies. Cue Energy Resources Limited Annual Report 2016/1718 Cue Energy Resources Limited Directors' report 30 June 2017 (C) Details of remuneration 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 based on their time involvement, 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 Board, which is always subject 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, non-monetary benefits and consultancy fees Short term incentive programme Long term employee benefits 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 2017, the Board reviewed the salaries paid to peer company executives in determining the salary of Cue’s 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 on 1 July each year. There is no guaranteed base salary increase included in any executive’s contracts. Cash Bonuses There were no cash bonuses paid in this financial year. Employment contracts Remuneration and other terms of employment for key executives G.A. Worner and J.L. Schrull is formalised in service agreements. Details of the agreements are as follows: Grant A. Worner Title: Executive Chairman and interim CEO (appointed 23 March 2016, completed on 30 June 2017), Non-Executive Chairman (commence 1 July 2017) Agreement period: 23 March 2016 to 30 June 2017 Details: A fixed remuneration package of $35,000 per month (comprising salary and superannuation contributions). The original terms of this agreement were for a period of six months and revised to a variable remuneration package of up to $35,000 per month and extended to 30 June 2017. From 1 July 2017, Mr Worner receives Non-Executive Chairman fees of $75,000 per annum. Matthew Boyall Title: CEO (appointed 1 July 2017) Agreement commenced on 1 July 2017. Details: Base salary of $300,000 per annum plus superannuation to be reviewed annually by the Board. Mr Boyall also entitled up to 20% of the base salary at the discretion of the Board at the end of each year dependent on the success of meeting key deliverables. Andrew M. Knox Title: CFO and Company Secretary (contract terminated on 3 July 2017) Details: Salary package of $393,067 per annum including superannuation. Mr Knox was made redundant on 3 July 2017, Termination payment comprised of: Unused Annual Leave $167,602; Unused Long Service Leave $215,838; Termination payment $719,346. Mr Knox’s termination benefit was calculated in accordance with the Board resolution in March 2000. Cue Energy Resources Limited Annual Report 2016/1719 Cue Energy Resources Limited Directors' report 30 June 2017 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. 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: Compensation of key management personnel - 2017 Short-term benefits Post-employment Cash salary and fees $ Cash bonuses $ Non- monetary benefits (i) $ Consulting fees $ Long service leave $ Superannua tion $ Termination payments $ Total $ 75,000 32,609 43,505 29,959 9,986 332,010 207,828 - 730,897 - - - - - - - - - - - - - - 347,967 - - - - 19,703 - - 19,703 - - - 347,967 - - - - - - - - - 19,616 - - - - - - - - - 442,583 32,609 43,505 29,959 9,986 35,000 1,102,786 1,489,499 216,265 - 1,102,786 2,264,406 8,437 - 63,053 - - 2017 Name G.A. Worner D.P. Saville (ii) B.H. Koh B.L. Smith (iii) *A.T.N. Knight (iv) Other Key Management Personnel: A.M. Knox (v) J.L. Schrull (vi) M Boyall(vii) * A Knight director fee paid directly to NZOG. (i) Non-performance based salary sacrifice benefits, including motor vehicle expenses. (ii) D.P. Saville appointed 18 August 2016. (iii) B.L. Smith resigned 24 November 2016. (iv) A.T.N. Knight resigned 18 August 2016. (v) A.M. Knox was made redundant on 3 July 2017; Termination payment comprises of: Unused Annual Leave $167,602; Unused Long Service Leave$215,838; Termination payment $719,346. Mr Knox’s termination benefit was calculated in accordance with the Board resolution in March 2000. (vi) J.L. Schrull resigned 5 December 2016. (vii) M Boyall appointed to the position of CEO on 1 July 2017. Cue Energy Resources Limited Annual Report 2016/1720 Cue Energy Resources Limited Directors' report 30 June 2017 Short-term benefits Post-employment Cash salary and fees $ Cash bonuses** $ Non- monetary benefits (i) $ Consulting fees $ Long service leave $ Superannua tion $ Termination payments $ Total $ 31,875 84,218 91,827 85,575 61,719 67,582 10,245 24,519 7,880 - - - - - - - - - - - - - - - - - - 105,168 - - - 61,875 - - - - - - - - - - - - - 9,993 - - - 5,863 - - - - - - - - - - - - - 147,036 84,218 91,827 85,575 129,457 67,582 10,245 24,519 7,880 199,121 412,067 398,134 1,474,762 125,049 143,792 158,783 427,624 149,699 - - 149,699 - - - 167,043 12,317 6,358 - 18,675 35,000 19,308 35,000 105,164 521,186 - 581,525 - 76,173 668,090 76,173 2,419,140 2016 Name G.A. Worner (ii) B.H. Koh (iii) B.L. Smith P.G. Foley (iv) S.A. Brown (v) C.P. Hazledine (vi) G.J. King (vii) *A.T.N. Knight (viii) A.A. Young (ix) Other Key Management Personnel: A.M. Knox J.L. Schrull D.A.J. Biggs (x) * A Knight director fee paid directly to NZOG. ** Cash bonus disclosures paid. (i) Non-performance based salary sacrifice benefits, including motor vehicle expenses (ii) G.A. Worner appointed 23 March 2016 (iii) B.H. Koh appointed 29 July 2015 (iv) P.G. Foley resigned 4 March 2016 (v) S.A. Brown resigned 4 March 2016 (vi) C.P. Hazledine resigned 4 March 2016 (vii) G.J. King removed 29 July 2015 (viii) A.T.N Knight appointed 4 March 2016, resigned 18 August 2016 (ix) A.A. Young removed 29 July 2015 (x) D.A.J. Biggs resigned 15 April 2016 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: G.A. Worner D.P. Saville B.H. Koh B.L. Smith A.T.N. Knight P.G. Foley S.A. Brown C.P. Hazledine G.J. King A.A. Young Other Key Management Personnel: A.M. Knox J.L. Schrull D.A.J. Biggs Fixed remuneration 2016 2017 At risk - STI At risk - LTI 2017 2016 2017 2016 100% 100% 100% 100% 100% - - - - - 100% 100% - 100% - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Cue Energy Resources Limited Annual Report 2016/1721 Cue Energy Resources Limited Directors' report 30 June 2017 All remuneration paid to J.L. Schrull and A.M. Knox was incurred by the parent entity. A.M. Knox was a Director of all the subsidiaries in the Group and an Executive of the parent company until his termination on 3 July 2017. Matthew Boyall was appointed as Director of all the subsidiaries in the Group on 4 July 2017, except for Cue Resources Inc. Melanie Leydin was appointed as President, Secretary and Treasurer of Cue Resources Inc on 1 August 2017. (D) Equity based remuneration Overview of share options and performance rights The Board is currently reviewing policies going forward in relation to short and long term incentives. 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. No share options or performance rights were granted during the financial year to 30 June 2017 (2016: nil) (refer note 35). All previously issued performance rights had lapsed as at 30 June 2014. (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 2017. The earnings of the consolidated entity for the five years to 30 June 2017 are summarised below: 2017 $'000 2016 $'000 Restated 2015 $'000 2014 $'000 2013 $'000 Production income from continuing operations (Loss)/Profit before income tax expense from continuing operations (Loss)/Profit after income tax expense Total Key Management Personnel Remuneration 35,000 45,412 36,704 32,246 49,798 (6,975) (15,032) (79,599) (84,399) 26,916 32,191 753 (2,166) 2,264 2,419 2,061 1,713 8,409 6,369 2,729 2017 2016 2015 2014 2013 Share price at start of year (cents) Share price at end of year (cents) Basic (loss)/earnings per share (cents) Diluted (loss)/earnings per share (cents) 8.10 5.50 (2.48) (2.48) 7.60 8.10 (12.44) (12.44) 12.00 7.60 5.86 5.86 11.00 12.00 (0.31) (0.31) 18.00 11.00 0.91 0.91 Cue Energy Resources Limited Annual Report 2016/1722 Cue Energy Resources Limited Directors' report 30 June 2017 Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares* Non-Executive Directors Duncan P. Saville Andrew T.N. Knight (i) Andrew A. Young (i) Geoffrey J. King (i) Other Key Management Personnel Andrew M. Knox Jeffrey L. Schrull - 335,854,341 450,000 22,500 4,458,251 453,109 341,238,201 - 349,368,803 - - - - (335,854,341) (450,000) - (22,500) - - 349,368,803 - - - - - - 4,458,251 - 349,368,803 (336,779,950) 353,827,054 - (453,109) - - * Grant A. Worner (Non-Executive Chairman) and Koh Ban Heng (Non-Executive Director) do not hold any ordinary shares (i) Non-Executive Director resigned during 2017 financial year, there is no share balance as at 30 June 2017. This concludes the remuneration report, which has been audited. 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 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 auditor of the company or any related body corporate against a liability incurred as an officer or auditor. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 26 to the financial statement. 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. Cue Energy Resources Limited Annual Report 2016/1723 Cue Energy Resources Limited Directors' report 30 June 2017 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 and Risk Committee, for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. ● Rounding of amounts The Company is a company of the kind referred to in ASIC Legislative Instrument 2016/191, 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. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor In accordance with the provisions of the Corporations Act 2001 the Company’s auditor, BDO East Coast Partnership, continues in office. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Board ___________________________ Grant A. Worner Non-Executive Chairman 27 September 2017 Cue Energy Resources Limited Annual Report 2016/1724 Tel: +61 3 9603 1700 Fax: +61 3 9602 3870 www.bdo.com.au Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia DECLARATION OF INDEPENDENCE BY DAVID GARVEY TO THE DIRECTORS OF CUE ENERGY RESOURCS LIMITED As lead auditor of Cue Energy Resources Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Cue Energy Resources Limited and the entities it controlled during the period. David Garvey Partner BDO East Coast Partnership Melbourne, 27 September 2017 BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Cue Energy Resources Limited Directors' declaration 30 June 2017 In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2017 and of its performance for the financial year ended on that date; 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. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Grant A. Worner Non-Executive Chairman 27 September 2017 Cue Energy Resources Limited Annual Report 2016/1726 Cue Energy Resources Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2017 Revenue Production revenue from continuing operations Production costs Gross profit from production Other income Net foreign currency exchange loss Expenses Impairment - Production Impairment of exploration and evaluation expenditure Exploration and evaluation expenditure Administration expenses Note Consolidated 2017 $'000 2016 $'000 5 6 7 8 10 9 35,000 (21,860) 13,140 219 (451) (6,386) - (8,369) (5,128) 45,412 (30,585) 14,827 3,779 (90) (25,103) (49,963) (16,329) (6,720) Loss before income tax expense from continuing operations (6,975) (79,599) Income tax expense 11 (8,057) (4,800) Loss after income tax expense from continuing operations (15,032) (84,399) Loss after income tax expense from discontinued operations 12 (2,312) (3,062) Loss after income tax expense for the year (17,344) (87,461) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Reversal of Non-Controlling interest Other comprehensive income for the year, net of tax Total comprehensive income for the year Loss for the year is attributable to: Owners of Cue Energy Resources Limited Non-controlling interest Total comprehensive income for the year is attributable to: Owners of Cue Energy Resources Limited Continuing operations Discontinued operations Non-controlling interest Continuing operations Discontinued operations Non-controlling interest 12 (42) 669 627 (1,624) - (1,624) (16,717) (89,085) (17,299) (45) (86,835) (626) (17,344) (87,461) (14,405) (2,267) (16,672) (86,023) (2,436) (88,459) - (45) (45) - (626) (626) (16,717) (89,085) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Cue Energy Resources Limited Annual Report 2016/1727 Earnings per share for loss from continuing operations attributable to the owners of Cue Energy Resources Limited Basic earnings per share Diluted earnings per share Earnings per share for loss from discontinued operations attributable to the owners of Cue Energy Resources Limited Basic earnings per share Diluted earnings per share Earnings per share for loss attributable to the owners of Cue Energy Resources Limited Basic earnings per share Diluted earnings per share 34 34 34 34 34 34 Cents Cents (2.15) (2.15) (12.09) (12.09) (0.32) (0.32) (0.35) (0.35) (2.48) (2.48) (12.44) (12.44) Cue Energy Resources Limited Annual Report 2016/1728 Cue Energy Resources Limited Statement of financial position As at 30 June 2017 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets classified as held for sale Total current assets Non-current assets Property, plant and equipment Production properties Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Tax liabilities Provisions Liabilities directly associated with assets classified as held for sale Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Equity attributable to the owners of Cue Energy Resources Limited Non-controlling interest Total equity Consolidated Note 2017 $'000 2016 $'000 13 14 15 16 17 18 11 19 20 21 22 12,420 4,372 547 - 17,339 38 30,082 30,120 20,490 4,481 1,609 4,095 30,675 59 42,564 42,623 47,459 73,298 3,931 3,942 475 - 8,348 3,401 9,839 13,240 9,050 1,865 640 2,017 13,572 4,167 12,971 17,138 21,588 30,710 25,871 42,588 152,416 - (126,545) 25,871 - 152,416 42 (109,246) 43,212 (624) 25,871 42,588 The above statement of financial position should be read in conjunction with the accompanying notes Cue Energy Resources Limited Annual Report 2016/1729 Cue Energy Resources Limited Statement of changes in equity For the year ended 30 June 2017 Consolidated Foreign Currency Translation Reserve $'000 Accumulated Losses $'000 Non- controlling Interest $'000 Contributed Equity $'000 Total equity $'000 Balance at 1 July 2015 (Restated) 152,416 1,666 (22,411) 2 131,673 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (86,835) (626) (87,461) (1,624) - - (1,624) (1,624) (86,835) (626) (89,085) Balance at 30 June 2016 152,416 42 (109,246) (624) 42,588 Consolidated Contributed Equity $'000 Foreign currency translation Reserve $'000 Accumulated losses $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2016 152,416 42 (109,246) (624) 42,588 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (17,299) (42) (42) - (17,299) (45) 669 624 (17,344) 627 (16,717) Balance at 30 June 2017 152,416 - (126,545) - 25,871 The above statement of changes in equity should be read in conjunction with the accompanying notes Cue Energy Resources Limited Annual Report 2016/1730 Cue Energy Resources Limited Statement of cash flows For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers Insurance refunds received Interest received Payments to suppliers (inclusive of GST) Exploration and evaluation expenditure Income tax paid Royalties paid Consolidated Note 2017 $'000 2016 $'000 35,608 - 160 (16,312) (13,900) (6,736) (470) 45,166 3,720 58 (23,946) (17,891) (5,160) (836) Net cash (used in)/from operating activities 33 (1,650) 1,111 Cash flows from investing activities Payments with respect to production properties Payments for plant and equipment Proceeds from disposal of investments Net cash used in investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (6,434) (11) 974 (7,122) (156) - (5,471) (7,278) (7,121) 20,490 (949) (6,167) 27,605 (948) Cash and cash equivalents at the end of the financial year 13 12,420 20,490 The above statement of cash flows should be read in conjunction with the accompanying notes Cue Energy Resources Limited Annual Report 2016/1731 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 1. General information The financial statements cover Cue Energy Resources Limited as a consolidated entity consisting of Cue Energy Resources Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Cue Energy Resources Limited's functional and presentation currency. Cue Energy Resources Limited is a listed public company limited by shares, incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange. A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 27 September 2017. The directors have the power to amend and reissue the financial statements. Note 2. 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 statements are presented in Australian Dollars, which is the Company’s functional currency. The financial report was authorised for issue by the Directors on the date the Directors’ Declaration was signed. (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 and Interpretations issued by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001, as appropriate for 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. The accounting policies set out below have been applied consistently to all periods presented in this report. (c) Basis of preparation The financial report has been prepared on a going concern basis using the historical cost convention. In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 29. Cue Energy Resources Limited Annual Report 2016/1732 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 2. Summary of significant accounting policies (continued) (d) 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 2017 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 control. The consolidated entity controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power to direct the activities of the entity. 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. 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. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. 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 acquired is recognised directly in equity attributable to the parent. Non-controlling interest is the results in equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity 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. Investments in subsidiaries are accounted for at cost in the individual financial statements of Cue Energy Resources Limited. (e) Revenue recognition Revenue is recognised in profit or loss 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. (f) Property, plant and equipment Class of Fixed Asset Office and computer equipment 20-40% Depreciation Rate Property, plant and equipment is carried at historical 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. Cue Energy Resources Limited Annual Report 2016/1733 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 (g) 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 Corporations (Rounding in Financials and Directors Reports) instrument 2016/191. The Company is an entity to which the Class Order applies. (h) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (i) Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. (j) Foreign currency Functional and presentation currency The financial statements of each group entity are measured using their relevant 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 Transactions 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. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. 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. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Foreign operations The results and financial position of Cue’s foreign operations are translated into its presentation currency using the following procedures: (a) assets and liabilities for each statement of financial position presented (i.e. including comparatives) shall be translated at the closing rate at the date of that statement of financial position; (b) income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions; and (c) all resulting exchange differences shall be recognised in other comprehensive income. Cue Energy Resources Limited Annual Report 2016/1734 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 2. Summary of significant accounting policies (continued) (k) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2017. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below: AASB 9 Financial Instruments The Group does not hold complex financial instruments. The classification of its financial instruments will not change under the new accounting standard. Therefore, management does not expect the adoption of this accounting standard will have a material impact on the Group's financial performance. AASB 15 Revenue from Contracts with Customers The Group holds contracts with operators in Indonesia and New Zealand where production income is generated. These contracts do not have complex performance obligations. Therefore, management does not expect the adoption of this accounting standard will have a material impact on the Group's financial performance. AASB 16 Leases (applicable to annual reporting periods beginning on or after 1 January 2019) The consolidated entity will adopt this standard from 1 January 2019. The standard will affect primarily the accounting for the Group’s operating leases. As at reporting date, the Group has non-cancellable operating lease commitments of $0.5 million (refer note 28). Management does not expect the adoption of this accounting standard will have a material impact on the Group's financial performance. Note 3. Critical accounting estimates and judgements 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 judgement 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, and the estimates and underlying assumptions are reviewed on an ongoing basis. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial year are discussed below. (i) Recovery of deferred tax assets Deferred tax assets resulting from unused tax losses are only recognised if management considers it is probable that future tax profits will be available to utilise the unused tax losses. No deferred tax assets were recognised as at 30 June 2017. (ii) Impairment of production properties Production properties impairment testing requires an estimation of the value-in-use of the cash generating units to which deferred costs 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. Other assumptions used in the calculations which could have an impact on future years includes USD rates, available reserves and oil and gas prices. (iii) Useful life of production properties As detailed at note 17 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. Cue Energy Resources Limited Annual Report 2016/1735 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 3. Critical accounting estimates and judgements (continued) (iv) Estimates of reserve quantities The estimated quantities of Proven and Probable hydrocarbon reserves reported by the Company are integral to the calculation of the amortisation expense relating to Production Property Assets, and to the assessment of possible impairment of these 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. (v) Restoration provisions 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. Note 4. Financial reporting by segments Segment Information 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 expense, tax, depreciation and amortisation. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the Group financial statements. Cue Energy Resources Limited Annual Report 2016/1736 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 4. Financial reporting by segments (continued) At reporting date, the Group operates primarily in Australia but also has international operations in Indonesia, New Zealand and USA. Therefore, the Group is organised into four principles geographic segments: Australia, New Zealand, Indonesia and USA. On 1 November 2016, the Group sold its interest in Pine Mills production property in East Texas, USA. This has been separately disclosed as Discontinued Operations in the table below. These segments are based on the internal reports that are 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. Information regarding the Group’s reportable segments is presented below: 2017 Revenue Gas revenue from continuing operations Oil revenue from continuing operations Production revenue from continuing operations Production revenue from discontinuing operations Production revenue Production expenses (excluding amortisation) Gross profit Other revenue Impairment - production Exploration and evaluation expenditure Foreign exchange movement Earnings before interest expense, tax, depreciation and amortisation Australia $'000 Continuing operations Indonesia $'000 NZ $'000 USA $'000 Disc. Ops USA* $'000 Total $'000 - - - - - - 215 - (2,490) (407) - 10,485 21,597 2,918 10,485 24,515 - 10,485 (5,708) 4,777 - (6,386) 6 - - 24,515 (9,756) 14,759 4 - (5,885) (34) - - - - - (34) (34) - - - (10) - - - 593 593 (845) (252) 123 - - 29 21,597 13,403 35,000 593 35,593 (16,343) 19,250 219 (6,386) (8,369) (422) (7,780) (1,603) 8,844 (44) (2,252) (2,835) 2016 Australia $'000 NZ $'000 Indonesia $'000 USA* $'000 Total $'000 Revenue Gas revenue from continuing operations Oil revenue from continuing operations Production revenue from continuing operations Production revenue from discontinuing operations Production revenue Production expenses (excluding amortisation) Gross profit Other revenue Impairment - production Impairment - E&E Foreign exchange movement Earnings before interest expense, tax, depreciation and amortisation - - - - - - 60 - - (90) - 13,091 13,091 - 13,091 (6,608) 6,483 3,720 (25,103) (3,921) - 27,354 4,967 32,321 - 32,321 (13,045) 19,276 - - (46,042) - - - - 984 984 (2,720) (1,736) 123 - - - 27,354 18,058 45,412 984 46,396 (22,373) 24,023 3,903 (25,103) (49,963) (90) (9,289) (22,907) (36,438) (2,811) (71,445) Cue Energy Resources Limited Annual Report 2016/1737 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 TOTAL SEGMENT ASSETS Current Assets Non-current Assets Total 30 June 2017 Assets Current Assets Non-current Assets Total 30 June 2016 Assets TOTAL SEGMENT LIABILITIES Current Liabilities Non-current Liabilities Total 30 June 2017 Liabilities Current Liabilities Non-current liabilities Total 30 June 2016 Liabilities * discontinuing/discontinued operations Major customers Australia $'000 Continuing operations Indonesia $'000 NZ $'000 USA $'000 Disc. Ops USA* $'000 Total $'000 10,439 38 10,477 16,588 59 16,647 1,680 24 1,704 1,323 31 1,354 1,923 21,857 23,780 1,911 32,629 34,540 1,079 9,500 10,579 1,209 12,421 13,630 4,968 8,225 13,193 8,081 9,935 18,016 5,589 3,716 9,305 9,023 4,686 13,709 9 - 9 - - - - - - - - - - - - 4,095 - 4,095 - - - 2,017 - 2,017 17,339 30,120 47,459 30,675 42,623 73,298 8,348 13,240 21,588 13,572 17,138 30,710 The Group has a number of customers to whom it provides both oil and gas products. The Group supplies a single external customer in the gas segment who accounts for 100% of external gas revenue (2016: 100%). Reconciliation of earnings before interest expense, tax, depreciation and amortisation (EBITDA) to Loss before Income Tax: EBITDA Depreciation Amortisation Loss before income tax expense (including discontinued operations) Note 5. Production costs Production costs Amortisation of production properties Consolidated 2017 $'000 2016 $'000 (2,835) (32) (6,420) (71,445) (34) (11,107) (9,287) (82,586) Consolidated 2017 $'000 2016 $'000 15,498 6,362 19,653 10,932 21,860 30,585 Cue Energy Resources Limited Annual Report 2016/1738 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 6. Other income Interest from cash and cash equivalents Maari insurance refund Other income Accounting policy for other income Consolidated 2017 $'000 2016 $'000 154 - 65 219 59 3,720 - 3,779 Other income is recognised in profit or loss 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 recognised 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. Accounting policy for interest income 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. Note 7. Impairment - Production At 30 June 2017, the Group reassessed the carrying amount of its oil and gas assets, Production Properties (refer note 17), 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. An impairment of the Maari oil field development in New Zealand of $6.39 million (2016: $25.10 million), primarily as a result of reduced oil prices and reduction in oil reserves, was recognised during the year. The Pine Mills oil field development in the USA was impaired by $1.2 million in the 2016 financial year. 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% (2016: 14.3%) equivalent to post-tax discount rates of 10% (2016: 10%) depending on the nature of the risks specific to each asset. Recoverable amounts are estimated as follows: Maari Carrying value as at 30 June 2017 Less abandonment provision Recoverable amount as at 30 June 2017 $’000 21,857 9,500 12,357 The abandonment provision is deducted from the carrying value of the asset as the cost of abandonment is included in its cost base. This adjustment is required to allow a true reflection of its carrying value against its recoverable value. 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. Cue Energy Resources Limited Annual Report 2016/1739 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 7. Impairment – Production (continued) Accounting policy for Impairment The carrying amounts of the consolidated entity’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication 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 profit or loss, 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. Note 8. Impairment of exploration and evaluation expenditure Impairment of Exploration Assets Impairment Write Down Cue Mahakam Hilir PSC* Mahato PSC PEP51313 PEP51149 Consolidated 2017 $'000 2016 $'000 - - - - - 40,712 5,330 2,634 1,287 49,963 * This includes the $36 million fair value on bargain purchase of the Mahakam Hilir PSC in accordance with AASB136. The full impairment of the Mahakam Hilir PSC was made as a result of the post well evaluation of the Naga Selatan -2 well drilling results. Although the results of the well were encouraging, as far as the original play concept was proven, the well could not be considered as a stand-alone commercial discovery as at the current resource and cost estimates and oil price projections, development of the field would be sub-economic. Note 9. Administration expenses Depreciation of property, plant and equipment Employee expenses* Superannuation contribution expense Operating lease expenses Other expenses Business development expenses Total administration expenses *2017 balance includes one off office restructuring costs of $1.75 million. Consolidated 2017 $'000 2016 $'000 32 3,647 169 290 808 182 5,128 34 4,793 245 254 1,003 391 6,720 Cue Energy Resources Limited Annual Report 2016/1740 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 10. Exploration and evaluation expenditure Loss before income tax from continuing operations includes the following specific expenses: Costs carried forward in respect of areas of interest in exploration and evaluation phase Impairment of exploration asset (i) Closing balance at 30 June (i) 2016 balance Includes foreign currency translation revenue of $1.67 million. Exploration Costs Expensed Sampang PSC Mahakam Hilir PSC Mahato PSC WA-359-P WA-360-P WA-361-P WA-389-P WA-409-P PEP51313 PEP51149 PEP54865 Total exploration and evaluation expenditure Consolidated 2017 $'000 2016 $'000 - - - 51,629 (51,629) - 3,953 1,768 164 162 - - 311 2,017 (25) - 19 8,369 213 9,113 346 488 19 23 1,504 537 159 3,860 67 16,329 Accounting policy for exploration and evaluation project expenditure AASB 6 Exploration for and Evaluation of Mineral Resources allows to either capitalise or expense the exploration and evaluation expenditure incurred by the Group. Commencing in the 2016 financial year, the Group’s exploration and evaluation accounting policy changed exploration and evaluation expenditure against profit and loss as incurred, except for expenditure incurred after a decision to proceed to development is made, in which case the expenditure is capitalised as an asset. This does not include acquisition costs or costs capitalised as a result of a business combination. As a consequence of the change in accounting policy in the 2016 financial year and its retrospective application, $45.40 million of previously capitalised exploration expenditure was transferred to accumulated losses as at 1 July 2014. Prior to the 2016 financial year, the accounting policy was to capitalise and carry forward exploration and evaluation expenditure as an asset when rights to tenure of the area of interest were current and costs were expected to be recouped or activities in the area of interest had not, at the reporting date, reached a stage that permitted a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest were continuing. The Group made a voluntary change to its accounting policy relating to exploration and evaluation expenditure in the previous financial year. The new accounting policy was adopted for the financial year ending 30 June 2016 with effect from 1 July 2015 and was applied retrospectively. The Group is of the view that the change in policy will result in the financial report providing more relevant and no less reliable information because capitalisation of costs will only begin once a decision to proceed with development has been made. Cue Energy Resources Limited Annual Report 2016/1741 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 11. Income tax expense Income tax expense Current tax Adjustment recognised for current tax in prior periods Deferred tax Aggregate income tax expense Income tax expense is attributable to: Loss from continuing operations Loss from discontinued operations Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense from continuing operations Loss before income tax expense from discontinued operations Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Unrealised foreign exchange movements Non-taxable gain reversal on bargain purchase Non-assessable intercompany interest Non-deductible / (deductible) mining deductions Unrecognised temporary differences Unrecognised tax losses Derecognition of deferred tax assets - continuing operations Derecognition of deferred tax assets - discontinuing operations Difference in overseas tax rates Adjustment recognised for current tax in prior periods Income tax expense Consolidated 2017 $'000 2016 $'000 6,564 2,259 (766) 4,744 1,706 (1,576) 8,057 4,874 8,057 - 8,057 4,800 74 4,874 (6,975) (2,312) (79,599) (2,988) (9,287) (82,587) (2,786) (24,776) 119 - - 54 906 4,180 - - 3,325 5,798 2,259 8,057 58 11,287 (470) (407) 11,532 8,183 (3,279) 74 966 3,168 1,706 4,874 During the 2017 financial year, following a tax audit, Cue Kalimantan received notices of amended assessment in relation to underpayment of 2011 tax for USD$1.3 million by SPC Mahakam Hilir Pte Ltd, the previous operator of the Mahakam Hilir SPC. Cue Kalimantan is currently disputing the amended assessment on behalf of SPC Mahakam Hilir. On the basis of conservatism, the full amount and penalty has been provided for as at 30 June 2017 in case of a negative result in the dispute and failure to pay the resulting obligation be SPC Mahakam Hilir. During the 2016 income year, Cue Sampang Pty Ltd received notices of amended assessments in respect of the 2011 tax year. Under the amended assessments the additional tax payable including penalties and interest is $1.7 million. Cue Sampang Pty Ltd is currently disputing these amended assessments. Cue Sampang Pty Ltd has paid $0.6 million of the additional tax liabilities and has provided for the balance of $1.4 million. Cue Energy Resources Limited Annual Report 2016/1742 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 11. Income tax expense (continued) Deferred tax assets not recognised Deferred tax assets not recognised comprises temporary differences attributable to: Restoration provision Employee provisions Tax losses Less deferred tax liabilities not recognised - Production properties Less deferred tax liabilities not recognised - Inventories Net deferred tax assets not recognised Consolidated 2017 $'000 2016 $'000 2,660 150 27,712 (667) (153) 3,672 199 23,615 (611) (266) 29,702 26,609 The above potential tax benefit, which excludes tax losses, for deductible temporary differences has not been recognised in the statement of financial position as the recovery of this benefit is uncertain. Accounting policy for Income tax The income tax expense for the year 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, 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 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 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. 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 entities in the tax consolidated group. 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. Cue Energy Resources Limited Annual Report 2016/1743 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 12. Discontinued operations Description On 1 November 2016, the consolidated entity sold its interest in Pine Mills production property in East Texas. During the prior period, the interest in the Pine Mills production property in East Texas and the Pine Mills net asset was classified as held for sale (refer note 16 and 19). Cue intends to focus on core business in South East Asia and Australasia. Financial performance information Production revenue Foreign currency exchange gain Total revenue Operating expense Impairment expense Amortisation expense Loss on disposal Total expenses Loss before income tax expense Income tax expense Loss after income tax expense Reversal of Non-controlling interest Income tax expense Consolidated 2017 $'000 2016 $'000 593 29 622 (845) - (60) (1,360) (2,265) (1,643) - 984 123 1,107 (2,720) (1,200) (175) - (4,095) (2,988) (74) (1,643) (3,062) (669) - (669) - - - Loss after income tax expense from discontinued operations (2,312) (3,062) Cash flow information Net cash used in operating activities Net cash used in investing activities Net cash from financing activities Net decrease in cash and cash equivalents from discontinued operations Consolidated 2017 $'000 2016 $'000 (446) (22) - (468) (2,239) (173) 2,232 (180) Cue Energy Resources Limited Annual Report 2016/1744 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 12. Discontinued operations (continued) Carrying amounts of assets and liabilities disposed Bond Accounts receivables Acquisition cost Capitalised expenditure Pine Mills abandonment assets Cheetah Rig Asset Total assets Acquisition carry Capital contributions Opex contributions Abandonment provision Pine Mills impairment write down Total liabilities Net assets Details of the disposal Total sale consideration Carrying amount of net assets disposed Loss on disposal before income tax Loss on disposal after income tax Note 13. Current assets - cash and cash equivalents Cash at bank 2017 $'000 67 347 3,824 336 554 115 5,243 1,008 67 79 559 1,196 2,909 2,334 2017 $'000 974 (2,334) (1,360) (1,360) Consolidated 2017 $'000 2016 $'000 12,420 20,490 Accounting policy for cash and cash equivalents 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. Cue Energy Resources Limited Annual Report 2016/1745 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 14. Current assets - trade and other receivables Trade receivables Less provision for doubtful debts Other receivables and prepayments The aging of trade receivables at the reporting date was as follows: Less than one month 3 to 6 months overdue Consolidated 2017 $'000 2016 $'000 4,241 (38) 169 4,372 4,201 - 280 4,481 Consolidated 2017 $'000 2016 $'000 1,711 2,492 4,203 4,201 - 4,201 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 2017, $38,885 current trade receivables were impaired (2016: nil). Management will endeavour to recover the amount in full in 2018 financial year. The Directors consider that the carrying value of receivables reflects their fair values. Accounting policy for trade and other receivables Trade receivables due from related parties and other receivables represent the principal amounts due at the reporting date plus accrued interest and less, where applicable, any unearned income and allowance for doubtful accounts. Trade receivables are generally due for settlement within 30 days. Note 15. Current assets - inventories Inventories Accounting policy for inventories Consolidated 2017 $'000 2016 $'000 547 1,609 Inventories consist of hydrocarbon stock. 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. Cue Energy Resources Limited Annual Report 2016/1746 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 16. Current assets - non-current assets classified as held for sale Production asset reclassified as asset held for sale Trade and other receivables Inventories Property, plant and equipment Production properties Consolidated 2017 $'000 2016 $'000 - - - - - 371 37 139 3,548 4,095 The Pine Mills asset was sold in the 2017 financial year (refer Note 12). There was no non-current asset held for sale as at 30 June 2017. Liabilities directly associated with Pine Mill assets held for sale are disclosed in Note 19. Accounting policy for non-current assets classified as held for sale Non-current assets and disposal groups are classified as held for sale and measured at the lower of carrying amount and fair value less costs to sell, where the carrying amount will be recovered principally through sale as opposed to continued use. No depreciation or amortisation is charged against assets classified as held for sale. Classification as “held for sale” occurs when: management has committed to a plan for immediate sale; the sale is expected to occur within one year from the date of classification; and active marketing of the asset has commenced. Such assets are classified as current assets. A discontinued operation is a component of an entity, being a cash-generating unit (or a group of cash generation units), that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with the view to resale. Impairment losses are recognised for any initial or subsequent write down of an asset (or disposal group) classified as held for sale to fair value less costs to sell. Any reversal of impairment recognised on classification as held for sale or prior to such classification is recognised as a gain in profit or loss in the period in which it occurs. Cue Energy Resources Limited Annual Report 2016/1747 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 17. Non-current assets - Production properties Production properties Consolidated 2017 $'000 2016 $'000 30,082 42,564 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Production asset reclassified as Asset held for sale (Pine Mills) Impairment - production from discontinuing operations (Pine Mills) Impairment - production from continuing operations Expenditure incurred during the year Changes in abandonment provision - production Amortisation expense from continuing operations Amortisation expense from discontinuing operations (Pine Mills) Balance at 30 June 2016 Impairment - production from continuing operations Expenditure during the year Amortisation expense from continuing operations Changes in abandonment provision - production Balance at 30 June 2017 Net accumulated costs incurred on areas of interest Joint Venture assets: - Oyong and Wortel – Sampang PSC - Maari – PMP 38160 Total Accounting policy for production properties Total $'000 78,131 (3,548) (1,200) (25,103) 4,461 930 (10,932) (175) 42,564 (6,386) 3,349 (6,362) (3,083) 30,082 8,225 21,857 30,082 Production properties are carried at the reporting 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), and is shown as a separate line item in profit or loss. 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 capitalised costs. Accounting policy for 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. Cue Energy Resources Limited Annual Report 2016/1748 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 18. Current liabilities - trade and other payables Trade payables and accruals Amounts due to directors and director related entities Consolidated 2017 $'000 2016 $'000 3,860 71 3,931 8,961 89 9,050 Refer to note 24 for further information on financial instruments. The Directors consider the carrying amount of payables reflect their fair values. Trade creditors are generally settled within 30 days. Accounting policy for trade and other payables These amounts represent the principal amounts outstanding at the reporting date plus, where applicable, any accrued interest. Trade payables are normally paid within 30 days, and due to their short term nature are generally unsecured and not discounted. Note 19. Current liabilities - liabilities directly associated with assets classified as held for sale Trade and other payables Provisions The Pine Mills production asset held for sale and accounting policy are disclosed in note 16. Note 20. Non-current liabilities - deferred tax liabilities Deferred tax liability recognised comprise of Production properties Inventories Less deferred tax assets - Restoration provision Deferred tax liability Consolidated 2017 $'000 2016 $'000 - - - 1,447 570 2,017 Consolidated 2017 $'000 2016 $'000 3,539 - (138) 3,401 4,104 290 (227) 4,167 Cue Energy Resources Limited Annual Report 2016/1749 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 21. Non-current liabilities - provisions Employee benefits Restoration Movements in each class of provision during the financial year are set out below: Consolidated - 2017 Carrying amount at the start of the year Adjustment due to change in estimate Provisions used during the year Carrying amount at the end of the year Consolidated 2017 $'000 2016 $'000 24 9,815 31 12,940 9,839 12,971 Employee Benefits $'000 Restoration $'000 671 - (172) 12,940 (3,125) - 499 9,815 Accounting policy for provisions 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. Cue is expecting to make payments on restoration provision as part of its cash calls within the next 12 months from reporting date. 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 reporting 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. Accounting policy for 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 are determined after taking into consideration estimated future increase in wages and salaries and past experience regarding staff departures. Related on-costs are included. Cue Energy Resources Limited Annual Report 2016/1750 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 22. Equity – contributed equity Ordinary shares - fully paid Consolidated 2017 Shares 2016 Shares 2017 $'000 2016 $'000 698,119,720 698,119,720 152,416 152,416 Ordinary shares entitle the holder to 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 amounts paid on the 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. Accounting policy for 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. Note 23. Equity - Capital management When managing capital, management's objective is to ensure the entity continues as a going concern as well as maintaining optimal return for 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 will assess the capital structure of the entity 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 2017 management did not pay any dividends (2016: nil). There has been no change during the year to the strategy adopted by management to control the capital of the entity. The gearing ratios for the years ended 30 June 2017 and 30 June 2016 are calculated as follows: Trade and other payables Tax liabilities Less cash and cash equivalents Total Equity Total capital Consolidated 2017 $'000 2016 $'000 (3,931) (3,942) 12,420 25,871 (9,050) (1,865) 20,490 42,588 30,418 52,163 The gearing ratio is nil for both 2016 and 2017 financial year, as the Group does not have external debt other than trade payables and tax liabilities. Cue Energy Resources Limited Annual Report 2016/1751 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 24. Financial instruments The Group’s principal financial instruments comprise receivables, payables, 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, 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. 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. The carrying amounts and net fair values of the economic entity’s financial assets and liabilities at the reporting date are: CONSOLIDATED Financial assets Cash and cash equivalents Trade and other receivables Carrying amount Net fair value 2017 $'000 2016 $'000 2017 $'000 2016 $'000 12,420 4,372 20,490 4,481 12,420 4,372 20,490 4,481 Non-traded financial assets 16,792 24,971 16,792 24,971 Financial liabilities Trade and other payables Non-traded financial liabilities Risk Exposures and Responses (a) Fair value risk 3,931 3,931 9,050 9,050 3,931 3,931 9,050 9,050 The financial assets and liabilities of the Group are recognised in the statement of financial position at their fair value in accordance with the accounting policies set out in note 2. In all instances, the fair value of financial amounts and liabilities approximates to their carrying value. Basis for determining fair value 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 and other receivables. 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 the 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. Cue Energy Resources Limited Annual Report 2016/1752 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 24. Financial instruments (continued) (b) Interest rate risk The Group’s exposure to market interest rates is related primarily to the Group’s cash deposits. At the reporting date, the Group had the following financial assets exposed to Australian and overseas variable interest rate risk that are not designated in cash flow hedges: Cash and cash equivalents Consolidated 2017 $'000 12,420 2016 $'000 20,490 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 the reporting date. Based upon the balance of net exposure at the year end, 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 2017 $'000 124 (124) 124 (124) 2016 $'000 205 (205) 205 (205) A movement of +1% and – 1% is selected because this is historically within a range of rate movements and available economic data suggests this range is reasonable. (c) Foreign exchange risk The Group is subject to foreign exchange 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 Trade and other receivables Financial liabilities Trade and other payables 30 June 2017 NZD $’000 96 93 USD $’000 7,831 4,203 30 June 2016 IDR $’000 199 15 USD $’000 19,264 4,207 NZD $’000 495 258 IDR $’000 129 16 1,927 742 15 7,357 911 60 Cue Energy Resources Limited Annual Report 2016/1753 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 24. Financial instruments (continued) At the reporting date, if the currencies set out in the table above, strengthened or weakened against the Australian 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 Exchange rates +10% Exchange rates -10% Impact on equity Exchange rates +10% Exchange rates -10% Impact on post-tax profit Exchange rates +10% Exchange rates -10% Impact on equity Exchange rates +10% Exchange rates -10% USD $’000 1,011 (1,011) 1,011 (1,011) USD $’000 1,611 (1,611) 1,611 (1,611) Consolidated 2017 TOTAL $’000 1,086 (1,086) 1,086 (1,086) Consolidated 2016 TOTAL $’000 1,989 (1,989) 1,989 (1,989) IDR $’000 19.9 (19.9) 19.9 (19.9) IDR $’000 8.5 (8.5) 8.5 (8.5) NZD $’000 55.3 (55.3) 55.3 (55.3) NZD $’000 15.8 (15.8) 15.8 (15.8) Management believes the risk exposures as at the reporting date are representative of the risk exposure inherent in the financial instruments. A movement of +/– 10% is selected because a review of recent exchange rate movements and economic data suggests this range is reasonable. (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. 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 2017, the Group had no open oil price swap contracts (2016: nil). 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 2017 $'000 2,681 (2,681) 2,681 (2,681) 2016 $'000 3,662 (3,662) 3,662 (3,662) Management believes the risk exposures as at the reporting date are representative of the risk exposure inherent in the financial instruments. A movement of + 20% and – 20% is selected because a review of historical oil price movements and economic data suggests this range is reasonable. Cue Energy Resources Limited Annual Report 2016/1754 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 24. Financial instruments (continued) (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 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 2017. 12 months or less $'000 1 to 2 years $'000 2 to 5 years $'000 More than 5 years $'000 3,931 3,931 9,050 9,050 - - - - - - - - - Consolidated 2017 Non-derivative financial liabilities Trade and other payable (Note 18) Consolidated 2016 Non-derivative financial liabilities Trade and other payables (f) Credit risk Credit risk arises from the financial assets of the group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default by the counter-party, with maximum exposure equal to the carrying amount of these instruments. Exposure at the reporting 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 the reporting date, there are no significant concentrations of credit risk within the Group. Cue Energy Resources Limited Annual Report 2016/1755 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 25. Key management personnel disclosures and related party disclosures Other key management personnel Total remuneration payments and equity issued to Directors and key management personnel are summarised below. Elements of Directors and executives remuneration includes: • • • Short term employment benefits, including superannuation, non-monetary benefits and consultancy fees Post-employment benefits – superannuation Long term employee benefits Consolidated Short term employment benefits (including non-monetary benefits) Cash bonuses Consulting fees* Long term employee benefits Post-employment benefits Termination payments** 2017 $ 750,600 - 347,967 - 63,053 1,102,786 2,264,406 Total employee benefits *Consulting fees relate to service agreement with Grant Worner (former Executive Chairman), which were completed on 30 June 2017. **2017 balance consists of one off termination payment to Andrew Knox (former Chief Financial Officer). Other related party transactions 2016 $ 1,624,461 427,624 167,043 18,675 105,164 76,173 2,419,140 During the financial year, the consolidated entity subleased part of its office at 357 Collins Street, Melbourne to VIX Mobility Pty Ltd, where Duncan Saville is the Chairman. The arrangement is on normal commercial terms. The consolidated entity received $64,868 in sublease income for the year ended 30 June 2017 (2016: Nil). Repayment of amounts owing to the Company as at 30 June 2017 and all future debts due to the Company, by the controlled entities are subordinated in favour of all other creditors. Cue Energy 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 provides management, administration and accounting services to the subsidiaries. No Management fees were charged to subsidiaries in 2017 financial year. $1,565,065 were charged by the parent company to Cue Taranaki Pty Ltd in 2016. The ultimate parent company is New Zealand Oil and Gas Limited, a company incorporated in New Zealand. Note 26. Auditors remuneration During the financial year the following fees were paid or payable for services provided by the auditor of the company: Consolidated Audit services - Audit or review of the financial statements Other services - Advisory services Tax compliance Tax consulting No other services were provided by the auditor during the year, other than those set out above. 2017 $ 2016 $ 183,614 121,700 2,678 50,950 - 2,000 20,000 85,693 53,628 107,693 237,242 229,393 Cue Energy Resources Limited Annual Report 2016/1756 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 27. Contingent assets and liabilities The Group has no contingent assets or liabilities as at 30 June 2017. In 2016 financial year, as a result of an economic project arrangement in the Jeruk field within the Sampang PSC, Indonesia, Cue had an obligation to reimburse certain monies spent by the incoming party from future profit oil within the Sampang PSC. The matter was in dispute as to the quantum of monies that the incoming party was entitled to claim by way of such reimbursement and as to when it was payable. The dispute had been active since late 2011 and was settled through an arbitration hearing and an award was made. On 23 May 2017, the Group made a payment of USD $6.80 million in settlement of these monies owing. Note 28. Commitments for expenditure a) Exploration tenements* The Group participates in a number of licences, permits and production sharing contracts for which the Group has made commitments with relevant governments to complete minimum work programmes. Within one year One to five years b) Production development expenditure** The Group participates in a number of development projects that were in progress at the end of the period. These projects require the Group, either directly or through joint venture arrangements, to enter into contractual commitments for future expenditures. Within one year One to five years c) Operating lease commitments*** Non-cancellable operating lease are payable as follows: Within one year One to five years Consolidated 2017 $'000 2016 $'000 31,300 - 24 30,310 31,300 30,334 2,122 - 2,122 363 124 487 1,765 408 2,173 293 409 702 * 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 Operation projects. ** All development expenditure commitments relate to the development of oil and gas fields. *** New premises lease term of 5 years commenced on 12 April 2017, with a fixed increase of 3.75% p.a. and further term of 5 years, at the Company's option. Accounting policy for leases Operating leases are leases which the lessor effectively retains substantially all the risks and benefits incidental to ownership of the leased asset. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Cue Energy Resources Limited Annual Report 2016/1757 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 29. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Contributed equity Accumulated losses Total equity Parent 2017 $'000 2016 $'000 (16,170) (65,855) (16,170) (65,855) Parent 2017 $'000 2016 $'000 12,345 20,510 27,554 43,357 1,669 1,693 1,293 1,324 152,416 (126,555) 152,416 (110,385) 25,861 42,031 Capital commitments - Property, plant and equipment The parent entity had no capital commitments for the acquisition of capital assets as at 30 June 2017 (2016: nil). Lease commitments The parent entity has no commitments in relation to leases as at 30 June 2017 other than disclosed in note 28. Cue Energy Resources Limited Annual Report 2016/1758 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 30. Shares in subsidiaries Shares held by parent entity at the reporting date: Name Cue Mahato Pty Ltd Cue Mahakam Hilir Pty Ltd *Cue Kalimantan Pte Ltd Cue (Ashmore Cartier) Pty Ltd Cue Sampang Pty Ltd Cue Resources Inc **Buccaneer Operating LLC (i) **Cheetah Energy LLC (i) Cue Taranaki Pty Ltd Cue Cooper Pty Ltd Cue Exploration Pty Ltd Principal place of business / Country of incorporation Australia Australia Singapore Australia Australia USA USA USA Australia Australia Australia Ownership interest 2016 2017 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% All companies in the Group have a 30 June reporting date. * Shares held by Cue Mahakam Hilir Pty Ltd ** Shares held by Cue Resources, Inc. (i) In November 2016, The Company disposed the Pine Mills production property in East Texas, together with Buccaneer Operations LLC and Cheetah Energy LLC. The ownership interest as at 30 June 2017 is nil. Note 31. Interests in joint operations Property Operator Petroleum exploration properties Cue Interest (%) Gross Area (km2) Net Area (km2) Permit expiry date Carnarvon Basin – Western Australia WA-359-P WA-389-P WA-409-P Cue Exploration Pty Ltd Cue Exploration Pty Ltd BP Developments Australia Pty Ltd 100.00 20.00 20.00 645.00 1,939.00 565.00 645.00 775.60 169.50 25/04/2018 08/10/2018 20/07/2021 Indonesia Mahakam Hilir PSC Mahato PSC Cue Kalimantan Pte Ltd Texcal Mahato Pte Ltd Petroleum production properties New Zealand PMP38160 OMV New Zealand Limited Madura - Indonesia Sampang Santos (Sampang) Pty Ltd 100.00 12.50 222.14 5,600.00 88.90 700.00 15/05/2020 20/07/2018 5.00 80.18 4.00 02/12/2027 15.00 (8.18 Jeruk Field) 534.50 80.20 04/12/2027 Cue Energy Resources Limited Annual Report 2016/1759 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 31. Interests in joint operations (continued) Interests in joint operations are accounted for using the equity method of accounting. Information relating to joint operations that are material to the consolidated entity are set out below: Summarised financial information Summarised statement of financial position Receivables Inventory Production Properties (note 17) Total assets Payables Current tax liabilities Restoration provisions Deferred tax liabilities Total liabilities Net assets Summarised statement of profit or loss and other comprehensive income Production income Production expenses Profit before income tax Other comprehensive income Total comprehensive income Refer to note 27 in relation to contingent liabilities of the Group. Commitments for expenditure are disclosed in note 28. 2017 $'000 2016 $'000 4,193 547 30,082 4,201 1,609 42,564 34,822 48,374 2,653 1,365 9,815 3,401 8,298 1,865 12,940 4,167 17,234 27,270 17,588 21,104 35,000 (13,739) 45,412 (16,684) 21,261 28,728 - - 21,261 28,728 Accounting policy for joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The consolidated entity has recognised its share of jointly held assets, liabilities, revenues and expenses of joint operations. These have been incorporated in the financial statements under the appropriate classifications. Note 32. Events after the reporting period No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Cue Energy Resources Limited Annual Report 2016/1760 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 33. Reconciliation of loss after income tax to net cash (used in)/from operating activities Loss after income tax expense for the year Adjustments for: Abandonment provision write back Production property write down Exploration impairment Depreciation Amortisation Loss from discontinued operations Reversal of Non-controlling interest Net loss/(gain) on foreign currency conversion Decrease/(increase) in trade and other receivables Decrease in inventories Decrease in deferred tax assets Decrease in trade and other payables Increase in tax liabilities Decrease in deferred tax liabilities (Decrease)/increase in provisions Consolidated 2017 $'000 2016 $'000 (17,344) (87,461) 3,083 6,446 - 32 6,362 2,312 (669) 422 109 1,063 - (1,481) 2,077 (766) (3,296) - 23,241 49,990 34 11,107 3,062 - (938) (91) 2,081 70 (1,805) 1,285 (1,651) 2,187 Net cash (used in)/from operating activities (1,650) 1,111 Note 34. Earnings per share Earnings per share for loss from continuing operations Loss after income tax attributable to the owners of Cue Energy Resources Limited Consolidated 2017 $'000 2016 $'000 (15,032) (84,399) Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 698,119,720 698,119,720 Weighted average number of ordinary shares used in calculating diluted earnings per share 698,119,720 698,119,720 Basic earnings per share Diluted earnings per share Earnings per share for loss from discontinued operations Loss after income tax Non-controlling interest Cents Cents (2.15) (2.15) (12.09) (12.09) Consolidated 2017 $'000 2016 $'000 (2,312) 45 (3,062) 626 Loss after income tax attributable to the owners of Cue Energy Resources Limited (2,267) (2,436) Cue Energy Resources Limited Annual Report 2016/1761 Cue Energy Resources Limited Notes to the financial statements 30 June 2017 Note 34 Earnings per share (continued) Weighted average number of ordinary shares used in calculating basic earnings per share 698,119,720 698,119,720 Weighted average number of ordinary shares used in calculating diluted earnings per share 698,119,720 698,119,720 Number Number Basic earnings per share Diluted earnings per share Earnings per share for loss Loss after income tax Non-controlling interest Cents Cents (0.32) (0.32) (0.35) (0.35) Consolidated 2017 $'000 2016 $'000 (17,344) 45 (87,461) 626 Loss after income tax attributable to the owners of Cue Energy Resources Limited (17,299) (86,835) Weighted average number of ordinary shares used in calculating basic earnings per share 698,119,720 698,119,720 Weighted average number of ordinary shares used in calculating diluted earnings per share 698,119,720 698,119,720 Number Number Basic earnings per share Diluted earnings per share Accounting policy for earnings per share Cents Cents (2.48) (2.48) (12.44) (12.44) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Cue Energy Resources Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Note 35. Share-based payments No performance rights were outstanding as at 30 June 2017 (2016: nil). Cue Energy Resources Limited Annual Report 2016/1762 Tel: +61 3 9603 1700 Fax: +61 3 9602 3870 www.bdo.com.au Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia INDEPENDENT AUDITOR'S REPORT To the members of Cue Energy Resources Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Cue Energy Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment of Production Assets Key audit matter How the matter was addressed in our audit The total carrying value of the Oil and Gas production During our audit, we evaluated management’s property assets at 30 June 2017 is $30.082 million (2016: assessment of the recoverable value of each $ 42.564 million), which consists of Maari and Sampang production asset. (Oyong and Wortel) assets, as disclosed in Note 17. The nature of these production property assets requires management to assess for indicators of impairment. The assessment of these indicators is complex and highly judgemental, and includes modelling a range of assumptions and cash flow estimates that are affected by expected future performance and market conditions. Our procedures included, but were not limited to: Obtaining and reviewing the reserve quantity reports from an external expert. This included assessing the competency, objectivity and independence of the expert and reviewing the report to determine if the assumptions were reasonable and in line with our understanding and expectations of the asset and the industry. Engaged a corporate valuation specialist to assess the discount rates used by management to other comparable participants in the industry. Benchmarking and analysing managements future oil price assumptions against external data. Comparing the expected future costs to operator budgets and other third party reports. Performing a sensitivity analysis over the underlying variables to determine the impact of unfavourable changes to cash flows and in turn recoverable value of each production asset. Accounting for Deferred Tax and Uncertain Tax Positions Key audit matter How the matter was addressed in our audit The consolidated entity recognised significant deferred To assess the Group tax payable now and in the future, tax liabilities as at 30 June 2017 of $3.4m (2016: 4.1m), we involved our taxation specialists, to assist in our which is disclosed in Note 20. assessment of the deferred tax liabilities recorded at Additional to this, there are several ongoing tax disputes year end. between Cue Kalimantan or Cue Sampang (100% wholly We evaluated the assessment of these uncertain tax owned subsidiaries of Cue Energy Resources Group) and positions in the Indonesian subsidiaries through the Indonesian taxation authorities for additional tax enquiry with management and their Indonesian tax levied and applicable penalties deemed payable and consultants, reviewed correspondence with local tax outstanding to the Indonesian tax authorities. authorities to assess the completeness and accuracy An inaccurate assessment for the quantum and likelihood of these matters may result in the incorrect amount disclosed in the financial report. of the associated provisions and disclosures. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included pages 18 to 23 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Cue Energy Resources Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO East Coast Partnership David Garvey Partner Melbourne, 27 September 2017 Cue Energy Resources Limited Shareholder information 30 June 2017 Shareholder Information 1. Distribution of equitable securities The shareholder information set out below was applicable as at 21 September 2017: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel 2. Registered Top 20 Shareholders Number of holders of ordinary shares 56 170 527 1,698 307 2,758 418 The registered names and holdings of the 20 largest holdings of quoted ordinary shares in the Company as at 21 September 2017: Shareholder 1. NZOG Offshore Limited 2. BNP Paribas Noms Pty Ltd (DRP) 3. ABN Amro Clearing Sydney Nominees Pty Ltd (Custodian A/C) 4. Portfolio Securities Pty Ltd 5. Reviresco Nominees Pty Ltd (Reviresco S/F A/C) 6. HSBC Custody Nominees (Australia) Limited 7. Finot Pty Ltd 8. Berne No 132 Nominees Pty Ltd (52293 A/C) 9. Grizzley Holdings Pty Limited 10. Tintern (Vic) Pty Ltd (A & P Miller Family A/C) 11. Custodial Services Limited (Beneficiaries Holding A/C) 12. Mr Richard Tweedie (Richard Tweedie S/F A/C) 13. Lakemba Pty Ltd 14. Mr Tze Min Goh 15. Ms Rachel Irene Alembakis 16. Milliara Nominees (Aust) Pty Limited (Gill Family A/C) 17. Citicorp Nominees Pty Ltd 18. Mr Damiano Giorgio Pilla 19. Mr Koo Sing Kuang + Mrs Lai Wah Kuang (Lakemba Super Fund A/C) 20. Brinkworth Investment Pty Ltd (Brinkworth A/C) 3. Vendor Securities There are no restricted securities on issue as at 21 September 2017. Ordinary shares Number held % of total shares issued 349,368,803 113,117,671 15,986,452 10,000,000 7,500,000 5,017,035 5,000,000 4,300,000 4,282,604 3,660,701 3,387,625 3,363,477 3,084,051 3,020,000 2,960,000 2,818,289 2,268,283 1,996,427 1,909,788 1,750,000 544,791,206 50.04 16.20 2.29 1.43 1.07 0.72 0.72 0.62 0.61 0.52 0.49 0.48 0.44 0.43 0.42 0.40 0.32 0.29 0.27 0.25 78.04 Cue Energy Resources Limited Annual Report 2016/1767 4. Voting rights At meeting of members or classes of members: (a) each member entitled to vote may vote in person or by proxy, attorney or respective; (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 (c) on a poll, every person present who is a member or a proxy, attorney or representative of a member has: (i) for each fully paid share held by person, or in respect of which he/she is appointed a proxy, attorney or representative, one vote for the share; (ii) 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). Subject to any rights or restrictions attached to any shares or class of shares. 5. Annual General Meeting Cue's 2017 Annual General Meeting will be held at Allens Lawyers, Level 37, 101 Collins Street, Melbourne VIC 3000, Victoria, Australia on Monday 27th November 2017, commencing at 9.00am (AEDT). 6. Share registry Enquiries Cue's share register is managed by Computershare. Please contact Computershare for all shareholding and dividend related enquiries. Change of shareholder details Shareholders should notify Computershare of any changes in shareholder details via the Computershare website (www.computershare.com.au) or writing (fax, email, mail). Examples of such changes include: • Registered name • Registered address • Direct credit payment details Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne, Victoria 3001 Australia Telephone: 1300 850 505 (within Australia) or +61 3 9415 4000 (outside Australia) Facsimile: +61 3 9473 2500 Email: web.queries@computershare.com.au Website: www.computershare.com.au 7. Sharecodes ASX Share Code: CUE ADR Share Code: CUEYY 8. Cue Energy Website A wide range of information on Cue Energy is available on the Company's website, at www.cuenrg.com.au. The following information for investors is available: Share price information • Annual report • • Quarterly reports Press releases • Cue Energy Resources Limited Annual Report 2016/1768
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