EMPIRE ENERGY GROUP LIMITED
and its controlled entities
ABN 29 002 148 361
DECEMBER 2015 ANNUAL REPORT
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONTENTS
CORPORATE DIRECTORY
LETTER TO SHAREHOLDERS
EXECUTIVE CHAIRMAN’S REVIEW OF OPERATIONS
DIRECTORS’ REPORT
AUDITOR’S INDEPENDENCE DECLARATION
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
SHAREHOLDER INFORMATION
3
4
6
21
29
30
31
32
34
35
70
71
73
2
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CORPORATE DIRECTORY
Directors
B W McLeod (Executive Chairman)
D H Sutton
K A Torpey
Registered Offices
Australian Office
Level 7
151 Macquarie Street
Sydney NSW 2000
US Office
380 Southpointe Boulevard
Suite 130
Canonsburg PA 15317
Auditors
Nexia Australia
Level 16,1 Market Street
Sydney NSW 2000
US Auditors
Schneider Downs & Co. Inc
One PPG Place, Suite 1700
Pittsburgh PA 15222
Share Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000
Telephone: 1300 85 05 05
Bankers
Macquarie Bank Limited
50 Martin Place
Sydney NSW 2000
Australia & New Zealand Banking Group Limited
242 Pitt Street
Sydney NSW 2000
PNC Bank
249 Fifth Avenue
One PNC Plaza
Pittsburgh PA 15222
Company Secretary
R V Ryan
Australian Solicitors
Clifford Chance
Level 16
1 O’Connell Street
Sydney NSW 2000
US Solicitors
K&L Gates LLP
K&L Gates Center
210 Sixth Avenue
Pittsburgh PA 15222-2613
Barry Conge Harris LLP
1800 West Loop South, Suite 750
Houston, TX 77027
Stock Exchange Listings
Australia
Australian Securities Exchange
(Home Exchange Sydney, New South Wales)
ASX Code: EEG - Ordinary Shares
United States of America
New York OTCQX Market:
Code: EEGNY
OTC#: 452869103
Sponsor: Bank of New York
1 ADR for 20 Ordinary shares
www.empireenergygroup.net
3
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Letter to Shareholders
Dear Shareholders
The year to December 31, 2015 was a busy year for the Company.
The highlight for 2015 was the realization of the Farmout Agreement with American Energy Partners, LP (”AEP”) for
the Company’s Northern Territory (“NT”), Australia 14.6 million acres which are considered highly prospective for
large shale oil and gas conventional and unconventional resources. Work undertaken by the Company over the past
5 years demonstrates that the Central Trough of the McArthur Basin, (of which the Company holds around 80%), is a
major Proterozoic depo-centre that forms one segment of a series of extensive prolific hydrocarbon basins similar to
those extending through Oman, Siberia and Southern China and which contain billions of barrels of oil equivalent
resources. From the commencement of negotiations in March 2015 the Farmout and Joint Operating Agreement was
finally signed on December 22, 2015. Details of the Farmout have been previously reported and are included on
page 18 of this Report.
The development of the Northern Territory’s potentially significant petroleum assets will benefit all stakeholders by
producing thousands of direct and indirect jobs and generating millions of dollars in royalties for both the NT
Government and the Traditional Owners. However, with an election set in the NT for August of this year, the NT
Australian Labor Party recently announced that it would seek to implement a fracking moratorium or a review on all
petroleum activities in the NT if it were elected. This political uncertainty may negatively affect the agreements the
Company has entered into over the past 3 years with the NT Government, the Traditional Owners and AEP. A review
of the Company’s position in relation to any changes in the legality of the proposed changes and their effect to the
agreements is currently being undertaken.
In the USA, E&P operations have been very challenging in the current oil price environment. The Company’s
hedging program provided a significant cash offset for both oil and gas in the current environment. Hedging is in
place through to the end of 2017 for oil at ~$72/Bbl and to the end of 2019 for gas at $4.06/Mcf each for
approximately 70% of current production.
Current oil market conditions do not allow for any major new economic development onshore in many of the USA
regions of operation. A change in these conditions is not expected while OPEC continues to remain fragmented in its
approach to excess production. However, the reduction in global capital expenditure towards reserves replacement
has seen, for example, the top seven largest western energy companies replace only 75% of their reserve targets
last year, as the impact of 18 months of depressed oil prices continues to bite. Apply this across the global E&P
sector, unless investing starts soon, a supply crunch could be over the horizon. As oil in storage is slowly used, the
oil price is likely to reset itself to the ‘buy side’ and increases in oil prices to the $50 to $60/Bbl range should be
expected by mid-2017. Recent price rises appear to have been caused by a combination of wishful thinking that
OPEC would agree on production reductions along with significant short covering by oil speculators. Short term may
see prices ease back to the low $30/Bbl.
The Company continues to implement operations efficiency programs which include an individual oil well ‘production
matrix’ allowing wells to be put on, or taken off production based on the prevailing WTI spot price. By managing oil
wells individually, operating costs have been reduced by around 15%.
The Company has maintained its cost effective G&A overhead and operations remain cash flow profitable. Margins,
including hedging, are positive for both gas production in Appalachia and oil production in the MidCon. The
Company operates around 2,400 oil and gas wells, but management systems developed by the Company will allow
at least 3 times the number of wells to be operated. As such, the Company has recently taken over as operator and
administrator of operations for two companies and is in negotiation with two additional companies to take over their
operations as designated operator, but without an ownership interest.
At the end of the financial year, like most E&P companies, the US oil and gas operations recorded a non-cash
impairment loss of $19.7 million ($12.2 million after tax). The oil and gas assets are value adjusted at the end of
each financial year based on a net present value basis. The write down is a non-cash item and will be written back
with any increase in the oil/gas price strip. With the difference in accounting policies between Australia and USA,
means that the $19 million tax asset accrued on the USA balance sheet is not accounted for in the balance sheet of
the parent Australian Company. If this tax affect treatment has been included in the Australian accounts as per the
USA accounts, Net Income for the year would have increased by $16.8 million and the net assets of the Company
also increased by $16.8 million. The write down in asset value relates to both producing and development assets,
the latter which at current prices remain marginally economic, even though in some cases well drilling and service
costs have been reduced by 30% to 50%.
There remains significant underlying value in the Company’s E&P assets which is not currently reflected in the
balance sheet values if it is considered oil and gas prices will increase from current levels. Northern Territory Assets
are recorded in the balance sheet at a net value of ~$1.0 million. As with many other listed E&P companies, the
Company breached the NPV/loan covenant at the end the financial year which is a part of the Macquarie Bank
4
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Limited Credit Facility. The breaches have been waived and the Credit Agreement is being extended for a further 3
years, with sign off expected early April 2016. The Company has committed to an accelerated pay down of an
agreed amount of the current outstanding debt from a portion of the proceeds received from the AEP Farmout
Agreement.
Seeking opportunities to create value for Company shareholders is being strongly pursued. Two small acquisitions
which added around 2Bcf in reserves were completed in Appalachia over 2015. Unfortunately the company was
unable to close an attractive Butler County oil field asset in Kansas in early 2016. Although significant 3D seismic
interpretation had been undertaken by the Company, the equity required for this opportunity was not available and
the Credit Facility was not available for non-producing assets. However, the Company is the operator for these
assets and has the opportunity to buy back into the project at a later date.
The Company has weathered the worst of the events that the energy industry will incur and it is expected a return to
more normalized levels will occur within the next 12 to 24 months. The Empire team is enthusiastically seeking
opportunities to enhance shareholder value at all levels and looks forward to an improved 2016/17.
Bruce McLeod
Executive Chairman
5
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operations
A.
2015 OVERVIEW & HIGHLIGHTS
USA – APPALACHIA & MIDCON
- Revenue $17.5 million (2014: $23.6 million).
-
EBITDAX $6.0 million (2014: $8.9 million).
- Gross oil production 216,000 Bbls (Net 140,000 Bbls) (2014: Gross 250,000 Bbls).
- Gross natural gas production 2.2 Bcf (Net 1.7 Bcf) (2014: Gross 2.4 Bcf).
-
-
-
-
Average 2015 net production 1,192 Boe/d (2014: 1,311 Boe/d).
2P Reserves are 12.7 MMBoe, (2014:14.3 MMBoe) and an NPV10 of $44.5 million or NPV8 of $55.7
million. Utilsing the same NYMEX WTI strip as used for the NPV10 calculations, but increasing 2018
WTI from $49/Bbl to $55/Bbl and 2019+ WTI from ~$54/Bbl to $70/Bbl, the NPV10 increases to $77
million as shut-in wells and Puds become economic.
Approximately 2Bcf of producing reserves, two compressor stations and two mainline gas taps were
acquired in New York State for $120,000. This also included 35,000 held by production
Marcellus/Utica shale acres.
The US oil and gas assets recognised a non-cash impairment charge on the historic book value of
$19.7 million, or ~$12.2 million after tax.
- Net tangible Assets (‘NTA’) at balance date where US$18.7 million or US$0.055 cents per share. If
the Australian accounting rules treated impairment the same way it is treated in the USA, NTA would
be US$35.5 million or US$0.103 cents per share.
- Outstanding hedges as at December 31, 2015 were valued at $10.9 million.
AUSTRALIA – NORTHERN TERRITORY
-
-
-
-
The Company entered into a US$75,000,000 Farm-out agreement for the development of its NT
Assets with America Energy Partners, LP (“AEP”), an Oklahoma, USA based, global leading
unconventional independent oil & gas producer. The agreement also includes Imperial’s 20%
share of the Second Phase US$500,000,000 of project funding. Refer to page 18 for details.
A recent announcement by the NT Labor Party to implement a fracking ban or review if they are
elected to office in August 2016 has generated significant political uncertainty in terms of the AEP
Farmout Agreement. Legal advice is being sort as to the Company’s alternatives.
Subject to the clarification of a proposed NT fracking moratorium, a 470 km seismic program and 2
+8,000 foot well drilling program was initiated to be undertaken over 2016. This is now under review
due to political uncertainty.
A Prospective Resource P(50) (“PRP(50)”) of ~1.9 billion Boe or ~11.0Tcfe was announced in March
2015 for the Company’s NT Assets. The PRP(50) covers approximately 3.6 million acres of the total
14.6 million acres held by the Company and with an average shale thickness of 330 feet. In most of
the area reviewed, the shale thickness can be up to 5 times the thickness used for the PRP(50)
estimate. (Refer to page 14 for definition of Prospective Resource)
- Over 2015, the Tawallah Group of shales were shown to extend within EP 184, EPA 183 and EP 187
in the McArthur Basin tenements. No PRP(50) has been calculated, but total areas mapped are
approximately 2,000,000 acres, with an expected average thickness of around 400 feet and with
projected TOC’s between 6% to 7%. The Tawallah Group of shales (and/or equivalents) have now
been shown to extend northwards, underlying the Barney Creek shales in EPA’s 180, 181 and 182,
adding a further estimated 10,000,000 acres to the potential resource base. This has the possibility of
adding very significant additional resources to the current PRP(50).
- Negotiations with Traditional Owners continue for the Company’s tenements in the McArthur Basin,
Northern Territory Australia.
6
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
B.
OPERATIONS
The Company maintains a head office in Australia and manages the oil & gas production operations through its 100%
owned USA subsidiary Empire Energy E&P, LLC (“Empire E&P”). The exploration program in the McArthur Basin,
Northern Territory, is operated through its 100% owned subsidiary Imperial Oil & Gas Pty Ltd (“Imperial”).
C.
OPERATIONS REVIEW – USA
TABLE A
Operating Statistics
Notes
Dec 31, 2015
Dec 31, 2014
% change
Gross Production:
Oil (MBbls)
Natural gas (MMcf)
Net Production:
Oil (MBbls)
Natural gas (MMcf)
Net production (MBoe):
1.0
216
2,222
140
1,769
435
250
2,439
160
1,909
478
Net Daily Production (Boe/d):
1,192
1,311
Average sales price per unit (after hedging):
Oil ($/Bbl)
Natural gas ($/Mcf)
Oil Equivalents (Boe)
Average sales price per unit (before hedging):
Oil ($/Bbl)
Natural gas ($/Mcf)
Oil Equivalents (Boe)
Lifting Costs (incl taxes):
Oil ($/Bbl)
Natural gas ($/Mcf)
Oil Equivalents (Boe)
2P Reserves (MMBoe):
Notes to Table A
$72.31
$ 3.84
$38.93
$43.46
$ 1.84
$21.49
$24.53
$ 2.23
$16.97
12.7
1.1
$84.94
$ 5.00
$48.38
$87.37
$ 3.93
$44.96
$27.60
$ 2.35
$18.61
14.3
1.0 BOE - based on SEC guidelines of an oil:gas ratio of 1:6.
1.1 Lifting Costs - includes lease operating expenses, production and ad valorem taxes.
-14%
-9%
-12%
-7%
-9%
-9%
-15%
-23%
-20%
-50%
-53%
-52%
-11%
-5%
-9%
23%
7
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
D.
NET PRODUCTION BY REGION - USA
TABLE B
Operating Statistics
Oil (MBbls)
Appalachia
Mid-Con
Total (MBbls)
Natural gas (MMcf)
Appalachia
Mid-Con
Total (MMcf)
Notes
Dec 31, 2015
Dec 31, 2014
% change
4
136
140
1,761
8
1,769
4
156
160
1,892
17
1,909
13%
-13%
-12%
-7%
-55%
-7%
E.
REVIEW OF OPERATING RESULTS
USA OPERATIONS
In addition to the information presented in this financial report, to assist stakeholders in gaining a more
comprehensive understanding of the operations the financial results have also been prepared with reference to an
EBITDAX format.
The presentation of “EBITDAX” accounting, which is a non-IFRS or statutory financial measure, may therefore not be
comparable to similar measures presented by other companies. Management have attempted to ensure that
EBITDAX accounting presented is consistent with reporting by other similar E&P companies so a useful production
and financial comparison can be made. The EBITDAX accounts, based on the production date, are not meant to
reconcile to the statutory accounts as the latter have been prepared on an accrual basis (effective date). However, if
the EBITDAX accounts are prepared on an effective date basis they can then be reconciled to the statutory
accounts.
EBITDAX represents net income (loss) before interest expense, taxes, and depreciation, amortization, development
and exploration expenses. Nonrecurring expenses have been included in EBITDAX. In summary, all revenues and
operating expenses of the Company’s business are included in EBITDAX. All non-cash expenses, which may distort
the presentation of operations as shown in the statutory accounts, have been either eliminated or reallocated and
aggregated below the EBITDAX line.
In summary, we believe that:
•
•
•
•
•
EBITDAX provides stakeholders with a much simpler and clear measure of our operating
performance.
EBITDAX is an important supplemental measure of operating performance because it eliminates
items that have little bearing on our operating performance and so highlights trends in our core
business that may not otherwise be apparent when relying solely on current statutory accounting
and financial measures.
EBITDAX is the material component of the covenants that are imposed on the Company under our
credit agreements.
Securities analysts and investors generally use EBITDAX (cash flow modelling) in the comparative
evaluation of companies.
Management and external users of our financial statements, rely on the use of EBITDAX to assess:
the financial performance of our assets without regard to financing methods, capital
structure or historical cost basis;
the ability of our assets to generate cash sufficient to pay interest costs and support our
indebtedness;
our operating performance and return on capital as compared to those of other
companies in our industry, without regard to financing or capital structure; and
the feasibility and effectiveness of acquisitions and capital expenditure projects; and
the overall rates of return on alternative investment opportunities.
•
•
•
•
•
8
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
Other companies may calculate EBITDAX differently than as presented. Based on the premises set out above, the
following schedules present comparative operating statistics and financials on an EBITDAX basis:
RECONCILIATION OF EBITDAX ACCOUNTS TO STATUTORY ACCOUNTS
For the EBITDAX report actual numbers for production, income and expenses have been utilised. This method
generates differences between what is shown in the EBITDAX accounts and what is represented in the statutory
accounts.
The table below provides a reconciliation EBITDAX to the financial statements.
Net Earning – Effective Date
(In $ thousands)
EBITDAX – production date
EBITDAX – effective date
Net earning – effective date
Intergroup Management Fee
Revenue & Expenses
Rental Income
Other Income*
Impairment of Assets* (refer to note 8 (c))
General & Admin. - HQ
General & Admin. – other*
Other Expenses
Statutory –Earnings before Tax
*Indicates non-cash item
Dec 31, 2015
Dec 31, 2014
6,020
6,606
(6,588)
150
6
162
(22,203)
(6)
(456)
(306)
(29,241)
8,911
8,805
(2,337)
150
18
6,616
(13,995)
(18)
(367)
-
(9,933)
EBITDAX in Table C relates to Empire Energy E&P and Net Earnings in Table D reports operational activities of
Empire Energy Group.
9
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
TABLE C
Operations
(In $ thousands)
Net Revenue:
Oil Sales
Natural Gas Sales
Working Interest
Net Admin Income
Other Income
Total Revenue
Production costs:
Lease operating expenses - Oil
Lease operating expenses - Gas
Taxes - Oil
Taxes - Natural Gas
Total
Field EBITDAX
Less:
Inventory adjustment
Reserve Enhancements
Nonrecurring expenses
G & G Costs
Field Overhead
Total
Operating EBITDAX
Operating Margin
Operating Margin
Less:
Field G & A
Corporate G & A
Delay rental payments
Land Overhead & Non-leasing costs
Dry hole expenses
Total
EBITDAX
Net Margin
Notes
Dec 31, 2015
Dec 31, 2014
% change
1.0
1.0
1.1
1.2
1.2
1.3
1.4
1.5
1.6
1.7
1.8
10,153
6,790
12
356
166
13,611
9,516
23
461
4
17,477
23,615
3,292
3,247
190
197
6,926
10,551
160
63
821
51
788
1,883
8,668
49.6%
989
1,565
74
11
9
2,648
6,020
34.4%
3,756
3,431
648
617
8,452
15,163
163
347
1,646
118
720
2,994
12,169
51.5%
688
1,859
260
8
443
3,258
8,911
37.7%
-25%
-29%
-48%
-23%
>100%
-26%
-12%
-5%
-71%
-68%
-18%
-30%
-2%
-82%
-50%
-57%
9%
-37%
-29%
44%
-16%
-72%
38%
-98%
-19%
-32%
10
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
Notes to Table C:
1.0 Oil and Natural gas Sales –includes realised net hedges of $7.6 million for natural gas and oil.
1.1 Net Admin Income – as operator for approximately most of the Company’s assets, the Company charges
Working Interest Owners a fee to cover expenses such as administration, general insurance and
supervision etc., or COPAS expenses. As part of this cost there is a net margin which accrues to the
Company.
1.2 Taxes – includes production, severance and ad valorem taxes.
1.3
Inventory Adjustment – adjustment for oil in tanks as of December 31, 2015.
1.4 Reserve Enhancements – capital costs relating to the development of behind pipe reserves, plus
polymer treatment program for wells.
1.5 Nonrecurring expenses – Costs relating to ongoing upgrade of well bores, wellhead equipment well and
tank battery sites etc.
1.6 Field Overheads – field supervision and indirect operational expenses including motor vehicles, fuel,
mechanics, roustabouts, supervisors, lease administration and land management, general property
insurances, environmental and reserve reporting etc. Around 50% of this is covered by Net Admin Income
(refer Note 1.1 above).
1.7 Field G&A - Empire Energy has field offices in each region it operates. Operations are expansive with
over 2,200 operating wells, 3,700 leases, 1,600 right of ways, 20 marketing agreements, 40 employees
and 15 contract pumpers operating in two regional areas, Appalachia and the Mid-Con. Field G&A
expenses include expenses such as utilities, IT, postage, office rental, third party reservoir engineering
reviews etc.
1.8 Corporate G&A – Empire Energy manages its USA operations from a corporate head office at
Canonsburg, PA were a staff of 4 full time and 2 part time hold responsibility for financial management,
control and reporting, plus HR Services. Major expenses for the period were - salaries and wages
$301,772; audit/tax and accounting $349,495; travel and accommodation $170,789; rent and associated
costs $156,441; Professional Services $89,092 and Management and Director Fees $328,000 (of which
$150,000 was paid to Empire Energy Group Limited).
11
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
F.
NET EARNINGS
TABLE D
Net Earnings (In $ thousands)
EBITDAX
Geological Services
Acquisition related expenses
Capital Raising Expenses
Australia HQ
Northern Territory exploration expenses
Total
EBITDA
Less:
Expiration costs
ARO
Depn., Depletion, Amortisation.
Total
EBIT
Less:
Interest
Interest (non-cash)
(Gain) loss on sale of assets
P&A vs. ARO
Net Earnings before Tax
Notes
Dec 31, 2015
Dec 31, 2014
% change
6,020
8,911
1.9
1.10
1.11
29
262
17
1,203
946
2,457
3,563
426
422
6,227
7,075
(3,512)
2,060
510
614
357
35
670
598
1,387
461
3,151
5,760
189
378
6,009
6,576
(816)
2,022
165
(736)
-
(7,053)
(2,267)
-32%
-18%
-61%
-97%
-13%
-105%
-22%
-38%
126%
12%
4%
8%
331%
2%
209%
-183%
100%
211%
Notes to Table D:
1.9
Acquisition related expenses – Directly associated with acquisitions and include legal, engineering, tax
and accounting advice, transition fees, recruitment and relocation costs.
1.10
Australian HQ – net cost of Australian operations (expenses are net of income received). Major expenses
were consultants $330,144; salaries $235,392; audit & accounting $108,611; listing related expenses
$98,340; rent, communications, IT hardware and support services $164,502. Australian expenses currency
translation at AUD/USA 0.7524.
1.11
Interest (non-cash) – increased due to warrant amortisation from prior and current year taken up in 2015.
G.
CAPITAL EXPENDITURE
Capex (In $ thousands)
Notes
Dec 31, 2015
Dec 31, 2014
% change
Capital Expenditures
Acquisition Capital
New Wells - IDC
New Wells - Capital
Undeveloped Leases
Northern Territory, Australia
Total
884
878
26
899
1,465
4,152
14
2,392
1,066
1,211
1,491
6,174
>100%
-63%
-98%
-26%
-2%
-33%
12
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
H.
CREDIT FACILITY
The draw down on the Macquarie Bank Limited Credit Facility as at December 31, 2015 was $39.4 million (cf $42.5
million at Dec 2014) at an average rate of LIBOR+4.35%. Principal repayments made in 2015 and 2014 were ~$3.7
million and ~$3.7 million respectively. Interest expense is estimated to average $143,000/mth over 2016.
The Credit Facility expires on 7 April 2016 and is being extended for a further 3 years, with sign off expected early
April 2016. The Company has committed to an accelerated pay down of an agreed amount of current outstanding
debt from a portion of the proceeds received from the AEP Farmout Agreement.
I.
HEDGING
Due to the risk/growth model implemented by Empire, a comprehensive hedging strategy has been adopted to
ensure a reduction in commodity risk over the period that a major portion of debt financing is repaid. The portion of
production hedged will naturally reduce as drill bit production comes on line or on the other hand increase as non-
economic wells are shut-in.
Year
Est. Net
mmBtu
Hedged
mmBtu
Average
Est. Net
Hedged
%
$/mmBtu
Bbl
126,000
119,500
Bbl
99,600
97,200
%
79.0%
81.3%
Average
$/Bbl
$72.04
$72.01
2016
2017
2018
2019
Total
1,730,000
1,305,000
75.4%
1,675,000
1,068,000
63.8%
1,620,000
1,008,000
62.2%
1,550,000
498,000
31.7%
6,575,000
3,879,000
58.9%
$4.35
$4.05
$4.11
$3.45
$4.09
245,500
196,800
80.2%
$72.03
The fair value (marked to market) of combined oil and gas hedges in place as at December 31, 2015 was $10.9
million. Oil and gas hedge contracts were valued based on NYMEX Henry Hub and WTI forward curves at market
close on December 31, 2015.
J.
RESERVES – USA
The Company’s reserves are reviewed annually by independent third party reserve engineers. The scope of the
reviews is to prepare an estimate of the proved, probable and possible reserves attributable to Empire’s ownership
position in the subject properties.
13
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
Reserves as at December 31, 2015 – USA (NYMEX Strip Dec 31, 2015)
Reserves - 1, As of Jan 2016
Oil
(Mbbls)
Gas
(MMcf)
MBoe
Gross
Wells
Capex
US$M
PV0
US$M
PV10
US$M
Reserves & Region
Proved Developed Producing
1,253
23,422
5,157
2,233
Proved Developed Non-producing
Proved Behind Pipe
Proved Undeveloped
Total 1P
Probable
Total 2P
Possible
Possible - NY Shale
Total 3P
0
0
771
2,024
2,774
4,798
180
90,740
95,718
$53,152
$22,875
$0
$0
$30
$0
$47
0
38
98
23,558
23,851
47,409
3,820
0
0
36
0
6
787
5,950
6,749
$7,741
$17,017
2,269
$7,771
$70,216
131
$60,960
$101,999
12,699
2,400
$68,731
$172,215
817
16
$4,922
$11,069
$0
$8
$5,652
$28,535
$15,963
$44,498
$2,397
12,460
92,817
63,689
106,333
2,416
$73,653
$183,284
$46,895
Prospective Resource P(50) – Shale (NY)
203,500
1,221,000
407,000
Prospective Resource P(50) - Aus (NT)
198,000
9,891,000 1,846,500
Total Reserves & Resources
497,218
11,175,689 2,359,833
$73,653
$183,284
$46,895
Notes to Reserves
-
“Prospective Resources” is 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.
- The scope of the Reserve Studies reviewed basic information to prepare estimates of the reserves and
contingent resources.
- The quantities presented are estimated reserves and resources of oil and natural gas that geologic and
engineering data demonstrate are “In-Place”, and can be recovered from known reservoirs.
- Oil prices are based on NYMEX West Texas Intermediate (WTI).
- Gas prices are based on NYMEX Henry Hub (HH).
- Prices were adjusted for any pricing differential from field prices due to adjustments for location, quality and
gravity, against the NYMEX price. This pricing differential was held constant to the economic limit of the
properties.
- All costs are held constant throughout the lives of the properties.
- The probabilistic method was used to calculate P50 reserves.
- The deterministic method was used to calculate 1P, 2P & 3P reserves.
- The reference point used for the purpose of measuring and assessing the estimated petroleum reserves is
the wellhead.
“PV0” Net revenue is calculated net of royalties, production taxes, lease operating expenses and capital
expenditures but before Federal Income Taxes.
“PV10” is defined as the discounted Net Revenues of the company’s reserves using a 10% discount factor.
“1P Reserves” or “Proved Reserves” are defined as Reserves which have a 90% probability that the actual
quantities recovered will equal or exceed the estimate.
“Probable Reserves” are defined as Reserves that should have at least a 50% probability that the actual
quantities recovered will equal or exceed the estimate.
“Possible Reserves” are defined as Reserves that should have at least a 10% probability that the actual
quantities recovered will equal or exceed the estimate.
“Bbl” is defined as a barrel of oil.
“Boe” is defined as a barrel of oil equivalent, using the ratio of 6 Mcf of Natural Gas to 1 Bbl of Crude Oil.
This is based on energy conversion and does not reflect the current economic difference between the value
of 1 Mcf of Natural Gas and 1 Bbl of Crude Oil.
“M” is defined as a thousand.
-
-
-
-
-
-
-
-
14
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
“MMBoe” is defined as a million barrels of oil equivalent.
“Mcf” is defined as a thousand cubic feet of gas.
-
-
- All volumes presented are net volumes and have had subtracted associated royalty burdens.
- Utica shale gas potential resources have only been calculated for the region where drill data is available.
- Very few wells have been drilled into the Utica in Western NY and NW Pennsylvania. Estimates for GIP
have been made were the few existing wells have been drilled. Empire holds additional acreage outside the
current potential resource region. It is expected that as with shale characteristics, the shale formations will
continue within the remaining acreage. The potential GIP should increase if more data was available.
- Reserve estimates have been prepared by the following independent reserve engineers:
- New York & Pennsylvania (Appalachia) and Kansas (Mid-Con) - Ralph E. Davis Associates, Inc.
- Oklahoma (Mid-Con) - Pinnacle Energy Services, LLC.
- Northern Territory - Muir & Associates P/L and Fluid Energy Consultants.
- The following NYMEX price strip, as at December 31, 2015, was used to calculate reserves and cash flow:
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026+
$/Bbl
40.97
46.06
49.36
51.96
53.64
54.66
55.43
55.82
56.16
56.16
56.16
$/Mcf
2.49
2.79
2.91
3.03
3.18
3.31
3.46
3.61
3.74
3.88
4.01
15
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
Reconciliation of Reserves – USA (NYMEX Strip Dec 31, 2015)
Reserves/Resources
(Mboe)
As at January 1, 2016
Production 2015
Changes (1)
As at January 1, 2016
Appalachia (2)
Mid-Con
TOTAL
Appalachia
Mid-Con
Appalachia(2)
Mid-Con
Appalachia (2)
Mid-Con
Northern Territory (3)
5,144
2,180
7,324
-319
-159
-839
-57
3,986
1,964
-
1P
2P
3P
Prospective (P50)(5)
6,570
7,708
101,350
7,840
203,467
14,278
109,190
203,467
-1,428
-151
5,142
7,557
-
-2,727
-130
98,623
7,710
-
203,467
-
1,846,500
2,049,967
TOTAL
5,950
12,699
106,333
(1)
(2)
Includes acquisitions, divestments, discoveries, extensions and revisions.
Includes shale reserves included but with zero value. On the 28 January 2015 the DEC Commissioner informed the
public that the planned ban on large-scale fracking can be revisited by the State at any time, but likely won’t be in
the near future. The Company does not expect this to happen in the short to medium term. Wells within the
defined Marcellus/Utica oil resource zone were calculated to produce between 2-5,000 Bbls/5 acres. A 3% recovery
factor was utilised.
(3) The Company has completed its initial stage of delineating a prospective resource in its Northern Territory
MacArthur Basin acreage. Over the past 3 years this program has included on ground exploration (where possible
under Aboriginal Land requirements), review of existing well and log data, assaying of core and 3D geological
modelling of the entire basin. Based on this data, the Company has had completed an independent Prospective
Resource P(50) estimate of 1,846 MMBoe. Prospective resources are as yet undiscovered and as such carry
significant exploration risk. The degree of uncertainty is ‘most likely’.
(4) 1P, 2P & 3P are calculated on a deterministic basis with applicable volumes are measured at the wellhead.
(5) Unrisked - this estimate of prospective petroleum resources must be read in conjunction with the cautionary
statement on page 14.
Net 2P Reserves: An updated Reserve Estimate was carried out as of December 31, 2015 at the NYMEX strip as at
December 31, 2015. An updated summary of 2P Reserves is shown below. Total 2P reserves are 12.7 MMBoe.
These reserves are mainly held by production and will be written back at higher gas prices.
Reserves - 2P MBoe
20,000
15,000
10,000
)
E
O
B
M
(
P
2
L
A
T
O
T
5,000
-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2P MBoe
16
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
Reconciliation of Economic Summary Projections – USA (NYMEX Strip Dec 31, 2015)
Reserves - PV10
(In $ thousands)
As at January 1, 2015
1P
2P
3P
Appalachia (2)
Mid-Con
TOTAL
$24,122
$29,134
$53,256
$29,829
$56,831
$86,660
$37,285
$57,318
$94,603
Sales 2015
Changes (1)
Appalachia
-$7,617
Mid-Con
-$13,151
Appalachia
-$3,778
Mid-Con
-$175
As at January 1, 2016
Appalachia (2)
Mid-Con
TOTAL
$12,727
$15,808
$28,535
-$15,335
-$26,827
$14,494
$30,004
$44,498
-$21,539
-$26,169
$15,746
$31,149
$46,895
-50%
Includes changes in strip prices, acquisitions, divestments, discoveries, extensions and revisions.
Change
(1)
(2) Excludes any value attributable to NY shale reserves.
(3) Reserves by: RE Davis Associates, Inc & Pinnacle Energy Services, LLC
-49%
-46%
Land Position
The following table summarises the Company’s land holdings in Appalachia and the Mid-Continental regions in the
United States and the Northern Territory, Australia, as at December 31, 2015.
State
(Gross Acres)
NY
PA
OK
KS
NT
Total
HBP
Marcell.
Utica
Miss.
CKU
2016
2017
2018+
249,519
229,467
249,519
123,948
15,198
4,937
17,634
15,198
8,293
6,975
-
15,954
-
-
-
-
-
-
4,937
-
-
-
-
-
296
-
261
-
3,657
1,280
6,912
16,761
1,200
480
~14,600,000
TOTAL
14,887,288
260,619
257,812
130,923
11,849
16,761
1,200
4,433
1,541
Marcell. = Marcellus Shale
Miss. = Mississippi Lime
CKU = Central Kansas Uplift:
Arbuckle, Simspon, Viola, Lansing/Kansas City
17
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
K. NORTHERN TERRITORY – A LARGE EMERGING PETROLEUM PLAY
Empire Energy Group Limited, through its 100% owned subsidiary Imperial Oil & Gas Pty Ltd (“Imperial”), secured
100% interest in 59,000 square km (14.6 million acres) of prospective shale gas exploration acreage, approximately
equal to 75% of the entire petroleum prospective central trough of the Proterozoic McArthur Basin.
The McArthur Basin is an underexplored petroleum frontier basin. The Company has had completed at its request
an independent Prospective Resource P(50) estimate that concludes 1,847 MMBoe, unrisked prospective resource
remains to be discovered.
INDEPENDENTLY CERTIFIED ESTIMATED PROSPECTIVE RESOURCE (Unrisked)
IDENTIFIED
Barney Creek Formation
Velkerri Formation
AREA
2,982
635
Bcf
MMBO
Bcf
MMBO
TOTAL
MMBOE
3,618
P90
3,304
66
383
8
689
P50
8,699
174
1,192
24
1,847
P10
20,172
403
3,086
62
4,341
Prospective Resource - Refer to page 12 for definition of Prospective Resource
FARM-OUT WITH AMERICAN ENERGY PARTNERS, LP
In December 2015 Imperial entered into Definitive Agreements with AEGP Australia Pty Ltd (“AEGP”), an affiliate of
American Energy Partners, LP (“AEP”) for the farm-out and development of the Company’s Northern Territory oil and
gas tenements. The Definitive Agreements provide US$60 million in Phase One funding and further provides access
of up to US$500 million of funding for Phase Two development. Two additional payments of US$7.5 million each are
payable in cash to Imperial, with the first payment payable on closing. The closing of the Definitive Agreements is
subject to usual conditions for a transaction of this nature and size. The cut-off date for closing is within 120 days of
the date of the Definitive Documents being April 20, 2016.
The keys terms of the Agreements as previously announced include:
The Farmout covers 100% of Imperial’s petroleum tenements, namely 14.6 million net acres of the McArthur
Basin (“Tenements”).
Imperial is to receive an upfront cash payment of US$7.5million to offset expenditure undertaken to date.
AEGP will carry 100% of Imperial’s working interest of expenditure during the first phase work program of
US$60 million over a 3 year period (“Phase One”).
On completion of Phase One, AEGP will earn an 80% working interest in the Tenements and the parties will
enter into an already agreed industry Joint Operating Agreement.
Imperial will receive a further US$7.5 million in cash payments subject to a series of benchmarks being
achieved.
AEGP may assume operatorship upon closing, or over the initial stages of development assign operatorship
to Imperial. Imperial has the option to assume operatorship if AEGP does not earn at least a 50% working
interest in the Tenements over Phase One.
Over the Phase One period AEGP will maintain the Tenements in good standing with an estimated
expenditure requirement of up to US$15 million over the first 2 years.
At the end of Phase One, Imperial has the option to either fund its 20% working interest in the project or
request AEGP to arrange the financing of Imperial’s share for the next US$500 million in project funding.
At closing of the Definitive Agreements, on or before April 20, 2016, Empire will issue to AEGP options
equivalent to 7.5% of the total current number of Empire outstanding shares. The Empire options will be
exercisable at $0.125 per share, expiring 5 years after the date of issue.
Potential Fracking Moratorium in the Northern Territory
In February 2016 Michael Gunner, MLA leader of the Northern Territory (“NT”) Labour Party and the current opposition
leader in NT announced that should the Labour Party win the election in August 2016 a moratorium on fracking in the
Northern Territory may be implemented.
To ensure the Company protects the expenditure it has incurred on the granting of the tenements and to protect the
significant value of the Farm-out Agreement entered into by the Company with AEP, legal advice is being sought on the
alternatives should such a moratorium be considered.
18
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
OVERVIEW OF 2015 WORK PROGRAM
A. Barney Creek and Velkerri Formations
The successful 2014 Imperial Oil & Gas exploration drilling program confirmed the presence of high organic
content black shales within the EP184 and EP187 tenements. A reinterpretation was undertaken combining
these data with all available seismic, geomagnetic, electromagnetic, digital elevation and well bore data across
the exploration permit areas.
The resulting interpretation was combined with, and refined the previous geological model for the basin and to
further populate the company’s Prospects and Leads inventory.
Further research into the Velkerri Formation successfully identified the formation as highly prospective for
hydrocarbons. The presence of live hydrocarbon indications in several historical drill holes within the
Tenements clearly indicates that these hydrocarbons can exist in volatile, recoverable form.
Rock Evaluation pyrolysis results demonstrate that a number of shale core samples analysed were formerly
buried into the oil generation window of thermal maturity and those with significant TOC content (Total Organic
Carbon) are of Type III composition and gas prone.
B. Tawallah Group Formations (Including Wollogorang and McDermott Formations)
Encouraging research by Imperial has established that source rock lithologies in the Wollogorang Formation
contain up to 7% TOC.
As shown by the map below, the Tawallah Group Formations (in brown) provide an additional shale target
layer, approaching ~2 million acres of potential resource play to the Company’s extensive resource inventory
in the Barney Creek and Velkerri Formation black shales to the west and north.
In support of the proposed 2016 exploration program, and consistent with the company’s environmental
values, an extensive hydrogeological study of the exploration tenements was undertaken. The study objectives
included identification of the key ecological characteristics of the exploration areas. The aim was to document
the ecological habitats, flora and fauna including introduced species, as well as the locations of faunal
breeding sites and the potential for threatened species to occur generally over the tenements.
19
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Executive Chairman’s Review of Operation (Continued)
C. Ongoing Exploration program
Subject to further consideration of possible future NT ALP policies and based on the work undertaken through 2015,
AEGP and Imperial have developed the following exploration program for the Northern Territory acreage:
The acquisition of 230 km of 2D seismic lines within EP187 to identify the basin architecture within the
tenement and to better define the candidate drilling targets prior to finalising and undertaking a future drilling
campaign in the 3rd and 4th quarter of 2016.
The acquisition of 214 km of 2D seismic within EP184 across the St Vidgeon region to refine the proposed
2017 drilling targets within the northern portion of the tenement.
The drilling of 1 or 2 stratigraphic wells in EP187 to confirm target depths and collect fresh un-weathered shale
samples.
Further research into the petroleum generation potential of the Tawallah Group (Wollogorang and McDermott
Formations). This will include continued field mapping and shale sampling along key outcrop intervals within
EP187, EPA 183 and EP184. In particular in areas previously considered barren and now identified as
containing extensive areas (~2,000,000 acres) of high TOC potential Tawallah Group Formations within
EP184 and EPA 183 and underlying the eastern part of EP187.
Research and mapping of the northwards extension of the Tawallah Group Formations into the Company’s
EPA’s 180,181 and 182 where this formation represents a new potentially volumetrically important petroleum
play covering up to 10,000,000 acres.
Ongoing baseline ecology studies of surface water and ongoing hydrology studies.
Continue to populate and refine the Tenement Lead & Prospect Inventory including identifying drilling targets
in areas proximal to previously observed live oil and gas shows.
Continue discussions to upgrade the McArthur Mine gas pipeline which runs W-E through the centre of EP187
subject to a successful drilling program in 2016/17.
L. COMPONENT PERSONS STATEMENT
The information in this report which relates to the Company’s reserves is based on, and fairly represents, information
and supporting documentation prepared by or under the supervision of the following qualified petroleum reserves
and resources evaluators, all of whom are licensed professional petroleum engineer’s, geologists or other
geoscientists with over five years’ experience and are qualified in accordance with the requirements of Listing Rule
5.42:
Name
Allen Barron
John P Dick
Wal Muir
Organisation
Ralph E Davis Associates, Inc
Pinnacle Energy Services, LLC
Muir and Associate P/L
Professional Organisation
SPE
SPE
PESA
Qualifications
BSc
BPE
BSc,MBA
* SPE: Society of Petroleum Engineers
*PESA: Petroleum Exploration Society of Australia
None of the above evaluators or their employers have any interest in Empire Energy E&P, LLC or the properties
reported herein. The evaluators mentioned above consent to the inclusion in the report of the matters based on their
information in the form and context in which it appears.
Note Regarding Forward- Looking Statements
Certain statements made and information contained in this press release are forward-looking statements and forward
looking information (collectively referred to as “forward-looking statements”) within the meaning of Australian
securities laws. All statements other than statements of historic fact are forward-looking statements.
20
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
DIRECTORS’ REPORT
for the financial year ended 31 December 2015
In respect of the financial year ended 31 December 2015, the Directors of Empire Energy Group Limited
(“Company”) present their report together with the Financial Report of the Company and of the consolidated entity
(“Empire Group”), being the Company and its controlled entities, and the Auditor’s Report thereon.
DIRECTORS
The following persons held office as Directors of Empire Energy Group Limited at any time during or since the end of
the financial year:
B W McLeod
D H Sutton
K A Torpey
Executive Chairman
Non-Executive Director
Non-Executive Director
All the Directors have been in office since the start of the financial year unless otherwise stated.
PRINCIPAL ACTIVITIES
During the financial year the principal continuing activities of the consolidated entity consisted of:
The acquisition, development, production, exploration and sale of oil and natural gas. The Empire Group sells its oil
and gas products primarily to owners of domestic pipelines and refiners located in Pennsylvania, New York and
Kansas.
Reviewing new exploration, development and business opportunities in the oil and gas sector to enhance
shareholder value.
The Company holds two exploration licences and five licence applications over 14.6 million acres in the McArthur
Basin, in the Northern Territory. Work undertaken to date has shown this region to be highly prospective for oil and
gas shale. In December 2015 the Company entered into Definitive Agreements with AEGP Australia Pty Ltd to enter
into a farm-in to further undertake the exploration and development of the McArthur Basin Project.
CONSOLIDATED RESULTS
The consolidated net loss of the Empire Group for the financial year ended 31 December 2015 after providing for
income tax was US$26,998,997 compared to a consolidated net loss for the previous corresponding reporting period
of US$4,753,285.
REVIEW OF OPERATIONS
For information on a review of the Empire Group’s operations refer to the Executive Chairman’s Review of
Operations Report contained on pages 6 to 20 of this annual report.
DIVIDENDS
The Directors have not recommended the payment of a final dividend.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
There were no significant changes in the state of affairs of the consolidated entity during the financial period under
review.
LIKELY DEVELOPMENTS
Except for information disclosed on certain developments and the expected results of those developments included
in this report under review of operations, further information on likely developments in the operations of the
consolidated entity and the expected results of those operations have not been disclosed in this report because the
Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.
MATTERS SUBSEQUENT TO BALANCE DATE
1) Macquarie Bank Credit Facility Rollover
The Credit Facility matures on the 7 April 2016. Documentation for the rollover of the Facility is being finalised for
a further 3 years, with sign off expected early April 2016. The Company has committed to an accelerated pay
21
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
down of an agreed amount of current outstanding debt from a portion of the proceeds received from the AEP
Farmout Agreement.
2) In February 2016 Michael Gunner, MLA leader of the Northern Territory (“NT”) Labor Party and the current
opposition leader in NT announced that should the Labor Party win the election in August 2016 a moratorium on
fracking in the Northern Territory may be implemented. The Company is reviewing its legal position in relation to
its existing contractual arrangements with the NT Government, the Traditional Owners and AEGP.
3) On February 16, 2016, the Company elected not to complete the purchase of the Butler County Kansas
properties and subsequently wrote down the value of those assets at December 31, 2015 and then wrote off the
remaining value of the assets against the loan value at February 16, 2016. The loan facility to acquire the assets
was not drawn.
There were no other matters or circumstances that have arisen since 31 December 2015 that has significantly
affected or may significantly affect:
the operations, in financial years subsequent to 31 December 2015, of the Empire Group; or
the results of those operations; or
the state of affairs in financial years subsequent to 31 December 2015 of the Empire Group.
INFORMATION ON DIRECTORS
Bruce William McLeod, B.Sc (Maths), M.Com (Econ)
Executive Chairman
Age 63
Experience and Expertise
Mr McLeod has had extensive experience in the Australian capital markets. Over the past 21 years he has been
involved in raising debt and equity capital for a number of resource, property projects and companies, as well as the
takeover and rationalisation of listed and unlisted companies. Prior to this he spent 6 years with a major international
bank, where he was Executive Director, responsible for the financial and capital markets operations.
Appointed a Director of the Company on 21 May 1996.
Special Responsibilities
Chairman of the Board – Chief Executive Officer and Member of Audit Committee
Other Current Directorships
Chairman of Anson Resources Limited (formerly Mayan Iron Corporation Ltd).
Former Directorships in Last 3 Years
None.
David Henty Sutton, B.Com ACIS
Non-Executive Director
Age 72
Experience and Expertise
Mr Sutton has many years’ experience as a Director of companies involved with share broking and investment
banking. He is an Executive Director of Dayton Way Financial, a boutique financial services company focussing on
the global resource sector.
Prior to his current roles he was a partner and director of several securities exchange member firms. He became a
member of the Stock Exchange of Melbourne and subsequently Australian Securities Exchange Limited.
Appointed a Director of the Company on 17 January 1997.
Special Responsibilities
Member of Remuneration Committee and Member of Audit Committee
Other Current Directorships
Chairman Precious Metals, Sinovus Mining Limited, and Dayton Way Financial.
Former Directorships in Last 3 Years
Silver Mines Limited, EHG Corporation Ltd
22
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
Kevin Anthony Torpey, B.E., MIE Aus., CP Eng, FAusIMM, (CP)
Non-Executive Director
Age 77
Experience and Expertise
Mr Torpey is a Chartered Professional Engineer and a graduate from Sydney University. Over the last 41 years he
has been involved in the development of many diverse major projects involving oil, iron ore, aluminium, nickel,
lead/zinc, uranium, magnesite, coal and gold, located locally and in Ireland and Indonesia.
Generally these projects have been associated with major companies such as Consolidated Goldfields, EZ
Industries, Alcan, International Nickel, Tara Minerals Limited (Ireland), Noranda, Denison Mines (Canada), Toyota,
Mitsubishi and Iwatani. For the last 20 years his association has mainly been as a corporate officer initially as
Managing Director of Denison Mines (Australia) and then Managing Director of Devex Limited. Over the last few
years he has acted as a consultant to a number of companies involved in mining projects and new technologies.
Appointed a Director of the Company on 26 November 1992.
Special Responsibilities
Member of Remuneration Committee and Member of Audit Committee
Other Current Directorships
Non-Executive Director of Latrobe Magnesium Limited
Former Directorships in Last 3 Years
None
COMPANY SECRETARY
Rachel Ryan
Ms Ryan was employed in the Company’s Corporate Finances division in February 2006. She was appointed Joint
Company Secretary on 21 July 2010 and assumed the role of Company Secretary on 31 July 2013. Ms Ryan also
serves in the role of General Manager Operations.
EXECUTIVES
Kylie Arizabaleta B.Bus (Acct) (Fin)
Financial Controller
Ms Arizabaleta was appointed to the position of Financial Controller in March 2012. Before joining Empire Energy
Group Limited she worked in the private practice as an external auditor and holds over 8 years’ experience.
Dr John Warburton (FGS, MAICD)
Director, Imperial Oil & Gas Pty Ltd
Dr Warburton was appointed as an advisor to the Empire Energy Group in February 2010 and from March 2011 to
March 2014 served as CEO of the Company’s wholly owned subsidiary Imperial Oil & Gas Pty Ltd. He continues as
Non-Executive Director of Imperial Oil & Gas. A Geoscientist by profession, Dr Warburton has 33 years of technical
and leadership experience in International Petroleum E&P including 11 years with BP and 4 years as General
Manager Exploration & New Business for LASMO-Eni in Pakistan. Dr Warburton is the Director of Sydney-based
Petroleum Exploration Business Consultancy Insight Exploration and he maintains a strong global executive
network.
Dr Warburton’s operated & non-operated petroleum expertise covers the Middle East, Central and East Asia, Africa,
Pakistan, Europe, Australia, New Zealand and PNG. John has been involved in the discovery of commercial oil &
gas fields in Pakistan, UK, Kazakhstan, Azerbaijan and PNG and he has published 28 internationally recognised
technical articles with particular focus on petroleum systems in complex fold and thrust belts.
Dr Warburton has a First Class B.Sc. Honours Degree in Geological Sciences and a Ph.D. in Structural Geology. He
is a Member of the Australian Institute of Company Directors, an Alumni of Cranfield Business School UK, a Fellow
of the Geological Society of London and serves on the External Advisory Board at the Centre for Integrated
Petroleum Engineering & Geoscience at the University of Leeds, UK.
Geoff Hokin MSc(Hons) geology; MSc geology; Dip geology; Dip TAA, Cert IV Bus Mgmt.; Cert IV TAA
Explorations & Operations, Imperial Oil & Gas Pty Ltd
Mr Hokin holds the qualifications of Master Science (Honours) in Geology (exploration, and basin setting and
analysis). He has 13 years’ experience as an exploration geologist in the unconventional gas and coal sectors with
23
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
various senior geology roles with a number of companies including Armour Energy Limited, Metgasco Limited and
Arrow Energy Limited. Mr Hokin has extensive geological and executive management experience, to Company
Director level in other operations. He also holds post graduate qualifications in Cross Cultural Psychology and
Anthropology with a particular focus on the Australian Aboriginals of Arnhem Land and the Southern Gulf region of
the Northern Territory.
MEETINGS OF DIRECTORS
The number of Directors’ meetings and committee meetings held and the attendance by each of the Directors of the
Company at those meetings during the financial year were:
Directors’ Meetings
Remuneration Committee
Meetings
Audit Committee
Meetings
Director
Attended
Held Whilst in
Office
Attended
Held Whilst in
Office
Attended
Mr B W McLeod
Mr D H Sutton
Mr K A Torpey
13
13
13
13
13
13
-
1
1
-
1
1
5
5
5
Held
Whilst in
Office
5
5
5
The audit committee comprises the full Board of Directors. Mr D H Sutton and Mr K A Torpey were members of the
remuneration committee during the financial year.
Retirement, Election and Continuation in Office of Directors
Mr K Torpey is the Director retiring by rotation at the next Annual General Meeting in accordance with Article 50.1 of
the Company’s Constitution and being eligible offers himself for re-election.
Remuneration Report – Audited
This report outlines the remuneration arrangements in place for Directors and Executives of the Empire Group.
REMUNERATION COMMITTEE
The Remuneration Committee reviews and approves policy for determining executives remuneration and any
amendments to that policy. The Committee makes recommendations to the Board on the remuneration of Executive
Directors (including base salary, incentive payments, equity awards and service contracts) and remuneration issues
for Non-Executive Directors.
The members of the Remuneration Committee during the period were:
D H Sutton – Independent Non-Executive Chairman
K A Torpey – Independent Non-Executive
The Committee meets as often as required but not less than once per year. The Committee met once during the
period and Committee member’s attendance record is disclosed in the table of Directors Meetings shown above.
Executive Directors’ and Executive Remuneration
Executive remuneration and other terms of employment are reviewed annually and are based predominantly on the
past year’s growth of the Empire Group’s net tangible assets and shareholder value, having regard to performance
against goals set at the start of the year, relevant comparative information and independent expert advice. As well as
basic salary, remuneration packages include superannuation and other bonuses and incentives linked to
predetermined performance criteria. Executive Directors and executives are able to participate in an Employee Share
Option Scheme.
Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the
Consolidated Entity’s operations. Consideration is also given to reasonableness, acceptability to shareholders and
appropriateness for the current level of operations.
Performance Based Remuneration
As part of the Executive Directors’ remuneration package there is a performance-based component, consisting of
key performance indicators (KPIs). The intention of this program is to facilitate goal congruence between executives
and that of the Empire Group and shareholders.
24
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
Performance in relation to the KPIs will be assessed annually, with bonuses being awarded depending on
performance of the Empire Group over the past year. Following the assessment, the KPIs will be reviewed by the
Remuneration Committee in light of the desired and actual outcomes, and their efficiency assessed in relation to the
Empire Group’s goals and shareholder wealth.
Non-Executive Directors’ Remuneration
Remuneration of Non-executive Directors is determined by the Board based on recommendations from the
Remuneration Committee and the maximum amount approved by shareholders from time to time. Non-executive
Directors are also able to participate in an Employee Share Option Scheme.
The Board undertakes an annual review of its performance and the performance of the Board Committees against
performance goals set. Details of the nature and amount of each element of the remuneration of each Director and
each specified executive of the Empire Group receiving the highest remuneration are set out in the following tables.
December 2015
Short term benefits
Cash
salary
and fees
US$
Bonus
payments
US$
Non-
monetary
US$
Post-
employment
benefits
Super
contributions
US$
Long-
term
benefits
Long
service
leave
Share/option
based
payments*
Total
US$
-
-
-
25,211
-
-
330,149
15,048
-
Directors
B W McLeod
K A Torpey
D H Sutton
J Warburton
Empire Energy Executives
A Boyer
* Share/Option based payments reflect a proportion of the independently valued cost of options granted under the
Employee Share Option Plan (“ESOP”). The cost shown is a non-cash cost and includes, on a pro-rata basis, the
independently valued cost of options issued. Once the options reach vesting date, the cost shown amortises to $0.
The non-cash cost of the above options issued under the ESOP over the year was $55,268 the non-cash loss on
options relating to the above directors that expired over the year was $25,649. The net non-cash cost of options
issued to the above directors and executives for the year was $29,618.
46,769
-
-
-
-
1,354
15,048
178,000
65,326
83,191
8,499
-
-
-
-
-
-
-
-
-
-
402,129
16,402
15,048
83,191
251,825
December 2014
Short term benefits
Cash
salary
and fees
US$
Bonus
payments
US$
Non-
monetary
US$
Post-
employment
benefits
Super
contributions
US$
Long-
term
benefits
Long
service
leave
Share/option
based
payments*
Total
US$
-
-
-
-
96,265
-
1,625
18,058
44,480
-
-
377,322
18,058
-
72,148**
-
-
Directors
B W McLeod
K A Torpey
D H Sutton
J Warburton
Empire Energy Executives
A Boyer
* Share/Option based payments reflect a proportion of the independently valued cost of options granted under the
Employee Share Option Plan (“ESOP”). The cost shown is a non-cash cost and includes, on a pro-rata basis, the
independently valued cost of options issued. Once the options reach vesting date, the cost shown amortises to $0.
The non-cash cost of the above options issued under the ESOP over the year was $124,043 the non-cash loss on
options relating to the above directors that expired over the year was $54,868. The net non-cash cost of options
issued to the above directors and executives for the year was $69,175.
** Under the terms of the existing performance plan Mr B W McLeod would have been eligible for a payment of
$72,148 in 2014 based on the increase in 2P reserves. Due to the current conditions of the energy industry, the
Company and Mr McLeod have agreed to defer the payment for a period of 12 months, or until an earlier time when
both the Remuneration Committee and Mr McLeod agree that conditions are suitable for the performance payment
to be granted in part or in full.
86,901
10,085
10,085
-
168,000
48,852
16,972
6,650
-
-
-
-
-
580,851
29,768
28,143
96,265
240,474
25
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
Service Agreements
Remuneration and other terms of employment with Mr B W McLeod (Executive Chairman) have been formalised in a
service agreement. The terms of this agreement are as detailed below:
Terms of the agreement:
•
•
•
•
Base salary of A$438,795 per annum to be reviewed at least annually by the remuneration committee
Payment of termination benefits apply other than for gross misconduct
Performance based incentive bonus based on annual performance set against key performance indicators
Long term incentives occurring up on the monetisation of an asset, this long term incentive continues
beyond term of the agreement
• Other benefits include provision of fully maintained motor vehicle and participation in the Company’s
Employee Share Option Plan
The terms of the agreement have been approved by the remuneration committee.
There are no other service agreements in place formalising the terms of remuneration of directors or specified
executives of the Company and the consolidated entity.
Loans to Directors and Executives
There were no loans made to Directors or Specified Executives of the Company and the consolidated entity during
the period commencing at the beginning of the financial period and up to the date of this report.
There are no loans outstanding at the date of this report.
Share Options Granted to Directors and Specified Executives
During the financial year there were no executive options to acquire ordinary shares granted to Directors and
specified executives of the Company.
At the date of this report there were 6,500,000 unissued shares held under option to Directors and specified
executives.
All options were issued pursuant to the Company’s Employee Share Option Plan which provides vesting restrictions
based on minimum term of employment conditions.
These options are exercisable of the following basis:
Number
3,500,000 Executive options
1,500,000 Executive options
1,500,000 Executive options
6,500,000
Exercise Price
Pre Rights Issue
A$
$0.15
$0.17
$0.18
Exercise Price
post Rights Issue
A$*
$0.149
$0.169
$0.179
Expiry Date
31 December 2016
31 December 2016
31 December 2016
* Following a Pro-Rata Rights Issue announced in August 2015 the exercise price of outstanding options were
adjusted pursuant to the terms and conditions of the options and ASX Listing Rule 6.22.
Directors’ Interests and Benefits
The relevant interest of each director and specified executive in the share capital of the Company as at the date of
this report is:
Particulars of Interests in the Issued Capital of the Company
Director
B W McLeod
D H Sutton
K A Torpey
Direct Interest
Shares
-
525,962
118,055
Options
-
-
-
Indirect Interest
Shares
Options
8,924,997
208,333
2,073,394
3,000,000
-
-
End of Audited Remuneration Report
26
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
SHARE OPTIONS
Movements
Grant of Options
No options were granted during the financial year or in the period since the end of the financial year and up to the
date of this report.
Exercise of Options
No options were exercised during the financial year or in the period since the end of the financial year and up to the
date of this report.
Expiry of Options
1,500,000 unlisted options exercisable at $0.179 were not exercised by their expiry date of 31 December 2015 and
as a consequence have lapsed. 4,500,000 unlisted options exercisable at $0.169 were not exercised by their expiry
date of 31 December 2015 and as a consequence have lapsed. 4,250,000 unlisted options were not exercised by
their expiry date being 26 February 2016 and lapsed.
At the date of this report the total number of unissued shares held under option was 6,500,000. These options are
exercisable on the following terms.
Number
3,500,000 Executive options
1,500,000 Executive options
1,500,000 Executive options
6,500,000
Adjustment of Option exercise prices
Exercise Price A$
$0.149
$0.169
$0.179
Expiry Date
31 December 2016
31 December 2016
31 December 2016
Following the completion of a Pro-Rata Rights Issue announced in August 2015 the exercise prices of 16,750,000
outstanding options were adjusted pursuant to the terms and conditions of the options and ASX Listing Rule 6.22 as
follows:
Number
1,500,000 Unlisted options
4,500,000 Unlisted options
4,250,000 Unlisted options
3,500,000 Unlisted options
1,500,000 Unlisted options
1,500,000 Unlisted options
16,750,000
PERFORMANCE RIGHTS
Exercise Price Pre
Rights Issue A$
$0.18
$0.17
$0.12
$0.15
$0.17
$0.18
Exercise Price post
Rights Issue A$
$0.179
$0.169
$0.119
$0.149
$0.169
$0.179
Expiry Date
31 December 2015
31 December 2015
26 February 2016
31 December 2016
31 December 2016
31 December 2016
During the 2013 financial year the Company issued 2,500,000 Performance Rights over fully paid ordinary shares in
the Company as part consideration for the buy back of the minority interest equity holder in Empire Energy USA LLC.
The minority interest holder also received 4,000,000 fully paid ordinary shares in the issued capital of Empire Energy
Group Limited. The Performance Rights are exercisable at no cost under the following events:
-
-
Lifting of the current moratorium on oil and/or natural gas fracking in New York State;
If the Company sells, transfers or assigns all or substantially all of its property interest Chautauqua and
Cattaraugus Counties in the State of New York to an unaffiliated third party then the performance rights will
vest in accordance with the following schedule:
Fair Market Value of Consideration
Received by the Company
Less than $25.0 million
Performance rights exercisable
0.0%
At least $25.0 million but less than $45.0
million
Percentage calculated by dividing Fair Market Value
of Consideration received by the Company by $45.0
million.
$45.0 million or more
100.0%
27
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Directors’ Report
for the year ended 31 December 2015
-
If the holder of the Performance Rights in any way disposes of more than 75% of the 4 million ordinary
shares assigned as part of the minority interest buy back transaction prior to either the moratorium being
terminated or a third party sale being consummated then the performance rights will be cancelled.
DIRECTORS’ AND OFFICERS’ INDEMNITIES AND INSURANCE
During the financial year Empire Energy Group Limited paid an insurance premium, insuring the Company’s
Directors (as named in this report), Company Secretary, executive officers and employees against liabilities not
prohibited from insurance by the Corporations Act 2001.
A confidentiality clause in the insurance contract prohibits disclosure of the amount of the premium and the nature of
insured liabilities.
Proceedings on Behalf of the Company
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any
proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all
or any part of those proceedings. The Company was not a party to any such proceedings during the year.
Environmental Regulations
There are significant environmental regulations surrounding mining activities which have been conducted by the
Empire Group. However, there has been no breach of these regulations during the financial period or since the end
of the financial period and up to the date of this report.
Declaration by the Group Executive Officer and Chief Financial Controller
The Directors have received and considered declarations from the Chief Executive Officer and Chief Financial
Controller in accordance with Section 295A of the Corporations Act. The declaration states that in their opinion the
Company’s and Consolidated Entity’s financial reports for the financial year ended 31 December 2015 present a true
and fair view in all material aspects of the financial position and performance and are in accordance with relevant
accounting standards.
Non-Audit Services
The Directors are satisfied that the provision of non-audit services during the period by the auditor (or by another
person or firm on the auditors behalf) is compatible with the general standard of independence for auditors imposed
by the Corporations Act 2001.
Details of amounts paid or payable to the auditor for non-audit services are outlined in Note 32 to the financial
statements.
The audit firm is engaged to provide tax compliance services. The Directors believe that given the size of the Empire
Group’s operations and the knowledge of those operations by the audit firm that it is appropriate for the auditor to
provide these services. The Directors are of the opinion that these services will not compromise the auditor’s
independence requirements of the Corporations Act 2001.
Auditors’ Independence Declaration Under Section 307 of the Corporations Act 2001
A copy of the Auditors’ Independence declaration as required under Section 307C of the Corporations Act 2001 is
set out on page 29 and forms part of the Director’s Report for the financial year ended 31 December 2015.
Auditor
Nexia Australia continues in office in accordance with Section 327 of the Corporations Act 2001. No officers of the
Empire Group were previously partners of the audit firm.
This report is made in accordance with a resolution of the Directors.
B W McLEOD
Director
Sydney 24 March 2016
28
The Board of Directors
Empire Energy Group Limited
Level 7, 151 Macquarie Street
SYDNEY NSW 2000
31 March 2016
To the Board of Directors of Empire Energy Group Limited
Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
As lead audit partner for the audit of the financial statements of Empire Energy Group Limited for the
financial year ended 31 December 2015, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
(a)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b)
any applicable code of professional conduct in relation to the audit.
Yours sincerely
Robert Mayberry
Partner
Nexia Court & Co.
Chartered Accountants
29
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the year ended 31 December 2015
Sales Revenue
Cost of Sales
Gross Profit
Other income
General and administration expenses
Exploration expenses
Other non-cash expenses
Operating (Loss) before interest costs
Net interest (expense)/income
(Loss) before income tax expense
Income tax benefit
Note
Year ended
December 2015
US$
Year ended
December 2014
US$
5a
6
5b
8a
7
9a
18,236,209
(9,701,346)
8,534,863
493,278
(4,746,575)
(955,295)
(30,507,331)
(27,181,060)
23,570,157
(12,130,866)
11,439,291
898,141
(5,305,912)
(780,082)
(14,162,698)
(7,911,260)
(2,059,868)
(2,021,849)
(29,240,928)
(9,933,109)
2,241,931
5,179,824
(Loss) after income tax benefit from continuing operations
(26,998,997)
(4,753,285)
Other comprehensive income
(Loss) on the revaluation of available-for-sale assets
Exchange differences on translation of foreign operations
(5,145)
(175,883)
(151,750)
(29,160)
Other comprehensive income for the year, net of tax
(181,028)
(180,910)
Total comprehensive income for the year
(27,180,025)
(4,934,195)
Basic earnings per share
Diluted earnings per share
28
28
Cents per share
(7.84)
(7.84)
Cents per share
(1.54)
(1.54)
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
30
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2015
Note
As at
December 2015
US$
As at
December 2014
US$
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Inventories
Financial assets, including derivatives
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Financial assets, including derivatives
Oil and gas properties
Property, plant and equipment
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Interest-bearing liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Interest-bearing liabilities
Provisions
Deferred income tax liability
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Accumulated losses
TOTAL SHAREHOLDERS’ EQUITY
10
11
12
13
13
14
14
15
16
17
18
17
18
9(e)
19
1,126,543
1,874,474
672,044
553,184
5,579,991
3,092,991
4,471,855
242,184
611,002
6,558,148
9,806,236
14,976,180
5,766,521
58,275,023
532,286
68,217
5,157,977
81,876,604
672,778
68,217
64,642,047
87,775,576
74,448,283
102,751,756
3,760,766
40,460,495
12,377
5,771,978
41,776,843
12,245
44,233,638
47,561,066
31,560
11,496,833
-
42,434
7,953,969
2,062,080
11,528,393
10,058,483
55,762,031
57,619,549
18,686,252
45,132,207
74,240,545
4,436,865
(59,991,158)
73,683,238
4,441,130
(32,992,161)
18,686,252
45,132,207
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
31
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015
Consolidated
Issued Capital
Fair Value
Reserve
Foreign
Currency
Translation
Reserve
Options
Reserve
Accumulated
Losses
Attributable to
owners of
equity parent
Total Equity
Balance at 31 December 2014
73,683,238
132,541
79,650
4,228,939
(32,992,161)
45,132,207
45,132,207
Total Comprehensive income for year
Profit after income tax from continuing operations
Exchange differences on translation of foreign operations
Gain on the revaluation available-for-sale investments, net of
tax
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Less: share issue transaction costs
Options lapsed in period, transferred to retained earnings
Options issued during the year – share-based payments
Warrants issued during the year
Total transactions with owners
-
-
-
-
571,563
(14,256)
-
-
-
557,307
-
-
-
(175,883)
(5,145)
-
(5,145)
(175,883)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
176,763
-
176,763
(26,998,997)
(26,998,997)
(26,998,997)
(175,883)
(175,883)
-
(5,145)
(5,145)
(26,998,997)
(27,180,025)
(27,180,025)
-
-
-
-
-
-
571,563
(14,256)
-
571,563
(14,256)
-
176,763
176,763
-
-
734,070
734,070
Balance at 31 December 2015
74,240,545
127,396
(96,233)
4,405,702
(59,991,158)
18,686,252
18,686,252
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
32
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2014
Consolidated
Issued Capital
Fair Value
Reserve
Foreign
Currency
Translation
Reserve
Options
Reserve
Accumulated
Losses
Attributable to
owners of
equity parent
Total Equity
Balance at 31 December 2013
73,683,238
284,291
108,810
3,539,788
(28,253,586)
49,362,541
49,362,541
Total Comprehensive income for year
Profit after income tax from continuing operations
Exchange differences on translation of foreign operations
Gain on the revaluation available-for-sale investments, net of
tax
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Less: share issue transaction costs
Options lapsed in period, transferred to retained earnings
Options issued during the year – share-based payments
Warrants issued during the year
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
-
-
(29,160)
(151,750)
-
(151,750)
(29,160)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14,710)
317,238
386,623
689,151
(4,753,285)
(4,753,285)
(4,753,285)
-
-
(29,160)
(29,160)
(151,750)
(151,750)
(4,753,285)
(4,934,195)
(4,934,195)
-
-
-
-
-
-
14,710
-
-
-
-
14,710
317,238
386,623
703,861
317,238
386,623
703,861
Balance at 31 December 2014
73,683,238
132,541
79,650
4,228,939
(32,992,161)
45,132,207
45,132,207
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
33
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of oil and gas assets
Proceeds from sale of investments in equity
Payments for oil and gas assets
Payments for property, plant and equipment
Note
Year ended
31 December
2015
US$
Year ended
31 December
2014
US$
21,191,292
(17,640,200)
4,416
(2,074,475)
179,851
1,660,884
23,919,521
(16,938,010)
3,916
(2,021,849)
127,436
5,091,014
27(b)
201,815
207,030
(1,468,461)
(21,371)
1,769,209
-
(6,700,803)
(95,233)
Net cash flows from investing activities
(1,080,987)
(5,026,827)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from interest bearing liabilities
Net proceeds from issuing of shares
Repayment of interest bearing liabilities
Finance lease payments
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effect of exchange rate changes on cash and cash equivalents
-
557,307
(3,180,449)
(10,874)
(2,634,016)
(2,054,119)
3,092,991
87,671
4,500,603
-
(3,736,186)
(20,173)
744,244
808,431
2,322,720
(38,160)
CASH AND CASH EQUIVALENTS AT THE END OF
FINANCIAL YEAR
27(a)
1,126,543
3,092,991
The above consolidated statements of cash flow should be read in conjunction with the accompanying notes.
34
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1.
SIGNIFICANT ACCOUNTING POLICIES
Corporate information
The financial report covers Empire Energy Group Limited and its controlled entities (“Empire Group”). Empire Group
is a company limited by shares whose shares are publicly traded on the Australian Securities Exchange. The parent
entity of the Empire Group is incorporated and domiciled in Australia with its core operations in the United States of
America (“USA”). Separate financial statements for Empire Group as an individual entity are no longer presented as
the consequence of a change to the Corporations Act 2001; limited financial information for Empire Group, as an
individual entity, is included in Note 30.
The principal activities of the Empire Group during the financial year are described in the Directors’ Report.
The financial report of the Empire Group for the year ended 31 December 2015 was authorised for issue in
accordance with a resolution of Directors on 24 March 2016.
Basis of preparation
The general purpose financial statements have been prepared in accordance with Australian Accounting Standards,
other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group
Interpretations, and the requirements of the Corporations Act 2001, as appropriate for for-profit orientated entities.
The consolidated financial statements have been prepared on a cost basis, modified, where applicable, by the
measurement at fair value of available-for-sale financial assets and derivative financial instruments.
Comparative Information
Presentation of the Statement of Profit or Loss and Other Comprehensive Income has been adjusted in the year to
enable users of the financial statements to better understand the operating performance of the Group. Comparative
information has been aggregated on the Statement of Profit or Loss and Other Comprehensive Income to enable
comparison against the current year. There has been no reclassification or restatement of balances to enable this
adjustment in presentation. Revenue and expense balances previously disclosed on the face of the primary
statements can be found in Note 5 to Note 8.
Statement of compliance
The financial report complies with Australian Accounting Standards (‘AASB’s’). Compliance with AASBs ensures that
the financial report, comprising the financial statements and accompanying notes, complies with International
Financial Reporting Standards (‘IFRS’).
Presentation currency
Due to sustained international growth, the Empire Group’s cash flows and economic returns are now principally
denominated in US dollars (“US$”). From 1 July 2011, Company changed the currency in which it presents its
consolidated and parent Company financial statements from Australian dollars to US dollars.
New, revised or amending Accounting Standards and Interpretations adopted
None of the new standards and amendments to standards that are mandatory for the first time for the financial year
beginning 1 January 2015 affected any of the amounts recognised in the current period or any prior period and are
not likely to affect future periods.
Early adoption of standards
The Empire Group has not elected to apply any pronouncements before their operative date in the annual reporting
period beginning 1 January 2015.
Principles of Consolidation
The consolidated financial statements comprise the financial statements of Empire Energy Group Limited and its
controlled entities.
Controlled entities are all those entities over which the Empire Group has the power to govern the financial and
operating policies. Controlled entities are consolidated from the date on which control is transferred to the Empire
Group and cease to be consolidated from the date on which control is transferred out of the Empire Group.
35
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Jointly controlled entities are accounted for using the equity method (equity accounted investees) and are initially
recognised at cost.
All intercompany transactions, balance, including unrealised profits arising from intercompany transactions, have
been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership,
without the loss of control, is accounted for as an equity transaction, where the difference between the consideration
transferred and the book value of the share of the non-controlling interest acquired is recognised directly in the equity
attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the consolidated statement
of comprehensive income and consolidated statement of financial position. Losses incurred by the Empire Group are
attributed to non-controlling interest in full, even if that results in a deficit balance.
Foreign Currency Translations
The financial report is presented in United States Dollars (US$) which is the functional currency for the majority of the
entities within the Empire Group. The functional currency of Empire Energy Group Limited is in Australian Dollars.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are translated to
US dollars at the foreign exchange rate ruling at that date.
Foreign operations
The assets and liabilities of entities that have a functional currency in A$ are translated to US$ at exchange rates at
the reporting date. The revenue and expense of entities that have a functional currency in A$ are translated to US
dollars at exchange rates at the dates of the transaction. Foreign currency differences on translation are recognised
directly in equity.
Revenue recognition
Natural gas revenue
Revenue from the sale of natural gas is recognised when natural gas has been delivered to a custody transfer point,
persuasive evidence of a sales arrangement exists, the rights and responsibility of ownership pass to the purchaser
upon delivery, collection of revenue from the sale is reasonably assured, and the sales price is fixed or determinable.
Natural gas is sold by the Empire Group under contracts with terms ranging from one month up to the life of the well.
Virtually all of the Empire Group contracts' pricing provisions are tied to a market index with certain adjustments
based on, among other factors, whether a well delivers to a gathering or transmission line, quality of natural gas and
prevailing supply and demand conditions, so that the price of the natural gas fluctuates to remain competitive with
other available natural gas suppliers.
Because there are timing differences between the delivery of natural gas and the Empire Group's receipt of a
delivery statement, the Empire Group has unbilled revenues. These revenues are accrued based upon volumetric
data from the Empire Group's records and the Empire Group's estimates of the related transportation and
compression fees, which are, in turn, based upon applicable product prices.
Oil revenue
Revenue from the sale of oil is recognised when the significant risks and rewards of ownership have been
transferred to the buyer and can be measured reliably, which is usually at the time of lifting, transferred into a vessel,
pipe or other delivery mechanism.
Well operations
Well operations and pipeline income are recognised when persuasive evidence of an arrangement exists, services
have been rendered, collection of revenues is reasonably assured and the sales price is fixed or determinable. The
Empire Group is paid a monthly operating fee for each well it operates for outside owners. The fee covers monthly
36
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
operating and accounting costs, insurance and other recurring costs. The Empire Group might also receive
additional compensation for special nonrecurring activities, such as reworks and recompletions.
Finance income
Finance income comprises interest income on funds invested as well as fair value gains on oil and gas derivatives
the group is party to. Interest income is recognised as it accrues, using the effective interest method.
Cash and cash equivalents
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.
Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less
an allowance for any uncollectible amounts.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are
written-off when identified.
Inventories
Inventories consists of crude oil, stated at the lower of cost to produce or market and other production supplies
intended to be used in natural gas and crude oil operations.
Financial Assets, including derivatives
The Empire Group utilises oil and gas forward contracts to manage the exposure to price volatility. The Empire
Group recognises its derivatives on the consolidated statement of financial performance at fair value at the end of
each period. Changes in the fair value of the oil and gas forward contracts are recognised in the statement of profit
and loss.
Derivatives are classified as current or non-current depending on the expected period of realisation.
Oil and gas properties
Oil and gas properties are stated at cost, less accumulated depreciation and accumulated impairment losses.
Oil and natural gas exploration and development expenditure is accounted for using the successful efforts method of
accounting for gas producing activities. Costs to acquire mineral interests in gas properties, drill and equip
exploratory wells that find proved reserves, and drill and equip development wells and related asset retirement costs
are capitalised. Depletion is based on cost less estimated salvage value using the unit-of-production method. The
process of estimating and evaluating gas reserves is complex, requiring significant decisions in the evaluation of
geological, geophysical, engineering and economic data. Costs to drill exploratory wells that do not find proved
reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed.
Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets,
inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now
written off is replaced and it is probable that future economic benefits associated with the item will flow to the Empire
Group, the expenditure is capitalised. Where part of the asset was not separately considered as a component, the
replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. The
capitalised value of a finance lease is also included within property, plant and equipment. Plant and equipment are
depreciated over their estimated useful lives using the straight line method as follows:
Plant and equipment 10-20%
37
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Assets are depreciated from the date of acquisition. Profits and losses on sales of property, plant and equipment are
taken into account in determining the results for the year.
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.
Recoverable amount of assets
At each reporting date, the Empire Group assesses whether there is any indication that an asset may be impaired.
Where an indicator of impairment exists, the Empire Group makes a formal estimate of recoverable amount. Where
the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written
down to its recoverable amount.
Recoverable amount is the greater of value less costs to sell and value in use. It is determined for an individual
asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does
not generate cash inflows that are largely independent of those from other assets or Empire Groups of assets, in
which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset
or cash generating unit.
Investments
All investments are initially recognised at cost, being the fair value of the consideration given and including
acquisition charges associated with the investment.
Certain investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial
recognition, they are measured at fair value and changes therein are recognised directly in equity. For unlisted
investments, where information regarding the fair value is unreliable, the investment is held at cost under AASB139.
When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss.
For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock
Exchange quoted market bid prices at the close of business on the reporting date.
Intangible Assets
Intangible assets consist of goodwill. Goodwill is tested for impairment annually under AASB 136.
Interest-bearing liabilities
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective interest
basis.
Provisions – Employee Benefits
Obligations for contributions to accumulation plans are recognised as an expense in the consolidated statements of
comprehensive income as incurred.
Liabilities for employee benefits for wages, salaries, annual leave and represent present obligations resulting from
employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage
and salary rates that the Empire Group expects to pay as at the reporting date including related on-costs, such as,
workers compensation insurance, superannuation and payroll tax.
Asset Retirement Obligations
Asset retirement obligations are recognised when the Empire Group has a present legal or constructive obligation as
a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount of obligation can be made. The present value of the estimated asset retirement costs
is capitalised as part of the carrying amount oil and gas properties. For the Empire Group, asset retirement
obligations primarily relate to the plugging and abandonment of oil and gas-producing facilities.
38
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The estimated liability is based on historical experience in plugging and abandoning wells, estimated remaining lives
of those based on reserve estimates, external estimates as to the cost to plug and abandon the wells in the future,
and regulatory requirements. The liability is discounted using a discount rate that reflects market conditions as at
reporting date. Revisions to the liability could occur due to changes in estimates of plugging and abandonment costs,
remaining lives of the wells, if regulations enact new plugging and abandonment requirements, or there is a change
in the market-based discount rate. Changes in the estimated timing of decommissioning or decommissions cost
estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment
to oil and gas properties. The unwinding of the discount of the asset retirement obligation is recognised as a finance
cost.
Income tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. The amount of deferred tax provided is based on the expected manner of realisation of settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Tax consolidation
Empire Energy Group and its wholly-owned Australian resident entities form a tax-consolidated Empire Group. As a
consequence, all members of the tax-consolidated Empire Group have been taxed as a single entity since 1 July
2003. The head entity within the tax-consolidated Empire Group is Empire Energy Group Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the
members of the tax-consolidated Empire Group are recognised in the separate financial statements of the members
of the tax-consolidated Empire Group using the ‘separate taxpayer within Empire Group’ approach by reference to
the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values
applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are
assumed by the head entity in the tax-consolidated Empire Group and are recognised by the Empire Group as
amounts payable/(receivable) to/from other entities in the tax-consolidated Empire Group in conjunction with any tax
funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Empire
Group as an equity contribution or distribution.
The Empire Group recognises deferred tax assets arising from unused tax losses of the tax consolidated Empire
Group to the extent that it is probable that future taxable profits of the tax consolidated Empire Group will be
available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised
assessments of the probability of recoverability is recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated Empire Group, has entered into a tax
funding arrangement which sets out the funding obligations of members of the tax-consolidated Empire Group in
respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current
tax liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity,
resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset)
assumed. The inter-entity receivables/(payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing
of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
39
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The head entity in conjunction with other members of the tax-consolidated Empire Group, has also entered into a tax
sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax
liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been
recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing
agreement is considered remote.
Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where
the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the
GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the
Consolidated Statement of Financial Position.
Cash flows are included in the statement of cash lows on a gross basis. The GST components of cash flows arising
from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating
cash flows.
Earnings per share
Earnings per share is calculated by dividing the profit attributable to the owners of Empire Energy Group Limited,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year.
There are no preference shares issued in Empire Energy Group Limited, thereby resulting in no dilutive effect being
noted in any calculation of diluted earnings per share
Share based payment transactions
The Empire Group provides benefits to directors and senior executives of the Empire Group through the executive
share option plan whereby eligible participants render services in exchange for options over shares.
New Accounting Standards and Interpretations not yet adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 31
December 2015. The consolidated entity’s assessment of the impact of these new or amended Accounting
Standards and Interpretations, most relevant to the consolidated entity, are set out below.
AASB 9 Financial Instruments, 2009-011 Amendments to Australian Accounting Standards arising from AASB 9 and
2010-7 Amendments to Australian Accounting Standards arising from AASB 9
This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1
January 2013 and completes phase 1 of the IASB’s project to replace IAS 39 (being the international equivalent to
AASB 139 ‘Financial Instruments: Recognition and Measurement’). This standard introduces new classification and
measurement models for financial assets, using a single approach to determine whether a financial asset is
measured at amortised cost or fair value. To be classified and measured to amortised cost, assets must satisfy the
business model test for managing the financial assets and have certain contractual cash flow characteristics. All
other financial instrument assets are to be classified and measured at fair value.
This standard allows an irrevocable election on initial recognition to present gains and losses on equity instruments
(that are not held-for-trading) in other comprehensive income, with dividends as a return on these investments being
recognised in profit or loss. In addition, those equity instruments measured at fair value through other
comprehensive income would no longer have to apply any impairment requirements nor would there be any
‘recycling’ of gains or losses through profit or loss on disposal
The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with
one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be
presented in other comprehensive income unless it would create an accounting mismatch. The consolidated entity
will adopt this standard from 1 January 2018 but the impact of its adoption is yet to be assessed by the consolidated
entity.
40
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
New and Revised Standards that are effective for Annual Periods beginning on or after 1 January 2014
AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities
to address
AASB 2012-3 adds application guidance
inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of
"currently has a
Instruments: Presentation
to AASB 132 Financial
legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net
settlement.
AASB 2013-3 Recoverable Amount Disclosures for Non-Financial Assets
Amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments include the requirement
to disclose additional information about the fair value measurement when the recoverable amount of impaired assets
is based on fair value less costs of disposal.
Amends AASB 1038 arising from AASB 10 Consolidated Financial Statements in relation to consolidation and
interests of policyholders.
AASB 1053 Application of Tiers of Australian Accounting Standards (Reduced Disclosure Regime)
This standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements
for preparing general purpose financial statements:
i) Tier 1: Australian Accounting Standards
ii) Tier 2: Australian Accounting Standards -Reduced Disclosure Requirements Tier 2 comprises the recognition,
measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those
requirements. Consequential amendments to other standards to implement the regime were introduced by AASB
2010-2, 2011-2, 2011-6, 2011-11, 2012-1, 2012-7, 2012-11, 2013-6 and 2014-2.
AASB 2014-1 Amendments to Australian Accounting Standards
This Standard makes amendments to other Accounting Standards for:
A. Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle –
applicable from 1 July 2014. Amendments relate to:
AASB 2 – clarifying vesting and non-vesting conditions in share-based payment arrangements;
AASB 3 – clarifies that contingent consideration in a business combination is accounted for at fair value through
profit and loss;
AASB 8 – disclosure of the judgements used in applying the aggregation criteria and of segment assets;
AASB 3 – clarifies that business combination requirements do not apply to the formation of joint arrangements
in the financial statements of the joint arrangement itself;
AASB 116/138 – clarification of proportionate restatement of accumulated depreciation on revaluation of
property, plant and equipment and intangibles;
AASB 124 – clarification of KMP where an entity has a management entity/responsible entity;
AASB 13 - Clarification of the scope exemption for measuring the fair value of financial assets and liabilities on
a portfolio basis;
AASB 3/140 – clarifying the interrelationship between AASB 3 and AASB 140 when classifying property as
either an investment property or property, plant and equipment and whether that property constitutes a
business.
B. Amendments to AASB 119 Employee Benefits in relation to the requirements for contributions from employees or
third parties that are linked to service – applicable from 1 July 2014;
C. Amendments to particular Australian Accounting Standards to delete their references to AASB 1031 Materiality –
applicable from 1 July 2014;
D. Amendments to AASB 1 First-time Adoption of Australian Accounting Standards, which arise from the issuance of
AASB 14 Regulatory Deferral Accounts - applicable from 1 July 2016;
E. Defers the application date of AASB 9 Financial Instruments to annual reporting periods beginning on or after 1
January 2018 and other consequential amendments - applicable from 1 January 2015.
41
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
AASB 2014-3 Accounting for Acquisitions of Interests in Joint Operations – Amendments to AASB 11
This amendment to AASB 11 Joint Arrangements requires the acquirer of an interest in a joint operation in which the
activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on
business combinations accounting in AASB 3.
Estimates and assumptions
In particular, information about significant areas of estimation uncertainty considered by management in preparing the
consolidated financial statements are described in the following notes:
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
• Note 8
• Note 9
• Note 14
• Note 18
• Note 24
– Impairment expense
– Income tax
– Oil and gas properties
– Provisions for liabilities and charges
– Share based payments
Judgments
In the process of applying the Empire Group’s accounting policies, the Directors have made the following judgments
at apart from those involving estimates, which may have the most significant effect on the amounts recognised in the
consolidated financial statements:
Reserves base
Estimates of recoverable quantities of proven, probable and possible reserves reported include judgmental
assumptions regarding commodity prices, exchange rates, discount rates and production and transportation costs for
future cash flows. It also requires interpretation of complex and difficult geological and geophysical models in order
to make assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The
economic, geological and technical factors used to estimate may change from period to period. Changes in reported
reserves can impact asset carrying values and the recognition of deferred tax assets due to changes in expected
future cash flows. Reserves are integral to the amount of amortisation charged to the income statement. Future
development costs are estimated using assumptions as to the number of wells required to produce the commercial
reserves, the cost of such wells and associated production and other capital costs. The current NYMEX forward oil
and gas price curves are used for price assumptions. The Empire Group uses suitably qualified persons to prepare
annual evaluation of proven hydrocarbon reserves, compliant with US professional standards for petroleum
engineers.
Carrying value of oil and gas assets
Oil and gas properties are depreciated using the units-of-production (UOP) method over proved developed and
undeveloped reserves.
The calculation of the UOP rate of depreciation, depletion and amortisation could be impacted to the extent that
actual production in the future is different from current forecast production based on proved reserves. This would
generally result from significant changes in any of the factors or assumptions used in estimating reserves. Estimates
of gas reserve quantities provide the basis for calculation of depletion, depreciation and amortisation and
impairment, each of which represents a significant component of the consolidated financial statements.
These factors could include changes in proved reserves, the effect on proved reserves of differences between actual
commodity prices and commodity price assumptions, and unforeseen operational issues
Impairment indicators
The fair value of oil and gas properties is determined with reference to estimates of recoverable quantities of
reserves (as outlined above) to determine the estimated future cash flows. An impairment loss is recognised for the
amount by which the asset or Empire Group of assets carrying value exceeds the present value of its future cash
flows. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of
assets (cash generating units).
42
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
Recoverable amount
The recoverable amount of an asset is the greater of its fair value less costs of disposal and its value-in-use, using
an asset’s estimated future cash flows (as described below) discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and risks specific to the asset.
Significant judgement – Impairment of oil and gas assets
For oil and gas assets, the expected future cash flow estimation is based on a number of factors, variables and
assumptions, the most important of which are estimates of reserves, future production profiles, commodity prices,
costs and foreign exchange rates. In most cases, the present value of future cash flows is most sensitive to
estimates of future oil price and discount rates.
The estimated future cash flows for the value-in-use calculation are based on estimates, the most significant of which
are 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 the Group’s best estimate of future market prices with reference
to external market analysts’ forecasts, current spot prices and forward curves. Future commodity prices are reviewed
at least annually.
The discount rates applied to the future forecast cash flows are based on the Group’s weighted average cost of
capital, adjusted for risks where appropriate, including functional currency of the asset, and risk profile of the country
in which the asset operates.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s oil and
gas assets could change materially and result in impairment losses or the reversal of previous impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact on
others and individual variables rarely change in isolation. Additionally, management can be expected to respond to
some movements, to mitigate downsides and take advantage of upsides, as circumstances allow. Consequently, it is
impracticable to estimate the indirect impact that a change in one assumption has on other variables and hence, on
the likelihood, or extent, of impairments or reversals of impairments under the different sets of assumptions in
subsequent reporting periods.
Asset retirement obligations
Asset retirement costs will be incurred by the Empire Group at the end of the operating life of some of Empire
Group’s facilities and properties. The ultimate asset retirement costs are uncertain and cost estimates can vary in
response to many factors including changes to relevant legal requirements, the emergence of new restoration
techniques or experience at other production sites. The expected timing and amount of expenditure can also change,
for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a
result, there could be significant adjustments to the provisions established which would affect future financial results.
Share-based payments
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair
value of the equity instruments at the date which they are granted. The fair value is determined by using either the
Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were
granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit
or loss and equity.
3. GOING CONCERN
The consolidated financial statements have been prepared on a going concern basis, which contemplates the
realisation of assets and settlement of liabilities in the ordinary course of business.
The debt facility with Macquarie Bank matures on 7 April 2016. Documentation with Macquarie Bank regarding
extension of the facility is being finalised with expected execution in early April 2016. The terms are not expected to
be materially different from those disclosed in Note 17, however this may be subject to change on legal review. The
expiration does not impact the classification of the loan facility on the balance sheet.
43
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
3. GOING CONCERN (Continued)
The Empire Group’s Statement of Financial Position reflects an excess of current liabilities over current assets of
$34,427,402. This is primarily due to the Board determining that debt facilities be classified as current liabilities as
described in Note 17 under classification of borrowings.
Due to the liquidity of operating assets, the Board also determined that the USA operating assets could be classified
as current assets.
Due to the liquidity of operating assets, the Board also determined that the USA operating assets could be classified
as current assets.
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Empire Group’s principal financial instruments, other than derivatives comprise bank loans, available for sale
financial assets, and cash and cash equivalents. The main purpose of these financial instruments is to raise finance
for the Empire Group’s operations. The Empire Group has various other financial assets and liabilities such as trade
receivables and payables, which arise from its operations. The Empire Group also enters derivative transactions,
principally interest rate swaps and commodity hedges.
The board has overall responsibility for the determination of the Empire Group’s risk management objectives and
policies and has the responsibility for designing and operating processes that ensure the effective implementation of
the objectives and policies to the Empire Group’s finance function. The board receives monthly reports through which
it reviews the effectiveness of the processes put in place and appropriateness of the objectives and policies it sets.
The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting
the Empire Group’s competitiveness and flexibility.
The Empire Group is exposed to risks that arise from its use of financial instruments. The main risks arising from the
Empire Group’s financial instruments are interest rate risk commodity price risk, liquidity risk, equity risk, and credit
risk. This note describes the Empire Group’s objectives, policies and processes for managing those risks and
methods used to measure them. Further quantitative information in respect of these risks is presented throughout
these financial statements.
There have been no substantive changes in the Empire Group’s exposure to financial instrument risks, its objectives,
policies and processes for managing those risks or the methods used to measure them from previous periods unless
otherwise stated in this note.
Further details regarding these policies are set out below:
(A)
MARKET RISK
(i)
Foreign Exchange Risk
The Empire Group’s core operations are located in the United States where both revenues and expenditures are
recorded. The Statement of Financial Position can be affected by movement in the US$/A$ exchange rates upon
translation of the A$ operations into the US$ presentation currency.
Foreign exchange risk arises from commercial transactions and recognised assets and liabilities denominated in a
currency that is not the entity’s functional currency. The Empire Group seeks to mitigate the effect of its foreign
currency exposure by borrowing in US$ for US operations and maintaining a minimum cash balance in Australia.
Excluding presentation translation adjustments, the Empire Group’s exposure to foreign exchange risk at the
reporting date is limited to loans and investments between the Parent entity and the US subsidiaries.
(ii)
Commodity Price Risk
The Empire Group’s revenues and cash flows are exposed to commodity price fluctuations, in particular oil and gas
prices. The Empire Group enters forward commodity hedges to manage its exposure to falling spot oil and gas
prices. To mitigate a portion of the exposure to adverse market changes, the Empire Group’s commodity hedging
programs utilise financial instruments based on regional benchmarks including NYMEX WTI for oil and NYMEX
Natural Gas Henry Hub for gas.
44
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
The Empire Group enters into derivative instruments for the Empire Group’s production to protect against price
declines in future periods while retaining some of the benefits of price increases. While these derivatives are
structured to reduce exposure to changes in price associated with the derivative commodity, they also limit benefits
the Empire Group might otherwise have received from price changes in the physical market. The Empire Group
believes the derivative instruments in place continue to be effective in achieving the risk management objectives for
which they were intended.
The Empire Group’s policy is to maintain a balance between spot and hedged sales, with not more than 75% of
production being hedged at any point in time. For the year ended 31 December 2015 the Empire Group hedged
approximately 78% of its oil (2014: 47%) and 59% of its total gas production (2014: 60%).
The Empire Group has approximately 3,873 thousand cubic feet (mcf) of monthly natural gas production and
192,000 barrels of oil production hedged at amounts ranging from $3.45 to $4.35/mcf for natural gas expiring in
January 2016 through December 2019 and $72.01 to $72.04 per barrel for oil expiring in January 2016 through
December 2017.
(iii)
Interest rate risk
The Empire Group is constantly monitoring its exposure to trends and fluctuations in interest rates in order to
manage interest rate risk. The Empire Group’s exposure to interest rate risk at 31 December 2015 is set out in the
following tables.
The Empire Group’s exposure to the risk of changes in market interest rates relates primarily to the Empire Group’s
long-term debt obligations with a floating interest rate in the US. The Empire Group manages its interest cost using a
mix of fixed and variable rate debt.
The Empire Group’s policy is to continually review the portion of its US$ borrowings that are either at floating or fixed
rates of interest. To manage this mix in a cost-efficient manner, the Empire Group previously entered into interest
rate swaps, in which Empire agrees to exchange, at specified intervals, the difference between fixed and variable
interest rate amounts calculated by reference to an agreed upon notional principal amount. These swaps were
designated to hedge underlying debt obligations. There are no interest rate swaps at 31 December 2015.
The Empire Group monitors forecasts and actual cash flows and the maturity profiles of financial assets and liabilities
to manage its liquidity risk.
31 December 2015
Financial Assets
Cash and cash
equivalents
Trade and other
receivables
Financial assets
%
Floating
Interest Rate
Fixed Interest Maturing in
Over 1 to 5
1 Year or
Years
Less
Non-Interest
Bearing
Total
1.13
1,126,543
-
-
-
-
-
-
-
-
-
1,126,543
1,874,474
11,346,512
1,874,474
11,346,512
1,126,543
-
-
13,220,986
14,347,529
Financial Liabilities
Trade & other payables
Financial liabilities,
including derivatives
Interest-bearing liabilities
4.00
-
-
-
-
40,460,495
- 40,460,495
-
-
3,760,766
3,760,766
-
31,560
31,560
-
-
-
40,492,055
3,760,766
44,252,821
45
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
31 December 2014
Financial Assets
Cash and cash
equivalents
Trade and other
receivables
Financial assets
Financial Liabilities
Trade & other payables
Financial liabilities,
including derivatives
Interest-bearing liabilities
%
Floating
Interest Rate
Fixed Interest Maturing in
Over 1 to 5
1 Year or
Years
Less
Non-Interest
Bearing
Total
1.86
3,092,991
-
-
3,092,991
-
-
-
-
-
-
-
-
-
3,092,991
4,471,855
11,716,125
16,187,980
4,471,855
11,716,125
19,280,971
-
-
-
5,771,978
5,771,978
4.14
-
41,776,843
- 41,776,843
-
-
-
42,434
42,434
-
-
5,771,978
-
41,819,277
47,591,255
(iv)
Empire Group Sensitivity
Based on the financial instruments held at 31 December 2015, had the WTI NYMEX and Henry Hub prices
increase/decreased by 10% and 10% respectively, with all other variables held constant, the Empire Group’s post-
tax profit for the year would not change due to the extent of effective hedging of oil and gas production. Equity would
not have changed under either scenario.
The directors do not expect any reduction in interest rates during 2016. Should interest rates increase by 1% the
impact on post-tax profit would be a decrease of approximately US$405,000.
(B)
CREDIT RISK
Credit risk is the risk that the other party to the financial instrument will fail to discharge their financial obligation in
respect of that instrument resulting in the Empire Group incurring a financial loss. The Empire Group’s exposure to
credit risk arises from potential default of the counter party with the maximum exposure equal to the carrying amount
of these instruments. There are no significant concentrations of credit risk within the Empire Group.
The Empire Group trades only with recognised, credit worthy third parties. In the US, trade receivables, (balances
with oil and gas purchases) have not exposed the Empire Group to any bad debt to date. All derivatives are with the
same counterparty.
In the US, all of the purchasers that the Empire Group’s operators choose to deal with are major oil companies.
Trade and other receivable balances are monitored on an ongoing basis with the Empire Group’s exposure to bad
debts minimal.
The maximum exposure to credit risk at balance date is as follows:
Trade, other receivables,
and derivatives
2015
US$
2014
US$
12,618,358
15,497,982
The maximum exposure to credit risk at balance by country is as follows:
2014
US$
2015
US$
Australia
United States of America
-
12,618,358
-
15,497,982
46
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
(C)
LIQUIDITY RISK
Liquidity risk is the inability to access funds, both anticipated and unforeseen, which may lead to the Empire Group
being unable to meet its obligations in an orderly manner as they arise.
The Empire Group’s liquidity position is managed to ensure sufficient funds are available to meet financial
commitments in a timely and cost-effective manner. The Empire Group is primarily funded through on-going cash
flow, debt funding and equity capital raisings, as and when required.
Funding is in place with reputable financial institutions in the US and Australia. The borrowing base is re-determined
and reviewed once a year. Bank compliance reporting is undertaken quarterly and adherence to covenants checked
regularly. Management also regularly monitors actual and forecast cash flows to manage liquidity risk.
Maturity Analysis
31 December 2015
Non Derivatives
Current
Trade and other payables
Interest bearing liabilities
Non-current
Interest bearing liabilities
Derivatives
Financial asset
Financial liability
Maturity Analysis
31 December 2014
Non Derivatives
Current
Trade and other payables
Interest bearing liabilities
Non-current
Interest bearing liabilities
Derivatives
Financial asset
Financial liability
(D) EQUITY RISK
Fair
Value
US$
Carrying
Amount
US$
Contractual
Cash flows
US$
1 year
US$
1-5 years
US$
3,760,766
40,460,495
3,760,766
40,460,495
3,760,766
40,460,495
3,760,766
40,460,495
-
-
31,560
31,560
31,560
-
31,560
(10,873,451)
-
(10,873,451)
-
(10,873,451)
-
(5,579,991)
-
(5,293,460)
-
Fair
Value
US$
Carrying
Amount
US$
Contractual
Cash flows
US$
1 year
US$
1-5 years
US$
5,771,978
41,776,843
5,771,978
41,776,843
5,771,978
41,776,843
5,771,978
41,776,843
-
-
42,434
42,434
42,434
-
42,434
(11,178,999)
-
(11,178,999)
-
(11,178,999)
-
(6,558,148)
-
(4,620,851)
-
The Empire Group is exposed to equity securities price risk arising from investments held by the Empire Group which
are classified as available for sale assets. Investments in equity securities are managed by the Board.
The Empire Group relies on equity markets to raise capital for its exploration and development activities, and is thus
exposed to equity market volatility.
In addition, the Empire Group undertakes limited investment in listed and seed capital opportunities. Unlisted
investments are held at cost less impairment as no market valuation is available.
47
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Equity price risk arises from investments in equity securities and Empire Energy Group Limited’s issued capital.
The Company’s equity risk is considered minimal and as such no sensitivity analysis has been completed.
Fair Value of Financial Assets and Liabilities
The fair value of all monetary financial assets and liabilities of Empire Energy Group Limited approximate their
carrying value there were no off-balance financial assets and liabilities at year end.
Fair value of financial instruments
The Empire Group is required to classify financial instruments, measured at fair value, using a three level hierarchy,
being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices); and
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
An instrument is required to be classified in its entirety on the basis of the lowest level of valuation inputs that is
significant to fair value. Considerable judgement is required to determine what is significant to fair value and
therefore which category the financial instrument is placed in can be subjective.
The fair value of financial instruments classified as level 3 is determined by the use of valuation models. These
include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on
unobservable inputs.
Consolidated
31 December 2015
Assets
Available-for-sale – equity
securities
Unlisted available-for-sale
equities
Fair value of derivatives
Total assets
Liabilities
Fair value of derivatives
Total liabilities
Consolidated
31 December 2014
Assets
Available-for-sale – equity
securities
Unlisted available-for-sale
equities
Fair value of derivatives
Total assets
Liabilities
Fair value of derivatives
Total liabilities
Level 1
Level 2
Level 3
Total
Level 1
Level 2
-
-
-
-
-
-
55,106
-
-
-
-
-
-
473,060
473,060
10,873,451
-
10,873,451
10,873,451
473,060
11,346,511
-
-
-
-
Level 3
-
-
-
-
-
Total
55,106
482,020
482,020
11,178,999
-
11,178,999
55,106
11,178,999
482,020
11,716,125
-
-
-
-
-
-
-
-
48
There were no transfers between levels during the financial year.
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Capital Risk Management
The Company considers its capital to comprise its ordinary share capital and reserves.
In managing its capital, the Company’s primary objective is to maintain a sufficient funding base to enable the
Company to meet its working capital and strategic investment needs.
In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy,
new share issues, or consideration of debt the Company considers not only its short-term position but also its long-
term operational and strategic objectives.
5. REVENUE
a. Sales revenue
Revenue from oil and gas sales
Revenue from drilling operations
Revenue from well operations
b. Other income
Gain on sale of investment
Gain on sale of asset
Interest income
Rental income
Other income
6. COST OF SALES
Oil and gas production
7. INTEREST EXPENSE
Interest paid/payable on financial liabilities
2015
US$
2014
US$
17,581,328
-
654,881
18,236,209
22,678,332
-
891,825
23,570,157
161,782
-
4,416
6,334
320,746
493,278
-
739,208
3,916
18,196
136,821
898,141
(9,701,346)
(9,701,346)
(12,130,866)
(12,130,866)
2,059,868
2,059,868
2,021,849
2,021,849
49
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
8. EXPENSES
a. Other non-cash expenses
Leasing expiration expenses (note 8c)
Impairment of assets (note 8c)
Depreciation, depletion and amortisation
Finance costs (note 8b)
Unrealised derivative movement
Other expenses
Total other expenses
b. Finance expenses
Accretion of asset retirement obligation (note 18)
Unwind of discount of debt
Total finance costs
c. Profit/(loss) before income tax includes the following specific
expenses:
Depreciation, depletion and amortisation
Oil & Gas properties and plant & equipment (note 14)
Employee benefits expense
Defined contribution superannuation expense
Other employee expenses
Total employee benefits expense
Impairment expense(a)
Impairment of additional asset retirement obligation
Impairment of property plant & equipment (a)
Total impairment expense
Loss on disposal of property, plant & equipment
2015
US$
2014
US$
426,200
22,202,568
5,770,977
1,098,565
305,548
703,473
30,507,331
188,518
13,995,331
5,842,203
709,755
(6,615,916)
42,807
14,192,698
422,431
676,134
1,098,565
378,334
331,421
709,755
5,770,977
5,770,977
32,747
4,293,081
4,325,828
2,455,568
19,747,000
22,202,568
-
5,842,203
5,842,203
47,617
4,610,362
4,657,979
-
-
-
-
Leasing expiration expenses (b)
426,200
188,518
(a) Impairment expense
For the period 31 December 2015, the Company impaired the oil and gas properties by $19,747,000 due to the
decline in oil prices resulting in a reduction of the recoverable amount of those assets. Furthermore, an increase in
the asset retirement obligation of $2,455,568, resulting from the accounting differences between US GAAP and
IFRS, was recognised as a further impairment charge to ensure that oil and gas properties were appropriately written
down to their recoverable amount as at 31 December 2015.
(b) Leasing expiration expense
A charge of $426,200 has been taken against the book value of undeveloped leases which have expired, or are to
expire. The Company has an ongoing program to renew expiring leases, to take up options on expiring leases or
acquire new leases if and when possible. The charge is a non-cash entry which has no effect on cash-flows.
50
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
9.
INCOME TAX
a.
Income tax expense
Current tax
Deferred tax
Income tax benefit attributable to continuing operations
Deferred income tax expense included in income tax expense comprises:
Increase/(decrease) in deferred tax liabilities (note 9(e))
b. Numerical reconciliation of income tax expense to prima
facie tax payable
(Loss)/profit before income tax
Tax at the Australian tax rate of 30% (2014: 30%)
Tax effect of amounts which are not deductible/(taxable) in
calculating taxable income:
- Non-deductible expenses
Tax (over)/underprovided in prior year
Withholding tax paid
Deferred tax asset in relation to tax losses and temporary differences
not recognised
Income tax benefit
c. Deferred tax assets not recognised relate to the following:
Tax losses
Capital losses
Temporary differences relating to Oil & Gas assets
2015
US$
2014
US$
(179,851)
74,096
(2,062,080)
(5,253,920)
(2,241,931)
(5,179,824)
(2,062,080)
(5,253,920)
(2,062,080)
(5,253,920)
(29,240,928)
(9,933,109)
(8,772,278)
(2,979,933)
8,528,894
(2,834,729)
(2,017,439)
18,892
441,150
41,848
-
148,839
(2,241,931)
(5,179,824)
4,071,782
2,698,822
141,410
141,410
9,486,489
-
13,699,681
2,839,632
51
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
9. INCOME TAX (Continued)
The potential benefit of the deferred tax asset attributable to tax losses will only be obtained if:
(i) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the
benefit from the deduction for the loss to be realised; or
(ii) the consolidated entity continues to comply with the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the consolidated entity in realising the asset.
d. Dividend Franking Account
There are no franking account credits available as at 31 December 2015.
e. Deferred tax liabilities
The balance comprises temporary differences
attributable to:
Forward commodity contracts
Oil & Gas and Property, Plant & Equipment
Other
Set-off of deferred tax liabilities pursuant to set-off
provisions (note f)
Net deferred tax liabilities
f. Deferred tax assets
The balance comprises temporary differences
attributable to:
Tax losses carried forward
Accrued asset retirement obligation
Oil & Gas and Property, Plant & Equipment
Other
Set-off of deferred tax assets pursuant to set-off
provisions (note e)
Net deferred tax assets
10. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other
2015
US$
2014
US$
-
8,378,469
81,904
8,460,373
(8,460,373)
-
-
1,245,839
7,214,534
-
3,699,298
8,270,981
60,267
12,030,546
(9,968,466)
2,062,080
1,380,617
1,083,512
7,348,127
156,210
8,460,373
(9,968,466)
-
-
1,821,890
52,584
1,874,474
4,413,218
58,637
4,471,855
11. PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments
672,044
242,184
12. INVENTORIES
Crude oil and production supplies
553,184
611,002
52
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
13. FINANCIAL ASSETS, INCLUDING DERIVATIVES
Current
2015
US$
2014
US$
Oil and gas price forward contracts
5,579,991
6,558,148
Non-current
Oil and gas price forward contracts
Shares – other corporations:
Listed available-for-sale equities (at fair value)
Unlisted available-for-sale equities (at cost)
Less: accumulated impairment on unlisted equities
Total Non-current
Commodity hedge contracts outstanding are outlined below.
5,293,460
4,620,851
-
629,102
(156,041)
5,766,521
55,106
638,061
(156,041)
5,157,977
2015 NATURAL GAS - HENRY HUB - NYMEX - Swaps 2014 NATURAL GAS - HENRY HUB - NYMEX - Swaps
Period
Swap
Price
Premium
Product
Period
Swap
Price
Premium
Product
Jan 15 - Dec 15
Jan 15 - Dec 15
Jan 16 - Dec 16
4.43
Jan 16 - Dec 16
4.30
Jan 17 - Dec 17
Jan 18 - Dec 18
4.05
4.11
Jan 19 – Dec 19
3.45
$Nil
$Nil
$Nil
$Nil
$Nil
500,000 mmbtu
Jan 16 - Dec 16
805,000 mmbtu
Jan 16 - Dec 16
1,068,000 mmbtu
Jan 17 - Dec 17
1,008,000 mmbtu
Jan 18 - Dec 18
491,500 mmbtu
Jan 19 – Dec 19
5.45
5.45
4.43
4.30
4.05
4.11
3.45
2015 OIL - WTI - NYMEX
2014 OIL - WTI - NYMEX
Jan 16 - Dec 16
72.04
Jan 17 - Dec 17
72.01
$Nil
$Nil
99,600 BO
Jan 16 - Dec 16
72.04
92,400 BO
Jan 17 - Dec 17
72.01
Jan 15 - Dec 15
90
$Nil
$Nil
$Nil
$Nil
$Nil
$Nil
$Nil
$Nil
$Nil
$Nil
1,116,000 mmbtu
156,000 mmbtu
500,000 mmbtu
805,000 mmbtu
1,068,000 mmbtu
1,008,000 mmbtu
491,500 mmbtu
98,160 BO
99,600 BO
92,400 BO
53
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT
Cost in US$
At 1 January 2015
Additions
New asset retirement obligation
Write-off of asset retirement obligation
Reclassifications
Disposals
Expiration costs
Write-off of exploration expense
At 31 December 2015
Accumulated Depreciation in US$
At 1 January 2015
Depreciation and depletion
Write-off sale of wells
Disposals
Impairment
Change in ARO
At 31 December 2015
Oil & Gas –
Proved
Oil & Gas –
Unproved
113,043,192
2,779,610
3,205,890
(88,341)
-
(2,057,047)
-
-
6,723,646
1,213,873
-
-
-
(268,061)
(426,200)
-
Land
Buildings
Equipment
Motor Vehicles
Total
30,591
-
-
-
-
-
-
-
328,948
-
-
-
-
-
-
-
717,543
4,107
-
-
-
(5,364)
-
-
633,942
20,078
-
-
-
(14,079)
-
-
121,477,864
4,017,668
3,205,890
(88,341)
-
(2,344,551)
(426,200)
-
116,883,304
7,243,258
30,591
328,948
716,286
639,941
125,842,328
(37,890,234)
(5,616,528)
88,694
-
(22,202,568)
17,492
(65,603,144)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,250)
(12,553)
-
-
-
-
(508,320)
(85,177)
-
(73)
-
-
(461,204)
(56,719)
-
16,702
-
-
(38,910,008)
(5,770,977)
88,694
16,629
(22,202,568)
17,492
(62,803)
(593,570)
(501,221)
(66,760,738)
Opening written down value
75,152,958
6,723,646
30,591
278,698
206,231
157,258
82,549,382
Impact of foreign currency adjustments
-
(248,395)
-
-
(4,315)
(21,571)
(274,281)
Closing written down value
51,280,160
6,994,863
30,591
266,145
118,401
117,149
58,807,309
54
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
Cost in US$
At 1 January 2014
Additions
New asset retirement obligation
Write-off of asset retirement obligation
Reclassifications
Disposals
Expiration costs
Write-off of exploration expense
Write-off to prepayments/inventory
At 31 December 2014
Accumulated Depreciation in US$
At 1 January 2014
Depreciation and depletion
Disposals
Impairment
Oil & Gas –
Proved
Oil & Gas –
Unproved
Land
Buildings
Equipment
Motor Vehicles
Total
111,088,039
3,836,441
53,360
(48,441)
120
(1,886,327)
4,225,830
2,874,877
-
-
-
(25)
- (377,036)
-
- -
-
30,591
-
-
-
-
-
-
-
-
310,286
-
-
-
(120)
18,782
-
-
-
736,352
76,233
709,700
19,000
-
-
- -
- -
(95,042)
(94,756)
- -
- -
117,100,798
6,806,551
53,360
(48,441)
-
(2,057,368)
(377,036)
-
-
-
-
113,043,192
6,723,646
30,591
328,948
717,543
633,942
121,477,864
(18,550,760)
(5,577,000)
-
-
-
-
(35,831)
(12,553)
(462,221)
(126,516)
(403,121)
(126,134)
(19,451,933)
(5,842,203)
232,857 -
-
(1,866)
80,417
68,051
379,459
(13,995,331) -
-
-
-
-
(13,995,331)
At 31 December 2014
(37,890,234)
-
-
(50,250)
(508,320)
(461,204)
(38,910,008)
Opening written down value
92,537,279
4,225,830
30,591
274,455
274,131
306,579
97,648,865
Impact of foreign currency adjustments
-
-
-
-
(2,992)
(15,482)
(18,474)
Closing written down value
75,152,958
6,723,646
30,591
278,698
206,231
157,258
82,549,382
55
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
At 31 December 2015, the group reassessed the carrying amounts of its non-current assets for indicators of
impairment in accordance with the Group’s accounting policy.
Estimates of recoverable amounts are based on an asset’s value in use or fair value less costs to sell, using a
discounted cash flow method, and are most sensitive to the key assumptions described in note 2.
Recoverable amounts and resulting impairment write-downs recognised in the year ended 31 December 2015 are:
Oil and gas assets
Kansas
Appalachia
Total
Subsurface
assets
US$
29,471,946
23,109,124
52,581,070
Recoverable
amount
US$
18,142,780
14,691,290
32,834,070
The post tax discount rate that has been applied to the above oil and gas assets is 8%. The impairment charges
noted above primarily result from a lower oil and gas price environment.
15. INTANGIBLE ASSETS
Goodwill
16. TRADE AND OTHER PAYABLES
Current
Trade creditors
Other creditors
17. INTEREST-BEARING LIABILITIES
Current
Finance lease liability
Bank loan -secured
Non-current
Finance lease liability
2015
US$
2014
US$
68,217
68,217
68,217
68,217
3,746,225
14,541
3,760,766
5,696,470
75,508
5,771,978
12,996
40,447,499
18,928
41,757,915
40,460,495
41,776,843
31,560
42,434
In February 2008, the Empire Group entered into a Credit Facility totalling $200,000,000 under the following terms:
A $50,000,000 revolving line-of-credit facility (Revolver) used to refinance existing debt and to undertake future
acquisitions; the Revolver is subject to a borrowing base consistent with normal and customary oil and gas lending
practices of the bank. The borrowing base limit at the time of the replacement was $3,000,000 and is re-determined
from time to time in accordance with the Revolver based on changes with operations and opportunities. Interest
accrues on the outstanding borrowings at rate options selected by the Company and based on the prime lending rate
(3.25% at December 31, 2015) or the London Inter-Bank Offered Rate (60-Day NOTE LIBOR) (0.5149% at
December 31, 2015) plus 2.5%. At December 31, 2015, the Company’s rate option was London Inter-Bank Offered
Rate (LIBOR). There was no availability under the Revolver at December 31, 2015 and 2014.
A $150,000,000 acquisition and development term credit facility (Term Facility) was used to refinance an existing
facility, undertake acquisitions and support capital expenditure under an agreed development plan for oil and gas
properties and services companies in the United States. Drawdown on the Term Facility is based on predefined
benchmarks.
Loans under the facilities are secured by the assets of the Company. Under terms of the facilities, the Company is
required to maintain financial ratios customary for the oil and gas industry. As at 31 December 2015 the Company
was in breach of two loan covenants, it was agreed by the Lender to waive the Relevant Defaults, on a one-time only
basis.
56
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
17. INTEREST-BEARING LIABILITIES (Continued)
The Company repays the facilities monthly to the extent of an applicable percentage of net operating cash flow and
capital transactions. Principal payments made in 2015 and 2014 were approximately $3,665,000 and $3,703,000,
respectively. The Company has exceeded the minimum cumulative principal payment obligation through the
maturity date of the credit facilities.
The discount on the debt is approximately $73,000 and $583,000 at 31 December 2015 and 2014, respectively.
Additional interest expense of $510,000 and $164,000 for the years ended December 31, 2015 and 2014 is related
to the amortization of the discount on debt.
In 2014, in connection with the Revolver and Term Facility, the bank received 14,131 of non-diluting warrants ($0.01)
equivalent to 10% of the issued capital of the Empire Energy USA, LLC (2013: 16,252). In addition, the bank also
receives a 3% overriding royalty interest in the acquired properties of the Company.
In conjunction with the debt financing by the bank in 2010, Empire Energy Group Limited issued options on 500
million shares (33,333,333 options following a share consolidation). These options were independently valued at
$1,687,000. The recorded value of the options of $1,687,000 was expensed over the life of the loan facility.
In February 2014 a further 4,250,000 unlisted options exercisable at A$0.12 and expiring 26 February 2016 were
issued to the bank to enable further drawdown on the Credit Facility. These options were independently valued at
A$195,500. The recorded value of the options of $1,687,000 was expensed over the life of the loan facility.
A summary of period end debt is as follows:
Term
Tranche
Tranche 1
Tranche 3
Tranche 4
Revolver
Sub-Total
Less – Discount on debt:
Acquisition Commitment (1)
Finance Lease Liability
Total Current Debt
(1)
2015
US$
2014
US$
-
6,181,553
19,585,871
10,583,403
3,000,000
39,350,827
(97,234)
39,253,593
1,193,896
13,006
40,460,495
1,720,233
6,181,553
19,585,871
12,027,354
3,000,000
42,515,011
(757,096)
41,757,915
-
18,928
41,776,843
In February 2016 the Company elected not to complete a purchase of assets and as such the debt
liability was not drawn. Refer to Note 33 (3).
CLASSIFICATION OF BORROWINGS
These accounts are presented on the basis that all debt has been classified as current liabilities. This treatment is as
a result of a strict application of the relevant provisions of AASB 101 Presentation of financial statements ("AASB
101"). This accounting standard requires the Empire Group to classify liabilities as current if the Empire Group does
not have an unconditional right to defer payment for twelve months at period end. However, the expected repayment
of the borrowings is not for complete repayment within the twelve month period.
The Credit Facility matures on 7 April 2016. Documentation for the rollover of the Facility is being finalised for a
further 3 years, with sign off expected early April 2016. The Company has committed to an accelerated pay down of
an agreed amount of current outstanding debt from a portion of the proceeds received from the AEP Farmout
Agreement. Refer to note 3 and note 33.
Under the terms of the Loan Facility (“Facility”), Empire Energy allocates 90% of monthly free cash flow to repay
principle outstanding.
The expected loan repayments over the next 12 months comprise:
- Repayment of 90% of any monthly free cashflows
57
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
18. PROVISIONS
Current
Employee entitlements
Non-current
Asset retirement obligations
Movement in Asset Retirement Obligation
Balance at beginning of the period
Additions for the period
Write-off accrued plugging costs
Accretion expense for the period, included in finance costs
Change in estimate(a)
Balance end of the period
2015
US$
2014
US$
12,377
12,245
11,496,833
7,953,969
7,953,969
353,413
(113,922)
422,431
2,880,942
7,788,880
53,359
(266,604)
378,334
-
11,496,833
7,953,969
(a) Due to the write down of oil and gas properties to their recoverable amount, $2,455,568 has been written off as
impaired from the carrying value of the oil and gas properties, refer to Note 8c.
Asset Retirement Obligation
The Empire Group makes full provision for the future costs of decommissioning oil and gas production facilities and
pipelines on a discounted basis on the installation or acquisition of those facilities.
The provision represents the present value of decommissioning costs which are expected to be incurred up to 2050.
The estimated liability is based on historical experience in plugging and abandoning wells, estimated remaining lives
of those based on reserve estimates, external estimates as to the cost to plug and abandon the wells in the future,
and regulatory requirements. Assumptions, based on the current economic environment, have been made which
management believe are a reasonable basis upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning
costs will ultimately depend upon future market prices for the necessary decommissioning works. Furthermore, the
timing of decommissioning is likely to depend on when the assets cease to produce at economically viable rates.
This in turn will depend upon the future oil and gas prices, which are inherently uncertain.
19. CONTRIBUTED EQUITY
a) Shares
Issued Capital
Balance at beginning of period
Movement in ordinary share capital
2015
US$
2014
US$
73,683,238
73,683,238
- Issue of 35,450,195 fully paid ordinary shares in September 2015 @
A$0.023 pursuant to a Pro-Rata Rights Issue
571,563
Less costs associated with the share issues detailed above
(14,256)
-
-
Balance as at 31 December 2015
74,240,545
73,683,238
b) Shares
Movements in ordinary issued shares
Balance at beginning of period
Movement in ordinary share capital
- Issue of fully paid ordinary shares in September 2015 @ A$0.023
pursuant to a Pro-Rata Rights Issue
No. of shares
No. of shares
308,863,682
308,863,682
35,450,195
-
- Balance as at 31 December 2015
344,313,877
308,863,682
58
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
19. CONTRIBUTED EQUITY (Continued)
Share Options
Movements
Granted
No options were granted during the financial year or in the end of the financial year and up to the date of this report.
Exercise of Options
No options were exercised during the financial year or in the end of the financial year and up to the date of this
report.
Expiry/Lapse of Options
The following unlisted options were not exercised by their expiry date and as a consequence have lapsed:
-
-
1,500,000 unlisted options at A$0.179 expiring 31 December 2015
4,500,000 unlisted options at A$0.169 expiring 31 December 2015
Since the end of the financial year an additional 4,250,000 unlisted options exercisable at A$0.119 expired
unexercised on 26 February 2016.
At balance date the Empire Group had on issue, the following securities:
Shares
-
344,313,877 listed fully paid ordinary shares – ASX Code: EEG
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are
fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Company. No dividends were paid or declared during the year, or
since the year-end.
Options
Adjustment of Option exercise prices
Following the completion of a Pro-Rata Rights Issue announced in August 2015 the exercise prices of 16,750,000
outstanding options were adjusted pursuant to the terms and conditions of the options and ASX Listing Rule 6.22. At
balance date the Company had 16,750,000 unissued shares under option. These options are exercisable on the
following terms:
Number
1,500,000 Unlisted options
4,500,000 Unlisted options
4,250,000 Unlisted options
3,500,000 Unlisted options
1,500,000 Unlisted options
1,500,000 Unlisted options
16,750,000
Performance Rights
Exercise Price Pre
Rights Issue A$
$0.18
$0.17
$0.12
$0.15
$0.17
$0.18
Exercise Price post
Rights Issue A$
$0.179
$0.169
$0.119
$0.149
$0.169
$0.179
Expiry Date
31 December 2015
31 December 2015
26 February 2016
31 December 2016
31 December 2016
31 December 2016
During the 2013 financial year the Company issued 2,500,000 Performance Rights over fully paid ordinary shares in
the Company as part consideration for the buy back of the minority interest equity holder in Empire Energy USA LLC.
The minority interest holder also received 4,000,000 fully paid ordinary shares in the issued capital of Empire Energy
Group Limited. The Performance Rights are exercisable at no cost under the following events:
-
-
Lifting of the current moratorium on oil and/or natural gas fracking in New York State;
If the Company sells, transfers or assigns all or substantially all of its property interest Chautauqua and
Cattaraugus Counties in the State of New York to an unaffiliated third party then the performance rights will
vest in accordance with the following schedule:
59
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
19. CONTRIBUTED EQUITY (Continued)
Fair Market Value of Consideration
Received by the Company
Less than $25.0 million
Performance rights exercisable
0.0%
At least $25.0 million but less than $45.0
million
Percentage calculated by dividing Fair Market Value
of Consideration received by the Company by $45.0
million.
$45.0 million or more
100.0%
-
If the holder of the Performance Rights in any way disposes of more than 75% of the 4 million ordinary
shares assigned as part of the minority interest buy back transaction prior to either the moratorium being
terminated or a third party sale being consummated then the performance rights will be cancelled.
20. RESERVES
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of available-for-sale assets until the
investment is derecognised.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations.
Option Reserve
The option reserve comprises the value of options issued but not exercised at balance date.
21. CONTINGENT LIABILITIES
Empire Energy Group Limited has executed a Deed of Guarantee and indemnity in favour of Macquarie Bank
Limited guaranteeing the obligations of each of Empire Energy USA LLC and its subsidiary Empire Energy E&P LLC
pursuant to the Macquarie Bank Limited credit facility.
The Empire Group is involved in various legal proceedings arising out of the normal conduct of its business. In the
opinion of management, the ultimate resolution of such matters will not have a material effect on the consolidated
financial position or results of operations of the Empire Group.
The Empire Group is subject to various federal, state and local laws and regulations relating to the protection of the
environment. The Empire Group has established procedures for the ongoing evaluation of its operations, to identify
potential environmental exposures and to comply with regulatory policies and procedures.
Environmental expenditures that relate to current operations are expensed or capitalised as appropriate.
Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental assessment and or clean-up is
probable, and the costs can be reasonably estimated. The Empire Group maintains insurance that may cover in
whole or in part certain environmental expenditures. At 31 December 2015, the Empire Group had no environmental
contingencies requiring specific disclosure or accrual.
There have been no changes in contingent liabilities since the last annual reporting date.
22. CONTINGENT ASSETS
The Company has a claim outstanding against the JV Partner for a 75% interest in the Carrolltown Prospect Gas
Wells. The Company expects to receive ~US$40,000 in compensation.
60
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
23. COMMITMENTS FOR EXPENDITURE
Exploration and Mining Tenement Leases
In order to maintain current rights of tenure to exploration and mining tenements, the Company and the companies in
the consolidated entity are required to outlay lease rentals and to meet the minimum expenditure requirements of the
various Government Authorities. These obligations are subject to re-negotiation upon expiry of the relevant leases or
when application for a mining licence is made. No expenditure commitment exists at 31 December 2015.
i) Equipment and Operating Leases
Commitments in relation to equipment/motor vehicle leases contracted
for at and subsequent to the reporting date but not recognised as
liabilities:
2015
US$
2014
US$
Not later than one year
Later than one year not later than two years
Later than two years not later than five years
More than five years
311,842
158,794
82,000
-
307,311
215,381
214,152
-
552,636
736,844
The Company leased its US corporate headquarters under a non-cancellable operating lease of monthly payments
of approximately $7,400 through February 2017. Net rental expense approximated $87,000 and $87,000, net of
reimbursements, for the year ended 31 December 2015 and 31 December 2014.
The Company leases trucks under an operating agreement. The term of the agreement begins upon the delivery of
each truck and lasts for a period of up to 48 months. Lease payments in 2015 and 2014 were approximately
$249,000 and $235,000 respectively. The Empire Group has the option to acquire the leased assets at the agreed
value on the expiry of the leases.
ii) Property Licence
The Company has entered into a cancellable licence agreement over the occupation of office premises. The leased
assets were pledged as security over the lease commitment.
The term of the occupancy licence was for a term of 59 months and concluded on 30 June 2011. Since expiry of the
occupancy licence the Company has occupied the premises on a month to month basis. Terms on a new licence
agreement are being negotiated.
24. SHARE BASED PAYMENTS
a)
Employee Share Option Plan 2014
A new executive share option plan was approved by shareholders at the annual general meeting of members held
on 30 May 2014. This plan replaces the previous executive option plan approved by shareholders on 30 November
2010. Persons eligible to participate include executive officers of the Company or a subsidiary, including a director
holding salaried employment or office in the Company or subsidiary.
Options are granted under the plan for no consideration. The vesting date of options granted under the plan is
subject to minimum term of employment conditions. Options granted under the plan carry no dividend or voting
rights.
The exercise price of options is based on a minimum of the weighted average market price of shares sold in the
ordinary course of trading on the ASX during the 5 trading days ending on the date the option is granted multiplied by
0.8 each option entitles the holder to subscribe for 1 unissued share.
Year Ending – 31 December 2015
During the 2015 financial year no options were granted pursuant to the Employee Share Option Plan 2014.
Year Ending – 31 December 2014
During the financial year the following options were granted pursuant to the Employee Share Option Plan 2014.
61
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
24. SHARE BASED PAYMENTS (Continued)
No. of Options
Grant Date
Vesting Date
Exercise Date A$
Expiry Date
3,500,000 15 July 2014
1,500,000 15 July 2014
1,500,000 15 July 2014
6,500,000
15 July 2016
15 July 2016
15 July 2016
$0.15
$0.17
$0.18
31 December 2016
31 December 2016
31 December 2016
b)
Options
During the 2015 financial year no options were granted.
The options outstanding at 31 December 2015 are detailed below.
Expiry Date
Exercise
Price
Balance at
start of year
Granted
during year
Expired
during year
Exercised
during year
Balance at
end of year
Grant Date
28 June 2013(1)
28 June 2013(1)
31 December 2015
17.9 cents
1,500,000
31 December 2015
16.9 cents
4,500,000
26 February 2014
26 February 2016
11.9 cents
4,250,000
15 July 2014(2)
15 July 2014(2)
15 July 2014(2)
31 December 2016
14.9 cents
3,500,000
31 December 2016
16.9 cents
1,500,000
31 December 2016
17.9 cents
1,500,000
16,750,000
-
-
-
-
-
-
-
1,500,000
4,500,000
-
-
-
-
(6,000,000)
-
-
-
-
-
-
-
-
-
4,250,000
3,500,000
1,500,000
1,500,000
10,750,000
(1) Options granted pursuant to Employee Share Plan approved 30 November 2010. The plan provides for vesting restrictions on
minimum period of employment.
(2) Options granted pursuant to Employee Share Plan approved 30 May 2014. The plan provides for vesting restrictions on minimum
period of employment
c)
Expenses arising from share based payment transactions
Year ending - 31 December 2015
The share based payments transactions costs during the financial year relate to previously granted options based on
a pro-rata portion of the vesting period was A$234,933.
Year ending - 31 December 2014
6,500,000 future options were granted pursuant to the Empire Group’s Employee Share Options Plan.
4,250,000 future options were granted to Macquarie Bank Limited as a component for amending the existing terms
of the Company’s credit facility.
The share based payments transactions costs during the financial year for these options and previously granted
options based on a pro-rata portion of the vesting period was A$351,370.
62
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
25. SEGMENT INFORMATION
The Empire Group has two reportable segments as described below. Information reported to the Empire Group’s chief executive office for the purpose of resource allocation and assessment of
performance is more significantly focused on the category of operations.
in USD
Revenue (external)
Oil & Gas
Investments
Other
Eliminations
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
18,236,209
23,570,157
-
-
-
-
Other income (excluding Finance income)
320,745
136,821
161,782
739,208
(345,898)
18,196
Reportable segment profit/(loss) before tax
(24,572,359)
(6,217,981)
(2,293,786)
739,208
(1,285,838)
(1,731,561)
-
-
-
-
-
-
18,236,209
23,570,157
136,629
894,225
(28,151,983)
(7,210,334)
Finance income
Finance costs
Profit/(loss) for the period before tax
Reportable segment assets
Reportable segment liabilities
Other material non-cash items:
Gain on disposal of acreage
- Impairment expense
- Gain on disposal
- Lease expiration costs
4,416
6,619,832
347,882
408,561
5,205
4,913
(347,882)
(408,561)
9,621
6,624,745
(1,440,646)
(3,130,637)
-
-
(5,802)
(9,528)
347,882
408,561
(1,098,566)
(2,731,604)
(29,240,928)
(9,933,109)
74,031,605
102,071,512
(530,090)
1,588,259
243,617
443,326
703,151
(1,351,341)
74,448,283
102,751,716
56,465,182
56,268,208
- Depreciation and amortisation
(5,758,201)
(5,817,881)
(19,747,000)
(13,995,331)
(2,455,568)
-
-
161,782
739,208
(426,200)
(188,518)
Non-cash items included in Finance costs:
- Asset retirement obligation accretion
(422,431)
(378,334)
- Discount on debt & overriding royalty interest
(676,135)
(331,421)
- Fair value gain/(loss) on forward commodity contracts
-
6,615,916
Capital expenditure
(4,743,805)
(6,764,678)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(703,151)
1,351,341
55,762,031
57,619,549
(12,802)
-
-
-
-
-
-
(23,809)
-
-
-
-
-
-
(24,185)
(95,233)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,771,003)
(5,841,690)
(22,202,568)
(13,995,331)
161,782
739,208
(426,200)
(188,518)
(422,431)
(378,334)
(676,135)
(331,421)
-
6,615,916
(4,767,900)
(6,859,911)
63
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
25. SEGMENT INFORMATION (Continued)
The revenue reported above represents revenue generated from external customers. There were no intersegment
sales during the period. Included in Other income above are gains disclosed separately of the face of the statement
of Comprehensive Income.
The Empire Group’s reportable segments under AASB 8 are as follows:
Oil and gas operations - includes all oil and gas operations located in the USA. Revenue is derived from the
sale of oil and gas and operation of wells.
Investments - includes all investments in listed and unlisted entities, including the investment in Empire
Energy Group USA (eliminated on consolidation). Revenue is derived from the sale of the investments.
Other - includes all centralised administration costs and other minor other income.
Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of central administration
costs and directors’ salaries, finance income and finance expense, gains or losses on disposal of associates and
discontinued operations. This is the measure reported to the chief operating decision maker for the purposes of
resource allocation and assessment of segment performance.
Geographical information
All Revenue from external customers is derived from operations in the USA.
The majority of the Empire Group's assets are located in the USA.
Major customers
Revenues from two major customers of the Empire Group’s Oil & Gas segment represents approximately
$12,400,622 (2014: two major customer $16,263,408) of the Empire Group’s total revenues.
26. RELATED PARTY DISCLOSURES
a. Disclosures Relating to Directors
i.
The names of persons who were directors of the Company at any time during the financial year were:
• B W McLeod
• D H Sutton
• K A Torpey
ii.
Directors’ Shareholdings
Number of shares held by the Company Directors
Balance at
31 December
2014
Acquired during
period through Pro
Rata Rights Issue
Other changes
during period
Balance at
31 December 2015
7,238,365
633,300
2,191,449
1,686,632
100,995
-
-
-
-
8,924,997
734,295
2,191,449
Director
B W McLeod
D H Sutton
K A Torpey
Option holdings
Number of options over ordinary shares in the Company held during the financial period by each Director of the
Company, including their related entities are set out below:
Director
Balance at 1
January 2015
Granted during
year as
Remuneration
Exercised
during year
Expiring
during year
Balance at
31 December
2015
Vested
exercisable at 31
December 2015
B W McLeod
D H Sutton
K A Torpey
6,000,000
-
-
-
-
-
-
-
-
3,000,000
-
-
3,000,000
-
-
-
-
-
64
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
26. RELATED PARTY DISCLOSURES (Continued)
The options held by Directors’ were issued under an Employee Share Option Plan and are exercisable on the
following basis and subject to a minimum term of employment conditions:
Director
B W McLeod
No. of options
Exercise Price A$
1,500,000
1,500,000
1,500,000
1,500,000
$0.18
$0.17
$0.18
$0.17
Expiry Date
31 December 2015
31 December 2015
31 December 2016
31 December 2016
iii.
Transactions with Key Management Personnel
1) B W McLeod is a director and shareholder of Eastern & Pacific Capital
Pty Limited. The Empire Group incurred the following transactions:
- Management consultant fees
- Bonus payment
2) Aggregate amounts payable to Directors and their related Companies
at balance date:
- Eastern & Pacific Capital
- Bonus and consulting fees
3)
J Warburton is a director and CEO of wholly-owned subsidiary
Imperial Oil & Gas Pty Limited. The Empire Group paid the following
transactions:
-
Advisory fees
- Director fees
b. Disclosures Relating to Controlled Entities
2015
US$
2014
US$
330,149
-
377,322
72,148
30,260
82,104
56,104
27,086
69,178
27,087
Empire Energy Group Limited is the ultimate controlling Company of the Consolidated Entity comprising the
Company and its wholly-owned controlled companies.
During the year, the Company advanced and received loans, and provided accounting and administrative services to
other companies in the Consolidated Entity. These balances, along with associated charges, are eliminated on
consolidation.
c.
Investments in Controlled Companies
Country of
Incorporation
Class of
Share
Controlling Empire Group
Empire Energy Group Limited
Australia
Interest Held
December
2015
%
December
2014
%
Controlled Companies
Imperial Oil & Gas Pty Limited
Empire Energy Holdings, LLC1
Imperial Energy Pty Ltd
Cobalt Energy Pty Ltd
Empire Energy USA, LLC
Australia
USA
Australia
Australia
USA
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
All entities are audited by Nexia Australia with the exception of Empire Energy USA LLC and Imperial Resources,
LLC the latter two companies incorporated in the USA and are audited by Schneider Downs.
1 Imperial Resources, LLC was renamed Empire Energy Holdings, LLC on 28 January 2015.
65
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
27. NOTES TO THE STATEMENT OF CASH FLOWS
(a) Reconciliation of Cash
Cash at the end of the financial year is shown in Statement of Financial
Position as follows:
Cash at bank and in hand
1,126,543
3,092,991
December 2015
US$
December 2014
US$
(b) Reconciliation of profit after income tax expense to net cash
flows from operating activities
Loss for the period after income tax expense
(26,998,997)
(4,753,285)
Adjustments for non-cash items:
Depreciation & amortisation expense
Impairment of property, plant & equipment
Loss/(gain) on disposal of property, plant & equipment
Write-off of exploration expenditure
Expiration of leases
Profit/Loss on disposal of available for sale financial assets
Discount on debt
Asset retirement obligation accretion
Share-based payment expense
Unrealised loss/(gain) on forward commodity contracts
5,770,977
5,842,203
22,202,568
13,995,331
703,473
(693,211)
-
426,200
(161,782)
676,135
407,823
176,761
305,548
186,348
188,518
-
331,421
378,334
317,239
(6,615,916)
Operating profit before changes in working capital and provisions
3,508,706
9,176,182
Change in Trade and other receivables
Change in Prepayments and other current assets
Change in Inventories
Change in Current tax asset
Change in Trade and other payables
Change in Provisions
Change in Deferred Tax Liability
Net cash flows from operating activities
2,597,380
(429,860)
57,818
-
(2,011,212)
132
204,456
345,257
384,608
201,533
25,204
6,894
(2,062,080)
(5,253,920)
(1,847,822)
(4,085,968)
1,660,884
5,091,014
(c) Non-Cash Financing and Investing Activities
During the current financial year there were no non cash financing and investing activities.
A proportional value of options already on based on a pro-rata portion of the vesting period was expensed during
the financial year as follows:
-
-
-
-
-
5,000,000 options exercisable @ A$0.169 expiring 31/12/2015
4,250,000 options exercisable @ A$0.119 expiring 26/02/2015
3,500,000 options exercisable @ A$0.149 expiring 31/12/2016
1,500,000 options exercisable @ A$0.169 expiring 31/12/2016
1,500,000 options exercisable @ A$0.179 expiring 31/12/2016
A$48,183
A$97,750
A$50,750
A$19,500
A$18,750
A$234,933
66
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
27. NOTES TO THE STATEMENT OF CASH FLOWS (Continued)
During the previous financial year the following transactions occurred:
The Company granted 6,500,000 executive options to acquire ordinary shares in the capital of the Company to
Directors and specified executives of the Company. 3,500,000 of these Options are exercisable at A$0.15 and
expire on 31 December 2016, 1,500,000 Options are exercisable at A$0.17 and expire on 31 December 2016 the
remaining 1,500,000 Options are exercisable at A$0.18 and expire 31 December 2016. The options were granted
pursuant to the terms of the Company’s Employee Share Option Plan which provides vesting restrictions based on
minimum period of employment conditions. Shareholder approval was obtained where required. These options were
independently valued in January 2015 at A$178,000.
The Company granted 4,250,000 options to Macquarie Bank Limited as a component for amending the existing
terms of the Company’s credit facility. The unlisted options are exercisable at A$0.12 and expire 26 February 2016.
These options were independently valued in July 2014 at A$195,500.
28. EARNINGS PER SHARE
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2015
(7.84)
(7.84)
2014
(1.54)
(1.54)
Loss/profit used in the calculation of basic and diluted earnings per share
(26,998,997)
(4,753,285)
Weighted average number of ordinary shares on issue used in the calculation of
basic earnings per share
344,313,877
308,863,682
Weighted average number of potential ordinary shares used in the calculation of
diluted earnings per share
344,313,877
308,863,682
29. SUPERANNUATION COMMITMENTS
The Empire Group contributed to externally managed accumulation superannuation plans on behalf of employees.
Empire Group contributions are made in accordance with the Empire Group’s legal requirements.
30. PARENT ENTITY INFORMATION
Information relating to Empire Energy Group Limited:
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Shareholder's Equity:
Issued Capital
Reserves
- Fair value reserve
- Foreign currency translation reserve
- Options reserve
- Share based payment reserve
- General Reserve
Accumulated Losses
Total Shareholder’s Equity
Profit/(loss) for the period
2015
US$
2014
US$
143,675
34,361,251
(209,243)
(240,802)
244,220
35,829,253
(253,629)
(296,063)
(74,240,544)
(73,683,238)
(575,677)
7,995,916
(574,163)
5,119,685
(1,646,201)
(1,465,232)
(168,442)
(241,144)
(172,650)
(235,107)
34,821,211
35,486,924
(34,054,881)
(35,523,781)
664,713
(478,554)
Total Comprehensive income
(1,403,332)
(1,697,168)
67
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
31.
DIRECTORS AND EXECUTIVE OFFICERS REMUNERATION
Determination of Remuneration of Directors
Remuneration of non-executive directors comprise fees determined having regard to industry practice and the need
to obtain appropriate qualified independent persons.
Remuneration of the executive director is determined by the Remuneration Committee (refer statement of Corporate
Governance Practices and the Remuneration Report for further details).
In this respect, consideration is given to normal commercial rates of remuneration for similar levels of responsibility,
consistent with the Empire Group’s level of operations.
Determination of Remuneration of Other Key Management Personnel
Remuneration of senior executives is determined by the Remuneration Committee (refer statement of Main
Corporate Governance Practices for further details). In this respect, consideration is given to normal commercial
rates of remuneration for similar levels of responsibility, consistent with the Empire Group’s level of operations.
Directors’ and Executive Officers’ Remuneration
Details of the nature and amount of each major element of the remuneration of each director of the Empire Group
and each named officer of the Empire Group and the Consolidated Entity receiving the highest remuneration are:
Short term benefits
Post-
employment
benefits
Long-
term
benefits
December 2015
Directors
B W McLeod
K A Torpey
D H Sutton
J Warburton
Cash
salary
and fees
US$
330,149
15,048
-
83,191
Empire Energy Executives
A Boyer
178,000
Bonus
payments
US$
Non-
monetary
US$
Super
contributions
US$
Long
service
leave
Share/option
based
payments *
Total
US$
-
-
-
-
-
25,211
-
-
-
-
1,354
15,048
-
65,326
-
-
-
-
-
-
46,769
-
-
-
402,129
16,402
15,048
83,191
8,499
251,825
* Share/Option based payments reflect a proportion of the independently valued cost of options granted under the
Employee Share Option Plan (“ESOP”). The net cost shown is a non-cash cost and includes, on a pro-rata basis, the
independently valued cost of previous options issued. Once the options reach vesting date, the cost shown
amortises to $0. The Cost of the above options issued under the ESOP over the year was $55,268. The loss on
options relating to the above directors that expired over the year was $25,649. The net cost of options issued to the
above directors and executives for the year was $29,618.
Short term benefits
Post-
employment
benefits
Long-
term
benefits
Bonus
payments
US$
Non-
monetary
US$
Super
contributions
US$
Long
service
leave
Share/option
based
payments *
Total
US$
December 2014
Directors
B W McLeod
K A Torpey
D H Sutton
J Warburton
Cash
salary
and fees
US$
377,322
18,058
-
96,265
72,148**
-
-
-
44,480
-
-
-
-
1,625
18,058
-
Empire Energy Executives
A Boyer
168,000
6,650
48,852
-
-
-
-
-
-
86,901*
10,085*
10,085*
-
580,851
29,768
28,143
96,265
16,972*
240,474
68
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
31.
DIRECTORS AND EXECUTIVE OFFICERS REMUNERATION (Continued)
* Share/Option based payments reflect a proportion of the independently valued cost of options granted under the
Employee Share Option Plan (“ESOP”). The net cost shown is a non-cash cost and includes, on a pro-rata basis, the
independently valued cost of previous options issued. Once the options reach vesting date, the cost shown
amortises to $0. The Cost of the above options issued under the ESOP over the year was $124,043. The loss on
options relating to the above directors that expired over the year was $54,868. The net cost of options issued to the
above directors and executives for the year was $69,175.
** Under the terms of the existing performance plan Mr B W McLeod would have been eligible for a payment of
$72,148 in 2014 based on the increase in 2P reserves. Due to the current conditions of the energy industry, the
Company and Mr McLeod have agreed to defer the payment for a period of 12 months, or until an earlier time when
both the Remuneration Committee and Mr McLeod agree that conditions are suitable for the performance payment
to be granted.
32. AUDITORS’ REMUNERATION
Audit Services
Auditors of the Company – Nexia Australia:
Audit and review of financial reports
Other auditors:
2015
US$
2014
US$
99,400
100,156
Audit and review of financial reports
188,016
206,262
Other services
Auditors of the Company – Nexia Australia:
Taxation services
Other auditors:
Taxation services
287,416
306,418
9,211
23,860
1,029
10,240
55,262
79,122
33. MATTERS SUBSEQUENT TO BALANCE DATE
1) Macquarie Bank Credit Facility Rollover
The Credit Facility matures on 7 April 2016. Documentation for the rollover of the Facility is being finalised for a
further 3 years, with sign off expected early April 2016. The Company has committed to an accelerated pay down
of an agreed amount of current outstanding debt from a portion of the proceeds received from the AEP Farmout
Agreement.
2) In February 2016 Michael Gunner, MLA leader of the Northern Territory (“NT”) Labor Party and the current
opposition leader in NT announced that should the Labor Party win the election in August 2016 a moratorium on
fracking in the Northern Territory may be implemented.
3) On February 16, 2016, the Company elected not to complete the purchase of the Butler county Kansas
properties and subsequently wrote down the value of those assets at December 31, 2015 and then wrote off the
remaining value of the assets against the loan value at February 16, 2016. The loan facility to acquire the assets
was not drawn. Refer to Note 17.
There were no other matters or circumstances that have arisen since 31 December 2015 that has significantly
affected or may significantly affect:
the operations, in financial years subsequent to 31 December 2015, of the Empire Group; or
the results of those operations; or
the state of affairs in financial years subsequent to 31 December 2015 of the Empire Group.
69
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2015
DIRECTORS’ DECLARATION
In the opinion of the directors of Empire Energy Group Limited (the “Company”):
a
b
c
The financial statements and notes of the Company and the remuneration disclosures that are contained in
the Remuneration report in the Directors’ report set out on pages 21 to 28, are in accordance with the
Corporations Act 2001, including:
i
ii
Giving a true and fair view of the Company’s and Group’s financial position as at 31 December 2015
and of their performance, for the year ended on that date; and
Complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001;
the financial report also complies with the International Financial Reporting Standards as disclosed in note
1; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the
Chief Executive Office and the Chief Financial Controller for the year ended 31 December 2015.
Signed in accordance with a resolution of the directors.
B W McLEOD
Director
Dated: 24 March 2016
70
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EMPIRE ENERGY GROUP
LIMITED
Report on the Financial Report
We have audited the accompanying financial report of Empire Energy Group Limited, which
comprises the statement of financial position as at 31 December 2015, the statement of profit or loss
and other comprehensive income, the statement of changes in equity and the statement of cash flows
for the year ended on that date, a summary of significant accounting policies, other explanatory notes
and the directors’ declaration of the company and the consolidated entity comprising the company
and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error. In note 1, the directors also state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the financial statements comply with International Financial
Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. These Auditing Standards require that
we comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation of the financial report that gives a true and fair view in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as
well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001. We confirm that the independence declaration required by the Corporations Act 2001
would be in the same terms if it had been given to the directors as at the time of this auditor’s report.
71
Opinion
In our opinion:
(a)
the financial report of Empire Energy Group Limited is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 31
December 2015 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001;
and
(b)
the financial statements also comply with International Financial Reporting Standards as
disclosed in Note 1.
Emphasis of Matter
Without qualification to our opinion, we draw attention to Note 3 “Going Concern” in the financial
report. The financial report has been prepared on the basis that the consolidated entity is a going
concern. The Group is currently in the process of extending their loan facility maturity date to
February 2019, with no executed formal agreement available as at the date of this audit report. This
matter, and the other matters set forth in Note 3, indicates the existence of a material uncertainty
should the Group be unable to extend the loan facility and may cast doubt about the entity’s ability to
continue as a going concern and therefore may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 24 to 26 of the directors’ report for the
year ended 31 December 2015. The directors of the company are responsible for the preparation and
presentation of the Remuneration Report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Empire Energy Group Limited for the year ended 31
December 2015, complies with section 300A of the Corporations Act 2001.
Nexia Court and Co
Chartered Accountants
Robert Mayberry
Partner
Sydney
Dated: 31 March 2016
72
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
SHAREHOLDER INFORMATION
ORDINARY SHARES
a
Substantial Shareholders as at 17 March 2016
Name
Macquarie Bank Limited (Metals & Energy CAP DIV A/C)
b
Distribution of Fully Paid Ordinary Shares
1
1,001
5,001
10,001
100,001 and over
–
–
–
–
1,000
5,000
10,000
100,000
Total number of holders
Number of
Shares
53,666,666
%
Holding
15.59
Holders
321
797
452
843
334
Number of
Shares
127,409
2,233,731
3,430,901
31,722,497
306,799,339
%
Holding
0.04
0.65
1.00
9.21
89.10
2,747
344,313,877
100.00
i
ii
Number of holders of less than a marketable parcel
Percentage held by 20 largest holders
1,953
46.83
c
Twenty Largest Shareholders grouped as at 17 March 2016
Name
Macquarie Bank Limited
Chifley Portfolios Pty Ltd
Foxview Pty Limited
Rhodes Capital Pty Ltd
Armco Barriers Pty Ltd
John Wardman & Associates Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Ms Michelle Wong
J P Morgan Nominees Australia Limited
1
2
3 WYT Nominees Pty Ltd
4
5
6
7
8
9
10
11 Fanchel Pty Ltd
12 Serlett Pty Ltd
13 Colowell Pty Ltd
14 Transition Metals Pty Ltd
15 Commonwealth Energy Assets LLC
16 Ms Karen Aviva Schumer + Mr Gary Leon Lewis
17 Mr Gerard Toscan
18 Remond Holdings Pty Limited
19 Mr Christopher John Wilson + Ms Wei Mun Judienna Chang
20 Mr Kenneth Murray & Mrs Ruth Murray
Number of
Shares
53,666,666
12,463,983
8,700,451
8,157,141
7,649,999
6,800,000
6,000,000
5,896,450
5,431,098
5,041,259
5,000,000
4,439,038
4,286,686
4,024,067
4,000,000
4,000,000
4,000,000
3,951,401
3,930,000
3,800,000
161,238,238
%
Holding
15.59
3.62
2.53
2.37
2.22
1.97
1.74
1.71
1.58
1.46
1.45
1.29
1.24
1.17
1.16
1.16
1.16
1.15
1.14
1.10
46.81
d
Voting Rights
On a show of hands every member present in person or by proxy shall have one vote and upon a poll every
member, present in person or by proxy, shall have one vote for every share except if the issue price has not been
paid in full, then the holder is only entitled to a fraction of a vote on that share, being, the quotient of the amount
paid up divided by the issue price of that share.
73
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
SHAREHOLDER INFORMATON (Continued)
UNQUOTED SECURITIES AS AT 17 MARCH 2016
Class of unquoted securities
No. of securities
No. of holders
Unlisted Executive Options issued under the terms of the Company’s
executive option plan
-
-
-
Executive options exercisable at $0.15 expiring 31 December 2016
Executive options exercisable at $0.17 expiring 31 December 2016
Executive options exercisable at $0.18 expiring 31 December 2016
3,500,000
1,500,000
1,500,000
Unlisted Performance Rights subject to certain preconditions being met
2,5000,000
7
1
1
1
Voting Rights
There are no voting rights attached to any of the unquoted securities listed above.
LIST OF PETROLEUM EXPLORATION LICENCE APPLICATIONS & EXPLORATION LICENCES - AUSTRALIA
Permit
EP(A) 180
EP(A) 181
EP(A) 182
EP(A) 183
EP 184*
EP 187
EP(A) 188
State
Status
Interest
NT
NT
NT
NT
NT
NT
NT
Under application
Under application
Under application
Under application
Granted
Granted
5 year moratorium ending 21/11/18
100%
100%
100%
100%
100%
100%
100%
*Pastoral Lease subject to Native Title
LIST OF MINERAL LEASES - USA
A full list of the mineral (oil & gas) leases and rights of way held by the Company was announced on the Australian
Securities Exchange on 30 March 2016. Given the extensive list (74 pages) it was not practical to include this listing in the
Annual Report of the Company.
CORPORATE GOVERNANCE STATEMENT
The Company’s corporate governance statement can be found on the Company’s website at the following location:
http://empireenergygroup.net/company-overview/corporate-governance
74