Cue Energy Resources Limited Annual Report 2021 General Legal Disclaimer Various statements in this document may constitute statements relating to intentions, opinion, expectations, present and future operations, possible future events and future financial prospects. Such statements are not statements of fact, and are generally classified as forward looking statements that involve unknown risks, expectations, uncertainties, variables, changes and other important factors that could cause those future matters to differ from the way or manner in which they are expressly or impliedly portrayed in this document. Some of the more important of these risks, expectations, uncertainties, variables, changes and other factors are pricing and production levels from the properties in which the Company has interests, or will acquire interests, and the extent of the recoverable reserves at those properties. In addition, the Company has a number of exploration permits. Exploration for oil and gas is expensive, speculative and subject to a wide range of risks. Individual investors should consider these matters in light of their personal circumstances (including financial and taxation affairs) and seek professional advice from their accountant, lawyer or other professional adviser as to the suitability for them of an investment in the Company. Except as required by applicable law or the ASX Listing Rules, the Company does not make any representation or warranty, express or implied, as to the fairness, accuracy, completeness, correctness, likelihood of achievement or reasonableness of the information contained in this document, and disclaims any obligation or undertaking to publicly update any forward-looking statement or future financial prospects resulting from future events or new information. To the maximum extent permitted by law, none of the Company or its agents, directors, officers, employees, advisors and consultants, nor any other person, accepts any liability, including, without limitation, any liability arising out of fault or negligence for any loss arising from the use of the information contained in this document. Reference to “CUE” or “the Company” may be references to Cue Energy Resources Limited or its applicable subsidiaries. About Us Cue Energy Resources Limited is an oil and gas production and exploration company with production assets in Australia, Indonesia and New Zealand and exploration assets in Australia. Offices are located in Melbourne, Australia and Jakarta, Indonesia. Contents Joint Operations Chairman’s Overview CEO Report and Overview of Operations and Finances Reserves and Resources Sustainability Corporate Directory Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information WWW.CUENRG.COM.AU FY 2021 Highlights • $22.4 million Revenue • First oil production from Mahato PSC • Acquisition of interest in Mereenie, Palm Valley and Dingo production fields • $11.6 million gross profit from production • 2P reserves increased to 6 million barrels of oil equivalent (mmboe) • Sustainability focus increased with reporting against Taskforce on Climate Related Financial Disclosures (TCFD) 2 3 5 10 14 24 25 39 40 41 42 43 44 70 71 77 1 Cue Energy Resources LimitedAnnual Report 2021 Joint Operations INDONESIA Mahato PSC Texcal (Operator) Central Sumatra Energy Bukit Energy Cue Sampang PSC Medco Energi (Operator) Singapore Petroleum Company Cue 51% 11.5% 25% 12.5% 45% 40% 15% AUSTRALIA Carnarvon Basin WA-389-P Cue (Operator) WA-409-P Cue BP (Operator) 2 Cue Energy Resources Limited Annual Report 2021 100% 20% 80% Amadeus Basin* Mereenie (OL 4/5) Central Petroleum (Operator) Macquarie Mereenie New Zealand Oil & Gas Cue Palm Valley (OL 3) Central Petroleum (Operator) New Zealand Oil & Gas Cue Dingo (L7) Central Petroleum (Operator) New Zealand Oil & Gas Cue 25% 50% 17.5% 7.5% 50% 35% 15% 50% 35% 15% NEW ZEALAND Maari and Manaia Oil Fields PMP 38160 OMV (Operator) Horizon Oil Cue 69% 26% 5% * Subject to completion of transaction announced 25 May 2021 SECTION HEADINGNEW ZEALANDINDONESIAAUSTRALIAHead OfficeMelbourneCue JakartaOffice Chairman’s Overview Alastair McGregor Dear Shareholders, At the time of last year’s letter, the COVID-19 pandemic was causing an unprecedented impact on our lives. A year on, the world and our industry are still finding their footing with respect to living with the pandemic. While many parts of the world are emerging from long and challenging restrictions, Australia and New Zealand have recently seen the reintroduction of lockdowns. Although circumstances remain fluid, delays to oil and gas projects over the last 18 months and a potential near term return to pre-COVID commodity demand levels are creating a positive backdrop for the products that we produce. In the midst of this unprecedented period of uncertainty, I am happy to report on two significant achievements during the year. First, production and revenue started from the Mahato PSC in Indonesia. Second, in May Cue signed an agreement with Central Petroleum to acquire producing onshore gas assets with significant development potential in the Amadeus Basin, Australia. These new sources of production will double Cue’s revenue streams to four, meaningfully enhancing our diversification across products and geographies. The PB field in the Mahato PSC is currently producing 3,600 barrels of oil per day, with further development wells currently being drilled. In FY21, Cue received $2.4 million in revenue from the field following first oil at the start of the calendar year. As development continues, we are benefiting from increased production rates as new wells are brought online and the oil price remains strong. We expect to complete the announced acquisition of interests in the Mereenie, Palm Valley and Dingo fields in the Amadeus Basin, onshore Australia, around the time that this report is published. We were attracted to these assets because they provide current production, supplying gas into a strong gas market in Eastern Australia. Each of the fields also provides near term upside potential from development and exploration. Activity on these fronts is already underway. With development activity continuing on both new projects in FY22, we are looking forward to an active fiscal year ahead. Over the FY21 year Cue’s 2P reserves increased by 4.4 mmboe to 6 mmboe, an almost threefold increase. 4.1 mmboe is attributable to the Amadeus Basin assets and 0.4 mmboe to the Mahato PSC, where we continue to undertake analysis to update the reserves based on better than expected field performance. In addition, we have reported 5 mmboe of contingent resource that can be unlocked through the Paus Biru development at our Sampang asset and through the further planned work program at Mereenie, Palm Valley and Dingo fields. Although the development of Paus Biru in the Sampang PSC has been delayed, the Indonesian regulator has identified the likely buyer of the gas and commercial discussions have commenced. The joint venture is targeting a final investment decision late in the current fiscal year, with first gas production expected twelve to eighteen months later. This year, Cue has initiated reporting in line with the recommendations of the Task Force on Climate Related Financial disclosures (TCFD) and has published a new Climate Change Policy. These documents reflect our planning related to the business risks posed by climate change. Focus on these important issues will continue to be a priority moving forward. Cue staff in both our Melbourne and Jakarta offices continue to do an outstanding job managing the challenges presented by COVID-19. I thank them for their efforts during this difficult time and hope that we are all on a path towards a brighter postpandemic future. With multiple new production sources and a full plate of development activity, we have set the stage to meaningfully grow the scale of the company. We look forward to keeping you updated on the exciting year ahead. Sincerely ___________________________ Alastair McGregor Non-Executive Chairman 21 September 2021 3 Cue Energy Resources LimitedAnnual Report 2021 Chairman’s Overview 4 Cue Energy Resources Limited Annual Report 2021 Photo Credit: Central Petroleum SECTION HEADING CEO Report and Overview of Operations and Finances Matthew Boyall During the year, Cue achieved first oil production and revenue from the PB field in the Mahato PSC, Indonesia and expanded our portfolio by announcing the acquisition of interests in the Mereenie, Palm Valley and Dingo production fields in the Amadeus Basin, onshore Australia from Central Petroleum. As a result of these activities, Cue now has four independent revenue producing projects as we enter into FY2022. Financials In FY21, Cue added another revenue producing asset to the portfolio, the PB field in the Mahato PSC and announced the acquisition of interests in the Mereenie, Palm Valley and Dingo production fields in the Amadeus Basin, onshore Australia from Central Petroleum. The addition of Mahato production during the second half of the year helped offset lower revenue from Maari, which was due to the oil price remaining in the $40 range for most of the first half of the year, and no production from the major MR6a production well due to repairs, resulting in 6% lower revenue than the previous year. Our assets performed well, recording $11.6m gross profit from production with an 8% lower production costs (excludes amortisation). Unfortunately, during the first half of the year the Ironbark-1 well was unsuccessful and was plugged and abandoned. This was a disappointing result for all stakeholders. Cue’s finished the year with cash holdings of $17.6 m and no debt. This strong position will allow the acquisition of onshore Australian production assets to be paid from cash, with completion expected during Q2 FY22. Production AUSTRALIAN ONSHORE ACQUISITION On 25 May 2021, Cue announced the execution of a sale and purchase agreement with Central Petroleum Limited (Central) (ASX:CTP) to acquire interests in the Mereenie, Dingo and Palm Valley onshore gas and oil fields, all located in the Amadeus Basin, onshore in the Northern Territory, Australia. On completion, Cue will acquire a 7.5% interest in the Mereenie gas and oil field (OL4 and OL5 production licences), a 15% interest in the Palm Valley gas field (OL3 production licence), and a 15% interest in the Dingo gas field (L7 Production Licence). Through the transaction Cue will acquire 4.4mmboe of 2P reserves, with further upside potential from development and exploration activities. Cue will pay Central $8.7m cash on completion and fund $12m of Central’s exploration, appraisal, and development costs in the fields. On 2 July 2021, the Foreign Investment Review Board provided a no-objections letter for the acquisition. Other conditions to the transaction include approval by New Zealand Oil and Gas (NZOG) shareholders for NZOG to also enter into a transaction with CTP, which was satisfied on 24 June 2021, and other customary and regulatory approvals. 5 Cue Energy Resources LimitedAnnual Report 2021 CEO REPORT AND OVERVIEW OF OPERATIONS AND FINANCES Production AUSTRALIAN ONSHORE ACQUISITION (CONTINUED) Cue held a general meeting on 28 July 2021 to seek shareholder approval to grant security to NZOG related to Deeds of Cross Security as part of the asset acquisition. Shareholders approved the granting of the security. SAMPANG Gas production from the Sampang PSC was 21% higher than the previous year due to increased customer demand during the first half of the year. $13.1 million revenue was received from Oyong and Wortel production. The Mereenie development program commenced with four well recompletions conducted. The re-completions have added incremental production. Long term performance is still undergoing review. Drilling of the WM-27 well commenced late in FY21 and the WM-28 well spud during July 2021 and was completed on 6 September. The well was successfully completed as a dual zone production well with good flow test results and is expected to be tied into the gathering network during September. In addition to the main production target, sustained flow rates were also encountered in the Stairway Sandstone interval. Preparation for the potential exploration and appraisal drilling at the Palm Valley and Dingo fields in FY22 continues. Completion of the transaction is expected to occur around 1 October 2021. The transaction has an effective date of 1 July 2020. The Paus Biru Plan of Development (POD) was approved by SKKMigas, the Indonesian upstream regulator and contingent resource booked during the year. The field was discovered by the Paus Biru-1 exploration well and announced as a gas discovery in December 2018. The approved POD consists of a single horizontal development well with an unmanned wellhead platform (WHP), connected by a subsea pipeline to the existing WHP at the Oyong field, approximately 27km away. From the Oyong WHP, gas from Paus Biru will be transported using the existing pipeline to the Grati Onshore Production Facility, which is operated by the Sampang PSC joint venture, where it will be processed and sold. COVID-19 related market demand challenges have impacted finalising the gas sales agreement which is on the critical path to a Final Investment Decision (FID) for Paus Biru. The joint venture has been notified by the Indonesian regulator that Paus Biru gas has been allocated to the market from 2023. This notification is a significant step in the commercialisation of Paus Biru and customer discussions will now take place. Preliminary FEED and permitting activities are ongoing. FID is currently targeted for 2022, with first gas in 2023. AMADEUS BASIN LOCATION MAP – AUSTRALIA SAMPANG PSC LOCATION MAP – INDONESIA LEGEND Cue Permit Oil Field G as Field Oil Pipeline Gas Pipeline OL4 Mereenie OL5 Palm Valley OL3 N 100km 6 Java Madura Island Alice Springs Dingo L7 East Java Wortel Maleo Jeruk Oyong Paus Biru Grati Onshore Gas Facilities 30km Peluang LEGEND Cue Permit Oil Field Gas Field Cue Energy Resources LimitedAnnual Report 2021 CEO REPORT AND OVERVIEW OF OPERATIONS AND FINANCES MAHATO Revenue from the Mahato PSC to 30 June 2021 was $2.4 million. Commercial oil production commenced from the PB field in the Mahato PSC in Indonesia during the year from the first well, PB-1. Three additional development wells, PB-3, PB-4 and PB-5 were subsequently drilled and put into production along with PB-2 which was completed after being drilled as an exploration well. At the end of the year, all five wells were in production totaling approximately 3400 barrels of oil per day (gross), increasing to 3600 bopd (405 bopd net to Cue) in early July. All five wells to date have encountered oil in the main Bekasap A, B and C reservoirs as anticipated. PB-1 is producing oil from the Bekasap B and PB-2, PB-3 and PB-5 are producing from Bekasap C and PB-4 has commingled production from both Bekasap B and C reservoirs. The unperforated reservoirs in all wells are candidates for future production. Results of the five wells drilled to date indicate further development in the field, and the next phase of development potential drilling has commenced with PB-6 underway, to be followed by PB-7 and PB-8. On 17 July 2021, the PBE-1 interfield well commenced in the PB field. The well did not encounter any hydrocarbons and was plugged and abandoned in early September. During the year, Cue announced the settlement of a dispute with joint venture partners relating to the PB-1 and PB-2 wells. MAARI The Maari/Manaia fields provided $6.9 million of revenue to Cue during the financial year, down 27% on the previous year due to a prolonged period of lower oil prices and production disruptions from key wells. Production expenses were down by 36% as the operator took action to reduce expenditure and some operations were delayed due to COVID-19 restrictions. MR9 and MR7 production wells underwent workovers to replace Electric Submersible Pumps which had reached their operative life early in the year and were both back online by the second quarter. MR6a, one of the most productive wells in the field was offline for the whole of the year after being shut in during March 2020 due to suspected failure of downhole sand screens. Repairs to the MR6a well were completed during May 2021. For the remainder of the year, the well was flowing clean up fluids, with no increase in hydrocarbon production, as expected. In late June 2021, low levels of sand were detected in the clean-up flows and the well was shut-in as a precautionary measure. The operator is considering options, which may include the installation of temporary de-sanding equipment. On 18 November 2019, Jadestone Energy Inc. (AIM:JSE, TSXV:JSE), announced that it had executed a sales and purchase agreement with OMV to acquire OMV’s 69% operated interest in the PMP 38160 Permit, containing the Maari and Manaia fields. Conditions for com- pletion of the acquisition include acceptance of Jadestone as operator by the Joint Venture partners, and achieving regulatory approvals. New Zealand regulatory approval remains pending. Jadestone and OMV have amended the longstop date for the acquistion to 31 Dec 2021. MAHATO PSC LOCATION MAP – INDONESIA TARANAKI PENINSULA LOCATION MAP – NEW ZEALAND Bangko Balam South Sumatra New Zealand Mahato PSC Duri Libo SE LEGEND Cue Permit PB Oil Field Major Oil Fields PB Minas Kotabatak Petapahan 40km LEGEND Cue Permit Oil Field Gas Field Taranaki Peninsula Tui Maui Maari Manaia PMP 38160 10km 7 Cue Energy Resources LimitedAnnual Report 2021 WA-389-P WA-389-P adjoins WA-359-P to the East and is mapped to contain part of a deep Mungaroo prospect which is the updip extension of the Ironbark structure, with similar scale. Interpretation of 900 km2 of FWI PSDM reprocessed data was initiated with the goal of exploring the updip extension of a possible success in the downdip Ironbark-1 well in WA-359-P. In April 2021, Cue was granted a 12-month suspension and extension to the permit term until 8 April 2022. Prospectivity assessment of the permit is continuing, taking into account the results of the Ironbark-1 well. MAHAKAM HILIR An extension to the exploration period of the PSC was granted by the Indonesian regulator, extending the end date to April 2021. As part of the extension, a condition was placed on the PSC, restricting title transfers during the extension period. After assessing the impact of this and COVID-19 restrictions on any future dealings and activities, Cue informed the Indonesian Regulator of its intention to relinquish the permit on expiry in April 2021 Processes are underway for surrendering the permit. These processes could take until the end of the calendar year. CEO REPORT AND OVERVIEW OF OPERATIONS AND FINANCES Exploration WA-359-P The Ironbark-1 exploration well in WA-359-P in the Carnarvon Basin, offshore Western Australia, commenced on 31 October 2020 and drilled to a total depth of 5618m. The primary target interval was intersected at a depth of 5275 metres, with no significant hydrocarbon shows encountered in any of the target sands. The well was plugged and abandoned, and the Ocean Apex rig departed the well location on 11 January 2021. Based on the well results a decision was made not to renew the permit after expiry on 25 April 2021. WA-409-P WA-409-P adjoins the WA-359-P exploration permit and is mapped as containing a portion of the Ironbark structure. the prospectivity assessment of Upon completion of the permit following the Ironbark-1 well results, the Operator BP, recommended surrendering the permit. The joint venture is now finalising this surrender. CARNARVON BASIN LOCATION MAP – AUSTRALIA Australia WA-389-P WA-389-P WA-389-P WA-409-P North West Shelf Angel LEGEND Cue Permit Gas Field Deep Mungaroo Leads Wheatstone Pluto NWS LNG Pluto LNG N 25km 8 Cue Energy Resources LimitedAnnual Report 2021 CEO REPORT AND OVERVIEW OF OPERATIONS AND FINANCES Corporate In June 2018, Cue Energy Resources Ltd and Cue Resources Inc. were named as defendants, along with a number of other companies, in litigation in Texas, USA in relation to the Pine Mills oilfield. The case is entitled Hammerhead Managing Partners, LLC v. Nostra Terra Oil & Gas Company, PLC, et al., In the United States District Court For the Northern District of Texas, No. 3:18-cv-1160. In September 2020, the parties to the litigation entered into a settlement agreement that fully and finally concluded the litigation and dismisses it in its entirety. Cue’s financial contribution to the settlement was US$350,000. Cue is taking necessary precautions to look after the wellbeing of staff during the COVID-19 outbreak, with all staff in Melbourne and Jakarta offices working remotely as required by local restrictions. 9 Cue Energy Resources LimitedAnnual Report 2021 Reserves and Resources 2P reserves have increased to 6 million barrels of oil equivalent (mmboe). Cue has increased its 1P reserves by 400% and 2P reserves by 275% during the financial year due to the announcement of an acquisition of interest in the Mereenie, Palm Valley and Dingo fields in the Amadeus Basin, onshore Australia and the development and production of oil from PB field in the Mahato PSC, Indonesia. 2P Reserves mmboe 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 30 June 2020 30 June 2021 2P Reserves by Asset (mmboe) Oil/Gas 2P Reserves (mmboe) Mereenie 2.6 Dingo 0.9 Sampang 0.8 Maari 0.7 Palm Valley 0.6 Mahato 0.4 Oil Gas As at June 30, 2021 Cue has reported 4.4 mmboe of proven (1P) reserves and 6.0 mmboe of Proven and Probable (2P) reserves. 80% of reported 2P reserves are gas and 20% are oil. The largest increase in reserves is due the acquisition of Amadeus Basin assets, which is due to reach completion during October 2021 and has an effective date of 1 July 2020. Meerenie has added 2P reserves of 2.6 mmboe, Palm Valley 0.6 mmboe and Dingo 0.9 mmboe. In late FY21, much of the development focus was on the program of well re- completions (four) and infill drilling (two new wells) on the Mereenie field. The re-completions were largely finished (‘first gas’ from three wells) and sufficient commitment was present to progressing the infill wells (rig in field, first gas expected in 1H FY22) that the associated volumes have moved from Undeveloped to Developed categories. Work continues to progress on the planned exploration and appraisal drilling at Palm Valley and Dingo. Adjustments have been made to reserves associated with actual production. Cue knows of no other reason to change the current reserves bookings. Cue has reported 0.4 mmboe of 2P reserves from the PB field in the Mahato PSC. Due to ongoing development drilling, analysis is still being undertaken into the field size. Until this analysis is complete, Cue has adopted the reserves independently certified as part of the Plan of Development (POD) approval. Five wells are currently producing oil, with production well above POD forecast rates. A further development well, PB-06, is currently being drilled and 2 more wells will follow. Mahato reserves are reported net to Cue, exclusive of the Indonesian Government allocation under the Production Sharing Contract. Maari 2P reserves have increased by 18% due to better than expected performance of existing wells and longer field life due to forecast oil price. Oyong and Wortel fields in the Sampang PSC have performed as expected during the year, with reserves adjusted for production during FY21. 10 Cue Energy Resources LimitedAnnual Report 2021 RESERVES AND RESOURCES NET TO CUE ENERGY RESOURCES LIMITED AS AT 30 JUNE 2021 1P DEVELOPED 1P UNDEVELOPED OIL EQUIVALENT GAS OIL EQUIVALENT MMSTB MMBOE 2.0 0.6 0.3 0.3 0.4 0.3 3.9 0.1 - - 0.3 0.0 0.3 0.7 2P PJ 0.8 - 2.2 - - - 3.0 MMSTB MMBOE 0.1 - 0.4 - - - 0.5 - - - - - - 0.0 2P DEVELOPED UNDEVELOPED OIL EQUIVALENT GAS OIL EQUIVALENT MMSTB MMBOE 0.1 - - 0.7 0.0 0.4 1.2 2.3 0.6 0.5 0.7 0.8 0.4 5.2 PJ 1.7 - 2.4 - - - 4.1 MMSTB MMBOE - - - - - - 0.0 0.3 - 0.4 - - - 0.7 GAS PJ 12.5 3.5 4.3 - 2.4 - 22.6 GAS PJ 15.2 3.9 5.3 - 5.1 - 29.5 GAS PJ 11.7 3.5 2.0 - 2.4 - 19.6 GAS PJ 13.5 3.9 2.9 - 5.1 - 25.4 1P TOTAL OIL EQUIVALENT MMSTB MMBOE 2.2 0.6 0.7 0.3 0.4 0.3 4.4 0.1 - - 0.3 0.0 0.3 0.7 2P TOTAL OIL EQUIVALENT MMSTB MMBOE 0.1 - - 0.7 0.0 0.4 1.2 2.6 0.6 0.9 0.7 0.8 0.4 6.0 RESERVES PROVEN (1P) COUNTRY FIELD/PERMIT AUSTRALIA (1) NEW ZEALAND INDONESIA (2) TOTAL RESERVES Mereenie Palm Valley Dingo Maari Sampang Mahato RESERVES PROVEN & PROBABLE (2P) COUNTRY FIELD/PERMIT AUSTRALIA (1) NEW ZEALAND INDONESIA (2) TOTAL RESERVES Mereenie Palm Valley Dingo Maari Sampang Mahato 2C CONTINGENT RESOURCES COUNTRY FIELD/PERMIT EQUIVALENT MMBOE AUSTRALIA (1) Mereenie Palm Valley Dingo INDONESIA Jeruk (Sampang PSC) (3) Paus Biru (Sampang PSC) (4) TOTAL CONTINGENT RESOURCES 2.3 0.3 - 1.2 1.1 5.0 PETAJOULES PJ MMSTB MILLION STOCK TANK BARRELS MMBOE MILLION BARRELS OF OIL EQUIVALENT (1) Australian Reserves are subject to the completion of the transaction announced on 25 May 2021. (2) Indonesian Reserves are net of Indonesian Government share of production. Production Sharing Contract adjustments affect the net equity differently across the various reserve categories. (3) Cue interest in Jeruk is 8.18%. (4) Paus Biru Contingent Resources have been sub-classified as “Development Unclarified” under the PRMS, which represents a discovered accumulation where project activities are under evaluation and where justification as a commercial development is unknown based on available information and plans to develop are not yet considered near-term. As such, further work is required on the development and commercialisation options before bringing forward to reserves status. The Contingent Resource figures are gross, full well-stream gas, including all non-hydrocarbon components and potential gas utilities for field operation. The gas composition is 97.02% methane. A deterministic methodology was used to categorise the contingent resources. 11 Cue Energy Resources LimitedAnnual Report 2021 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 2018 (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 all 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. RESERVES COMPLIANCE STATEMENTS Oil and gas reserves, and contingent and prospective resources, are reported as at 1 July 2021 and follow the SPE PRMS Guidelines (2018). The volumes presented are net to Cue Energy. Cue currently holds an equity position of 5%, 15% and 12.5% in the Maari, Sampang and Mahato assets respectively, though Production Sharing Contract adjustments at the Sampang & Mahato fields affect the net equity differently across the various reserve categories. In the Amadeus basin, all fields and prospects are non-operated, with the operator being Central Petroleum Limited. Cue holds 7.5% equity in Mereenie and 15% in Palm Valley and Dingo. Mereenie, Palm Valley and Dingo reserves are based on historical field production data and various well intervention and drilling campaigns. This data has been combined with available seismic data, analytical and numerical analysis methods and a set of deterministic reservoir simulation and network models. In-place volumes have been developed using probabilistic methods, with deterministic workflows used for recoverable volumes. The reserves and resource volumes stated have not been adjusted for risk. In New Zealand, the Maari field is non-operated. The operator is OMV. In Indonesia, all fields and prospects are non-operated, the operator at Sampang is Medco and at Mahato is Texcal. For Sampang, a combination of deterministic and analytical methods have been applied in tandem with a review of the available simulation models, by NZOG in determining remaining reserves. At all fields, economic modelling has been conducted to determine the economically recoverable quantities. For the conversion to equivalent units, standard industry factors have been used of 6Bcf to 1mmboe, 1Bcf to 1.05PJ, 1 tonne of LPG to 8.15 boe and 1TJ of gas to 163.4 boe. Proven (1P) reserves are estimated quantities of oil and gas which geological and engineering data demonstrate with reasonable certainty (90% chance) to be recoverable in future years from known reservoirs, under existing economic and operating conditions. Probable (2P) reserves have a 50% chance or better of being technically and economically producible using discounted cashflows. The oil price assumptions are based on a futures price 12 curve, followed by a flat real price. For gas volumes in excess of current contracts, a future base market price from an independent expert report is assumed for gas sales. Known accumulations are reserves or contingent resources that have been discovered by drilling a well and testing, sampling or logging a significant quantity of recoverable hydrocarbons. Developed reserves are expected to be recoverable from existing wells and facilities. Undeveloped reserves will be recovered through future investments (e.g. through installation of compression, new wells into different but known reservoirs, or infill wells that will increase recovery). Total reserves are the sum of developed and undeveloped reserves at a given level of certainty. All reserves and resources reported refer to hydrocarbon volumes postprocessing, net of fuel, and immediately prior to point of sale. The volumes refer to standard conditions, defined as 14.7psia and 60°F. The extraction method is via the Mereenie and Palm Valley Gas Plants which includes compression and dehydration. Tables combining reserves have been calculated arithmetically and some differences may be present due to rounding. This reserves and resources statement for all fields except Mahato (see below) is approved by, based on, and fairly represents information and supporting documentation prepared by New Zealand Oil & Gas Assets & Engineering Manager Daniel Leeman. Daniel is a Chartered Engineer with Engineering New Zealand and holds Master’s degrees in Petroleum and Mechanical Engineering as well as a Diploma in Business Management and has over 10 years of experience. Daniel is also an active professional member of the Society of Petroleum Engineers and the Royal Society of New Zealand. New Zealand Oil & Gas reviews reserves holdings twice a year by reviewing data supplied from the field operator and comparing assessments with this and other information supplied at scheduled meetings. 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 17th of January 2017, NZOG held an equity of 50.04% of Cue. COMPLIANCE STATEMENT, MAHATO The reserves stated for Mahato are effective 1 July 2021 and follow the SPE PRMS Guidelines (2018). Net reserves are presented net of equity, determined by economic modelling on discounted cash flows performed at the gross field level as approved under the standard SKK Migas Plan of Development process and exclude the Government of Indonesia estimated share of reserves under the Production Sharing Contract. All reserves and resources reported refer to hydrocarbon volumes postprocessing, net of fuel, and immediately prior to point of sale. The volumes refer to standard conditions, defined as 14.7psia and 60°F. The extraction method is via EPF facilities which includes an Cue Energy Resources LimitedAnnual Report 2021 RESERVES AND RESOURCES oil and water separation system, with the oil then piped 6km to the CPI operated Petapahan Gathering Station. are not currently considered to be commercially recoverable owing to one or more contingencies. This resources statement is based on, and fairly represents information and supporting documentation prepared by PT Gada Energi, a company owned by the Institut Teknologi Bandung (ITB) as the relevant certifying authority in accordance with the SPE PRMS Guidelines (2018). CONTINGENT RESOURCES Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which Prospective Resources are those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations. The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. RESERVES AND RESOURCES RECONCILIATION WITH 30 JUNE 2020 1P PROVEN RESERVES (MMBOE) COUNTRY FIELD/PERMIT AUSTRALIA NEW ZEALAND INDONESIA TOTAL RESERVES Mereenie Palm Valley Dingo Maari Sampang Mahato 2P PROVEN & PROBABLE RESERVES (MMBOE) COUNTRY FIELD/PERMIT AUSTRALIA NEW ZEALAND INDONESIA TOTAL RESERVES Mereenie Palm Valley Dingo Maari Sampang Mahato 2C CONTINGENT RESOURCES (MMBOE) COUNTRY FIELD 30 JUNE 2020 RESERVES ACQUISITIONS/ DIVESTMENTS DISCOVERIES/ EXTENSIONS/ REVISIONS PRODUCTION 30 JUNE 2021 RESERVES - - - 0.2 0.6 - 0.9 2.1 0.6 0.7 - - - 3.4 0.2 - - 0.1 - 0.4 0.7 0.1 0.1 0.0 0.1 0.3 0.0 0.6 2.2 0.6 0.7 0.3 0.4 0.3 4.4 30 JUNE 2020 RESERVES ACQUISITIONS/ DIVESTMENTS DISCOVERIES/ EXTENSIONS/ REVISIONS PRODUCTION 30 JUNE 2021 RESERVES - - - 0.6 1.1 - 1.6 2.8 0.7 0.9 - - - 4.4 - - - 0.2 0.0 0.5 0.6 0.1 0.1 0.0 0.1 0.3 0.0 0.6 2.6 0.6 0.9 0.7 0.8 0.4 6.0 30 JUNE 2020 CONTINGENT RESOURCES ACQUISITIONS/ DIVESTMENTS DISCOVERIES/ EXTENSIONS/ REVISIONS PRODUCTION 30 JUNE 2021 CONTINGENT RESOURCES AUSTRALIA Mereenie Palm Valley Dingo INDONESIA Jeruk (Sampang PSC) Paus Biru (Sampang PSC) TOTAL CONTINGENT RESOURCES - - - 1.2 1.1 2.4 2.3 0.3 - - - 2.6 - - - - - - - - - - - - 2.3 0.3 - 1.2 1.1 5.0 13 Cue Energy Resources LimitedAnnual Report 2021 Sustainability HEALTH SAFETY AND ENVIRONMENT Cue operates under an HSE Policy approved by the Board of Directors and a HSE Management system. We are committed to achieving and maintaining good health, safety and environmental performance, which we consider critical to the success of our business. The Operational Risk and Sustainability (ORS) committee of the Board of Directors meets regularly to review the company’s HSE activities and operational risks. During the year there were zero lost time incidents (LTI) at Cue’s operated projects and two LTIs at Cue’s non operated projects, which occurred during the Ironbark-1 drilling and Maari operations. Both incidents have been investigated by the Operators of the projects and reviewed by Cue and other joint venture partners. Cue regularly reviews all incidents and Health and Safety reporting at our projects and provides input and feedback to assist with the safe running of all operations. COVID-19 has continued to require extra measures be taken to protect Cue and partners. Our joint venture projects have implemented COVID plans to reduce the risk to staff and minimise the impact to operations. Cue staff in Melbourne and Jakarta offices have continued to work remotely, in line with local government regulations and company assessed risks. Cue has an employee assistance program available to provide support opportunities for employees. SUPPORTING COMMUNITIES Cue continues to support the local communities in which we operate and are proud to support our partners in their community activities. Through our Capturing Local Economic Benefits Policy Cue aims to actively promote, and encourage our partners to promote, opportunities for economic benefits to be realised locally and regionally. During the year, surplus office equipment, including portable offices from Cue’s Mahakam Hilir field office was donated to a number of community schools and kindergartens in the Sambutan village area, East Kalimantan. The Sampang joint venture provided funding for a number of activities in the Camplong District including the construction of sanitation facilities, road paving and building irrigations wells. Fishing equipment, including nets and scales, were also donated to a number of local villages as part of Medco Energi Sampang Community Development program. OMV NZ, the operator of the Maari field actively supports a number of community initiatives in the Taranaki region, including large scale tree planting programme in Taranaki and the Wairarapa, recycling and tree planting in Taranaki Schools and WISE better Homes and job training. The WA-359-P joint venture supported the Native ARC (Animal Rehabilitation Centre) in Perth, and contributed to the Indigenous Preferential Procurement Programs Research Project, led by the University of Melbourne, which measured the economic impacts of Indigenous Procurement Policies and assisted in understanding the contribution Indigenous businesses make to the Australian Economy. 14 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY Cue donation of office equipment to the Baiturrahman Mosque, Sambutan village. OMV NZ participating in tree planting in the Taranaki area. Distribution of Fishing equipment in Camplong district by the Sampang joint venture 15 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY TASKFORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) STATEMENT THIS SECTION OUTLINES THE CUE ENERGY RESOURCES APPROACH TO CLIMATE CHANGE. It is structured to provide an overview of the core elements of the Task Force on Climate-related Financial Disclosures (TCFD): Governance Strategy Risk management, and Metrics and Targets STATEMENT ON CLIMATE CHANGE FROM RESPONSIBLE SENIOR EXECUTIVE Cue acknowledges the 2021 assessment of the Intergovernmental Panel on Climate Change. It reported that climate change is widespread, rapid, and intensifying. Climate change is already affecting every region on Earth, in multiple ways, while some of the changes already set in motion, such as continued sea level rise, are irreversible over hundreds to thousands of years. In response, rapid, and sustained reductions in greenhouse gas emissions are necessary. Cue manages its emissions in support of these goals. As an explorer and producer of hydrocarbons, relevant emissions are those from our own activities, such as operating our offices and travel, carbon emitted in the process of producing oil and gas, and emissions by users of the oil and gas we produce. Our strategy is to manage our own emissions responsibly, and to provide energy options that allow the world to transition to a lower carbon future. The credibility and success of the transition depends on global populations being able to access secure and affordable energy while economies decarbonise. Ensuring that energy is affordable requires carbon emissions to be allocated to uses that have the highest economic value. Cue’s production is subject to emissions pricing in New Zealand. Under the New Zealand Emissions Trading Scheme, Cue purchases credits that offset emissions from our share of the Maari production facilities. Indonesia is a developing economy, with a rapidly growing population demanding much more energy from year to year. It faces profound challenges to decarbonise. Cue is helping by making available lower-emission fuels and supporting economic development. The Sampang PSC supplies gas to Indonesia Power’s Grati power plant. The electricity, which the plant supplies to East Java, emits far fewer greenhouse gas than other non-renewable alternatives in a market which is dominated by coal fired generation. 16 Cue offices have reduced greenhouse gas emissions by replacing ageing IT infrastructure with lower power consumption equipment and installing low-energy LED lighting. We have begun to offset emissions from our Melbourne and Jakarta offices by planting trees. Cue is continuing to increase its focus on measuring and disclosing our climate performance. This year we implemented a TFCD reporting framework. Emissions from our Sampang and Maari assets are reported. In the coming year we will add emissions from Mahato, which entered production during the year, and the Amadeus Basin after completion of the asset acquisition. We are also disclosing a comprehensive summary of climate-related risks. Our board Operational Risk and Sustainability Committee reviews and manages climate risks within our broader risk management framework. We considered weather events that may become more severe, the potential for structural change in long term demand and prices, and risks to accessing capital as investors seek alternative sectors. The TCFD process identifies the explicit risks as climate-related. We are pleased to present this report below. Matthew Boyall Chief Executive Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY GOVERNANCE TCFD CHECKLIST TCFD CATEGORY GOVERNANCE RECOMMENDATION EXPLANATION FOR NON-COMPLIANCE Disclose the organisation’s governance around cli- mate-related risks and opportunities Describe the board’s oversight of climate related risks and opportunities Describe management’s role in assessing and managing climate-related risks and opportunities CLIMATE-RELATED RISK GOVERNANCE PROCESS BOARD OF DIRECTORS • • • • Board Charter Cue Risk Management System ASX Listing Rules and Corporate Governance Code (E.g. Principle 7, Recognise and Manage Risk) Reviews reports from Operational Risk and Sustainability Committee and manages response BOARD OPERATIONAL RISK AND SUSTAINABILITY COMMITTEE • • Reviews risks, including changes in risks reported from risk owners and management Reports risks and opportunities to Board CUE MANAGEMENT Regularly reviews and updates risk register Allocates risks to risk owners Reports risk register to ORSC • • • • Manages TCFD processes and reporting STAFF HEALTH, SAFETY AND ENVIRONMENT PROCESS • Identifies and reviews site HSE incidents and risks and incorporates these into the risk register 17 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY The board has responsibility for reviewing all risks, including climate- related risk and opportunities, and ensuring these are appropriately managed to support delivery of our business strategy. Cue’s risk register assesses risks related to climate policy, climate- related events, and public perception. Examples of risks are disclosed below. Management is responsible for identifying, assessing and managing risk and reporting this to the Board through the ORS committee. Management risk owners identify and manage risks. Management regularly reviews the corporate risk framework, including the risk register. The ORS committee receives a report on updates to the register. Management retains specialist expertise to review risk management, including advice from Cue’s major shareholder. At an operational level, responsibility for day-to-day oversight of climate risk and opportunity (including managing climate objectives and targets) rests with the chief executive. Recognising and managing accountability under its charter (Board Charter 2.2 (h) Link to Cue Board Charter. risks is an overarching board The Board reserves to itself specific responsibility to: “Understand the material risks faced by the Company and ensure the Company has appropriate risk management strategies and control measures in place and is actively managing these.” —Board Charter, 3.3 (h). The process for considering risks is set out in the company’s risk management system framework. The framework meets the requirements of the ASX Corporate Governance Principles and Recommendations, Principle 7: Recognise and Manage Risk. The Board Operational Risk and Sustainability Committee sets, reviews and agrees relevant risk policies, practices, frameworks, targets and performance. Its Charter includes climate change responses. ORSC Charter, Schedule 1, #2: Link to Cue Board Charter. 18 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY STRATEGY TCFD CHECKLIST TCFD CATEGORY RECOMMENDATION EXPLANATION FOR NON-COMPLIANCE STRATEGY Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material. Describe the climate related risks and opportunities the organisation has identified over the short, medium and long term. Describe the impact of these risks on businesses, strategy and financial planning. Describe the resilience of the organisation’s strategy, taking into consideration different climate related scenarios including a 2 degree Celsius or lower scenario. Actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning Climate change and climate-related financial and regulatory behaviour creates opportunities for production of natural gas. The Company’s Sampang and Amadeus Basin assets comprise a significant portion of its production earnings. These are mainly natural gas-producing properties, where the natural gas is used to generate electricity in markets that would otherwise be likely to generate electricity from coal. The Company believes its strategy best positions it for realistic policy and economic scenarios, including a 2 degree warming pathway. 1. Gas demand is expected to increase. While global gas demand fell by 2.5%, or 100 billion cubic metres in 2020 as a result of the pandemic suppressing demand, the IEA forecasts an increase in demand over the 2020s. Under policies pledged by governments globally, gas demand will increase by 7 per cent to 2025, and by 15% to 2030. (Data from International Energy Agency, World Energy Outlook 2020, Annex A. For discussion, see pages 187-194). In the IEA’s ‘sustainable development’ scenario, in which sustainable energy objectives including net zero emissions by 2050 are met in full, global gas demand is projected to remain steady through the 2020s. In the net zero to 2050 pathway, the IEA forecasts that demand for gas will be around 10% lower than today (assuming the global economy is recovering from the pandemic). Demand for gas is affected by factors pulling in different directions. In developing countries, renewables will replace some use of gas, but this will be largely cancelled out by increased demand for natural gas to replace the higher emissions of coal. In developing countries, rapidly growing economies will create more demand for energy. LNG import capacity in Asia in 2020 and 2021 grew strongly, to accommodate forecast increasing demand. 2. Regulation is likely to increase in Australia and New Zealand, carbon prices are likely to rise, and limits are likely to be imposed on emissions from domestic consumption. In anticipation of higher carbon prices, the Company applies a shadow carbon price to screening of new investments and impairment testing of existing assets. The Company applies sensitivity testing to its assets and reviews assets for impairment as part of its financial audit and assurance processes. This testing reviews whether asset valuations have been materially affected by climate-created conditions, including effects on prices, costs, insurance, financing and abandonment. Sensitivity and impairment testing manages economic risks to assets. Where those risks change materially, immediate disclosure is made under the Company’s continuous disclosure obligations. Resilience to physical risks, such as weather events, is conducted as a normal part of engineering risk management. Regulatory risks are mitigated by diversifying jurisdiction risk. The Company offsets its emissions in New Zealand. A carbon price is applied to emissions from use of the oil and gas in New Zealand through the New Zealand Emissions Trading Scheme. Emissions from use in Australia and Indonesia are not currently measured but would be expected to be lower than emissions that would be generated from alternative non-renewable sources if natural gas were not available or if heavier oils were substituted. 3. Resilience in alternative scenarios The Company monitors the International Energy Agency’s World Energy Outlook, and models produced by industry leaders such as the BP Energy Outlook, the IPCC and international consultancies. In all scenarios, we expect to see increased demand for gas in Asian markets. A more rapid decarbonisation outlook implies a faster switch to gas in Asian markets, and reduced or stable use in Australia and New Zealand. In Indonesia we see a faster switch to natural gas from coal, and steady demand for oil as the economy develops economically. To further support our modelling assumptions, we seek information from our JV partners on potential commercial opportunities relating to management of climate change risk, including undertaking scenario analysis following the structure of TCFD. Engineering resilience is assured and regularly updated at scheduled joint venture Technical Committee Meetings. Resilience to financial or economic changes is tested as part of our financial audit and assurance processes, which includes impairment testing. Financial planning incorporates expected prices and revenues, including carbon costs, insurance costs, maintenance costs, and the availability of corporate finance. Specific material risks or changes to financial outlooks are disclosed in financial reports where these are material. 19 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY RISK MANAGEMENT TCFD CHECKLIST TCFD CATEGORY RISK MANAGEMENT RECOMMENDATION EXPLANATION FOR NON-COMPLIANCE Disclose how the organisation identifies, assesses and manages climate-related risks Describe the process for identifying and assessing climate risks. Describe processes for managing climate risks. Describe how processes for identifying, assessing and managing are integrated into overall risk management. How we identify, assess and manage climate-related risks How we model climate risk The Company’s Risk Management System Framework applies consistent and comprehensive risk management practices. Climate risks are recorded in the central risk register, which considers the risks, reviews the controls, assigns ownership of a risk and tracks treatment plans. Climate risks are identified on an ongoing basis. Consideration is given to industry and peer information and expertise, shareholder and community feedback, regulatory changes, and analysis by our own staff and contractors. Risk assurance and oversight of climate risk management is provided through internal review by the board Operation Risk and Sustainability committee. The chief executive has responsibility for climate risk, including risks to individual assets and financial and investment risks associated with climate change. Potential risks to Cue Energy from climate change are assessed under the following headings: • Policy and Legal, • Physical (acute and chronic), • Financial and Market, • Social/Political/Regulatory, and • Technological. All these risks have potential financial and operational implications due to lost profitability and increased delays. Financial and market risks, and social/political risks also present opportunities associated with more rapid uptake of natural gas as a lower-carbon replacement for coal. Maari For our New Zealand Maari asset, Cue uses the New Zealand ETS market pricing for carbon emissions. The Company purchases emissions credits annually and the price of these credits is modelled in Maari performance forecasts and impairment testing. For impairment testing, prices are derived from market prices. Amadeus Basin For investment into Amadeus basin assets, Cue’s advisers used an internal price to test the economics of investments based on market prices in other comparable international regimes. Expectations of forward prices reflect the market consensus on the likelihood and level of future carbon charges and market demand. Potential increased carbon pricing or reduced prices are part of the Company’s sensitivity testing. For example, the Californian-Quebec May auction prices were USD18.80 per tonne of carbon. Korean prices were around USD35 per tonne prior to COVID-19 effects, and the European ETS units were trading historically at around USD30 per tonne prior to COVID-19 effects (although after changes to the European scheme and a colder than normal winter heating season, carbon prices increased to ca. USD65/tonne). Currently, Cue tests Australian investment economics with a price of USD20 per tonne, with scenarios testing this price increasing to USD60 per tonne by 2040. Sampang Emissions from the company’s interest in the Sampang PSC are considered in performance forecasts and impairment testing. There is currently no carbon cost mechanism in Indonesia. The Company monitors the economic effects of climate-related policy and climate conditions on the value and operation of its asset. Mahato Production from Mahato is not currently reported. To model emissions and conducts sensitivity and impairment testing the Company is evaluating benchmarks for calculating emissions from a comparable onshore oil field based only on production data. This evaluation model is expected to be introduced in the current financial year. 20 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY CLIMATE RELATED RISKS The table of risks below uses the following time horizon categories: Short (s) – 0-5 years, Medium (m) – 5-10, Long (l) – 10+ years. RISK TYPE DESCRIPTION TIME CONTROL Non-physical risks Policy and legal risks Reputational and social license risks Litigation against companies and/ or directors on climate grounds (claiming causation or seeking greater action to mitigate effects) could have reputational, development and operating cost impacts. Changing regulations including bans and restrictive regulations, taxes and emissions limits across all jurisdictions risk viability of projects Stakeholder disengagement and oppositional activism. Loss of social license, leading to project delays or stoppages. Recruitment and retention risk. s, m, l. Board and management understand their fiduciary duties around climate change risk. Update internal processes, including due diligence and joint venture processes, identify and manage climate risk. Monitor the jurisdictions where we undertake activities. Strategy of diversifying jurisdictions to mitigate changes on any individual regulatory environment. TCFD compliant reporting. s, m, l. Manage environmental performance. Due diligence screening of commercial opportunities and joint ventures. Financial risks ESG investing affects availability and cost of capital. s, m, l. Shadow price on carbon to sensitivity testing in investment decisions. Insurance premiums increase. Potential for classes of assets and locations to become uninsurable. Capital cost increases if new environmental standards require more expensive supplies relative to alternatives. Carbon pricing adopted across jurisdictions, or inconsistently between them. Changes to price and cost forecasts result in stranded assets or reserves. Physical assets may be subject to increased frequency and intensity of extreme weather events such as storms, flooding, coastal inundation, lack of water availability, or slips. Offshore drilling and production delayed or shut in by increased weather events. Global reduction in high carbon sources such as coal is increasing demand for natural gas as a lower carbon partner to renewables. Due diligence screening of commercial opportunities and joint venture processes. s, m, l. Assurance relating to insurance forecasts. Access to a range of funding options. TCFD compliant reporting. Jurisdictional diversification to avoid impact of sudden, unilateral changes, confiscation or value destruction by regulation. m, l. s, m, l. s, m, l. m, l. Engineering anticipates environmental conditions. Carbon policy provides for review of climate issues in strategic and operational decisions. s, m, l. Strategic preference for natural gas. Support for our joint venture partners pursuing low carbon innovations on sites. Ongoing investigation of investment opportunities in lower emission technologies, including carbon capture and storage. 21 Physical risks Acute & Chronic Opportunities Commercial Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY MEASUREMENTS AND TARGETS TCFD CHECKLIST TCFD CATEGORY RECOMMENDATION EXPLANATION FOR NON-COMPLIANCE TARGETS AND METRICS Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Disclose the metrics used by the organisation to assess climate related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas emissions, and the related risks. The Company does not disclose Scope 3 emissions, as the information is not obtainable. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. The TCFD recommends disclosure of the measures we use to assess climate-related risks and measure them, disclose emissions (by Scope 1,2 and 3), and describe the targets that we use to manage climate- related risk. Risk management systems are described above. Emissions relate to Cue’s corporate office activities and emissions from production facilities in New Zealand, Australia and Indonesia. An annual estimate is prepared of carbon emissions from corporate activity, using inputs such as electricity bills, air travel and rental car use, waste disposal contracts, and government figures for average building carbon intensity. The company purchases trees to offset these emissions. Emissions from producing oil and gas fields are reported below. METRICS TOTAL GREENHOUSE GAS EMISSIONS YEAR TO 30 JUNE 2021 METRIC TONNES CO2e Sampang Maari Mahato Jakarta Office Melbourne Office Total Scope 1 Scope 2 4447 4622 Not available* 12 5 9086 9069 17 *Mahato emissions are not compiled by the PSC operator. In future years, Cue intends to report estimated Mahato emissions derived from a comparable onshore oil field. A suitable model is currently being evaluated. The board Operational Risk and Sustainability Committee annually reviews sustainability targets and performance. 22 Cue Energy Resources LimitedAnnual Report 2021 SUSTAINABILITY OUR RESULTS: TCFD TARGETS FOR 2020-21 2020-21 TARGETS Establish and implement a TFCD framework to become compliant by FY22. Establish company reportable metrics STATUS Ongoing. Complete for assets producing for the full year (Sampang and Maari). Ongoing for Mahato, which started production during the year (in Jan 2021). Ongoing for Amadeus Basin (acquisition expected to complete in fourth quarter of calendar 2021). Offset emissions from Melbourne and Jakarta offices by planting trees Completed and ongoing. OUR INTENTIONS: TCFD TARGETS FOR FY2021-22 FOCUS AREA TARGET IMPACT MEASURED BY Reporting Continue to report Scope 1 and 2 emissions Reporting Finalise TCF compliance and reporting Disclosure of risks, impacts and climate responsiveness Publication in annual report. Available on website Disclosure of risks, impacts and climate responsiveness Publication in annual report. Available on website Reporting Reporting Maintain TCFD statements and reporting online and in the 2022 Annual Report. Disclosure of risks, impacts and climate responsiveness Publication in annual report. Available on website Incorporate Amadeus Basin and Mahato assets into reporting Disclosure of risks, impacts and climate responsiveness Publication in annual report. Available on website Policy and Legal Adopt a discrete climate change policy Disclosure of climate strategy Publication on website by Q1 FY22 Commercial Emissions reductions Emissions management Emissions reductions Emissions reductions Emissions reductions Undertake analysis of an internal price on carbon to inform TCFD risk and commercial decisions by end FY 2022 Review potential for material emissions reductions or offsets from producing sites Management of carbon pricing risk Report in 2022 Ongoing mitigation of emissions Report in 2022 Benchmark emissions against comparable production Provides basis for evaluating performance Report in 2022 Offset emissions from head office and corporate travel. Initiate ongoing office sustainability improvement opportunities. Net zero from our own operations Report in 2022 Sustained emissions reductions Report in 2022 Investigate a carbon emission audit and reduction plan. Potential reductions and increased confidence in reporting. Publicly reported. 23 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED CORPORATE DIRECTORY 30 JUNE 2021 Directors Alastair McGregor (Non-Executive Chairman) Andrew Jefferies (Non-Executive Director) Peter Hood AO (Non-Executive Director) Richard Malcolm (Non-Executive Director) Rod Ritchie (Non-Executive Director) Samuel Kellner (Non-Executive Director) Marco Argentieri (Non-Executive Director) Chief Executive Officer Matthew Boyall Chief Financial Officer and Company Secretary Melanie Leydin Registered office Principal place of business Share register Auditor Level 3, 10-16 Queen Street Melbourne, VIC 3000 Australia Telephone: +61 3 8610 4000 Fax: +61 3 9614 2142 Level 3, 10-16 Queen Street Melbourne, VIC 3000 Australia Telephone: +61 3 8610 4000 Fax: +61 3 9614 2142 Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford, VIC 3067 Australia Telephone: +61 3 9415 5000 Fax: +61 3 9473 2500 KPMG Level 36, Tower Two, Collins Square 727 Collins Street Melbourne, VIC 3008 Australia Stock exchange listing Cue Energy Resources Limited securities are listed on the Australian Securities Exchange. (ASX code: CUE) Website www.cuenrg.com.au 24 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 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 2021. Directors The names of Directors of the Company in office during the year and up to the date of this report were: Alastair McGregor Andrew Jefferies Peter Hood AO Marco Argentieri Richard Malcolm Rod Ritchie Samuel Kellner Chief Executive Officer Matthew Boyall Chief Financial Officer and Company Secretary Melanie Leydin Principal activities The principal activities of the group are petroleum exploration, development and production. 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 at: http://www.cuenrg.com.au/irm/content/corporate-directory.aspx?RID=295 Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Financial performance Production revenue for the year was $22.45 million, a decrease of $1.47 million from the previous period (2020: $23.92 million). Production costs decreased by $2.06 million to $10.88 million (2020: $12.94 million). The consolidated entity reported a net loss after tax of $12.74 million for the year ended 30 June 2021, a decrease of $14.06 million from its $1.31 million profit in 2020. The 2021 operating results included $12.32 million exploration and evaluation expenses for the Ironbark-1 exploration well and $2.55 million in unrealised foreign currency translation losses due to the strong Australian dollar through the year. Excluding these one-off items, the operating profit of the company was $2.13 million for the year. The net assets of the consolidated entity decreased by $13.64 million to $29.92 million for the year ended 30 June 2021 (2020: $43.56 million). This was primarily due to settlement of Ironbark-1 exploration expenditure, which resulted in the decrease of restricted cash balances from $12 million at 30 June 2020 to $27,000 at 30 June 2021. Working capital, being current assets less current liabilities, was $20.06 million (30 June 2020: $32.57 million). The consolidated entity incurred cash outflows from operating activities of $8.03 million for the year ended 30 June 2021 and ended the year with a cash balance of $17.64 million. The consolidated entity has no debt. Refer to the CEO Report preceding this Director’s Report for further details on the operations of the entity. Significant changes in the state of affairs On 16 July 2020, the Company issued 3,743,260 unlisted options to eligible employees under the share option scheme, exercisable at $0.117 (11.7 cents). The options will vest on 1 July 2023 and expire on 1 July 2025. On 19 August 2020, the Company announced the Indonesian Government approval of the Paus Biru gas field Plan of Development in the Sampang PSC and an independent certification of the contingent resources in the field. 25 Cue Energy Resources LimitedAnnual Report 2021 On 29 December 2020, the Company provided an update on Ironbark-1 exploration well in WA-359-P in the Carnarvon Basin, offshore Western Australia. The primary target interval was intersected at a depth of 5,275 metres, with no significant hydrocarbon shows encountered in any of the target sands. The well was subsequently plugged and abandoned. On 15 January 2021, the Company announced that commercial production of oil had commenced from the PB field in the Mahato PSC in Indonesia and the dispute between Cue and the joint operation partners had been settled. On 25 May 2021, the Company announced that it had executed a sale and purchase agreement (the transaction) to acquire interests in the Mereenie, Dingo and Palm Valley onshore gas and oil fields located in the Amadeus Basin in the Northern Territory, Australia from Central Petroleum Limited (ASX:CPT) (Central) for an upfront payment of $8.7 million and funding of $12 million of Central’s exploration appraisal and development costs in the fields. 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 As noted above, on 25 May 2021, Cue announced the execution of a sale and purchase agreement with Central Petroleum Limited (Central) (ASX:CTP) to acquire interests in the Mereenie, Dingo and Palm Valley onshore gas and oil fields, all located in the Amadeus Basin, onshore in the Northern Territory, Australia. On completion, Cue will acquire a 7.5% interest in the Mereenie gas and oil field (OL4 and OL5 production licences), a 15% interest in the Palm Valley gas field (OL3 production licence), and a 15% interest in the Dingo gas field (L7 Production Licence) with an effective date of 1 July 2020. On 24 June 2021, NZOG shareholders voted 99.99% in favour of their entry into an agreement to also acquire interests in the fields from Central, which satisfied a key condition precedent of the transaction. On 2 July 2021, the Company announced that it and NZOG had received a No Objection Notice from the Australian Foreign Investment Review Board in relation to the transaction to acquire Amadeus Basin Assets from Central Petroleum, which satisfied a key condition precedent, and on 28 July 2021 the Company held a general meeting of shareholders that approved the entry into deed of cross security with NZOG in relation to the transaction As of the date this report was signed, conditions precedent which remain to be satisfied include regulatory approval by the NT government, and assignment of major contracts. On 30 July 2021, the Company released an independent resource report on the PB field in the Mahato PSC and announced that the PBE-1 well in the field had commenced. Likely developments and expected results of operations The following activities may affect the expected results of operations: • Results from the drilling on the PBE-1 well in the Mahato PSC and any subsequent drilling; • The completion of the announced transaction to acquire Amadeus basin assets from Central Petroleum; • Progress on Paus Biru Front End Engineering and Design and Final Investment Decision; and • Actively seeking to acquire new production. The Coronavirus/Covid-19 global pandemic presents strategic, operational and commercial uncertainties for the Company. There are increased uncertainties around the duration, scale and impact of the Coronavirus/Covid-19 outbreak. The Company is taking various measures to mitigate the impact on its operations including employees, partners and customers. The Board and management team continue to assess the potential impacts on the business, however given the continued uncertainties the future financial impact, if any, cannot be determined. Environmental regulation Within the last year there have been zero incidents, zero lost time injuries and zero significant spills within Cue Energy Resources Limited. Among the joint operations there have been a number of incidents that have been reported and investigated by all the relevant parties. Cue Energy Resources Limited continues to monitor the progress of reported incidents and work with the joint operation partners and operators to improve overall health and safety and minimise any impact on the environment. 26 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 Information on directors Information on directors Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Alastair McGregor Non-Executive Chairman BEng, MSc Mr McGregor has been actively involved in the oil and gas sector since 2003. He is currently chief executive of O.G. Energy, which holds Ofer Global’s broader energy interests, and Oil & Gas Limited, a company that holds directly or indirectly oil & gas exploration and production interests onshore and offshore. He leads the O.G. Energy Senior Management Committee, driving the strategy for Ofer Global’s energy activities. Mr McGregor is also a director of New Zealand Oil & Gas Limited (NZOG). In addition, Mr McGregor is chief executive of Omni Offshore Terminals Limited, a leading provider of floating, production, storage and offloading (FSO and FPSO) solutions to the offshore oil and gas industry. Omni’s operations have spanned the globe from New Zealand, Australia, South East Asia, Middle East and South America. Prior to entering the oil and gas industry Mr McGregor spent 12 years as a banker with Citigroup and Salomon Smith Barney. Mr McGregor holds a BEng from Imperial College, London and an MSc from Cranfield University in the UK. New Zealand Oil & Gas Limited None Member, Remuneration and Nomination Committee None None Andrew Jefferies Non-Executive Director BE Hons (Mechanical), MBA, MSc in petroleum engineering, GAICD, Certified Petroleum Engineer Mr Jefferies is managing director of New Zealand Oil & Gas Limited. He started his career with Shell in Australia after graduating with a BE Hons (Mechanical) from the University of Sydney in 1991, an MBA in technology management from Deakin University in Australia, and an MSc in petroleum engineering from Heriot - Watt University in Scotland. Mr Jefferies is also a graduate of the Australian Institute of Company Directors (GAICD), and a Certified Petroleum Engineer with the Society of Petroleum Engineers. He has worked in oil and gas in Australia, Germany, the United Kingdom, Thailand and Holland. NZOG Offshore Limited New Zealand Oil & Gas Limited Tuatara Energy Limited None Member, Audit and Risk Committee Member, Remuneration and Nomination Committee Member, Operational Risk and Sustainability Committee 8,000 fully paid ordinary shares None 27 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: 28 Peter Hood AO Non-Executive Director Mr Hood is a professional chemical engineer with 50 years’ experience in the development of projects in the resources and chemical industries. He began his career with WMC Ltd and then was chief executive officer of Coogee Chemicals Pty Ltd and Coogee Resources Ltd from 1998 to 2009. He is a graduate of the Harvard Business School Advanced Management Programme and is currently Chairman of Matrix Composites and Engineering Ltd and a Non-Executive Director of GR Engineering Ltd and a Non-Executive Director of De Grey Mining Ltd. He has been Vice-Chairman of the Australian Petroleum Production and Exploration Association Limited (APPEA), Chairman of the APPEA Health Safety and Operations Committee, and is a past President of the Western Australian and Australian Chambers of Commerce and Industry. De Grey Mining Ltd GR Engineering Ltd Matrix Composites and Engineering Ltd None Member, Audit and Risk Committee 80,000 fully paid ordinary shares None Richard Malcolm Non-Executive Director Mr Malcolm is a professional geoscientist with over 40 years of varied oil and gas experience within seven international markets including Australia/NZ/PNG, UK North Sea/West of Shetlands, Gulf of Mexico and the Middle East/ North Africa. His latter roles from 2006 to 2013 included Managing Director of OMV UK and Managing Director of Gulfsands Petroleum, an AIM listed exploration and production company with operations in Syria, Tunisia, Morocco, USA and Colombia. He is currently a Non-executive Director of Larus Energy Limited. Larus Energy Limited Puravida Energy NL Chairman, Remuneration and Nomination Committee Member, Operational Risk and Sustainability Committee None None Rod Ritchie Non-Executive Director B.Sc Mr Ritchie is a director of NZOG. Mr Ritchie joined the board of NZOG in 2013. He began his career as a petroleum engineer with Schlumberger for 28 Years and then joined OMV where he worked for a further 12 years. Mr Ritchie has over 40 years of global experience in leadership roles and as a Health, Safety, Environmental and Security (HSSE) executive in the Oil and Gas industry, including being the corporate Senior Vice President of HSSE and Sustainability at OMV based in Vienna, Austria. He has also worked closely with the International Association of Oil and Gas produces (IOGP) to create Industry best practice standards for the Oil and Gas Industry. He is also an active leadership and cultural change consultant, and an author on the subject of Safety Leadership and several Society of Petroleum Engineers papers on the subject of HSSE and safety Leadership. New Zealand Oil & Gas Limited None Member, Remuneration and Nomination Committee Chair, Operational Risk and Sustainability Committee None None CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Samuel Kellner Non-Executive Director BA, MBA Mr Kellner has held a variety of senior executive positions with Ofer Global since joining the group in 1980. He has been deeply involved in all Ofer Global’s business lines, with a particular emphasis on offshore oil and gas, shipping and real estate, and has advised Ofer Global companies on investments with a variety of investment managers, hedge funds and private equity funds. Most recently, Mr Kellner served as President of Global Holdings Management Group (US) Inc. where he led North American real estate acquisition, development and financing activities. Mr Kellner serves as a director of O.G. Energy, O.G. Oil & Gas and NZOG, where he is Chairman of the Board of Directors. As a member of the O.G. Energy Senior Management Committee, he helps drive strategy for Ofer Global’s energy activities. He is also an Executive Director of the main holding companies for the Zodiac Maritime Limited shipping group and Omni Offshore Terminals Limited, a leading provider of floating, production, storage and offloading (FSO and FPSO) solutions to the offshore oil and gas industry. Mr Kellner graduated with a BA degree from Hebrew University in Jerusalem. He has an MBA from the University of Toronto, and taught at the University of Toronto while working toward a PhD in Applied Economics. New Zealand Oil & Gas Limited None Chair, Audit and Risk Committee None None Mr Marco Argentieri Non-Executive Director Mr Argentieri is a Director of New Zealand Oil and Gas Limited, Senior Vice President and General Counsel for O.G. Energy, and a member of the Board of Directors of both O.G. Energy and O.G. Oil & Gas. Prior to O.G. Energy, Mr Argentieri worked extensively in finance, offshore oil services and shipping. Mr Argentieri started his career as an attorney at the New York offices of Skadden, Arps, Slate, Meagher & Flom LLP and Latham & Watkins LLP. He holds a B.A. from the University of Rochester, a J.D. from New York University and an MBA from Columbia University. New Zealand Oil and Gas Limited None None None None ‘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. 29 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 Company secretary Ms Melanie Leydin, BBus (Acc. Corp Law) CA FGIA Melanie Leydin holds a Bachelor of Business majoring in Accounting and Corporate Law. She is a member of the Institute of Chartered Accountants, Fellow of the Governance Institute of Australia 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 Leydin Freyer. The practice provides outsourced company secretarial and accounting services to public and private companies across a host of industries including but not limited to the Resources, technology, bioscience, biotechnology and health sectors. Melanie has over 25 years’ experience in the accounting profession and over 15 years’ experience holding Board positions including Company Secretary of ASX listed entities. She 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. Meetings of directors Full Board Remuneration and Nomination Committee Audit and Risk Committee Operational Risk and Sustainability Committee Attended Held Attended Held Attended Held Attended Held Alastair McGregor Andrew Jefferies Peter Hood AO Richard Malcolm Rod Ritchie Samuel Kellner Marco Argentieri 7 8 8 8 8 7 8 8 8 8 8 8 8 8 2 3 - 3 3 - - 3 3 - 3 3 - - - 2 2 - - 2 - - 2 2 - - 2 - - 3 - 3 3 - - - 3 - 3 3 - - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 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 2021, 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 30 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 (A) Director and executive details The following persons acted as Directors of the company during or since the end of the financial year: ● Alastair McGregor (Non-Executive Chairman) ● Andrew Jefferies (Non-Executive Director) ● Peter Hood AO (Non-Executive Director) ● Richard Malcolm (Non-Executive Director) ● Rod Ritchie (Non-Executive Director) ● Samuel Kellner (Non-Executive Director) ● Marco Argentieri (Non-Executive Director) 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 “Executive” is used in this Remuneration Report to refer to the following persons: ● Matthew Boyall (Chief Executive Officer) (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. (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. Alastair McGregor, Andrew Jefferies, Samuel Kellner and Marco Argentieri have elected not to be paid by the Company. 31 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 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 fringe benefits tax (“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 the 2021 financial year, the Board reviewed the salaries paid to peer company executives in determining the salary of the Company’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 as required. There is no guaranteed base salary increase included in any executive’s contracts. Cash bonuses A cash bonus was paid to the CEO during this financial year on the achievement of annual Short Term Incentive (STI) KPI’s. Details are disclosed in remuneration table below. Employment contracts Remuneration and other terms of employment for key executive Matthew Boyall is formalised in a service agreement. Details of the agreement is as follows: Matthew Boyall Title: Chief Executive Officer Original Agreement effective from 1 July 2017, with salary terms revised on 1 October 2018. Term: Permanent employment contract, no fixed terms. Details: Base salary of $360,000 per annum plus superannuation to be reviewed annually by the Board. Mr Boyall is also entitled to short-term incentive up to 30% (2020: 30%) of his base salary at the discretion of the Board at the end of each financial year dependent on the success of meeting key deliverables. Notice period: 3 months 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: 32 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 Compensation of Key Management Personnel – 2021 Short-term benefits Cash bonuses Cash salary and fees 2021 $ $ Long-term benefits Long service leave $ Post employment Superannuation Share-based payments Equity-settled Total $ $ $ Directors Alastair McGregor* Andrew Jefferies* Peter Hood AO Richard Malcolm Rod Ritchie Samuel Kellner* Marco Argentieri* Other Key Management Personnel: Matthew Boyall** - - 45,610 43,330 47,500 - - - - - - - - - - - - - - - - - - 4,390 4,170 - - - - - - - - - - - - 50,000 47,500 47,500 - - 356,694 493,134 64,260 64,260 5,218 5,218 25,000 33,560 62,693 513,865 62,693 658,865 * ** Alastair McGregor, Andrew Jefferies, Samuel Kellner and Marco Argentieri have elected not to be paid by the Company. Matthew Boyall’s cash bonus consists of $64,260 for achieving 59.5% weighting against 2020 key performance indicators (KPIs). The KPIs were measured against the actual results for the calendar year ending 31 December 2020. Mr Boyall is entitled to up to 30% of base salary in short term incentives. 33 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 Compensation of Key Management Personnel – 2020 Short-term benefits Cash bonuses Cash salary and fees 2020 $ $ Long-term benefits Long service leave $ Post employment Superannuation Share-based payments Equity-settled Total $ $ $ Directors Peter Hood AO Richard Malcolm Rod Ritchie Other Key Management Personnel: Matthew Boyall*** 45,662 43,379 47,500 - - - - - - 4,338 4,121 - - - - 50,000 47,500 47,500 356,003 492,544 91,800 91,800 21,193 21,193 25,000 33,459 51,334 51,334 545,330 690,330 * ** Alastair McGregor, Andrew Jefferies, Rebecca DeLaet, Samuel Kellner and Marco Argentieri have elected not to be paid by the Company. Matthew Boyall’s cash bonus consists of $91,800 for achieving 85% weighting against 2019 key performance indicators (KPIs). The KPIs were measured against the actual results for the calendar year ending 31 December 2019. Mr Boyall is entitled to up to 30% of base salary in short term incentives. The proportion of remuneration linked to performance and the fixed proportion are as follows: Name 2021 2020 2021 2020 2021 2020 Fixed remuneration At risk - STI At risk - LTI Directors: Peter Hood AO Richard Malcolm Rod Ritchie 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - Other Key Management Personnel: Matthew Boyall 75% 74% 13% 17% 12% 9% 34 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 (D) Equity based remuneration Overview of share options The Board in their meeting held on 24 June 2019 approved the Employee Share Option Plan (‘ESOP’), which was subsequently approved by shareholders at 2019 Annual General Meeting. The ESOP has been developed to provide the greatest possible flexibility in choice to the Board in implementing the executive incentive schemes. The ESOP enables the Board to offer employees a number of Options. A summary of material terms of the ESOP is set out as follows: ● ● ● ● ● ● ● ● the ESOP sets out the framework for the offer of Options by the Company, and is typical for a document of this nature; in making its decision to issue Options, the Board may decide the number of securities and the vesting conditions which are to apply in respect of the securities. The Board has flexibility to issue Options having regard to a range of potential vesting criteria and conditions; in certain circumstances, unvested Options will immediately lapse and any unvested Shares held by the participant will be forfeited if the relevant person is a “bad leaver” as distinct from a “good leaver”; if a participant acts fraudulently or dishonestly or is in breach of their obligations to the Company or its subsidiaries, the Board may determine that any unvested Options held by the participant immediately lapse and that any unvested Shares held by the participant be forfeited; in certain circumstances Options can vest early upon a change of control event as defined under the Plan rules. the total number of Options and Shares which may be offered by the Company under these Rules shall not at any time exceed 5% of the Company’s total issued Shares when aggregated with the number of Options and Shares issued or that may be issued as a result of offers made at any time during the previous three year period under an employee incentive scheme. the Board has discretion to impose restrictions (except to the extent prohibited by law or the ASX Listing Rules) on Shares issued or transferred to a participant on vesting of an Option or a Performance Right, and the Company may implement appropriate procedures to restrict a participant from so dealing in the Shares; the Board is granted a certain level of discretion under the EIP, including the power to amend the rules under which the EIP is governed and to waive vesting conditions, forfeiture conditions or disposal restrictions. The options will vest on the date determined by the Board and as specified in the Invitation Letter. 3,743,260 options were granted under the ESOP during the financial year to 30 June 2021 (2020: 8,131,186). No options were forfeited due to employee departure from the Company during the year. These options did not have any other vesting conditions other than time. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2021. Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of key management personnel in this financial year or future reporting years are as follows: Name Number of options granted Grant date Vesting date and exercisable date Expiry date Exercise price Fair value per option at grant date Matthew Boyall Matthew Boyall Matthew Boyall 1,288,338 29 July 2019 1 July 2021 1 July 2023 1,399,595 4 October 2019 1 July 2022 1 July 2024 1,102,607 16 July 2020 1 July 2023 1 July 2025 $0.070 $0.090 $0.117 $0.040 $0.059 $0.000 Options granted carry no dividend or voting rights. 35 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 (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 2021. Production income from continuing operations Profit/(Loss) before income tax expense from continuing operations 2021 $’000 2020 $’000 2019 $’000 2018 $’000 2017 $’000 22,449 (7,442) 23,916 5,099 25,730 12,856 24,547 5,058 35,000 (6,975) Profit/(Loss) after income tax benefit/(expense) Total Key Management Personnel Remuneration (12,743) 659 1,313 690 8,549 651 7,739 (15,032) 525 2,264 Share price at start of year (cents) Share price at end of year (cents) Basic earnings/(loss) per share (cents) Diluted earnings/(loss) per share (cents) 2021 2020 2019 2018 2017 9.50 6.00 (1.83) (1.83) 8.30 9.50 0.19 0.19 5.70 8.30 1.22 1.22 5.50 5.70 1.11 1.11 8.10 5.50 (2.48) (2.48) The Company remuneration policy also seeks to reward staff members on achieving non-financial key performance indicators, including safety and operational performance. 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: Ordinary shares* Non-Executive Directors Andrew Jefferies Peter Hood AO Other Key Management Personnel Matthew Boyall Balance at the start of the year Balance on date of Board appointment Additions Disposals/ other Balance at the end of the year 8,000 80,000 200,000 288,000 - - - - - - - - - - - - 8,000 80,000 200,000 288,000 * Alastair McGregor, Richard Malcolm, Rod Ritchie, Samuel Kellner and Marco Argentieri do not hold any fully paid ordinary shares. NZOG Offshore Limited (a related entity to Alastair McGregor, Andrew Jefferies, Rod Richie, Samuel Kellner and Marco Argentieri) holds 349,368,803 fully paid ordinary shares in Cue. 36 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021 Option holding The number of options over ordinary 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: Options over ordinary shares Matthew Boyall Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 2,687,933 2,687,933 1,102,607 1,102,607 - - - - 3,790,540 3,790,540 This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of Cue Energy Resources Limited under option at the date of this report are as follows: Grant date 29/07/2019 04/10/2019 16/07/2020 Expiry date 01/07/2023 01/07/2024 01/07/2025 Vesting date 01/07/2021 01/07/2022 01/07/2023 Exercise price Number under option $0.07 $0.09 $0.12 3,784,025 3,853,298 3,743,260 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of Cue Energy Resources Limited issued on the exercise of options during the year ended 30 June 2021 and up to the date of this report. 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 the auditor of the company or any related body corporate against a liability incurred as an 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 22 to the financial statements. The Company may decide to employ the auditor on assignments additional to its statutory audit duties where the auditor’s expertise and experience with the Company are important. The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor 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: 37 Cue Energy Resources LimitedAnnual Report 2021 ● ● 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. Officers of the company who are former partners of KPMG There are no officers of the company who are former partners of KPMG. 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 and forms part of the directors’ report. Auditor In accordance with the provisions of the Corporations Act 2001 the Company’s auditor, KPMG, 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 ___________________________ Alastair McGregor Non-Executive Chairman 18 August 2021 38 CUE ENERGY RESOURCES LIMITED DIRECTORS’ REPORT 30 JUNE 2021Cue Energy Resources LimitedAnnual Report 2021 Lead Auditor’s Independence Declaration under Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 Section 307C of the Corporations Act 2001 To the Directors of Cue Energy Resources Limited To the Directors of Cue Energy Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Cue Energy Resources I declare that, to the best of my knowledge and belief, in relation to the audit of Cue Energy Resources Limited for the financial year ended 30 June 2021 there have been: Limited for the financial year ended 30 June 2021 there have been: i. i. ii. ii. no contraventions of the auditor independence requirements as set out in the no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG KPMG Vicky Carlson Vicky Carlson Partner Partner Melbourne Melbourne 18 August 2021 18 August 2021 19 19 KPMG, an Australian partnership and a member firm of the KPMG global organisation of KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. scheme approved under Professional Standards Legislation. 39 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 Revenue Production revenue from operations Production costs Gross profit from production Other income Net foreign currency exchange gain / (loss) Expenses Impairment - Production properties Exploration and evaluation expenditure Administration expenses Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of Cue Energy Resources Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Cue Energy Resources Limited Note 5 13 7 6 8 Consolidated 2021 $’000 2020 $’000 22,449 (10,881) 11,568 220 (2,550) - (12,843) (3,837) 23,916 (12,944) 10,972 831 79 (2,722) (1,438) (2,623) (7,442) 5,099 (5,301) (3,786) (12,743) 1,313 (1,085) (1,085) 691 691 (13,828) 2,004 Cents Cents Basic earnings/(loss) per share Diluted earnings/(loss) per share 30 30 (1.83) (1.83) 0.19 0.19 40 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notesCue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Assets Current assets Cash and cash equivalents Restricted cash Trade and other receivables Inventories Total current assets Non-current assets Other financial assets Property, plant and equipment Right-of-use assets Exploration and evaluation assets Production properties Development assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Tax liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Note Consolidated 2021 $’000 2020 $’000 9 9 10 11 12 13 14 8 15 8 8 16 17 19 17,617 27 7,342 437 25,423 19,936 12,008 4,715 458 37,117 5,784 5,713 44 194 - 18,344 3,670 2,641 30,677 56,100 2,960 52 2,115 232 5,359 145 5,017 15,656 20,818 26,177 29,923 64 90 4,605 18,682 - 2,888 32,042 69,159 2,044 80 2,287 140 4,551 16 4,058 16,970 21,044 25,595 43,564 152,416 152,416 (815) 83 (121,678) (108,935) 29,923 43,564 The above statement of financial position should be read in conjunction with the accompanying notes 41 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 Consolidated Balance at 1 July 2019 Contributed Equity $’000 Reserves $’000 Accumulated Losses $’000 Total Equity $’000 152,416 (750) (110,257) 41,409 Adjustment to opening accumulated losses upon adoption of AASB 16 - - 5 5 Balance at 1 July 2019 - restated 152,416 (750) (110,252) 41,414 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 31) Transfer - - - - - Balance at 30 June 2020 152,416 - 691 691 146 (4) 83 1,313 - 1,313 - 4 1,313 691 2,004 146 - (108,935) 43,564 Consolidated Balance at 1 July 2020 Loss after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Share-based payments (note 31) Contributed Equity $’000 Reserves $’000 Accumulated Losses $’000 Total equity $’000 152,416 83 (108,935) 43,564 - - - - - (1,085) (1,085) (12,743) - (12,743) (1,085) (12,743) (13,828) 187 - 187 Balance at 30 June 2021 152,416 (815) (121,678) 29,923 The above statement of changes in equity should be read in conjunction with the accompanying notes 42 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Cash flows from operating activities Receipts from customers Other receipts Interest received Payments to suppliers and employees Payments for exploration and evaluation expenditure Income tax paid Royalties paid Net cash from/(used in) operating activities Cash flows from investing activities Payments with respect to production and development properties Payments for plant and equipment Payments for exploration and evaluation (Capex) Net cash used in investing activities Cash flows from financing activities Payments of principal element of lease liabilities Net cash used in financing activities Net increase/(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 and restricted cash Note Consolidated 2021 $’000 2020 $’000 29 13 12 18,575 538 25 (10,541) (12,186) (4,033) (408) 23,004 606 374 (9,298) (1,496) (4,314) (1,476) (8,030) 7,400 (3,510) (7) - (881) (62) (729) (3,517) (1,672) (84) (84) (11,631) 31,944 (2,669) (85) (85) 5,643 26,194 107 Cash and cash equivalents, including restricted cash, at the end of the financial year 9 17,644 31,944 The above statement of cash flows should be read in conjunction with the accompanying notes 43 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 18 August 2021. Note 2. Significant accounting policies Significant accounting policies have been disclosed in the respective notes to the financial statements and below. (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 Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. The consolidated financial statements 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 25. (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 2021 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 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. 44 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 2. Significant accounting policies (continued) 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. Investments in subsidiaries are accounted for at cost in the individual financial statements of Cue Energy Resources Limited. (e) Production revenue The consolidated entity generates production revenue from its interest in producing crude oil and gas fields. Revenue from oil production is recognised at a point in time when crude oil is delivered to the buyer. Oil contract price is negotiated when the operator lifts for the group. Revenue from gas production is recognised during the month when gas is delivered to the buyer, based on fixed price contracts. (f) Inventories 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. (g) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (h) 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. (i) Foreign currency Functional and presentation currency The functional currencies of Group companies is the currency of the primary economic environment in which it operates. The consolidated financial statements are presented in Australian dollars, as this is the Group’s 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. 45 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 2. Significant accounting policies (continued) 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) (b) (c) 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; income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) shall be translated at average exchange rates for the year; and all resulting exchange differences shall be recognised in other comprehensive income. (j) New or amended Accounting Standards and Interpretations adopted The Consolidated Entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. There was no impact upon adoption of these standards. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 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 are only recognised if management considers it is probable that future tax profits will be available to utilise the unused tax losses (refer to note 8). (ii) Impairment of production properties Production properties impairment testing requires an estimation of recoverable amount using a value-in-use model for respective cash generating units. The recoverable amount 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 (refer to note 13). (iii) Useful life of production properties As detailed at note 13 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. (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 46 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 3. Critical accounting estimates and judgements (continued) 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. (vi) Capitalised exploration and evaluation costs Exploration and evaluation costs have been capitalised on the basis that the consolidated entity expects to commence commercial production in the future, from which time the costs will be amortised in proportion to the depletion of the mineral resources. Key judgements are applied in considering costs to be capitalised which includes determining expenditures directly related to these activities and allocating overheads between those that are expensed and capitalised. In addition, costs are only capitalised that are expected to be recovered either through successful development or sale of the relevant mining interest. Factors that could impact the future commercial production at the mine include the level of reserves and resources, future technology changes, which could impact the cost of mining, future legal changes and changes in commodity prices. To the extent that capitalised costs are determined not to be recoverable in the future, they will be written off in the period in which this determination is made. (vii) Coronavirus (COVID-19) pandemic In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread globally as well as in Australia. The spread of COVID-19 has caused significant volatility in Australian and international markets, which coincide with the collapse of the global oil price. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19. In order to protect the health and maintain the safety of employees and comply with local regulations, the Company has closed its offices temporarily and arranged for employees to work remotely. At the date of this report, the impact of these measures is not expected to significantly affect the Company’s business operations. 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. At reporting date, the Group operates in three principle geographic segments: Australia, New Zealand and Indonesia. 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 assessment performance and in determining the allocation of resources. Australia The parent entity resides in Melbourne, Australia. The Group, through its wholly owned subsidiary, Cue Exploration Pty Ltd, holds exploration permits in the Carnarvon Basin, Offshore Western Australia. New Zealand The Group, through its wholly owned subsidiary, Cue Taranaki Pty Ltd, holds 5% interest in petroleum production property, PMP38160 (Maari) in New Zealand. 47 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 4. Financial reporting by segments (continued) Indonesia The Group, through its wholly owned subsidiary, Cue Sampang Pty Ltd, holds 15% interest in gas production property in Indonesia (Sampang). The Group also holds interest in exploration permits in East Kalimantan, through Cue Mahakam Hilir Pty Ltd and Cue Kalimantan Pte Ltd (both wholly owned subsidiaries) and in Central Sumatra, through Cue Mahato Pty Ltd. Information regarding the Group’s reportable segments is presented below: Australia $’000 NZ $’000 Indonesia $’000 Total $’000 - - - (76) (12,283) (3,061) (139) (2,570) 6,945 (4,000) 2,945 (1,432) - 201 - 25 15,504 (4,077) 11,427 (1,373) (559) (502) (40) (5) (18,129) 1,739 8,948 22,449 (8,077) 14,372 (2,881) (12,842) (3,362) (179) (2,550) (7,442) (5,301) (12,743) Australia $’000 NZ $’000 Indonesia $’000 Total $’000 15,390 215 15,605 1,682 375 2,057 2,989 13,049 16,038 1,109 9,432 10,541 7,044 17,413 24,457 2,568 11,011 13,579 25,423 30,677 56,100 5,359 20,818 26,177 Consolidated - 2021 Revenue Revenue from continuing operations Production expenses (excluding amortisation) Gross profit (excluding amortisation) Depreciation and amortisation Exploration and evaluation expenditure Other income / expenditure Share-based payments Foreign exchange movement Profit/(loss) before income tax expense Income tax expense Loss after income tax expense 30 June 2021 SEGMENT ASSETS Current assets Non-current assets Total assets SEGMENT LIABILITIES Current liabilities Non-current liabilities Total liabilities 48 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 4. Financial reporting by segments (continued) Consolidated - 2020 Revenue Revenue from continuing operations Production expenses (excluding amortisation) Gross profit (excluding amortisation) Depreciation and amortisation Impairment of production properties Exploration and evaluation expenditure Other income / expenditure Share-based payments Foreign exchange movement Profit/(loss) before income tax expense Income tax expense Profit after income tax expense 30 June 2020 SEGMENT ASSETS Current assets Non-current assets Total assets SEGMENT LIABILITIES Current liabilities Non-current liabilities Total liabilities Australia $’000 NZ $’000 Indonesia $’000 Total $’000 - - - (73) - (747) (1,966) (106) 130 (2,762) 9,489 (6,227) 3,262 (3,032) (2,722) - - - (192) (2,684) 14,427 (2,577) 11,850 (1,108) - (691) 393 (40) 141 10,545 23,916 (8,804) 15,112 (4,213) (2,722) (1,438) (1,573) (146) 79 5,099 (3,786) 1,313 Australia $’000 NZ $’000 Indonesia $’000 Total $’000 28,982 123 29,105 536 97 633 789 14,970 15,759 692 10,315 11,007 7,346 16,949 24,295 3,323 10,632 13,955 37,117 32,042 69,159 4,551 21,044 25,595 Major customers The Group has a number of customers to whom it provides oil products. The Group supplies a single external customer with gas. That customer accounts for 100% of external gas revenue (2020: 100%). Note 5. Production costs Production costs Amortisation of production properties Consolidated 2021 $’000 8,077 2,804 2020 $’000 8,804 4,140 10,881 12,944 49 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 6. Administration expenses Employee expenses Superannuation contribution expense Legal expenses* Other expenses Business development expenses Share based payments Total administration expenses Consolidated 2021 $’000 2020 $’000 1,170 74 1,032 611 771 179 3,837 1,275 70 409 595 128 146 2,623 *This figure includes once-off expenses of: - $504k AUD ($380k USD) associated with the settlement of the dispute between Cue and the Mahato PSC joint operation partners. $464k AUD ($350k USD) associated with the settlement of the Hammerhead litigation in relation to the Pine Mills oilfield. - Note 7. Exploration and evaluation expenditure Profit/(loss) before income tax includes the following specific expenses: Exploration Costs Expensed Sampang PSC Mahakam Hilir PSC WA-359-P WA-389-P WA-409-P Total exploration and evaluation expenditure Consolidated 2021 $’000 2020 $’000 29 490 11,998 268 58 12,843 12 679 157 550 40 1,438 Accounting policy for exploration and evaluation project expenditure AASB 6 Exploration for and Evaluation of Mineral Resources allows the Group to either capitalise or expense the exploration and evaluation expenditure incurred. During the financial year the consolidated entity reviewed its criteria under its successful efforts method of accounting. The costs of a successful exploration well are capitalised and carried forward as exploration and evaluation assets pending the evaluation of the success of the well (refer note 12). If a well does not result in a successful discovery, the previously capitalised costs are immediately expensed. 50 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 8. Income tax expense Income tax expense Current tax Adjustment recognised for current tax in prior periods Deferred tax – origination and reversal of temporary differences (i) Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Profit/(loss) before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Unrealised foreign exchange movements Unrecognised temporary differences Unrecognised tax losses Recognition of deferred tax (assets)/liabilities (ii) Difference in overseas tax rates Share-based payments Other Adjustment recognised for current tax in prior periods Income tax expense (i) Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Increase/(decrease) in deferred tax liabilities Deferred tax – origination and reversal of temporary differences Consolidated 2021 $’000 2020 $’000 4,322 (228) 1,207 5,301 (7,442) (2,233) 809 (10) 3,642 1,207 1,865 42 207 5,529 (228) 5,301 4,217 (656) 225 3,786 5,099 1,530 (146) (139) 1,756 225 985 32 199 4,442 (656) 3,786 Consolidated 2021 $’000 2020 $’000 247 960 1,207 114 111 225 During the prior year, Cue was notified that it had been successful in an Indonesian Tax Court case against the Indonesian Tax Department for over-payment of AUD$659k in taxes relating to 2011, resulting in a partial refund of AUD$451k which was received in December 2019. The remaining balance was accrued at year end. (ii) During the prior year, the consolidated entity capitalised Mahato PB exploration wells drilling costs (refer note 13). As a result, a deferred tax liability of $510k was recognised in the financial statements. 51 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 8. Income tax expense (continued) Current tax liabilities Consolidated 2021 $’000 2020 $’000 2,115 2,287 The Group has an ongoing Indonesian Tax matter relating to a notice of amended assessment which is being disputed by Cue Kalimantan Pte Ltd on behalf of SPC E&P Pte Ltd (“SPC”). Cue is indemnified by SPC for any losses arising from this disputed notice of assessment and has recognised a liability and receivable on the balance sheet. Deferred tax assets recognised Restoration provision - Maari Deferred tax liability recognised comprise of: Sampang: Production property Exploration and evaluation assets Restoration provision offset Right of use assets Deferred tax liability Deferred tax not recognised Deferred tax not recognised comprises temporary differences attributable to: Employee provisions Tax losses Less deferred tax liabilities not recognised - Production properties Less deferred tax liabilities not recognised - Inventories Net deferred tax not recognised Consolidated 2021 $’000 2020 $’000 2,641 2,888 Consolidated 2021 $’000 2020 $’000 5,107 - (105) 15 5,017 2,395 2,026 (377) 14 4,058 Consolidated 2021 $’000 2020 $’000 85 40,611 (1,752) (122) 38,822 68 35,752 (1,695) (128) 33,997 The above net potential tax benefit has not been recognised in the statement of financial position as the recovery of this benefit is uncertain. At 30 June 2021 no franking and imputation credits were held for subsequent reporting periods (2020: nil). 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. 52 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 8. Income tax expense (continued) 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. Note 9. Current assets - cash and cash equivalents Unrestricted operating accounts Restricted - Ironbark Drilling Program Account* Total as disclosed in the statement of cash flows Consolidated 2021 $’000 17,617 27 2020 $’000 19,936 12,008 17,644 31,944 *Restricted cash in the year ended 30 June 2020 included cash held by the Company as required under the funding arrangement of the WA-359-P Co-ordination Agreement for the Ironbark drilling program account. The majority of these funds were drawn down over the period to settle exploration expenditure associated with the WA-359-P. Accounting policy for cash and cash equivalents and restricted cash Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. 53 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 10. Current assets - trade and other receivables Trade receivables Other receivables Prepayments Consolidated 2021 $’000 2020 $’000 5,205 2,031 7,236 106 7,342 1,970 2,596 4,566 149 4,715 Allowance for expected credit losses The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The consolidated entity has not recognised any losses in profit or loss in respect of the expected credit losses for the year ended 30 June 2021 (2020: Nil). The aging of trade and other receivables at the reporting date was as follows: Not overdue Less than one month Consolidated 2021 $’000 2020 $’000 2,665 4,571 7,236 3,866 700 4,566 Trade and other receivables are not impaired and relate to a number of independent customers for whom there is no recent history of default. Accounting policy for trade and other receivables Trade and other receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. Note 11. Non-current assets - other financial assets Prepaid restoration fund - Sampang Consolidated 2021 $’000 2020 $’000 5,784 5,713 Other financial assets are comprised of prepayments made to fund Cue Sampang’s share of rehabilitation obligations. Cue Sampang contributed AUD$534k to the restoration fund for the Sampang PSC during the year ended 30 June 2021 (2020: AUD$435k) Accounting policy for other financial assets Other financial assets are initially measured at fair value and subsequently measured at amortised cost. 54 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 11. Non-current assets - other financial assets (continued) Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it’s carrying value is written off. Note 12. Non-current assets - exploration and evaluation assets Exploration and evaluation – Paus Biru-1 Exploration well* Exploration and evaluation – PB exploration wells** Consolidated 2021 $’000 2020 $’000 - - - 3,446 1,159 4,605 Under the criteria the costs of a successful exploration well are capitalised and carried forward as exploration and evaluation assets pending the evaluation of the success of the well. If a well does not result in a successful discovery, the previously capitalised costs are immediately expensed. *The plan of development (POD) for the Paus Biru discovery was approved on 30 July 2020. Nothing has come to the attention of the Directors to indicate future economic benefits will not be achieved. **Mahato PSC began production during the year and as such the costs associated with both Paus Biru-1 and PB exploration wells have been transferred to production assets, refer to note 13 for details. Note 13. Non-current assets - production properties Net accumulated cost incurred on areas of interest Joint operation assets Oyong and Wortel - Sampang PSC Maari - PMP 38160 Mahato Balance as at 30 June Consolidated 2021 $’000 2020 $’000 4,758 10,408 3,178 6,600 12,082 - 18,344 18,682 55 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 13. Non-current assets - production properties (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 1 July Expenditure during the year Changes in restoration provision – production (note 16) Amortisation expense Impairment of Maari production property* Transfer in from development assets** Changes in foreign currency translation Closing balance 30 June Consolidated 2021 $’000 2020 $’000 18,682 842 (81) (2,804) - 3,272 (1,567) 18,344 24,645 744 (691) (4,140) (2,722) - 846 18,682 * At 30 June 2020, the Group reassessed the carrying amount of its oil and gas assets for indicators of impairment such as changes in future prices, future costs and reserves. As a result, the recoverable amounts of Maari cash generating unit were formally reassessed. An impairment of the Maari oil field development in New Zealand of $2.72 million, primarily as a result of reduced oil prices, was recognised. 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 and based upon the Group’s long term pricing assumptions. The post-tax discount rates applied were 10% (2020: 10%) equivalent to pre-tax discount rates of 14.3% (2020: 14.3%) depending on the nature of the risks specific to each asset. Recoverable amounts are estimated as follows: ** Production assets transferred in relate to Mahato development assets include the PB-1 and PB-2 wells which were drilled as exploration wells in late 2019 and early 2020. During calendar year 2021, these wells commenced commercial oil production. PB-3, PB-4 and PB-5 wells were also drilled and brought into production by 30 June 2021. Accounting policy for production properties 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 expensed through the statement of profit or loss and other comprehensive income. 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 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. 56 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 13. Non-current assets - production properties (continued) 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 consensus estimates of forward market prices where available. The recoverable amount of other assets is the greater of their fair value less cost to dispose and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a post-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. The restoration provision is deducted from the carrying value of the asset as the cost of restoration 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. Note 14. Non-current assets - development assets Sampang Paus Biru Consolidated 2021 $’000 2020 $’000 3,670 - During the year ended 30 June 2021, Paus Biru gas field Plan of Development in the Sampang PSC was approved by the Indonesian Government. The Company subsequently reclassified and transferred the exploration and evaluation assets to Development assets. As the Mahato assets entered the development phase during this reporting period, the Company had an obligation for its share of restoration provision. However management do not believe this amount will be material, and as at 30 June 2021, the operator had not cash called for any restoration funds. Note 15. Current liabilities - trade and other payables Trade payables and accruals Amounts due to directors and director related entities Consolidated 2021 $’000 2020 $’000 2,274 686 2,960 1,945 99 2,044 Refer to note 20 for further information on financial instruments. The Directors consider the carrying amount of payables reflect their fair values. 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. 57 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 16. Non-current liabilities - provisions Employee benefits Restoration provisions Movements in restoration provision during the financial year are set out below: Consolidated - 2021 Carrying amount at the start of the year Additional provisions recognised FX translation Carrying amount at the end of the year Consolidated 2021 $’000 2020 $’000 48 15,608 81 16,889 15,656 16,970 Restoration provisions $’000 16,889 136 (1,417) 15,608 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. Abandonment provision Provisions for future environmental restoration are recognised where there is a present obligation as a result of exploration, development, production, transportation or storage activities having been undertaken, and it is probable that an outflow of economic benefits will be required to settle the obligation. The estimated future obligations include the costs of removing facilities, abandoning wells and restoring the affected areas. The expected timing of outflows for restoration liabilities is not within 12 months from the 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. 58 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 17. Equity - contributed equity Consolidated 2021 Shares 2020 Shares 2021 $’000 2020 $’000 Ordinary shares - fully paid 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 18. 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 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, or issue new shares. During 2021 management did not pay any dividends (2020: nil). There has been no change during the year to the strategy adopted by management to control the capital of the entity. The gearing ratio is nil for both 2020 and 2021 financial year, as the Group does not have external debt. Note 19. Equity - reserves Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2019 Foreign currency translation Share-based payments Transfer to accumulated losses Balance at 30 June 2020 Foreign currency translation Share-based payments Balance at 30 June 2021 Foreign currency reserve $’000 Options reserve $’000 Total $’000 (784) 691 - - (93) (1,085) - (1,178) 34 - 146 (4) 176 - 187 363 (750) 691 146 (4) 83 (1,085) 187 (815) Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. Options reserve The reserve is used to recognise the value of equity benefits provided to employees under the Employee Share Option Plan. 59 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 20. Financial instruments The Group’s principal financial instruments comprise receivables, payables, cash and cash equivalents (inclusive of restricted balances). 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 rates, foreign exchange and commodity prices. These risks are summarised below. 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 Board reviews and agrees management’s assessment for managing each of the risks identified below. In all instances the fair value of financial assets and liabilities approximates to their carrying value. Risk Exposures and Responses (a) Fair value risk 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 these notes to the financial statements. The Group has no debt and trade receivables, other financial assets and trade payables are a reasonable approximation of their fair values due to their short-term nature. Therefore there is no significant fair value risk. (b) Interest rate risk The Group’s exposure to market interest rates is related primarily to the Group’s cash deposits. 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 impact of interest rate movement is not material to the Group. (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. However, given the group generates and holds significant balances of foreign currencies, the Group foreign exchange risk exposures are mitigated through natural hedging. The Group’s exposure to foreign exchange risk at the reporting date was primarily to the New Zealand Dollar (NZD) and Indonesian Rupiah (IDR) and was as follows (holdings are shown in AUD equivalent): Consolidated 30 June 2021 Financial assets Trade and other receivables Financial liabilities Trade and other payables Lease liabilities 60 NZD $’000 IDR $’000 150 991 - 19 1 13 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 20. Financial instruments (continued) Consolidated 30 June 2020 Financial assets Trade and other receivables Financial liabilities Trade and other payables Lease liabilities NZD $’000 IDR $’000 41 608 - 21 27 20 Management believes the risk exposures as at the reporting date are representative of the risk exposure inherent in the financial instruments. (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. All gas contracts are fixed, limiting the Group’s exposure to fluctuations in gas price. The Group is exposed to commodity price fluctuations through the sale of petroleum products denominated in US dollars. Commodity price risks are measured by monitoring and stress testing the Group’s forecast financial position to sustained periods of low oil and gas prices. This analysis is regularly performed on the Group’s portfolio and, as required, for discrete projects and acquisitions. (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 by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group is consequently able to meet its payment obligations in full as they fall due. Prudent liquidity risk management implies maintaining sufficient cash to meet the Group’s obligations. 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. 61 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 20. Financial instruments (continued) 30 June 2021 Non-derivative financial liabilities Trade and other payable (Note 15) Lease liabilities 30 June 2020 Non-derivative financial liabilities Trade and other payable (Note 15) Lease liabilities (f) Credit risk 12 months or less $’000 2,960 52 12 months or less $’000 2,044 80 1 to 2 years $’000 2 to 5 years $’000 More than 5 years $’000 - 62 - 83 - - 1 to 2 years $’000 2 to 5 years $’000 More than 5 years $’000 - 16 - - - - Credit risk arises from the financial assets of the group, which comprise cash and cash equivalents and restricted cash 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. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Note 21. Key management personnel disclosures and related party disclosures Directors The following persons were directors of Cue Energy Resources Limited during the financial year: Alastair McGregor (Non-executive Chairman)* Andrew Jefferies (Non-Executive Director) Peter Hood AO (Non-Executive Director) Richard Malcolm (Non-Executive Director) Rod Ritchie (Non-Executive Director) Samuel Kellner (Non-Executive Director)* Marco Argentieri (Non-Executive Director)* *Alastair McGregor, Andrew Jefferies, Samuel Kellner and Marco Argentieri have elected not to be paid by the Company. Key management personnel The following person also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year: Matthew Boyall (Chief Executive Officer) 62 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 21. Key management personnel disclosures and related party disclosures (continued) 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 non-monetary benefits and consultancy fees • Post-employment benefits – superannuation and long service leave entitlements • Long term employee benefits Consolidated 2021 2020 Short term employment benefits (including non-monetary benefits) 493,134 492,544 Cash bonuses Long term benefits Post-employment benefits Share-based payments Total employee benefits Other related party transactions 64,260 5,218 33,560 62,693 91,800 21,193 33,459 51,334 658,865 690,330 Repayment of amounts owing to the Company as at 30 June 2021 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 the 2020 and 2021 financial years. The ultimate parent company is O.G. Oil & Gas (Singapore) Pte. Ltd., a company incorporated in Singapore. The immediate parent company is NZOG Offshore Limited, a company incorporated in New Zealand. During the financial year, NZOG provided technical and legal services to the Group under consulting agreements. The arrangements are on normal commercial terms. As at 30 June 2021, $661k was accrued for services rendered from the immediate parent company (2020: $99k). Note 22. Auditors remuneration During the financial year the following fees were paid or payable for services provided by the auditor of the company: Audit services - KPMG Audit or review of the financial statements Other assurance services Other services - KPMG Australian advisory services Tax compliance Overseas advisory services Consolidated 2021 $ 2020 $ 122,986 8,280 131,266 33,027 12,938 17,338 97,290 8,280 105,570 7,349 12,500 - 63,303 19,849 194,569 125,419 No other services were provided by the auditor during the year, other than those set out above. 63 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 23. Contingent assets and liabilities The Directors are not aware of any contingent assets or contingent liabilities as at 30 June 2021 (2020: Nil). Note 24. 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 operation arrangements, to enter into contractual commitments for future expenditures. Within one year One to five years Consolidated 2021 $’000 2020 $’000 414 - 414 24,593 - 24,593 2,319 - 2,319 817 - 817 * Cue has committed to Exploration and development expenditure as part of the Sales and Purchase agreement with Central Petroleum over the Mereenie, Palm Valley and Dingo fields announced 25 May 2021. As of 30 June 2021, completion of the transaction was still outstanding and the expenditure has not been included in this table. All commitments relate to Joint Operation projects. ** All development expenditure commitments relate to the development of oil and gas fields. Note 25. Parent entity information Cue Energy Resources Limited is the parent entity. Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Parent 2021 $’000 2020 $’000 (4,588) (2,501) (4,588) (2,501) Loss after income tax Total comprehensive income 64 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 25. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Contributed equity Options reserve Accumulated losses Total equity Parent 2021 $’000 2020 $’000 15,363 17,624 1,058 1,261 16,938 21,364 504 601 152,416 152,416 363 176 (136,418) (131,828) 16,361 20,764 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2021 (2020: nil). Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021 (2020: nil). Capital commitments - Property, plant and equipment The parent entity had no capital commitments for the acquisition of capital assets as at 30 June 2021 (2020: nil). Note 26. Shares in subsidiaries Shares held by parent entity at the reporting date: Principal place of business / Country of incorporation 2020 % 2019 % Ownership interest Name Cue Mahato Pty Ltd Cue Mahakam Hilir Pty Ltd Cue Kalimantan Pte Ltd* Cue (Ashmore Cartier) Pty Ltd Cue Sampang Pty Ltd Cue Taranaki Pty Ltd Cue Exploration Pty Ltd Cue Palm Valley Pty Ltd** Cue Mereenie Pty Ltd** Cue Dingo Pty Ltd** Australia Australia Singapore Australia Australia Australia Australia Australia Australia Australia All companies in the Group have a 30 June reporting date. * Shares held by Cue Mahakam Hilir Pty Ltd. ** New entities set-up by Cue Energy Resources Ltd, registered 21 May 2021. 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% - - - 65 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 27. Interests in joint operations Property Operator Petroleum exploration properties Carnarvon Basin – Western Australia WA-359-P BP Developments Australia Pty Ltd WA-389-P WA-409-P Cue Exploration Pty Ltd BP Developments Australia Pty Ltd Indonesia Mahakam Hilir PSC Cue Kalimantan Pte Ltd Petroleum production properties Cue Interest 2021 (%) Cue Interest 2020 (%) Permit expiry date 21.5* 100 20** 21.5 100 25/04/2021 08/04/2021 20 12/10/2022 100* 100 15/04/2021 OMV New Zealand Limited 5 5 02/12/2027 New Zealand PMP38160 Indonesia Sampang Medco Energi Sampang Pty Ltd Mahato PSC Texcal Mahato EP Ltd 15 (8.18 Jeruk Field) 15 (8.18 Jeruk Field) 04/12/2027 12.5 12.5 20/07/2042 *During the year, the terms of exploration permits WA-359-P and Mahakam Hilir PSC expired and were not renewed. ** Subsequent to the year end, the company has announced an intention to surrender exploration permit WA-409-P. 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 28. Events after the reporting period On 25 May 2021, Cue announced the execution of a sale and purchase agreement with Central Petroleum Limited (Central) (ASX:CTP) to acquire interests in the Mereenie, Dingo and Palm Valley onshore gas and oil fields, all located in the Amadeus Basin, onshore in the Northern Territory, Australia. On completion, Cue will acquire a 7.5% interest in the Mereenie gas and oil field (OL4 and OL5 production licences), a 15% interest in the Palm Valley gas field (OL3 production licence), and a 15% interest in the Dingo gas field (L7 Production Licence) with an effective date of 1 July 2020. On 24 June 2021, NZOG shareholders voted 99.99% in favour of their entry into an agreement to also acquire interests in the fields from Central, which satisfied a key condition precedent of the transaction. On 2 July 2021, the Company announced that it and NZOG had received a No Objection Notice from the Australian Foreign Investment Review Board in relation to the transaction to acquire Amadeus Basin Assets from Central Petroleum, which satisfied a key condition precedent, and on 28 July 2021 the Company held a general meeting of shareholders that approved the entry into deed of cross security with NZOG in relation to the transaction. As of the date this report was signed, conditions precedent which remain to be satisfied include regulatory approval by the NT government, and assignment of major contracts. On 30 July 2021, the Company released an independent resource report on the PB field in the Mahato PSC and announced that the PBE-1 well in the field had commenced production. 66 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 29. Reconciliation of profit/(loss) after income tax to net cash from/(used in) operating activities Profit/(loss) after income tax expense for the year Adjustments for: Share-based payments Abandonment provision expense Impairment - production assets Depreciation Amortisation Net (gain)/loss on foreign currency conversion Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease in inventories Decrease in deferred tax assets Increase/(decrease) in trade and other payables (Decrease)/Increase in tax liabilities Increase/(decrease) in deferred tax liabilities Increase/(decrease) in provisions Net cash from/(used in) operating activities Note 30. Earnings per share Consolidated 2021 $’000 2020 $’000 (12,743) 1,313 179 64 - 76 2,804 3,468 (2,627) 21 247 916 (172) 959 (1,222) (8,030) 146 257 2,722 73 4,140 (95) 582 545 114 (327) (1,940) 111 (241) 7,400 Consolidated 2021 $’000 2020 $’000 Profit/(loss) after income tax attributable to the owners of Cue Energy Resources Limited (12,743) 1,313 Weighted average number of ordinary shares used in calculating basic earnings per share 698,119,720 Adjustments for calculation of diluted earnings per share: 698,119,720 Options over ordinary shares - 1,692,411 Weighted average number of ordinary shares used in calculating diluted earnings per share 698,119,720 699,812,131 Number Number Basic earnings/(loss) per share Diluted earnings/(loss) per share Accounting policy for earnings per share Cents Cents (1.83) (1.83) 0.19 0.19 Basic earnings per share Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, 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. 67 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 31. Share-based payments On 16 July 2020, the Company issued 3,743,260 unlisted options to eligible employee under the share option scheme. The options are exercisable at $0.117 (11.7 cents) per option, and will vest on 1 July 2021 and expire on 1 July 2025. The options were valued using Black-Scholes option pricing model. $47,740 of share-based payment expense was recorded in relation to these options for the financial year ending 30 June 2021. Set out below are summaries of options granted under the plan: 2021 Grant date Expiry date 29/07/2019 01/07/2023 04/10/2019 01/07/2024 16/07/2020 01/07/2025 Exercise price $0.070 $0.090 $0.117 Balance at the start of the year 3,784,025 3,853,298 - - - 3,743,260 7,637,323 3,743,260 Granted Exercised Expired/ forfeited/ other Balance at the end of the year - - - - - - - - 3,784,025 3,853,298 3,743,260 11,380,583 Weighted average exercise price $0.080 $0.117 $0.000 $0.000 $0.092 2020 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised 29/07/2019 01/07/2023 04/10/2019 01/07/2024 $0.070 $0.090 4,277,888 - - 3,853,298 4,277,888 3,853,298 Expired/ forfeited/ other Balance at the end of the year - - - (493,863) 3,784,025 - 3,853,298 (493,863) 7,637,323 Weighted average exercise price $0.070 $0.090 $0.000 $0.070 $0.080 For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 16/07/2020 01/07/2025 $0.110 $0.117 57.00% - 0.43% $0.051 Accounting policy for share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. 68 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Note 31. Share-based payments (continued) The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. 69 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED DIRECTORS’ DECLARATION 30 JUNE 2021 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 2021 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 ___________________________ Alastair McGregor Non-Executive Chairman 18 August 2021 70 Cue Energy Resources LimitedAnnual Report 2021 Independent Auditor’s Report Independent Auditor’s Report To the shareholders of Cue Energy Resources Limited To the shareholders of Cue Energy Resources Limited Report on the audit of the Financial Report Report on the audit of the Financial Report Opinion Opinion We have audited the Financial Report of Cue We have audited the Financial Report of Cue Energy Resources Limited (the Company). Energy Resources Limited (the Company). In our opinion, the accompanying Financial In our opinion, the accompanying Financial Report of the Company is in accordance with Report of the Company is in accordance with the Corporations Act 2001, including: the Corporations Act 2001, including: • • • • giving a true and fair view of the Group’s giving a true and fair view of the Group’s financial position as at 30 June 2021 and financial position as at 30 June 2021 and of its financial performance for the year of its financial performance for the year ended on that date; and ended on that date; and complying with Australian Accounting complying with Australian Accounting Standards and the Corporations Standards and the Corporations Regulations 2001. Regulations 2001. The Financial Report comprises: The Financial Report comprises: • Consolidated statement of financial position as at 30 • Consolidated statement of financial position as at 30 June 2021 June 2021 • Consolidated statement of profit or loss and other • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; cash flows for the year then ended; • Notes including a summary of significant accounting • Notes including a summary of significant accounting policies; and policies; and • Directors’ Declaration. • Directors’ Declaration. The Group consists of Cue Energy Resources Limited The Group consists of Cue Energy Resources Limited (the Company) and the entities it controlled at the year- (the Company) and the entities it controlled at the year- end or from time to time during the financial year. end or from time to time during the financial year. Basis for opinion Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. 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 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 requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Code. KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. a scheme approved under Professional Standards Legislation. 51 51 71 Cue Energy Resources LimitedAnnual Report 2021 Key Audit Matters Key Audit Matters The Key Audit Matters we identified are: The Key Audit Matters we identified are: • Carrying value of production properties; and • Carrying value of production properties; • Restoration provisions and • Restoration provisions Key Audit Matters are those matters that, in our professional judgement, were of most significance in Key Audit Matters are those matters that, in our our audit of the Financial Report of the current period. 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 These matters were addressed in the context of our our opinion thereon, and we do not provide a separate audit of the Financial Report as a whole, and in forming opinion on these matters. our opinion thereon, and we do not provide a separate opinion on these matters. Carrying value of production properties Carrying value of production properties Non-current assets – production properties: $18.3m (refer to Note 13) Non-current assets – production properties: $18.3m (refer to Note 13) The key audit matter How the matter was addressed in our audit The key audit matter We identified the assessment of possible indicators of impairment and where required impairment We identified the assessment of possible indicators testing of Cash Generating Units (CGUs) as a key of impairment and where required impairment audit matter. This was due to the size of production testing of Cash Generating Units (CGUs) as a key properties and the complex auditor judgement and audit matter. This was due to the size of production level of specialised skills needed to evaluate certain properties and the complex auditor judgement and assumptions used in this process, and the level of specialised skills needed to evaluate certain impairment of the Maari CGU in the prior period. assumptions used in this process, and the impairment of the Maari CGU in the prior period. In assessing indicators of impairment, or reversal of previously recorded impairment, the Group In assessing indicators of impairment, or reversal of considers different internal and external factors. previously recorded impairment, the Group considers different internal and external factors. The process for identifying determining the recoverable amount of CGUs requires an estimate The process for identifying determining the of future cash flows using forward looking recoverable amount of CGUs requires an estimate assumptions which are inherently difficult to of future cash flows using forward looking determine with precision and require judgement to assumptions which are inherently difficult to be applied. These conditions require additional determine with precision and require judgement to scrutiny by us, in particular to address the be applied. These conditions require additional objectivity of the inputs, and their consistent scrutiny by us, in particular to address the application. Key inputs into these forward-looking objectivity of the inputs, and their consistent estimates that we focused on, include: application. Key inputs into these forward-looking estimates that we focused on, include: • Future oil and gas prices. The Group’s models are sensitive to small changes in price Future oil and gas prices. The Group’s models assumptions; are sensitive to small changes in price assumptions; • Reserves, future production volumes and • future capital expenditure and operating cash • Reserves, future production volumes and flows. These are determined by the Group future capital expenditure and operating cash based on historical performance adjusted for flows. These are determined by the Group expected changes. This drives additional audit based on historical performance adjusted for effort around the feasibility of forecasts; and expected changes. This drives additional audit effort around the feasibility of forecasts; and • Discount rates. These are complicated in nature • Discount rates. These are complicated in nature 52 52 72 • • • • • • • • How the matter was addressed in our audit Our procedures included: Our procedures included: • Testing key internal controls in the Group’s impairment assessment process. This Testing key internal controls in the Group’s included the determination, review and impairment assessment process. This approval by the Group of indicators of included the determination, review and impairment or impairment reversals and key approval by the Group of indicators of impairment model inputs; impairment or impairment reversals and key impairment model inputs; Assessing the appropriateness of the impairment testing methodology applied by Assessing the appropriateness of the the Group against the requirements of impairment testing methodology applied by accounting standards; the Group against the requirements of accounting standards; Evaluating the Group’s impairment indicator assessment utilising our knowledge of the Evaluating the Group’s impairment indicator Group and the Oil and Gas industry; assessment utilising our knowledge of the Group and the Oil and Gas industry; As part of the testing over CGUs with impairment indicators, our procedures also included: As part of the testing over CGUs with impairment indicators, our procedures also included: • Assessing the integrity of the impairment models including the accuracy of the Assessing the integrity of the impairment underlying calculation formulas; models including the accuracy of the underlying calculation formulas; Evaluating key inputs used in the Group’s impairment models by: Evaluating key inputs used in the Group’s impairment models by: − Working with our valuation specialists we evaluated future oil and gas prices by − Working with our valuation specialists comparing to published forecast we evaluated future oil and gas prices by commodity prices and views of market comparing to published forecast commentators on future trends; commodity prices and views of market commentators on future trends; − Comparing future capital and operating expenditures and reserves to board − Comparing future capital and operating approved asset plans and long-term expenditures and reserves to board approved asset plans and long-term Cue Energy Resources LimitedAnnual Report 2021 and vary according to the conditions and environment that the CGUs are subject to from time to time. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. budgets. We assessed the Group’s ability to budget accurately by comparing prior years’ estimated cash flows to actual results; − Evaluating the scope, competency, and objectivity of the Group’s external experts who produced reserve estimates and future production volumes used in the impairment model. We assessed the methodology used against industry accepted practice. We assessed consistency of assumptions used in the reserves estimate and future production volumes to publicly available information from joint operation partners and other assumptions used in the Group’s impairment model; − Assessed the feasibility of future operating and capital expenditure and future production volumes by comparing to publicly available information from joint operation partners, past performance and the Group’s long-term budgets; − Working with our valuation specialists we analysed the Group’s discount rate against publicly available risk-free rates and data of a group of comparable entities; and − Considering the sensitivity of the model by varying key assumptions, such as future oil and gas prices, production volumes, capital and operating expenditures, and discount rates, within a reasonably possible range. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures; and • Assessing the appropriateness of the Group’s disclosures in the financial report using our understanding obtained from our testing and against the requirements of accounting standards. 53 73 Cue Energy Resources LimitedAnnual Report 2021 Restoration provisions Non-current liabilities – restoration provisions: $15.6m (refer to Note 16) The key audit matter How the matter was addressed in our audit We identified restoration provisions as a key audit matter due to: • • The Group’s assets being long-life, which increases estimation uncertainty relating to forecast restoration cash flows which require auditor judgement and specialised skills to evaluate their appropriateness; The significant size of the restoration provisions relative to the Group’s financial position; and The Group incurs obligations to close, restore and rehabilitate its sites and associated facilities. We focussed on the following key estimates made by the Group in determining its restoration provision: • • • The useful life of asset including the economic reserves and production profiles; The interpretation of legislative regulatory requirements governing its sites; The cost and timing of future rehabilitation costs; and • Discount rates applied to the Group’s net present value of forecast cash flows used to determine the restoration provision. Our procedures included: • • • • • • Testing key controls in the Group’s process to determine the restoration provision. This included the determination, review and approval by the Group of key inputs included in the calculation such as life of asset reserves and production profiles, discount rates, future restoration costs, and timing of future cash flows; Assessing the nature and extent of the work performed by the Group’s external expert in identifying future restoration activities and assessing the timing and likely cost of such activities. We compared the nature and extent of restoration work to the relevant regulatory requirements, and inspected relevant correspondence from government and regulatory bodies. We compared the timing of restoration activities to the Group’s reserves and resources estimates, expected production profile and useful life; Using our knowledge of the Group and our industry experience, and considering other publicly available information from the joint operation partners, we assessed the feasibility of the future restoration costs and their timing; Evaluating the scope, competency and objectivity of the Group’s external expert; Evaluating the discount rates applied to the Group’s net present value of the restoration provision against publicly available data, including risk free rates; and Assessing the integrity of the provision calculation including the accuracy of the underlying calculation formulas. . 74 54 Cue Energy Resources LimitedAnnual Report 2021 Other Information Other Information is financial and non-financial information in Cue Energy Resources Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, CEO Report and the Shareholder Information. The Chairman’s Overview, Reserves and Resources Summary and Sustainability are expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing an 55 75 Cue Energy Resources LimitedAnnual Report 2021 Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Cue Energy Resources Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPM_INI_ KPMG 01 Vicky Carlson Partner Melbourne 18 August 2021 76 56 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED SHAREHOLDER INFORMATION 30 JUNE 2021 Shareholder Information 1. Distribution of equitable securities The shareholder information set out below was applicable as at 14 September 2021. Ordinary shares % of total shares issued Number of holders Options over ordinary shares Number of holders % of total shares issued 68 186 540 1,678 329 - 0.09 0.68 8.36 90.87 2,801 100.00 435 - - - - - 8 8 - - - - - 100.00 100.00 - 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 The registered names and holdings of the 20 largest holdings of quoted ordinary shares in the Company as at 14 September 2021: Shareholder 1. NZOG Offshore Limited 2. BNP Paribas Noms Pty Ltd3. Portfolio Securities Pty Ltd 4. Citicorp Nominees Pty Limited 5. HSBC Custody Nominees (Australia) Limited 6. Zilstame Nominees Pty Ltd 7. Reviresco Nominees Pty Ltd 8. Finot Pty Ltd 9. Andrew Mark Wilmot Seton 10. Beira Pty Limited 11. Grizzley Holdings Pty Limited 12. Lakemba Pty Ltd 13. Berne No 132 Nominees Pty Ltd <52293 A/C> 14. JBM Trading Pty Ltd 15. BNP Paribas Nominees Pty Ltd 16. Mr Damiano Giorgio Pilla 17. Mr Stephen Alan Mccabe 18. Andrew Knox 19. Brinkworth Investment Pty Ltd 20. Mana Nominees Limited Ordinary shares Number held 349,368,803 116,639,660 10,000,000 9,589,180 6,849,997 6,391,995 6,000,000 5,000,000 3,500,000 3,458,000 3,202,203 2,984,051 2,500,000 2,340,000 2,045,333 1,996,427 1,742,717 1,721,007 1,450,000 1,348,725 538,128,098 % of total shares issued 50.04 16.71 1.43 1.37 0.98 0.92 0.86 0.72 0.50 0.50 0.46 0.43 0.36 0.34 0.29 0.29 0.25 0.25 0.21 0.19 77.08 77 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED SHAREHOLDER INFORMATION 30 JUNE 2021 3. Unquoted equity securities Unquoted options over ordinary shares The following persons hold 20% or more of unquoted equity securities: Number on issue Number of holders 15,979,587 8 Name Balakrishnan Kunjan Matthew Boyall 4. Vendor Securities Class Unquoted options Unquoted options Number held 5,290,764 5,219,383 There are no restricted securities on issue as at 14 September 2021. 5. Substantial holders Substantial holders in the company are set out below: NZOG Offshore Limited BNP Paribas Noms Pty Ltd (DRP) 6. Voting rights At meeting of members or classes of members: Ordinary shares Number held 349,368,803 116,639,660 % of total share issued 50.04 16.71 (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. 7. Annual General Meeting and Director Nominations Closing date Cue Energy Resources Limited advises that its Annual General Meeting will be held on or about Thursday 28 October 2021. The time and other details relating to the meeting will be advised in the Notice of Meeting to be sent to all Shareholders and released to ASX immediately upon dispatch. The Closing date for receipt of nomination for the position of Director is 16 September 2021. Any nominations must be received in writing no later than 5.00pm (Melbourne time) on 16 September 2021 at the Company’s Registered Office. The Company notes that the deadline for nominations for the position of Director is separate to voting on Director elections. Details of the Director’s to be elected will be provided in the Company’s Notice of Annual General Meeting in due course. 78 Cue Energy Resources LimitedAnnual Report 2021 CUE ENERGY RESOURCES LIMITED SHAREHOLDER INFORMATION 30 JUNE 2021 8. 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 9. Sharecodes ASX Share Code: CUE 79 Cue Energy Resources LimitedAnnual Report 2021 Page intentionally left blank. Level 3, 10-16 Queen Street, Melbourne VIC 3000, Australia Phone: +61 3 8610 4000 WWW.CUENRG.COM.AU