E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONTENTS
CORPORATE DIRECTORY
LETTER TO SHAREHOLDERS FROM THE CHAIRMAN AND THE MANAGING
DIRECTOR
OPERATIONS REVIEW
DIRECTORS’ REPORT
3
4
8
17
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF
THE CORPORATIONS ACT 2001
31
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
DIRECTORS’ DECLARATION
32
33
34
36
82
INDEPENDEDNT AUDITOR’S REPORT TO THE MEMBERS OF EMPIRE
ENERGY GROUP LIMITED
83
SHAREHOLDER INFORMATION
86
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CORPORATE DIRECTORY
Directors
Executives
Paul Espie AO (Chairman)
Alexander Underwood (Managing Director)
John Gerahty
Prof John Warburton (appointed 6 February 2019)
David Sutton (resigned 30 June 2019)
Linda Tang (until 6 February 2019)
David Evans (Chief Operating Officer)
Ben Johnston (Vice President – Business Development)
Alex Bruce (Chief Geoscientist)
Financial Controller
Kylie Arizabaleta
Company Secretary
Julian Rockett
Registered Office
Level 19, 20 Bond Street Sydney NSW 2000
Australian Auditors
Nexia Sydney
Level 16, 1 Market Street, Sydney NSW 2000
US Auditors
Schneider Downs & Co. Inc
One PPG Place, Suite 1700, Pittsburgh PA 15222
Australian Solicitors
Clifford Chance
Level 16, 1 O’Connell Street, Sydney NSW 2000
US Solicitors
Bankers
Depew Rathbun & Gillen McInteer, LC
8301 East 21at Street North, Suite 450, Wichita, KS 67206-2936
Macquarie Bank Limited
50 Martin Place, Sydney NSW 2000
Australia & New Zealand Banking Group Limited
1 Chifley Plaza, Sydney NSW 200
PNC Bank
249 Fifth Avenue, One PNC Plaza, Pittsburgh PA 15222
Share Registry
Computershare Investors Services Pty Limited
Level 3, 60 Carrington Street, Sydney NSW 2000
Telephone: 1300 85 05 05
Stock Exchange Listings
Empire Energy Group Limited shares are listed on the:
- Australian Securities Exchange (ASX code: EEG)
- New York OTC Market (Code: EEGNY) OTC#: 452869103
Sponsor: Bank of New York 1 ADR for 20 Ordinary Shares
Website
www.empireenergygroup.net
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
LETTER TO SHAREHOLDERS FROM THE CHAIRMAN AND THE MANAGING
DIRECTOR
Dear Shareholders,
We are pleased to present you with Empire’s 2019 Annual Report.
In 2019 we made significant progress executing our strategy for value creation, which is focused on:
1. Debt reduction and the optimisation of our US assets to focus on our world-class Northern
Territory McArthur and Beetaloo Basin position;
2. Building upon our Northern Territory asset base focused on upstream oil and gas through
strategic investment in the exploration, appraisal and development of our McArthur and
Beetaloo Basin assets and potentially others consistent with the capital capacity of Empire
Energy and its partners; and
3. Building a Board of Directors and management team with the experience and capability to
guide Empire through what we believe will be a significant and sustained period of growth.
Having repositioned the Company since 2018, the Board and management team have established a
platform for longer term growth notwithstanding poor capital market conditions caused by COVID-19
and oil market instability. We consider the future of the Beetaloo and McArthur Basins to have very
high value.
Balance Sheet Strength
In 2018, debt was reduced from $38m to $26m.
In 2019, debt was further reduced to $7.5m, a reduction of 70% over the course of this year. This was
achieved through free cash flow generation, from the sale of our Kansas oil production assets in
September 2019 for $19.25m.
We carried out a capital raising in November 2019 which raised A$12m.
We increased our cash balance from $4.1m to $9.9m over the course of the year. This placed the
company in a net cash position for the first time since 2011.
These improvements through the course of 2019 have allowed Empire to continue making investments
in our Northern Territory assets, including the 2D seismic program in EP187 and drilling approvals, and
to build a skilled management team to take the company through the next phase of growth.
Empire’s remaining US gas production assets in New York State and Pennsylvania had another strong
year of operational performance with minimal production decline from the existing wells which
contributed to free cash flow for much of the year. The US gas market is currently experiencing
significant pressure as many States across the US reduce industrial activity due to economic curtailment
designed to prevent the further transmission of COVID-19.
Empire has hedging in place over 80% of forecast production for 2020 and additional hedges in place
until 2023. These hedges have floor prices of $2.50 / mcf. This is a substantial premium to current spot
prices of ~$1.60 / mcf, which are the lowest in 25 years. These hedges will allow the company to benefit
from any market price increments above $2.50 / mcf once market conditions improve.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Despite the hedging program, the company anticipates that the US business will continue to face profit
margin challenges while low market prices persist.
In order to protect the balance sheet from the risk of ongoing gas market weakness, Empire has sought
and received waivers of existing and potential breaches of the credit agreement from Macquarie Bank
Limited until 31 December 2020 (inclusive). In consideration for this, the company has recently made
principal prepayments of $825,000 from existing US dollar cash balances. This has reduced remaining
debt to $6.675m.
Whilst we could not have anticipated the dramatic impact that COVID-19 has had on the global
economy, our efforts to strengthen the balance sheet and build our liquidity mean that we are well
positioned now. We are minimising non-essential expenditures, so that we can preserve cash holdings
in preparation for value-adding work in the Northern Territory when conditions improve.
Building upon the Northern Territory Asset Base
During the year Empire made value-accretive investments in its Northern Territory properties, including
a 231-line km seismic program in EP187 which was carried out in November 2019.
We were pleased with the results of the seismic program which demonstrated that the Velkerri and
Kyalla Shales extend into Empire’s EP187 tenement at depths and thicknesses ideal for petroleum
development and on trend with our neighbours Santos and Origin. We have identified an un-faulted
40,000 acre Phase 1 Work Program Area on the Western side of EP187 in which the Velkerri Shale is
approximately 500m thick, and the Kyalla Shale is approximately 100m thick.
In January 2020, we received drilling approvals for our first well, Carpentaria-1, which will target these
shales in the Phase 1 Work Program area.
We have engaged Netherland Sewell & Associates, a respected petroleum consulting firm based in
Dallas, Texas, which is generating an independent prospective resource report for release in the second
quarter. We believe it will demonstrate that a substantial petroleum resource exists in Empire’s
Northern Territory properties which cover over 14.5m acres in the Beetaloo and McArthur Basins.
The recent outbreak of COVID-19 in Australia has necessitated Government restrictions on travel
through large parts of the country, including our work program areas. Consequently, the Board of
Directors has decided to defer its investment decision regarding the timing of the drilling of
Carpentaria-1, until we are confident that we will be able to drill the well appropriately and minimise
the risk of transmission of COVID-19. Our obligation to, and relationships with, the Northern Territory
communities in which we operate is of the highest importance.
Our neighbours in these basins, Santos and Origin, have had encouraging early results as their Beetaloo
Basin work programs ramp up. Santos carried out a vertical fracture stimulation on the existing
Tanumbirini-1 well in the tenement adjacent to our EP187 in January 2020 and reported “better than
expected” flow rates of up to 1.2 mmcf / day. This result bodes well for further horizontal appraisal
drilling activities in the Beetaloo Basin. The next phase of Santos’ appraisal program will be the drilling
and fracture stimulation of two horizontal wells targeting the Velkerri formation.
Northern Australia is a key focus for growth for Santos. In late 2019, Santos announced that it had
acquired a majority working interest in the Darwin LNG plant from ConocoPhillips. This plant has
substantial expansion capacity and provides a route to Asian markets for Santos’ Beetaloo Basin gas.
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Origin recently drilled the first horizontal well targeting the Kyalla formation on its Beetaloo Basin
properties. Its joint venture partner, Falcon Oil & Gas, reported a gross Kyalla Shale thickness of 900m
and, encouragingly, elevated C3, C4 and C5 (liquid hydrocarbons) readings as the well drilled through
the Kyalla Shale. Origin intends to carry out a fracture stimulation of the Kyalla Shale in the horizontal
section of this well once COVID-19 risks subside later this year.
Building the Empire Team
During 2019, Empire further built the strength of the Board of Directors with the appointment of John
Warburton who was a pioneer in the identification of the potential of the Northern Territory’s shale
basins. The pegging of Empire’s commanding holdings in the Beetaloo and McArthur Basins followed in
2010. John’s relationships with stakeholders in the Northern Territory continue to be of value to the
company. John’s story of the founding years of the company in the Northern Territory is reproduced at
the back of this report.
In recent months, the management team has been reinforced with the appointments of David Evans,
formerly of Drillsearch, as Chief Operating Officer, Alex Bruce as Chief Geoscientist formerly of
Bridgeport Energy and Drillsearch, and Ben Johnston, formerly of Commonwealth Bank of Australia and
Royal Bank of Canada, as Vice President - Business Development. This reinforcement of the team’s
experience and skills is essential for the optimisation of our exploration and development programs in
the Beetaloo and McArthur Basins.
Our staff in Australia and the United States of America have performed at a high level during changing
circumstances in both countries and we are grateful to them for this.
The health and safety of our people is our highest priority. We have enacted robust COVID-19
management policies to protect their health and minimise the risk of COVID-19 transmission while we
continue to operate.
Looking Ahead
Despite the unprecedented economic disruptions that COVID-19 has caused to the global economy,
Empire is well positioned for growth as conditions normalise.
We have received Ministerial consent for our EP187 drilling program. The well design and operational
planning are well advanced. The Carpentaria-1 well has been designed to allow for further appraisal
activities including fracture stimulation, flow testing and ultimately horizontal development and
production.
Planning to carry out a vertical fracture stimulation after the well is drilled has commenced. This will
generate important technical information and add value to our properties.
While the restrictions imposed by the Australian and Northern Territory Governments to protect their
populations from COVID-19 transmission risks will cause some delays to our work programs and those
of our neighbours in these basins, we remain committed to the addition of value to our Northern
Territory properties and are confident that when current risks subside, the future for these basins and
the company will grow later in the year and beyond.
Yours sincerely,
Paul Espie AO
Chairman
Empire Energy Group Limited
Alex Underwood
Managing Director
Empire Energy Group Limited
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Map detailing major operators in Beetaloo and McArthur Basins
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
OPERATIONS REVIEW
A.
2019 OVERVIEW & HIGHLIGHTS
Empire Group’s functional currency is in United States Dollars. All references to dollars are United States
Dollars unless otherwise stated.
GROUP FINANCIAL HIGHLIGHTS
- Group Revenue1 $10.8m (2018: $14.3m)
- Net production 1,054 boe per day (2018: 1,185 boe per day)
- Outstanding debt $7.5m (2018: $26.0m)
-
Cash at bank $9.9m (2018: $4.1m)
- Net cash flows from operating activities -$0.8m (2018: -$0.3m)
-
-
Total comprehensive loss -$16.1m (2018: -$16.0m).
This result was impacted by a $4.2m loss in relation to the Kansas assets which were sold during
the year2 and $9.1m of non-cash balance sheet impairments and write-offs3, while the continuing
operations generated an operating loss of $2.8m.
AUSTRALIA – NORTHERN TERRITORY
-
Empire holds a 100% working interest in over 14.5m acres of tenements across the McArthur and
Beetaloo Basins, Northern Territory, Australia
- A Prospective Resource P (50) (“PRP (50)”) of ~2.1 billion Boe or ~12.4Tcfe was announced in
February 2016 for the Company’s Northern Territory Assets. The PRP (50) covers approximately
5.5m acres of the total 14.5m 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 considerably thicker than that
used for the PRP (50) estimate. (Refer to page 12 for definition of Prospective Resource)
-
-
In November 2019, the Company acquired 231 line km of high quality 2D seismic in EP187 on the
Eastern margin of the Beetaloo Basin. The seismic program demonstrated that Empire has a
material Velkerri Shale and Kyalla Shale resource in EP187 on trend with discoveries made by
Santos and Origin Energy in neighbouring properties.
In January 2020, Empire received Ministerial consent from the Northern Territory Environment
Minister for the drilling of a well in EP187 targeting the Velkerri and Kyalla Shales.
- Well design and planning for the drilling of Carpentaria-1 is well advanced.
1 Including revenue from discontinued operations in Kansas
2 See Note 20 to the Financial Statements
3 See Note 28 and Note 30 to the Financial Statements. The following non-cash charges were incurred in
relation to the Appalachia operations: $3.9m impairment of the carrying value of the assets due to a decline in
gas prices, $2.6m impairment of the value of Asset Retirement Obligations due to a decrease in the discount
rate applied to those obligations, $1.4m of depreciation and amortisation and $1.2m of non-cash financing
costs.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
OPERATIONS REVIEW (CONTINUED)
-
-
The Company has recommenced the process of securing landholder, Traditional Owner and
Government approvals to progress its Exploration Permit Applications (EP(A)’s 180, 181, 182, 183
and 188) to granted Exploration Permit status. Recommencement of these activities reflects
increasing confidence given that the Northern Territory Government’s decision to support the
onshore shale petroleum industry has provided greater investment certainty.
Parts of EP184 which cover the Limmen National Park and the St Vidgeon Management Area were
in accordance with Government policies that accepted the
declared Reserved Blocks
recommendations of the Independent Inquiry into Fracture Stimulation in the Northern Territory.
Reserved Blocks are areas in which oil and gas exploration and development cannot occur.
Empire is negotiating with the Northern Territory Government regarding access to these areas,
or compensation for past expenditures if access is not granted.
USA – APPALACHIA & MIDCON
-
-
In September 2019, Empire completed the sale of its Kansas oil production assets to Mai Oil
Operations, Inc for $19.25m. The proceeds of the sale were used to reduce debt and increase
working capital.
Empire’s Appalachia operations had a strong operational performance throughout 2019 with
minimal production declines across the asset base despite minimal capital investment. The
Appalachia operations contributed to free cash flow for most of the year although more recently
poor gas market conditions have reduced revenues.
- USA operations continued to trade in challenging market conditions throughout the 2019
characterised by gas prices remaining below $3/mcf for most of the year and oil prices
experiencing significant volatility throughout the year. Following the sale of Empire’s Kansas
properties, it has minimal direct exposure to oil prices (<1% of total US production).
- Gross oil production was 131,000 Bbls (Net 88,000 Bbls) (2018: Gross 190,000 Bbls). Empire sold
its Kansas oil production operations in September 2019 which negatively impacted total oil
production volumes compared to the prior year.
- Gross natural gas production was 2.11 Bcf (Net 1.78 Bcf) (2018: Gross 2.30 Bcf). Gas production
in 2019 experienced natural field decline compared to the prior year and some wells were
temporarily shut in during periods of low spot gas prices.
-
-
The Company’s credit facility was refinanced during the year with a new 5-year $7.5m facility
which commenced in September 2019 and which matures in September 2024. The balance
reduced from $26m to $7.5m over the course of the year due to principal repayments made from
free cash flow and the sale of the Kansas assets.
In March 2020, in consideration for Macquarie granting waivers to the financial covenants under
the credit facility until 31 December 2020 (inclusive), Empire made principal repayments of
$825,000 which reduced the remaining credit facility balance to $6,675,000.
B.
OPERATIONS
The Company maintains a small head office in Australia and manages oil and gas production operations
through its 100% owned USA subsidiary Empire Energy E&P, (Empire E&P). The exploration programs in
the Beetaloo and McArthur Basins in the Northern Territory, are operated through its 100% owned
subsidiary Imperial Oil & Gas Pty Ltd.
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OPERATIONS REVIEW (CONTINUED)
C.
OPERATIONS REVIEW – USA
Dec 31, 2019
Dec 31, 2018
% change
Operating Statistics Notes
Gross Production:
Oil (MBbls)
Natural gas (MMcf)
1.1
131
2,113
190
2,299
ghjlkg
Net Production:
Oil (MBbls)
Natural gas (MMcf)
Net Production (MBoe):
1.2
89
1,778
385
128
1,852
435
-31%
-8%
-31%
-4%
-12%
Net Daily Production (Boe/d):
1,054
1,185
-12%
Average sales price per unit (after hedging):
Oil ($/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)
1.3
$59.76
$2.72
$26.31
$52.07
$2.44
$23.23
$23.69
$1.18
$11.85
$59.71
$3.25
$31.40
$59.71
$2.69
$29.02
$23.19
$1.18
$11.85
0%
-16%
-16%
-13%
-9%
-20%
2%
8%
-4%
1.1
2P Reserves (MMBoe):
-56%
Note – oil production declined materially due to the sale of the Kansas oil production
assets in September 2019.
13.8
1.4
6.1
1.2 BOE - based on SEC guidelines of an oil:gas ratio of 1:6.
1.3 Lifting Costs - includes lease operating expenses, production and ad valorem taxes but
excludes nonrecurring expenses, G&A and field overhead.
1.4
Reduction in 2P reserves volumes was due to the sale of the Kansas oil production assets
and reduction in undeveloped gas reserves in Appalachia due to reduced market gas
prices
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OPERATIONS REVIEW (CONTINUED)
D.
OPERATIONS REVIEW – USA
Net Production by Region
Operating Statistics
Oil (MBbls)
Appalachia
Mid-Con
Total (MBbls)
Natural gas (MMcf)
Appalachia
Mid-Con
Total (MMcf)
E.
CREDIT FACILITY
Dec 31, 2019
Dec 31, 2018
% change
3
86
89
1,775
3
1,778
3
125
128
1,843
9
1,852
-
-31%
-30%
-4%
-66%
-4%
The Company has a Credit Facility with Macquarie Bank Limited. The facility has the following key terms:
Principal Amount
$7.5m
Term
5 years
Interest Rate
LIBOR + 650 bps
Repayment Terms No principal repayments for 2019, then 100% of Appalachia Net
Operating Cashflow subject to minimum amortisation of $550,000 per
annum
Hedging
Empire shall maintain a rolling hedging program whereby 55% of
forecast Proved Developed Producing Reserves shall be hedged for 3
years
Key Covenants
Net Debt > 1.3x Proved Developed Producing Reserves PV10
Net Debt > 1.5x Adjusted Proved Reserves PV10
Interest Coverage ratio > 1.3x
The draw down on the Macquarie Bank Limited Credit Facility as at December 31, 2019 was $7.5m (cf
$26m at December 2018). Principal repayments made in 2019 were $18.5m as a result of free cash flow
generation and the sale of the Kansas assets.
As at 31 December 2019, the company breached the Adjusted Proved Reserves PV10 covenant as a result
of weak gas market prices.
On 27 March 2020, Macquarie Bank Limited waived all past and existing defaults and any potential
defaults up to and including 31 December 2019 in consideration for Empire making repayments of
$825,000. Those repayments were made on 27 March 2020 and reduced the debt balance to $6.675m as
at 31 March 2020.
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OPERATIONS REVIEW (CONTINUED)
F.
HEDGING
Due to the risk model implemented by Empire, a comprehensive hedging strategy has been adopted to
mitigate commodity price risk.
A summary of the hedging contracts can be found at Note 14 of the Financial Statements.
The fair value (marked to market) of combined oil and gas hedges in place as at December 31, 2019 was
$0.7m. Oil and gas hedge contracts were valued based on NYMEX Henry Hub forward curves at market
close on December 31, 2019.
G.
RESERVES – USA
The Company’s reserves are reviewed annually by certified independent third-party reservoir 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.
INDEPENDENT REVIEW OF OIL & GAS RESERVES
Reserves as at December 31, 2019 – USA (NYMEX Strip Dec 31, 2019 including hedges)
Reserves - As of Dec 31, 2019
Reserves (Reserves)
Proved Developed Producing
Proved Developed Non-producing
Proved Behind Pipe
Proved Undeveloped
Total 1P
Probable
Total 2P
Possible
Total 3P
Prospective Resource P(50) - Aust (NT)
Oil
(Mbbls)
Gas
(MMcf)
MBoe
Capex
$M
PV0
$M
PV10 $M
24,264
31
-
-
-
31
310
341
1,230
1,571
-
24,264
10,137
34,401
3,791
38,192
222,000 11,076,000
4,075
-
-
-
4,075
2,000
6,075
1,862
7,937
2,068,000
$6
-
-
-
$6
$12,474
$12,480
$22,911
$35,391
$14,695
-
-
-
$14,695
$29,212
$43,907
$45,825
$89,732
$8,190
-
-
-
$8,190
$3,640
$11,830
$4,261
$16,091
USA Reserves by: Graves & Co Consulting
Northern Territory Resources by: Muir & Associates P/L and Fluid Energy Consultants
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).
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OPERATIONS REVIEW (CONTINUED)
- 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 and 3P reserves.
- The reference point used for 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.
- “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)– Graves & Co Consulting.
- Northern Territory - Muir & Associates P/L and Fluid Energy Consultants.
- The following NYMEX prices, as at December 31, 2019, were used to calculate reserves and cash
flow:
Year
2020
2021
2022
2023
2024
2025
2026
2027
2028
$/Bbl
59.80
55.07
52.64
51.71
51.70
52.20
52.62
52.85
52.85
$/Mcf
2.29
2.41
2.42
2.50
2.49
2.52
2.55
2.60
2.64
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
OPERATIONS REVIEW (CONTINUED)
H. NORTHERN TERRITORY – A LARGE EMERGING PETROLEUM PROVINCE
Empire Energy Group Limited, through its 100% owned subsidiary Imperial Oil & Gas Pty Ltd (“Imperial”),
holds a 100% interest in 59,000 square km (14.5m acres) of prospective shale oil and gas exploration
acreage, in the central depositional trough of the Proterozoic McArthur Basin. The McArthur Basin is an
underexplored petroleum frontier basin with a number of identified shale targets and abundant
indications for the presence of gas and oil.
The Independent Prospective Resource estimates generated in 2013 are set out below for each of the key
shale target formations in the Company’s Northern Territory tenements.
INDEPENDENTLY CERTIFIED ESTIMATED PROSPECTIVE RESOURCE (Unrisked)
IDENTIFIED
Barney Creek Formation
Velkerri Formation
Wollogorang Formation
Bcf
MMBO
Bcf
MMBO
Bcf
MMBO
TOTAL MMBOE
AREA MM
acres
2,982
635
1,384
P90
3,304
66
383
8
524
10
786
P50
8,699
174
1,192
24
1,185
24
2,068
P10
20,172
403
3,086
62
2,371
47
4,783
Conversion Factor oil:gas is 1:6. Refer to page 12 for definition of Prospective Resource
New data collected during the EP187 2D seismic program has not yet been incorporated into these
Prospective Resource estimates.
At the time of the Independent Prospective Resource estimate the Kyalla Formation was considered to be
too shallow in Empire’s acreage to be prospective for commercially recoverable petroleum. The 2019
seismic data acquired by Empire in EP 187 demonstrated the Kyalla Formation to be a potentially viable
target and hence future updates will also include resource estimates for the Kyalla Formation.
A new prospective resource report is being prepared by Netherland, Sewell and Associates.
I.
BUSINESS RISK
COVID-19 – As at the date of this report, border, movement and business operating restrictions are being
established by the Australian Federal Government, the Northern Territory Government, the United States
Government and the New York Government to mitigate the risk of transmission of the COVID-19 virus.
These restrictions could impact Empire’s ability to operate in New York State, Pennsylvania and the
Northern Territory. Empire continues to operate in New York State and Pennsylvania as the production
of natural gas for power generation is considered an essential service by the relevant authorities, although
there is a risk that the operations could be negatively impacted by the COVID-19 virus which would
negatively impact revenue generation.
Exploration Risk - Empire and its subsidiaries have interests in assets at various stages of exploration,
appraisal and development. Many leases have had very low levels of exploration undertaken to date and
may not yield commercial quantities of hydrocarbons. Oil and gas exploration is inherently subject to
numerous risks, including the risk that drilling will not result in commercially viable oil and gas production.
Application Risk – Several Empire’s Northern Territory assets are in application stage requiring native title
and / or regulatory approvals to be granted as Leases capable of being explored on. Such approvals may
or may not be granted which could adversely impact the value of the Company.
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OPERATIONS REVIEW (CONTINUED)
Regulatory Risk – Empire has operations spanning several States in the USA and the Northern Territory,
Australia. Regulatory approvals are required to explore, appraise, develop and produce from the assets.
Where such regulatory approvals are already in place, there is a risk that they could be revoked. Where
such regulatory approvals are not in place, there is a risk that they may not be granted.
Debt Facility Risk – Empire, through its US subsidiaries, has debt facilities in place with Macquarie Bank
Limited. Whilst Empire has financial flexibility and expects to generate sufficient cash flow to repay the
debts in full, there is a risk in the future that financial and other covenants under the debt facilities, could
be breached, which could result in Macquarie exercising its security rights under the facilities.
Commodity Price Risk – Empire, through its US subsidiaries, sells oil and gas at market prices to customers
who price the products off US benchmark oil and gas markets. Empire is exposed to the risk of material
declines in the prices of those commodities. Empire, through its Australian subsidiary, explores for oil and
gas in Australia and maybe subject to domestic Australian gas price risk, LNG price risk and oil price risk.
Reliance on Key Personnel – Empire’s success depends in large measure on certain key personnel. The
loss of the services of such key personnel may have a material adverse effect on the business, financial
condition, results of operation and prospects.
Economic Risk – General economic conditions, movements in interest rates, inflation rates and foreign
exchange rates, investor sentiment, demand for, and supply of capital and other general economic
conditions may have a negative impact on Empire and its subsidiaries ability to carry out its exploration,
appraisal, development and production plans.
Environmental Risk – The upstream oil and gas industry is exposed to environmental risks, including the
risk of oil and chemical spills, the risk of uncontrolled gas venting, and other material environmental risks.
If an environmental incident was to occur, it may result in Empire’s subsidiaries’ licenses being revoked,
its rights to carry on its activities suspended or cancelled, or significant legal consequences.
Title Risk – Interests in tenements in Australia are governed by the respective Territory legislation and
are evidenced by the granting of licences or leases. Each licence or lease is for a specific term and carries
with it annual expenditure and reporting commitments, as well as other conditions requiring compliance.
Consequently, the Company could lose title to or its interest in the Tenements if licence conditions are
not met or if insufficient funds are available to meet expenditure commitments. The Northern Territory
Government has declared Reserved Blocks over parts of Empire’s tenements which are likely to impact
the Company’s ability to carry out petroleum exploration and development activities on those areas.
Native Title and Aboriginal Land - The Tenements extend over areas in which legitimate common law
native title rights of indigenous Australians exist. The ability of the Company to gain access to its
Tenements and to conduct exploration, development and production operations remains subject to
native title rights and aboriginal land rights and the terms of registration of such title agreements.
Reserves Risk – Reserves assessment is a subjective process that provides an estimate of the volume of
recoverable reserves. Oil and gas estimates are not precise and are based on knowledge, experience,
interpretation and industry practices. There is a risk that the Company’s reserves do not generate the
actual revenues and cashflows that are currently being budgeted which could adversely impact the
Company.
Services Risk – Empire engages the services of third party service providers to carry out exploration,
appraisal, development and operating activities. The cost of such services is subject to very high price
volatility, particularly in remote areas. There is a risk that such services may not be able to be provided at
a reasonable price, thereby preventing exploration, appraisal, development and operations activities
from occurring.
Page 15 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
OPERATIONS REVIEW (CONTINUED)
Production Risk – Empire has producing oil and gas assets in the USA. If these assets do not produce the
level of production currently budgeted by Empire, then the cashflow they deliver will not materialise. The
carrying values of these assets could also be adversely impacted. Production risk has the potential to
adversely impact the Company.
Insurance Risk – The Company intends to insure its operations in accordance with industry practice.
However, in certain circumstances, the Company’s insurance may not be of a nature or level to provide
adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance
could have a material adverse effect on the business, financial condition and results of the Company.
Insurance against all risks associated with mining exploration and production is not always available and
where available the costs can be prohibitive.
Acquisitions – The Company may decide to pursue potential acquisitions in the future. This may give rise
to various operational and financial risks, including, but not limited to, poor integration resulting in higher
than expected integration costs, and financial underperformance of the acquired assets. There is also
additional risk associated with the Company’s inability to identify suitable acquisitions in the future that
meet the Company’s criteria. This may potentially have an adverse impact on the financial performance
of the Company.
Funding Risk – The Company may need future capital in the future to progress the development of its
acreage. There can be no guarantee that future capital, whether it be debt or equity, will be available or
will be available on attractive terms. The inability to secure future capital, or in the ability to secure future
capital on attractive terms, could adversely impact the value of the Company.
J.
COMPETENT 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
Organisation
Qualifications
Mel Hainey
Graves & Co. Consulting LLC
BSc
Professional
Organisation
SPE
Wal Muir
Muir and Associate P/L
BSc,MBA
PESA
* 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.
Page 16 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
DIRECTORS’ REPORT
For the financial year ended 31 December 2019
In respect of the financial year ended 31 December 2019, 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:
Paul Espie AO
Non-Executive Director
Non-Executive Chairman (appointed 5 February 2019)
Alexander Underwood
Managing Director
John Gerahty
Non-Executive Director
David Sutton
Non-Executive Director (resigned 30 June 2019)
Interim Chairman (until 5 February 2019)
Prof John Warburton
Non-Executive Director (appointed 6 February 2019)
Linda Tang
Non-Executive Director (until 6 February 2019)
All 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 progression of exploration and appraisal work programs in Empire’s wholly owned and operated EP187
permit located in the highly petroleum prospective Northern Territory McArthur Basin (Beetaloo Sub-Basin).
Key activities completed during the year included the successful acquisition and interpretation of 231km of 2D
seismic, Northern Territory Government Ministerial consent to conduct drilling operations and technical
studies.
The acquisition, development, production, exploration and sale of oil and natural gas in the United States of
America. The Empire Group sells its oil and gas products primarily to owners of domestic pipelines, utilities
and refiners located in Pennsylvania and New York.
In September 2019, Empire sold its Kansas oil production assets for $19.25m to Mai Oil Operations, Inc. The
proceeds of the sale were utilised to reduce debt and increase working capital.
During 2019, Empire reviewed new exploration, development and business opportunities in the oil and gas
sector to enhance shareholder value.
CONSOLIDATED RESULTS
The total comprehensive loss of the Empire Group for the financial year ended 31 December 2019 after
providing for income tax was $16,074,957 compared to a total comprehensive loss for the previous
corresponding reporting period of $15,968,093.
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Directors’ Report
for the year ended 31 December 2019
This result was impacted by a $4.2m loss in relation to the Kansas assets which were sold during the year4 and
$9.1m of non-cash balance sheet impairments and write-offs5, while the continuing operations generated an
operating loss of $2.8m.
REVIEW OF OPERATIONS
For information on a review of the Empire Group’s operations refer to the Operations Review contained on
pages 8 to 16 of this 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 other than the sale of the Kansas oil production assets.
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) On 23 January 2020, the Company announced the completion of processing and interpretation of the
recently acquired (231-line kilometres) 2D seismic data set in its 100% owned Northern Territory EP187
permit, across the eastern sector of the Beetaloo Sub-Basin. The seismic data confirmed that the target
shale sequences were present in the Company’s EP187 tenement.
2) On 1 February 2020, the Company’s Australian corporate headquarters moved office location. The
Company will enter into a 5-year lease which had not been finalised as at the date of the report.
3) On 6 March 2020, the Company advised its shareholders that it had received Northern Territory
Government Ministerial consent for the drilling of Carpentaria-1 in EP187.
4) As at 31 December 2019, the Company breached the Adjusted PV Ratio under the Macquarie Credit
agreement. On 27 March 2020, Macquarie waived all existing / prior defaults under the credit agreement
and waived any potential breaches up to and including 31 December 2020. In consideration for Macquarie
granting those waivers, Empire made principal repayments totalling $825,000 on 27 March 2020 which
were funded from existing USD cash balances.
4 See Note 20 to the Financial Statements
5 See Note 28 and Note 30 to the Financial Statements. The following non-cash charges were incurred in relation to
the Appalachia operations: $3.9m impairment of the carrying value of the assets due to a decline in gas prices,
$2.6m impairment of the value of Asset Retirement Obligations due to a decrease in the discount rate applied to
those obligations, $1.4m of depreciation and amortisation and $1.2m of non-cash financing costs.
Page 18 of 94
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Directors’ Report
for the year ended 31 December 2019
5) At the date of completion of the Financial Report, the Group is continuing to monitor and respond to the
effects of COVID-19. Empire has implemented robust COVID-19 policies designed to minimise the risk of
transmission of COVID-19 among its workforce and local communities while minimising the risk of
disruption to its ongoing business activities. Any potential financial effect of the virus on Empire’s
operations is currently unquantifiable.
INFORMATION ON DIRECTORS
Paul Espie AO, BSc, MBA
Non-Executive Chairman
Appointed Non-Executive Chairman 5 February 2019
Age 75
Mr Paul Espie AO was the founding principal of Pacific Road Capital, a manager of private equity funds investing
in the resources sector internationally, in 2006. He was Chairman of Oxiana Limited during the development of
the Sepon copper/gold project in Laos (2000 to 2003) and prior to that Chairman of Cobar Mines Pty Ltd after a
management buy-out in 1993. Mr Espie was previously responsible for Bank of America operations in Australia,
New Zealand and Papua New Guinea and Chairman of the Australian Infrastructure Fund. He is the Chairman of
the Menzies Research Centre, a Fellow of the Australian Institute of Company Directors, Trustee of the Australian
Institute of Mining & Metallurgy and the Educational Endowment Fund.
Special Responsibilities:
Member of Remuneration Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
Alexander Underwood, LLB, BCom (Hons)
Managing Director
Age 37
Mr Underwood has over fifteen years of specialist upstream oil and gas management, investing and financing
experience. Previously he spent two years with the Commonwealth Bank of Australia, Singapore as Director
of Natural Resources and spent nine years with Macquarie Bank in Sydney and Singapore as Associated
Director of Energy Markets Division. He commenced his career at BHP Billiton Petroleum.
Special Responsibilities:
Chief Executive Officer of Imperial Oil & Gas Pty Limited
Managing Member of the Company’s 100% wholly owned US subsidiaries
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
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Directors’ Report
for the year ended 31 December 2019
John Gerahty, BCom, MBA
Non-Executive Director
Age 77
Mr John Gerahty is a former investment banker and company director with wide experience in business and
commerce. He was a Founding Director of Macquarie Bank and has served as a director of a considerable
number of publicly listed companies, including roles as Chairman of AFP Group PLC and MPI Mines Ltd. He is
currently Chairman of Associated Media Investments Pty Ltd and an associated company AMI Advertising
Media Pty Ltd. He is also a Director of Kaplan Partners Pty Ltd and Kaplan Funds Management Pty Ltd, as well
as his family owned Liangrove group companies. He was formerly a Director (and Chairman) of the Sydney
Swans, a Director of Cricket NSW, and a Trustee of the SCG Trust.
Special Responsibilities:
Member of the Audit and Risk Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
David Sutton, B.Com ACIS
Non-Executive Director
Resigned 30 June 2019
Age 76
Mr Sutton has many years’ experience as a director of companies involved in share broking and investment
banking in Australia and Hong Kong.
He is executive chairman of APC Securities Pty Ltd, a boutique financial services company focusing on the
global resource sector.
Prior to his current role he was a partner and director of several ASX participant firms and a member of the
Stock Exchange of Melbourne and subsequently Australian Securities Exchange Limited.
Apart from Empire Energy he has been a director of several ASX listed resource companies including Silver
Mines Limited. He has also been a director of a number of private mineral exploration companies.
Special Responsibilities:
Member of Audit and Risk Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years
Silver Mines Limited
Precious Metals Investments Limited
Professor John Warburton, PhD, FGS, FPESA, MAICD
Non-Executive Director
Age 62
John Warburton has 35 years of professional oil and gas experience in operated and non-operated
conventional and unconventional petroleum discovery, development and in new business delivery. John has
worked in Western Europe, West Africa, Central Asia, Middle East, Pakistan, Papua New Guinea and
throughout the Asia Pacific Region including Australia and New Zealand. He has resided as an expatriate in a
number of these regions and has a keen focus on people, safety, cultural heritage and environment.
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Directors’ Report
for the year ended 31 December 2019
Prof Warburton’s career includes 14 years of senior technical and leadership roles at BP. He was Executive
General Manager for Exploration & New Business at Eni in Pakistan, and until March 2018 John was Chief of
Geoscience & Exploration Excellence at Oil Search Ltd.
Prof Warburton has been a Director of Empire’s wholly owned Northern Territory subsidiary, Imperial Oil &
Gas Pty Limited (“Imperial”), since 2011 and was its Chief Executive Officer from 2011 to 2014. He continues
to serve as a Non-Executive Director of Imperial. In addition, John is Visiting Professor in the School of Earth &
Environment at Leeds University UK where he has served eight years on the External Advisory Board of
‘Petroleum Leeds’, the centre for excellence in Petroleum Engineering & Geoscience.
Special Responsibilities
Non-Executive Director of Imperial Oil & Gas Pty Limited
Member of the Remuneration Committee
Member of the Audit and Risk Committee
Other Current Listed Public Company Directorships:
Senex Energy Limited
Former Listed Public Company Directorships in Last 3 Years:
Nil
COMPANY SECRETARY
Julian Rockett
Mr Rockett was appointed Joint Company Secretary on 28 March 2019. Mr Rockett is employed by Boardroom
Pty Limited in their Corporate Secretarial Services Division. Mr Rockett is a qualified corporate lawyer and an
experienced Company Secretary for ASX Listed companies.
EXECUTIVES
David Evans BSc(Hons) Geology; PGDip. Petroleum Exploration Geology, MAppSc
Chief Operating Officer
Mr Evans was appointed to the position of Chief Operating Officer on 30 October 2019. Mr. Evans has 30 years’
global upstream oil & gas exploration, development and production experience in increasingly senior technical
and managerial roles, with significant exposure to Australian and North American unconventional hydrocarbon
plays. For the past 3 years, Mr Evans held the role of Chief Operating Officer at ASX listed, US focused, Elk
Petroleum Limited. Prior to joining Elk, Mr. Evans held the positions of Chief Technical Officer and Acting Chief
Operating Officer with ASX listed company Drillsearch Energy Limited for six years, a period of substantial growth
for that company.
Ben Johnston BCom, CA, MBA
Vice President Business Development
Mr Johnston was appointed to the position of Vice President Business Development on 1 November 2019. Mr
Johnston qualified as a chartered accountant with KPMG and obtained his MBA at the Australian Graduate School
of Management. Following his studies Mr Johnston has worked with leading financial institutions including RBC
Capital Markets and Commonwealth Bank of Australia in London and Sydney. Throughout his banking career Mr
Johnston focused on corporate advisory and lending to energy and natural resources clients across M&A, ECM
and debt / project finance transactions.
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 Chartered Accounting firms specialising in Audit and Assurance Services
and holds over 16 years’ experience.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
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
Held Whilst
in Office
Mr A Underwood
Mr P Espie
Mr J Gerahty
Prof J Warburton
Mr D H Sutton
Ms L Tang
9
9
9
8
3
1
9
9
9
8
4
1
-
4
-
4
-
-
-
4
-
4
-
-
-
-
3
3
-
-
-
-
3
3
-
-
During the Financial Year, the Audit and Risk Committee comprised of Mr Gerahty and Prof Warburton. The
Remuneration Committee comprised of Mr Espie and Prof Warburton.
Retirement, Election and Continuation in Office of Directors
- Mr Sutton was appointed Interim Chairman 30 August 2018 until 5 February 2019, then returned to
the role of Non-Executive Director following which he resigned from the Board on 30 June 2019.
- Mr Espie AO was appointed Non-Executive Chairman on 5 February 2019.
-
- Ms Tang was removed from the Board by a resolution of shareholders at the Extraordinary General
Prof John Warburton was appointed Non-Executive Director on 5 February 2019.
Meeting conducted on 6 February 2019.
Remuneration Report – Audited
This report outlines the remuneration arrangements in place for Directors and Executives of the Empire Group.
REMUNERATION COMMITTEE
During the Financial Year, the Remuneration Committee reviewed and approved 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:
P Espie AO
J Warburton
Non-Executive Chairman
Independent Non-Executive Director
The Committee meets as often as required but not less than once per year. The Committee met four times
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 on
predetermined performance criteria tied to operational outcomes and total shareholder return (“Key
Performance Indicators” or “KPIs”).
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
In addition to base salary, remuneration packages include superannuation and other bonuses and incentives
linked to KPIs. Executive Directors and executives can participate in a Share Rights Scheme which was approved
by shareholders in 2019. 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.
The Remuneration Committee seeks the advice of independent remuneration consultants to benchmark
remuneration levels.
Performance Based Remuneration
As part of the executives’ remuneration packages there is a performance-based component, consisting of KPIs.
The intention of this program is to align the interests of executives with shareholders.
Performance in relation to the KPIs are assessed annually, with incentive payments awarded depending on
performance of the Empire Group over the past year. Incentives payments can be awarded in cash and / or
Share Rights.
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 total
shareholder returns.
The Company implemented a new Share Rights Plan to provide for performance-based remuneration to
executives of the Company which was approved by Shareholders on 30 May 2019.
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 can participate in the Share Rights Plan.
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 key management personnel of the Empire Group receiving the highest remuneration are
set out in the following tables.
The annual limit on cash remuneration that can be paid to the Non-Executive Directors is A$300,000. This was
approved by shareholders on 30 May 2019.
Use of remuneration consultants
During the financial year ended 31 December 2019, the consolidated entity, through the Remuneration
Committee, engaged Godfrey Remuneration Group to review its existing remuneration policies and provide
recommendations on how to improve both the STI and LTI programs. This has resulted in share-based
payments remuneration in the form of performance rights (LTI) being awarded to executives including the
Managing Director. Godfrey Remuneration Group was paid A$21,550 for these services.
An agreed set of protocols has been put in place to ensure that the remuneration recommendations would be
free from undue influence from key management personnel. These protocols include requiring that the
consultant not communicate with affected key management personnel without a member of the
Remuneration Committee being present or without the authorisation of the Chairman of the Remuneration
Committee, and that the consultant not provide any information relating to the outcome of the engagement
with the affected key management personnel. The Board is also required to make inquiries of the consultant's
processes at the conclusion of the engagement to ensure that they are satisfied that any recommendations
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
made have been free from undue influence. The Board is satisfied that these protocols were followed and as
such there was no undue influence.
2019 Financial Year
Short term benefits
Post-employment Long-term benefits
benefits
Cash
salary and
fees
Bonus
payments
Non-
monetary
Super
contributions
Termination
Payment
Long
service
leave
Share /
option-based
payments*
Total
$
-
-
-
-
-
-
7,137
20,856
-
3,435
2,473
2,335
13,185
-
-
-
-
-
279,286
-
1,430
36,155
26,037
50,024
Directors
A Underwood
D H Sutton
L Tang
P Espie
J Gerahty
J Warburton
Executives
182,598
A Boyer**
83,156
D Evans
B Johnston
47,151
* 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
using the Black Scholes methodology.
** Al Boyer’s employment was terminated on 16 April 2019. He was paid termination benefits in accordance with the terms of his
termination.
399,148
38,906
19,480
39,590
28,510
52,359
99,540
18,050
18,050
-
-
-
80,400
43,172
28,967
34,194
-
-
54,000
-
-
14,004
37,150
15,750
-
2,834
2,434
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018 Financial Year
Short term benefits
Post-employment Long-term benefits
benefits
Cash salary
and fees
Bonus
payments
Non-
monetary
Super
contributions
Termination
Payment
Long
service
leave
Share /
option-based
payments**
Total
$
362,100*
-
-
-
-
-
-
-
-
-
14,958
-
-
-
-
15,599
-
-
-
-
-
-
253,269
210,010
-
14,958
2,172
2,172
23,391
Directors
B W McLeod
A Underwood
D H Sutton
L Tang
P Espie
J Gerahty
J Warburton
Executives
A Boyer
303,839
* Mr McLeod’s services company had a services agreement in place with the Company which provided for termination payments to be
made in the event of the termination of Mr McLeod’s consulting services agreement. The termination payment made to Mr McLeod’s
services company was made in accordance with the consulting services agreement, subject to statutory limitations on the quantum of
termination payments allowable under the Corporations Act 2001 (Cth).
** 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
using the Black Scholes methodology. 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 $108,884 and the non-cash loss on options relating to the above directors that
expired over the year was $53,276. The net non-cash cost of options issued to the above directors and executives for the year was $55,608.
680,296
267,228
25,386
25,386
2,172
2,172
23,391
49,328
57,218
10,428
10,428
-
-
-
-
-
-
-
-
-
-
219,520
-
-
-
-
-
72,362
11,957
-
-
-
-
Page 24 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
Service Agreements
Remuneration and other terms of employment for key management personnel are formalised in service
agreements. Details of these agreements are as follows:
Name:
Title:
Details:
Name:
Title:
Details:
Name:
Title:
Details:
Name:
Title:
Details:
John Warburton
Non-Executive Director
There is a Consulting Services Agreement in place between Imperial Oil & Gas Pty
Limited, a wholly owned subsidiary of Empire, and Insight Exploration Pty Ltd (Prof
John Warburton’s consulting services company) for the purpose of Prof Warburton
providing technical consulting services to Imperial Oil & Gas Pty Limited and the
Company as and when required.
Alex Underwood
Chief Executive Officer
Base Salary for the year ended 31 December 2019 of A$369,996 plus superannuation
of A$21,004 to be reviewed annually by the Remuneration Committee. Entitled to
receive short-term incentives (STIs) and long-term incentives (LTIs) under the
Company’s Rights Plan.
David Evans
Chief Operating Officer
Base Salary for the year ended 31 December 2019 of A$320,000 plus superannuation
of A$21,004 to be reviewed annually by the Remuneration Committee. Entitled to
receive short-term incentives (STIs) and long-term incentives (LTIs) under the
Company’s Rights Plan.
Ben Johnston
Vice President – Business Development
Base Salary for the year ended 31 December 2019 of A$250,000 plus superannuation
of A$21,004 to be reviewed annually by the Remuneration Committee. Entitled to
receive short-term incentives (STIs) and long-term incentives (LTIs) under the
Company’s Rights Plan.
There are no other service agreements in place formalising the terms of remuneration of directors or other
members of key management personnel of the Company and the consolidated entity.
Loans to Directors and Executives
There were no loans made to Directors or other members of key management personnel 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-based compensation to Directors and Key Management Personnel
Options
No options were granted to Directors and other members of key management personnel during the year.
Page 25 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
Service and Performance Rights
The terms and conditions of each grants of service and performance rights affecting remuneration of directors
and other key management personnel in this financial year or future reporting year are as follows:
Service Rights
Director
A Underwood
Number of
granted
service rights
1,000,000
Grant Date
14 June 2019
Vesting date
and exercisable
date
31 Aug 2021
Expiry date
Exercise
price
30 June 2034
Nil
Fair value of
Rights at
grant date
$180,000
Performance Rights
Director
A Underwood
D Evans
B Johnston
Number of
granted
service rights
3,150,000
362,317
153,569
Grant Date
14 June 2019
30 Dec 2019
30 Dec 2019
Vesting date
and exercisable
date
31 Aug 2021
31 Dec 2021
31 Dec 2021
Expiry date
30 June 2034
30 Dec 2034
30 Dec 2034
Exercise
price
Nil
Nil
Nil
Fair value of
Rights at
grant date
$89,100
$53,452
$22,656
The vesting of Performance Rights is subject to challenging performance hurdles tested as at the Vesting date
including internal performance hurdles tied to the executive’s performance and total shareholder returns of
between 10% per annum compounded and 40% per annum compounded from the date of award to the
Vesting date.
No Performance Rights or Service Rights expired or were exercised in the year.
Directors’ Interests and Benefits
The relevant interest of each director in the share capital of the Company as at the date of this report is:
Number of shares held by Directors or other members of key management personnel:
Director
A Underwood
D H Sutton
L Tang
P Espie
J Gerahty
J Warburton
Balance at
1 January
2019
17,500,000
734,295
-
8,500,000
122,450,000
-
Share
Consolidation
1:10
(15,750,000)
(660,866)
-
(7,650,000)
(110,205,000)
-
Acquired
during period
through
Capital
Raisings
-
-
-
-
-
-
Acquired
on Market
Other
changes
during period
Balance at
31
December
2019
200,000
-
-
4,000,000
-
194,000
-
(73,430)6
-
-
-
-
1,950,000
-
-
4,850,000
12,245,000
194,000
6 Shares held at resignation date
Page 26 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
Option holdings
Number of options over ordinary shares in the Company held during the financial period by each Director or
other members of key management personnel of the Company, including their related entities are set out
below:
Director
Balance at
1 January
2019
Share
Consolidation
1:10
A Underwood
D H Sutton
L Tang
P Espie
J Gerahty
J Warburton
8,500,000
2,000,000
2,000,000
3,750,000
55,625,000
-
(7,650,000)
(1,800,000)
(1,800,000)
(3,375,000)
(50,062,500)
-
Granted
during
the
period
-
-
-
-
-
-
Exercised
during the
period
Expired/
forfeited/
other
Balance at
31 December
2019
-
-
-
-
-
-
-
-
-
-
-
-
850,000
200,000
200,000
375,000
5,562,500
-
The following options held by Directors were issued under an Employee Share Option Plan (which has since
been replaced by the Share Rights Plan for all future equity-linked remuneration to Directors) and were
exercisable on the following basis and subject to a minimum term of employment conditions:
Director
D H Sutton
L Tang
A Underwood
No. of options
200,000
200,000
600,000
Exercise Price A$
$0.30
$0.30
$0.30
Expiry Date
31 December 2022
31 December 2022
30 December 2021
Performance Rights holdings
Number of performance rights in the Company held during the financial period by each Director or other
members of key management personnel of the Company, including their related entities are set out below:
Director
Balance at
1 January 2019
Granted during
the period
Exercised
during the
period
Expired/
forfeited/
other
Balance at
31 December 2019
A Underwood
D Evans
B Johnston
-
-
-
Service Rights holdings
3,150,000
362,317
153,569
-
-
-
-
-
-
3,150,000
362,317
153,569
Number of service rights in the Company held during the financial period by each Director or other members
of key management personnel of the Company, including their related entities are set out below:
Director
Balance at
1 January 2019
Granted during
the period
Exercised
during the
period
Expired/
forfeited/
other
Balance at
31 December 2019
A Underwood
-
1,000,000
-
-
1,000,000
End of Audited Remuneration Report
Page 27 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
SHARE OPTIONS
Movements
Cancelled
At the Company’s Annual General Meeting conducted on 30 May 2019, Shareholders approved the
consolidation of the Company’s equity on a 1 for 10 basis. The effect of Share Consolidation during the period
reduced the number of options on issue by 497,699,996.
Grant of Options
The following options were granted during the financial year:
Number
4
2,800,000
2,800,004
Unlisted options
Unlisted options
Exercise Price A$
$0.30
$0.60
Expiry Date
26 September 2020
30 December 2022
4 unlisted options exercisable at A$0.30 were issued to existing option holders to account for rounding effects
after the share and option consolidation.
2,800,000 unlisted options exercisable at A$0.60 were issued to the Joint Lead Managers of a capital raising in
November 2019 in partial consideration for their services.
Exercise of Options
A total of 1,275,004 unlisted options were exercised during the financial year or in the period since the end of
the financial year and up to the date of this report.
Expiry of Options
The following options have expired during the financial year or in the period since the end of the financial year
and up to the date of this report.
Number
100,000
Unlisted options
Exercise Price A$
$0.28*
Expiry Date
25 August 2019
* Following a Pro-Rata Rights Issue announced in December 2016 the original exercise price of these options
(A$0.03) was adjusted pursuant to the terms and conditions of the options and ASX Listing Rule 6.22.
At the date of this report the total number of unissued shares held under option was 57,275,004. These options
are exercisable on the following terms.
Number
906,250
36,768,754
600,000
1,300,000
300,000
300,000
1,700,000
600,000
12,000,000
2,800,000
57,275,004
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Exercise Price A$
$0.32
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.32
$0.60
Expiry Date
31 July 2020
26 September 2020
26 October 2020
30 December 2021
30 December 2021
30 December 2021
30 December 2021
30 December 2021
31 December 2021
30 December 2022
Page 28 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
PERFORMANCE RIGHTS
1) During the 2013 financial year the Company issued 2,500,000 Performance Rights (pre-consolidation)
over fully paid ordinary shares in the Company as part consideration for the buyback 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 interests in 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 $25.0m
At least $25.0m but less than $45.0m.
Performance rights exercisable
0.0%
Percentage calculated by dividing Fair Market
Value of Consideration received by the Company
by $45.0m.
$45.0m 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.
The holder of the Performance Rights is an associated entity of a former senior executive of the Company’s
US subsidiaries, Mr Allen Boyer.
- At the Company’s Annual General Meeting conducted on 30 May 2019, Shareholders approved the
consolidation of the Company’s equity on a 1 for 10 basis. The effect of the Share Consolidation during
the period reduced the 2,500,000 Performance Rights to 250,000 Performance Rights.
2) During the 2019 financial year the Company issued 3,150,000 Performance Rights to the Managing
Director under the terms of the Company’s Rights Plan approved by Shareholders on 30 May 2019.
The award of Performance Rights to the Managing Director was approved by Shareholders on 30 May
2019.
3) During the 2019 financial year, the Company issued 962,811 Performance Rights to senior executives
(excluding the Managing Director) under the terms of the Company’s Rights Plan which was approved
by Shareholders on 30 May 2019.
SERVICE RIGHTS
During the 2019 financial year the Company issued 1,000,000 Service Rights to the Managing Director under
the terms of the Company’s Rights Plan approved by Shareholders on 30 May 2019. The award of Service
Rights to the Managing Director was approved by shareholders on 30 May 2019.
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.
Page 29 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
Directors’ Report
for the year ended 31 December 2019
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 material 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 2019
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 34 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 31 and forms part of the Director’s Report for the financial year ended 31 December 2019.
Auditor
Nexia Sydney 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.
Alex Underwood
Chief Executive Officer and Managing Director
Sydney 31 March 2020
Page 30 of 94
The Board of Directors
Empire Energy Group Limited
Level 19, 20 Bond Street
SYDNEY NSW 2000
31 March 2020
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 2019, 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
Nexia Sydney Partnership
Lester Wills
Partner
31
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the year ended 31 December 2019
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
Note
6a
7
6b
9a
8
Year ended
December 2019
US$
5,396,603
(4,188,781)
1,207,822
Year ended
December 2018
US$
6,592,523
(4,722,618)
1,869,905
155,428
(3,221,403)
(141,674)
(9,201,243)
(11,201,070)
2,191,941
(3,194,651)
(441,297)
(4,763,159)
(4,337,261)
(636,843)
(800,893)
Loss before income tax from continuing operations
(11,837,913)
(5,138,154)
Income tax expense
10a
(134,865)
(115,470)
Loss after income tax from continuing operations
(11,972,778)
(5,253,624)
Loss after income tax from discontinued operations
20
(4,150,891)
(10,613,430)
Loss after income tax expense for the year
(16,123,669)
(15,867,054)
Other comprehensive (loss)/income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translation of foreign operations
48,712
(101,039)
Other comprehensive (loss)/income for the year, net of tax
48,712
(101,039)
Total comprehensive loss for the year
(16,074,957)
(15,968,093)
Cents per share
Cents per share
Earnings per share for loss from continuing operations
attributable to the owners of Empire Energy Group Limited
Basic earnings per share
Diluted earnings per share
Earnings per share for loss from discontinuing operations
attributable to the owners of Empire Energy Group Limited
Basic earnings per share
Diluted earnings per share
Earnings per share for loss attributable to the owners of
Empire Energy Group Limited
Basic earnings per share
Diluted earnings per share
31
31
31
31
31
31
(5.11)
(5.11)
(1.77)
(1.77)
(6.88)
(6.88)
(2.24)
(2.24)
(4.53)
(4.53)
(6.77)
(6.77)
The above statements of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
Page 32 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2019
Note
As at
December 2019
US$
As at
December 2018
US$
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Inventories
Financial assets, including derivatives
Assets of discontinued operations
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Financial assets, including derivatives
Oil and gas properties
Property, plant and equipment
Right-of-use assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Interest-bearing liabilities
Lease liabilities
Provisions
Liabilities of discontinued operations
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Accumulated losses
11
12
13
14
20
14
15
15
19
16
17
18
19
21
20
19
21
22
9,882,386
1,814,422
135,622
33,603
426,751
252,272
4,157,175
2,286,234
402,915
29,974
262,142
25,623,628
12,545,056
32,762,068
262,286
26,276,337
356,947
141,197
68,217
-
31,008,872
231,958
-
68,217
27,104,984
31,309,047
39,650,040
64,071,115
3,355,857
6,480,970
99,922
49,947
100,079
3,601,232
24,368,652
10,002
17,805
1,981,652
10,086,775
29,979,343
126,475
15,771,500
60,847
12,660,953
15,897,975
12,721,800
25,984,750
42,701,143
13,665,290
21,369,972
101,523,681
4,846,269
(92,704,660)
94,071,529
6,470,493
(79,172,050)
TOTAL SHAREHOLDERS’ EQUITY
13,665,290
21,369,972
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
Page 33 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Consolidated
Balance at 31 December 2018
Total Comprehensive income for year
Loss after income tax
Exchange differences on translation of foreign operations
Total comprehensive income/(loss) for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Plus: share issue transaction costs
Options issued during the year – share-based payments
Warrants lapsed in period, transferred to issue capital
Total transactions with owners
Issued Capital
Fair Value
Reserve
94,071,529
127,396
Foreign Currency
Translation
Reserve
(199,373)
Options
Reserve
Accumulated
Losses
Total Equity
6,542,470
(79,172,050)
21,369,972
-
-
-
8,487,142
(1,034,990)
-
-
7,452,152
-
-
-
-
-
-
-
-
-
48,712
48,712
-
-
-
-
-
-
-
-
(16,123,669)
-
(16,123,669)
48,712
(16,123,669)
(16,074,957)
-
-
918,123
(2,591,059)
-
-
-
2,591,059
8,487,142
(1,034,990)
918,123
-
(1,672,936)
2,591,059
8,370,275
Balance at 31 December 2019
101,523,681
127,396
(150,661)
4,869,534
(92,704,660)
13,665,290
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
Page 34 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Consolidated
Balance at 31 December 2017
Total Comprehensive income for year
Loss after income tax
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Plus: share issue transaction costs
Options issued during the year – share-based payments
Total transactions with owners
Issued
Capital
Fair Value
Reserve
78,415,335
127,396
Foreign
Currency
Translation
Reserve
(98,333)
Options
Reserve
Accumulated
Losses
Total Equity
5,123,575
(63,304,996)
20,262,977
-
-
-
16,628,221
(972,027)
-
15,656,194
-
-
-
-
-
-
-
-
(101,040)
-
-
(15,867,054)
-
(15,867,054)
(101,040)
(101,040)
-
(15,867,054)
(15,968,094)
-
-
-
-
-
-
1,418,895
1,418,895
-
-
-
-
16,628,221
(972,027)
1,418,895
17,075,089
Balance at 31 December 2018
94,071,529
127,396
(199,373)
6,542,470
(79,172,050)
21,369,972
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
Page 35 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Note
Year ended
31 December 2019
US$
Year ended
31 December 2018
US$
11,307,393
(10,040,877)
326
(1,885,624)
(134,865)
16,414,087
(13,585,895)
1,785
(2,975,717)
(115,468)
Net cash flows from operating activities
30b
(753,647)
(261,208)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of oil and gas assets
Payments for oil and gas assets
Payments for property, plant and equipment
19,254,669
(1,847,550)
-
97,560
(168,071)
(49,011)
Net cash flows from investing activities
17,407,119
(119,522)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuing of shares
Repayment of interest-bearing liabilities
Lease payments
Share issue transaction costs
8,487,142
(18,497,421)
(232,279)
(449,983)
11,677,098
(7,878,290)
(14,113)
-
Net cash flows from financing activities
(10,692,541)
3,784,695
Net increase in cash and cash equivalents
5,960,931
3,403,965
Cash and cash equivalents at beginning of financial
year
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS AT THE END OF
FINANCIAL YEAR
4,157,175
908,318
(235,720)
(155,108)
30a
9,882,386
4,157,175
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
Page 36 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
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”).
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 2019 was authorised for issue in
accordance with a resolution of Directors on 31 March 2020.
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,
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 derivative financial instruments, and share-based payment
transactions.
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
Empire Group’s financial statements are presented in US dollars (“US$”) which is also the functional currency
of the majority of the Group’s business operations.
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 2019.
Principles of Consolidation
The consolidated financial statements comprise the financial statements of Empire Group Limited and its
controlled entities.
Subsidiaries are all those entities over which the Empire Group has control. The Empire Group controls an
entity when the Group is exposed to, or has the rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to direct the activities of the entity. 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.
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NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
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.
Discontinued operations
A discontinued operation is a component of the consolidated entity that has been disposed of or is classified
as held for sale and that represents a separate major line of business or geographical area of operations, is
part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary
acquired exclusively with a view to resale. The results of discontinued operations are presented separately on
the face of the statement of profit or loss and other comprehensive income.
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 Australian
Dollars but the reporting currency of Empire Energy Group Limited is United States 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 United States Dollars at the foreign exchange rate ruling at that date.
Foreign operations
The assets and liabilities of entities that have a functional currency in Australian Dollars are translated to
United States Dollars at exchange rates at the reporting date. The revenue and expense of entities that have
a functional currency in Australian Dollars are translated to United States 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, contracts exist with customers, control of the assets passes 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.
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NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 and Gas revenue
Revenue from the sale of oil and gas is recognised when control of the asset has 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.
There are no elements at variable consideration in contracts with customers and prices are determined
based on prevailing market sales price data.
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 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.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed
in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected
to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless
restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal
operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the
reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months
after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
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NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 to 90 day terms, are recognised and carried at original invoice
amount less an allowance for any expected credit loss.
An estimate of expected credit is loss is made based on historic data on collectability and consideration of the
credit worthiness of customers. 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 option and 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.
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NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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%
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.
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.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at
the present value of the lease payments to be made over the term of the lease, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental
borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees,
exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any
anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are
expensed in the period in which they are incurred
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NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
Page 42 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share
Earnings per share is calculated by dividing the profit attributable to the owners of Empire 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 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, Revised or Amending Accounting Standards and Interpretations Adopted
The consolidated entity has adopted all of the new, revised or amending Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the
current reporting period.
Any new revised or amending Accounting Standards or Interpretations that are not yet mandatory have not
been early adopted.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard
replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance
leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position,
measured at the present value of the unavoidable future lease payments to be made over the lease term. The
exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal
computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use'
asset is recognised or lease payments are expensed to profit or loss as incurred.
A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease
incentives received, initial direct costs incurred and an estimate of any future restoration, removal or
dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation
charge for the leased asset (included in operating costs) and an interest expense on the recognised lease
liability (included in finance costs).
In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when
compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation
and Amortisation) results will be improved as the operating expense is replaced by interest expense and
depreciation in profit or loss under AASB 16.
For classification within the statement of cash flows, the lease payments will be separated into both a principal
(financing activities) and interest (either operating or financing activities) component.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of adoption:
On initial application of AASB 16, using the transitional rules available, the Group elected to record right-of-
use assets based on the corresponding lease liability in the statement of financial position as at 1 January 2019.
Using the simplified approach, right-of-use assets of $636,139 and lease obligations of $636,139 were
recorded. As a result of this transitional option, there was no net impact on accumulated losses. When
measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1
January 2019, being 3.99%.
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 9
• Note 10
• Note 15
• Note 21
• Note 27
– 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 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.
Page 45 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
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).
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.
Page 46 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
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 normal course of business.
The Group incurred net losses of $16.1m for the year ended 31 December 2019, experienced net cash outflows
from operating activities of $0.8m and had net assets of $13.7m.
Given the above and cash reserves at 31 December 2019 of $9.9m, the directors believe there are sufficient
resources available to settle outstanding debts as and when they become due.
4. DISCONTINUED OPERATIONS
On 19 June 2019, the Group entered into a purchase and sale agreement to sell certain oil and gas leases,
wells, and related properties and interests located in various counties in Kansas for cash consideration of
$19.25m.
The sale proceeds were principally used to retire debt to a maximum remaining gross debt balance of $7.5m,
while retaining a proportion from the sale proceeds for working capital and continued investment in Empire’s
core Northern Territory shale assets. Further details of the discontinued operations are disclosed in Note 20.
The Group determined, in accordance with Australian Accounting Standards, the operations of the Kansas
properties should be reported as discontinued operations for all periods presented.
As a result, the operations and financial position of these net assets are presented as discontinued operations
for all periods presented in the Group’s consolidated financial statements.
All information provided in the Group’s notes to the consolidated financial statements primarily include only
items that are part of the continuing operations.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Empire Group’s principal financial instruments, other than derivatives comprise bank loans, 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 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 option and 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 Henry Hub Natural Gas.
Page 48 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. 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.
(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 2019 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 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 2019.
The Empire Group monitors forecasts and actual cash flows and the maturity profiles of financial assets and
liabilities to manage its liquidity risk.
Floating
Interest Rate
%
Fixed Interest Maturing in
Over 1 to 5
1 Year or
Years
Less
Non-Interest
Bearing
Total
31 December 2019
Financial Assets
Cash and cash equivalents
Trade and other
receivables
Financial assets
Financial Liabilities
Trade & other payables
Interest-bearing liabilities
8.25
0.01
9,882,386
-
-
9,882,386
-
% -
-
-
-
-
-
-
6,480,970
6,480,970
-
-
-
-
-
-
-
-
9,882,386
1,814,422
689,037
2,503,459
1,814,422
689,037
12,385,845
3,355,857
3,355,857
-
3,355,857
6,480,970
9,836,827
Page 49 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Fixed Interest Maturing
in
%
Floating
Interest
Rate
1 Year or
Less
Over 1 to
5 Years
Non-Interest
Bearing
Total
31 December 2018
Financial Assets
Cash and cash equivalents
Trade and other
receivables
Financial assets
1.25
4,157,175
-
-
4,157,175
-
-
-
-
Financial Liabilities
Trade & other payables
Interest-bearing liabilities
9.02
-
-
-
-
24,368,652
24,368,652
-
-
-
-
-
-
-
-
4,157,175
2,286,234
262,142
2,548,376
2,286,234
262,142
6,705,551
3,601,232
-
3,601,232
3,601,232
24,368,652
27,969,884
(iv)
Empire Group Sensitivity
Based on the financial instruments held at 31 December 2019, had the Henry Hub prices increased/decreased
by 10% and 10% respectively, with all other variables held constant, the Empire Group’s post-tax profit for the
year would not materially change due to the extent of effective hedging of oil and gas production. Equity would
not have materially changed under either scenario.
If interest rates were to increase by 1%, the impact on post-tax profit would be a decrease of approximately
$65,000.
(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 oil or gas companies
and local utilities.
Trade and other receivable balances are monitored on an ongoing basis with the Empire Group’s exposure to
bad debts minimal.
Page 50 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
The maximum exposure to credit risk at balance date is as follows:
Trade, other receivables, and derivatives
2019
$
2,503,459
2018
$
2,548,376
The maximum exposure to credit risk at balance by country is as follows:
Australia
United States of America
(C)
LIQUIDITY RISK
2019
$
-
2,503,459
2018
$
-
2,548,376
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. 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 2019
Non Derivatives
Current
Trade and other payables
Interest bearing liabilities
Non-current
Interest bearing liabilities
Derivatives
Financial asset
Financial liability
Fair
Value
$
Carrying
Amount
$
Contractual
Cash flows
$
1 year
$
1-5 years
$
3,355,857
6,480,970
3,355,857
6,480,940
3,355,857
7,500,000
3,355,857
825,000
-
6,675,000
-
-
-
-
-
(689,037)
-
(689,037)
-
(689,037)
-
(426,751)
-
(262,286)
-
Page 51 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Fair
Value
$
Carrying
Amount
$
Contractual
Cash flows
$
1 year
$
1-5 years
$
3,601,232
24,368,652
3,601,232
24,368,652
3,601,232
25,977,421
3,601,232
2,500,000
-
23,477,421
(262,142)
-
(262,142)
-
(262,142)
-
(262,142)
-
-
-
Maturity Analysis
31 December 2018
Non Derivatives
Current
Trade and other payables
Interest bearing liabilities
Derivatives
Financial asset
Financial liability
(D)
EQUITY RISK
The Empire Group relies on equity markets to raise capital for its exploration and development activities, and
is thus exposed to equity market volatility.
Equity price risk arises from investments in equity securities and Empire 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 Group Limited approximate their carrying
value there were no off-balance financial assets and liabilities at year end.
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.
Page 52 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Consolidated
31 December 2019
Assets
Fair value of derivatives
Total assets
Liabilities
Fair value of derivatives
Total liabilities
Consolidated
31 December 2018
Assets
Fair value of derivatives
Total assets
Level 1
Level 2
Level 3
Total
-
-
-
-
689,037
689,037
-
-
-
-
-
-
689,037
689,037
-
-
Level 1
Level 2
Level 3
Total
-
-
262,142
262,142
-
-
262,142
262,142
There were no transfers between levels during the financial year.
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 operation 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.
6. REVENUE
a. Sales revenue
Revenue from oil and gas sales
Revenue from well operations
Oil and gas price risk management income
b. Other income
Interest income
Rental income
Insurance proceeds
Other income
7. COST OF SALES
Oil and gas production
2019
$
4,443,000
469,913
483,690
5,396,603
326
6,005
-
149,097
155,428
2018
$
6,128,795
463,728
-
6,592,523
1,785
6,110
2,004,700
179,346
2,191,941
4,188,781
4,188,781
4,722,618
4,722,618
Page 53 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
8. INTEREST EXPENSE
Interest paid/payable on financial liabilities
9. EXPENSES
a. Other non-cash expenses
Leasing expiration expenses (note 9c)
Impairment of assets (note 9c)
Depreciation, depletion and amortisation
Finance costs (note 9b)
Unrealised derivative movement
Other expenses
Total other expenses
b. Finance expenses (non-cash)
Accretion of asset retirement obligation (note 21)
Unwind of discount of debt
Total finance costs (non-cash)
c. Loss before income tax from continuing operation includes
the following specific expenses:
Depreciation, depletion and amortisation
Oil & Gas properties and plant & equipment (note 15)
Employee benefits expense
Defined contribution superannuation expense
Other employee expenses
Total employee benefits expense
Impairment expense(a)
Impairment/(Write-back) of additional asset retirement
obligation
Impairment of property plant & equipment
Total impairment expense
Lease expiration expense (b)
2019
$
636,843
636,843
2018
$
800,893
800,893
2,500
6,511,896
1,392,050
1,167,055
99,349
28,393
9,201,243
124,900
1,046,556
542,020
1,490,520
1,320,575
238,588
4,763,159
557,316
609,739
1,167,055
526,706
963,814
1,490,520
1,392,050
1,392,050
25,708
3,741,719
3,767,427
542,020
542,020
15,024
4,226,017
4,241,041
2,630,800
3,881,096
6,511,896
(1,642,361)
2,688,917
1,046,556
2,500
124,900
(a) Impairment expense
For the period 31 December 2019, the Company wrote down the oil and gas properties by $3,881,096 due to
evidence of impairment. Furthermore, an increase in the asset retirement obligation of $2,630,800 resulted
from a change in the discount rate.
(b) Lease expiration expense
A charge of before the discontinued operation of $2,500 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.
Page 54 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
10.
INCOME TAX
Income tax expense
a.
Current tax
Deferred tax
Income tax benefit attributable to continuing operations
b. Numerical reconciliation of income tax expense to prima
facie tax payable
Loss before income tax from continuing operations
Loss before income tax from discontinued operations
Tax at the Australian tax rate of 27.5% (2018: 27.5%)
Tax effect of amounts which are not deductible/(taxable) in
calculating taxable income:
Withholding tax paid
Deferred tax asset in relation to tax losses and temporary
differences (utilised)/not recognised
Effect of difference in overseas tax rates
Income tax benefit
c. Deferred tax assets not recognised relate to the following:
Tax losses
Capital losses
Other
2019
$
2018
$
134,865
-
134,865
115,470
-
115,470
(11,837,913)
(4,150,891)
(15,988,804)
(5,138,154)
(10,613,430)
(15,751,584)
(4,396,921)
(4,331,686)
134,865
101,427
4,252,450
144,471
134,865
4,021,679
324,050
115,470
6,059,277
141,410
4,525,153
10,725,840
918,262
141,410
5,010,435
6,070,107
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 2019.
Page 55 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
10.
INCOME TAX (Continued)
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:
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
11. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other
12. PREPAYMENTS
Prepayments
13. INVENTORIES
Crude oil and production supplies
14. FINANCIAL ASSETS, INCLUDING DERIVATIVES
Current
Oil and gas price forward contracts
Non-current
Oil and gas price forward contracts
2019
$
2018
$
170,803
2,052,240
738,109
2,961,152
997,731
4,567,585
630,369
6,195,685
(2,961,152)
-
(6,195,685)
-
1,240,977
2,539,623
1,076,542
4,857,142
666,886
4,004,892
1,523,907
6,195,685
(4,857,142)
-
(6,195,685)
-
1,771,497
42,925
1,814,422
2,203,284
82,950
2,286,234
135,622
402,915
33,603
29,974
426,751
262,142
262,286
-
Page 56 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
Commodity hedge contracts outstanding as at 31 December 2019 are outlined below.
2019 NATURAL GAS - HENRY HUB - NYMEX – Swaps
2018 NATURAL GAS - HENRY HUB - NYMEX - Swaps
Period
Swap Price
Premium
Product
Period
Swap Price
Premium
Product
Jan 20 – Mar 20
$2.91
-
2019 OIL - WTI – NYMEX - Swaps
-
-
-
-
-
-
-
-
-
-
-
-
227,500
mmbtu
Jan 19 - Dec 19
Jan 19 - Dec 19
3.45
3.45
-
-
-
-
-
-
-
-
2018 OIL - WTI – NYMEX – Swaps
Jan 20 – Dec 20
Jan 21 – Dec 21
Jan 22 – Dec 22
$66.50
$64.00
$60.00
-
-
-
-
420,000 mmbtu
78,000 mmbtu
108,000 bbl
96,000 bbl
24,000 bbl
2019 NATURAL GAS - HENRY HUB - NYMEX – Options
2018 NATURAL GAS - HENRY HUB - NYMEX - Floors
Period
Floor Price
Premium
Volume
Period
Floor Price
Premium
Volume
Jan 20 – Dec 20
Jan 21 – Dec 21
Jan 22 – Dec 22
$2.50
$2.50
$2.50
$0.23
1,440,000 mmbtu
Jan 20 – Dec 20
$0.23 - $0.37
600,000
mmbtu
Jan 21 – Dec 21
$0.23 - $0.35
300,000
mmbtu
-
$2.50
$2.50
-
$0.23
$0.23
-
1,440,000 mmbtu
300,000
mmbtu
-
-
Page 57 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT
Cost in $
At 1 January 2019
Additions
New asset retirement obligation
Write-back of asset retirement
obligation
Sale of wells
Disposals
Reclassifications
Expiration costs
At 31 December 2019
Accumulated Depreciation in $
At 1 January 2019
Depreciation and depletion
Write-off sale of wells
Disposals
Change in ARO
Impairment
At 31 December 2019
Oil & Gas –
Proved
Oil & Gas –
Unproved
117,776,505
-
2,630,800
(9,321)
(60,006,729)
-
-
-
6,338,732
1,778,456
-
-
(2,370,398)
-
2,383
(2,500)
Land
Buildings
Equipment
Motor Vehicles
Total
30,591
-
-
-
(25,591)
-
-
-
331,798
-
-
-
(95,277)
-
-
-
919,220
12,224
-
-
(132,765)
(15,036)
(12,770)
-
692,584
56,870
-
126,089,430
1,847,550
2,630,800
-
(4,753)
-
-
-
(9,321)
(62,635,513)
(15,036)
(10,387)
(2,500)
60,391,255
5,746,673
5,000
236,521
770,873
744,701
67,895,023
(72,120,156)
(1,307,387)
40,444,424
-
(5,516)
(6,511,896)
(39,500,531)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(94,290)
-
13,858
-
-
-
(787,882)
(51,145)
135,195
15,277
-
-
(573,582)
(33,518)
4,755
-
-
-
(73,575,910)
(1,392,050)
40,598,232
15,277
(5,516)
(6,511,896)
(80,432)
(688,555)
(602,345)
(40,871,863)
Opening written down value
45,656,347
6,338,733
30,591
237,508
131,340
119,002
52,513,521
Impact of foreign currency adjustments
-
(361,060)
-
-
Closing written down value
20,890,724
5,385,613
5,000
156,089
(4,370)
77,948
(24,446)
(389,876)
117,910
26,633,284
Page 58 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
Cost in $
At 1 January 2018
Additions
New asset retirement obligation
Write-back of asset retirement
obligation
Sale of wells
Expiration costs
At 31 December 2018
Accumulated Depreciation in $
At 1 January 2018
Depreciation and depletion
Write-off sale of wells
Write-off plugged wells
Impairment
At 31 December 2018
Oil & Gas –
Proved
Oil & Gas –
Unproved
Land
Buildings
Equipment
Motor Vehicles
Total
119,028,365
94,096
321,539
(1,642,361)
(25,134)
-
6,443,729
37,503
30,591
-
328,948
2,850
896,420
22,800
608,376
84,208
127,336,429
214,457
321,539
-
(142,500)
-
-
-
-
-
-
-
-
(1,642,361)
(25,134)
(142,500)
117,776,505
6,338,732
30,591
331,798
919,220
692,584
126,089,430
(55,616,054)
(1,608,357)
41,748
6,655
(14,944,148)
(72,120,156)
-
-
-
-
-
-
-
-
-
-
-
-
(86,044)
(8,246)
-
-
-
(717,849)
(70,033)
-
-
-
(542,696)
(30,886)
-
-
-
(56,962,643)
(1,717,522)
41,748
6,655
(14,944,148)
(94,290)
(787,882)
(573,582)
(73,575,910)
Opening written down value
63,412,311
6,202,085
30,591
242,904
174,704
45,464
70,108,059
Impact of foreign currency adjustments
Reclassifications to assets of
discontinued operations
-
(257,007)
-
-
(4,046)
(24,049)
(285,102)
(19,867,510)
(861,692)
(25,591)
(95,277)
(121,819)
(15,699)
(20,987,588)
Closing written down value
25,788,839
5,220,033
5,000
142,231
5,473
79,254
31,240,830
Page 59 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
At 31 December 2019, 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 using a discounted cash flow method,
and are most sensitive to the key assumptions described in note 2.
Recoverable amounts for the year ended 31 December 2019 are:
Oil and gas assets
Appalachia
Total
Carrying
Value
$
27,402,620
27,402,620
Recoverable
amount
$
20,890,724
20,890,724
Impairment
$
6,511,896
6,511,896
The pre-tax discount rate that has been applied to the above oil and gas assets is 12% (2018: 12%).
16. INTANGIBLE ASSETS
Goodwill
17. TRADE AND OTHER PAYABLES
Current
Trade creditors
Other creditors
18. INTEREST-BEARING LIABILITIES
Current
Bank loan - secured
Classification of Borrowings
2019
$
2018
$
68,217
68,217
68,217
68,217
3,325,380
30,477
3,355,857
3,572,560
28,672
3,601,232
6,480,970
6,480,970
24,368,652
24,368,652
These accounts are presented on the basis that all borrowings have 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 Group to classify liabilities as current if the
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 Company maintains a credit facility, as amended and restated in October 2018, which matures in
September 2024 with a bank that is a minority owner in the Company. Interest accrues on the outstanding
borrowing at rate options selected by the Company and based on prime lending rate, 5.50% at December 31,
2019 or the London InterBank Offered Rate (30-Day LIBOR) (1.7543% at December 31, 2019) plus 6.5%. At
December 31, 2019, the Company’s rate option was the 30-day LIBOR. Interest rates were 8.254% and 9.003%
as of December 31, 2019 and 2018 respectively.
Page 60 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
18. INTEREST-BEARING LIABILITIES (Continued)
Outstanding borrowings under the agreement 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. The
Company is required to repay the facilities monthly to the extent certain benchmarks of an applicable
percentage of net operating cash flow and capital transactions are met and occur. Principal payments made
in 2019 and 2018 were approximately $18,497,000 and $11,949,000, respectively (including a debt to equity
conversion of $4m in 2018). Principal repayments are to be made in the amount of $137,500 each quarter,
beginning with the quarter ending March 31, 2020. The most restrictive operational and financial covenants
for which the Company is required to maintain are the adjusted proved developed producing (PDP ratio)
adjusted present value PV ratio and interest coverage ratio.
As at 31 December 2019 the Company breached the adjusted PV ratio under the Macquarie Credit agreement.
On 27 March 2020 Macquarie waived all existing/prior defaults under the credit agreement. On that date
Macquarie also agreed to waive any potential breaches up to and including 31 December 2020. In
consideration for Macquarie granting those waivers. Empire made principal, repayments totalling US$825,000
on 27 March 2020 which were funded from existing USD cash balances.
The Company fully amortised the remaining portion of the $1,037,000 deferred financing costs from the April
2016 debt restructuring during the year ended December 31, 2018. Due to the debt restructuring in October
2018, the Company accumulated deferred financing costs and options of approximately $1,622,048.
Amortisation expense of the deferred financing costs included with other non-cash expenses statement of
profit or loss and other comprehensive income amounts to $609,739 and $963,814 for 2019 and 2018,
respectively.
Credit Facility Summary
Empire Energy USA, LLC maintains a long-term credit facility with Macquarie Bank Limited (Macquarie), which
matures in September 2024, consisting of a single tranche term loan facility with an opening availability of
$7,500,000.
The credit facility balance on 31 December 2019 was $7,500,000. The loan balance on 31 March 2020 was
$6,675,000.
Uses of credit facility:
Term Loan:
To refinance the existing secured loan facilities with Macquarie Bank Limited.
Credit facility structure
Term Loan:
Availability
$7,500,000
Interest rate
LIBOR+6.5%
Drawn balance as at
31 December 2019
$7,500,000
Term
Matures in September 2024
Repayment
No principal repayments for 2019, then 100% of
Appalachia Net Operating Cashflow subject to
minimum amortisation of $550,000 per annum.
Page 61 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
18. INTEREST-BEARING LIABILITIES (Continued)
Other features of the credit facility:
• Outstanding borrowings under the facility are secured by the US assets of the Company and a pledge
of the Company’s shareholding in Imperial Oil & Gas Pty Limited. The facility is guaranteed by the
Company.
• Reserve Assessment of reserves are based on third party reserve engineering consultants.
• Under terms of the facilities, the Company is required to maintain financial ratios customary for the
oil and gas industry. These include certain operational and financial covenants for which the Company
is required to maintain, the most restrictive of which is the adjusted proved developed producing
(PDP) present value (PV).
Key financial covenants:
1.5x 1P PV10 coverage to net loan (after adjustment for cash, trade payables and trade receivables)
1.3x PDP PV10 coverage to net loan (after adjustment for cash, trade payables and trade receivables)
1.0x Current Ratio
1.3x EBITDA / Interest Ratio
Upfront Fees: - 1.0% of Principal Amount
- 12m options exercisable at A$0.32 (refer to Note 22C) on or before
31 December 2021
A summary of period end debt is as follows:
Facility
Revolver
Sub-Total
Less deferred financing costs, net
Total Debt
19. LEASE ASSETS AND LIABILITIES
ASSETS
Right-of-use assets
LIABILITIES
Current
Leases – minimum lease payments
Non-Current
Leases – minimum lease payments
2019
$
7,500,000
-
7,500,000
(1,019,030)
2018
$
22,997,421
3,000,000
25,997,421
(1,628,769)
6,480,970
24,368,652
141,197
-
99,922
10,002
126,475
60,847
The Company leases its US corporate headquarters under a non-cancellable operating lease of monthly
payments ranging from $3,665 to $3,966 through February 2022. The US corporate headquarters moved in
2019 to Mayville, New York into a building owned by the Company.
Page 62 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
19. LEASE ASSETS AND LIABILITIES (Continued)
The Company was obligated to make lease payments for the former US corporate headquarters of
approximately $52,000 and $51,000 for the years ended 31 December 31, 2019 and 2018 respectively. The
lease for the former US corporate headquarters is still in place and the Company is seeking a sub-tenant
through a corporate leasing agent. The Kansas headquarters four-year lease agreement required monthly
payments ranging from $2,853 to $2,945 through April 2021. The net rental expense for the Kansas location
approximated $23,000 and $34,000 for the years ended December 31, 2019 and 2018. The Kansas office lease
was terminated in 2019 following the closure of the Kansas office without penalty.
The Company leases trucks under an operating agreement. The term of the agreement begins upon the
delivery of each truck and last for a period of up to 48 months, Lease payments in 2019 and 2018 were
approximately $188,000 and $194,000 respectively. The Empire Energy Group has the option to acquire the
leased assets at the agreed value on the expiry of the leases.
20. DISCONTINUED OPERATIONS
Refer to Note 4 for background information on the discontinued operations
Financial performance information
Revenue
Oil and gas sales
Well operations and services fees
Cost of sales
Cost of oil and gas sales
Cost of well operation services
Depreciation, depletion and amortisation
Impairment expense
Unrealised loss/(gain) on hedges
Administration costs
Lease expiration costs
Interest expense, including amortisation of deferred financing
costs
Other income, net
Gain on sale of assets (includes write-back of inter group loan)
2019
$
2018
$
5,211,132
157,328
5,368,460
7,418,795
240,898
7,659,693
2,615,868
502,303
-
-
1,593,049
148,754
1,396,969
6,256,943
3,834,993
695,630
1,175,502
13,897,592
(3,712,340)
301,210
17,600
16,210,187
1,248,781
(46,094)
-
1,202,687
2,174,824
(87,454)
(24,434)
2,062,936
Loss from discontinued operations
2,091,170
10,613,430
Disposal Proceeds
Proceeds on completion of sale
Proceeds from post-closing adjustment
Net assets disposed
Total Loss from disposal of discontinued operations
(19,100,000)
(154,670)
21,314,391
2,059,721
-
-
-
-
Total loss from discontinued operations
4,150,891
10,613,430
Page 63 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
20. DISCONTINUED OPERATIONS (Continued)
Cash flow information
2019
$
2018
$
Net cash from operating activities
Net cash from investing activities
Net decrease in cash and cash equivalents from discontinued
operations
498,121
(13,085)
(747,324)
-
(485,036)
(747,324)
Carrying amount of assets and liabilities disposed
At date of disposal:
Accounts receivable
Inventory
Fair value of hedges
PPE Net
Total assets
Accounts payable
Asset retirement obligations
Total liabilities
Net assets
205,301
510,772
1,593,049
21,000,673
23,309,795
258,197
1,737,207
1,995,404
21,314,391
-
-
-
-
-
-
-
-
-
Assets and liabilities of disposal groups classified as discontinued:
Accounts receivable
Inventory
Fair value of hedges
PPE Net
Assets classified as held for sale
Accounts payable
Revenue payable
Asset retirement obligations
Liabilities directly associated with assets classified as held
for sale
Net assets
326,895
252,272
-
596,805
- 3,712,340
20,987,588
25,623,628
-
252,272
-
100,079
-
196,503
100,079
1,685,070
100,079
1,981,652
152,193
23,641,976
Page 64 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
21. PROVISIONS
Current
Employee entitlements
Non-current
Asset retirement obligations
2019
$
2018
$
49,947
17,805
15,771,500
12,660,953
Movement in Asset Retirement Obligation
Balance at beginning of the period(a)
Additions for the period
Disposed – discontinued operations
Write-off accrued plugging costs
Accretion expense for the period, included in finance costs
Change in estimate(b)
Balance end of the period
14,346,023
-
(1,737,207)
(25,432)
557,316
2,630,800
15,771,500
15,186,576
321,539
(1,685,070)
(46,437)
526,706
(1,642,361)
12,660,953
(a) Opening balance before the impact of discontinued operations
(b) $2,630,800 is due to a decrease in the discount rate (2018: $1,642,361 is due to an increase in the
discount rate).
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.
Page 65 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
22. CONTRIBUTED EQUITY
a) Shares
Issued Capital
Balance at beginning of period
Movement in ordinary share capital
- Issue of 73,000,000 fully paid ordinary shares in February 2018 as a
private placement to raise funds
- Issue of 2,000,000 fully paid ordinary shares in February 2018 as a
private placement to raise funds
- Issue of 75,000,000 fully paid ordinary shares in April 2018 as a
private placement to raise funds
- Issue of 4,500,000 fully paid ordinary shares in April 2018 in lieu of
services rendered
- Issue of 189,785,575 fully paid ordinary shares in August 2018 as a
private placement to raise funds
- Issue of 560,214,425 fully paid ordinary shares in September 2018 as
a private placement to raise funds
- Issue of 297,847,000 fully paid ordinary shares in October 2018 as
partial replacement of debt
- Issue of 375,000 fully paid ordinary shares in November 2019 due to
conversion of options
- Issue of 250,000 fully paid ordinary shares in November 2019 due to
conversion of options
- Issue of 600,000 fully paid ordinary shares in November 2019 due to
conversion of options
- Issue of 25,000 fully paid ordinary shares in December 2019 due to
conversion of options
- Issue of 175,000 fully paid ordinary shares in December 2019 due to
conversion of options
- Issue of 104,348 fully paid ordinary shares in December 2019 in lieu
of cash payment for fees and services rendered
- Issue of 200,000 fully paid ordinary shares in January 2020 (funds
received in December 2019) due to conversion of options
Less costs associated with the share issues detailed above
Balance as at 31 December 2019
2019
$
2018
$
94,071,529
78,415,335
726,806
19,515
726,656
43,701
2,782,636
8,328,907
4,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
77,029
51,083
122,292
5,114
36,698
14,588
41,940
(1,034,990)
____________
101,523,681
(972,027)
____________
94,071,529
Page 66 of 94
- Issue of 30,000,000 fully paid ordinary shares in November 2019 as
a private placement to raise funds
8,138,400
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
22. CONTRIBUTED EQUITY (continued)
b) Shares
Issued shares
2019
No. of shares
2018
No. of shares
Balance at beginning of period
2,313,084,176
1,110,737,176
Movement in ordinary share capital
- Issue of 73,000,000 fully paid ordinary shares in February 2018 as a
private placement to raise funds
- Issue of 2,000,000 fully paid ordinary shares in February 2018 as a
private placement to raise funds
- Issue of 75,000,000 fully paid ordinary shares in April 2018 as a
private placement to raise funds
- Issue of 4,500,000 fully paid ordinary shares in April 2018 in lieu of
services rendered
- Issue of 189,785,575 fully paid ordinary shares in August 2018 as a
private placement to raise funds
- Issue of 560,214,425 fully paid ordinary shares in September 2018 as
a private placement to raise funds
- Issue of 297,847,000 fully paid ordinary shares in October 2018 as
partial replacement of debt
-
-
-
-
-
-
-
73,000,000
2,000,000
75,000,000
4,500,000
189,785,575
560,214,425
297,847,000
- Effect of Share Consolidation in May 2019 on a 1:10 basis
(2,081,775,758)
- Issue of 883 fully paid ordinary shares due to the round up on
consolidation
- Issue of 375,000 fully paid ordinary shares in November 2019 due to
conversion of options
- Issue of 250,000 fully paid ordinary shares in November 2019 due to
conversion of options
- Issue of 600,000 fully paid ordinary shares in November 2019 due to
conversion of options
883
375,000
250,000
600,000
- Issue of 30,000,000 fully paid ordinary shares in November as a
private placement to raise funds
30,000,000
- Issue of 25,000 fully paid ordinary shares in December 2019 due to
conversion of options
- Issue of 175,000 fully paid ordinary shares in December 2019 due to
conversion of options
- Issue of 104,348 fully paid ordinary shares in December 2019 in lieu
of cash payment for fees and services rendered
Balance as at 31 December 2019
25,000
175,000
104,348
_____________
262,838,649
-
-
-
-
-
-
-
-
____________
2,313,084,176
Page 67 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
22. CONTRIBUTED EQUITY (continued)
c) Share Options
Movements
Granted
4 unlisted options were granted to satisfy the rounding up (to the nearest whole number) obligations to
complete the 1 for 10 security consolidation in each class of securities. The exercise price of the options is
A$0.30 and they are exercisable on or before 26 September 2020.
2,800,000 options were granted to the Joint Lead Managers of the November 2019 capital raising in partial
consideration of the provision of services to the Company. The exercise price of the options is A$0.60 and they
are exercisable on or before 30 December 2022.
Exercise of Options
1,275,004 unlisted 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/Lapse of Options
100,000 unlisted options with an exercise price of A$0.28 expired on 25 August 2019.
At balance date the Empire Group had the following securities on issue:
Shares
- 262,838,649 (2018: 2,313,084,176 – pre-consolidation) listed fully paid ordinary shares – ASX Code: EEG
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares
are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time
and are entitled to one vote per share at meetings of the Company. No dividends were paid or declared during
the year, or since the year-end.
Options
At balance date the Company had 57,725,004 (2018: 559,000,000 – pre-consolidation) unissued shares under
option. These options are exercisable on the following terms:
Number
1,000,000
350,000
36,775,004
600,000
1,300,000
300,000
300,000
1,700,000
600,000
12,000,000
2,800,000
57,725,004
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Exercise Price A$
$0.32
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.32
$0.60
Expiry Date
31 July 2020
31 January 2020
26 September 2020
26 October 2020
30 December 2021
30 December 2021
30 December 2021
30 December 2022
30 December 2021
31 December 2021
30 December 2022
Page 68 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
22. CONTRIBUTED EQUITY (continued)
d) Performance Rights
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 buyback 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 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 $25.0m
At least $25.0m but less than $45.0m.
Performance rights exercisable
0.0%
Percentage calculated by dividing Fair Market
Value of Consideration received by the Company
by $45.0m.
$45.0m or more
100.0%
-
-
If the holder of the Performance Rights in any way disposes of more than 75% of the 4m 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.
The holder of the Performance Rights is an entity associated with a senior US executive of the Company,
Mr Allen Boyer.
- At the Company’s Annual General Meeting conducted on 30 May 2019, Shareholders approved the
consolidation of the Company’s equity on a 1 for 10 basis. The effect of the Share Consolidation during
the period reduced the 2,500,000 Performance Rights to 250,000 Performance Rights.
During the 2019 financial year the Company issued 4,112,811 Performance Rights to the Company’s Managing
Director and employees under the terms of the Company’s Rights Plan approved by Shareholders on 30 May
2019.
At balance date the Company had 4,362,811 unissued shares subject to Performance Rights. The Performance
Rights are subject to certain preconditions being met.
The terms and conditions of each grants of performance rights affecting remuneration of directors and other
key management personnel in this financial year or future reporting year are as follows:
Performance Rights
Director
A Underwood
D Evans
B Johnston
Number of
granted
service rights
3,150,000
362,317
153,569
Grant Date
14 June 2019
30 Dec 2019
30 Dec 2019
Vesting date
and exercisable
date
31 Aug 2021
31 Dec 2021
31 Dec 2021
Expiry date
Exercise
price
31 June 2034
30 Dec 2034
30 Dec 2034
Nil
Nil
Nil
Fair value of
options at
grant date
$89,100
$53,452
$22,656
Page 69 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
22. CONTRIBUTED EQUITY (continued)
e) Service Rights
At balance date, the Company had 1,000,000 unissued shares subject to Service Rights. The Service Rights are
subject to certain preconditions being met.
The terms and conditions of each grants of service rights affecting remuneration of directors and other key
management personnel in this financial year or future reporting year are as follows:
Service Rights
Director
A Underwood
23. RESERVES
Number of
granted
service rights
1,000,000
Grant Date
14 June 2019
Vesting date
and exercisable
date
31 Aug 2021
Expiry date
Exercise
price
31 June 2034
Nil
Fair value of
options at
grant date
$180,000
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of equity investments 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, performance rights and service rights issued but not
exercised at balance date.
24. CONTINGENT LIABILITIES
Empire 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 legal proceedings arising out of the normal conduct of its US 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 2019, the Empire Group
had no environmental contingencies requiring specific disclosure or accrual.
There have been no other changes in contingent liabilities since the last annual reporting date.
Page 70 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
25. CONTINGENT ASSETS
There are no contingent assets as at the date of this annual report.
26. 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 2019.
27. SHARE BASED PAYMENTS
Year Ending – 31 December 2019
During the 2019 financial period the following share-based payments occurred:
The Company granted 104,348 ordinary fully paid shares to Aamica Pty Ltd as partial consideration for capital
raising and other financial advisory services in December 2018 in lieu of cash payment of A$20,870 for services
rendered, at a deemed issued price of A$0.20 per share.
During the financial year the following options were granted:
No. of Options
2,800,000
Grant Date
30 December 2019 30 December 2019
Vesting Date
Exercise Price A$
$0.60
Expiry Date
30 December 2022
The Company granted the following service and performance rights to the Company’s Managing Director and
employees under the terms of the Company’s Rights Plan approved by Shareholders on 30 May 2019.
Service Rights
Number of
granted service
rights
1,000,000
Performance Rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
14 June 2019
31 August 2021
30 June 2034
Nil
Number of
granted
service
rights
3,150,000
792,903*
169,908**
* Tranche 1
** Tranche 2
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise
price
14 June 2019
30 December 2019
30 December 2019
31 August 2021
31 December 2021
31 December 2021
30 June 2034
30 December 2034
30 December 2034
Nil
Nil
Nil
Fair value of
service rights at
grant date
$180,000
Fair value of
performance
rights at grant
date
$89,100
$104,663
$37,380
Page 71 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
27. SHARE BASED PAYMENTS (Continued)
Options
For the options granted during the 2019 financial year, the valuation model inputs used to determine the fair
value at the grants date, are as follows:
Granted
during
year
2,800,000
Grant Date
Expiry date
30 December 2019
30 December 2022
Share price
at grant date
A$
$0.44
Expected
volatility
Dividend
yield
Risk-free
interest rate
115.59%
Nil
0.88%
Service Rights
For the Service Rights granted during the 2019 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted
during
year
1,000,000
Grant Date
Expiry date
Share price at
grant date A$
Expected
volatility
Dividend
yield
Risk-free
interest rate
14 June 2019
31 August 2021
$0.18
104.36%
Nil
1.38%
Performance Rights
For the Performance Rights granted during the 2019 financial year, the valuation model inputs used to
determine the fair value at the grants date, are as follows:
Granted
during
year
3,150,000
962,811
Grant Date
Expiry date
Share price at
grant date A$
Expected
volatility
Dividend
yield
Risk-free
interest rate
14 June 2019
30 June 2034
30 December 2019 30 December 2034
$0.18
$0.44
104.36%
103.22%
Nil
Nil
1.38%
1.31%
The weighted average share price during the financial year was A$0.294 (2018: A$0.28 on a post consolidation
basis).
The weighted average remaining contractual life of options granted during the financial year and outstanding
at the end of the financial year was 3 years (2018: 2.1 years).
The weighted average remaining time to Vesting Date of Service Rights (unless extended in accordance with
the rights Plan Rules) granted during the financial year and outstanding at the end of the financial year was
1.7 years (2018: n/a).
The weighted average remaining time to Vesting Date of Performance Rights (unless extended in accordance
with the rights Plan Rules) granted during the financial year and outstanding at the end of the financial year
was 1.8 years (2018: n/a).
Page 72 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
27. SHARE BASED PAYMENTS (Continued)
Year Ending – 31 December 2018
During the 2018 financial period the following share-based payments occurred:
During the financial year the following options were granted pursuant to the Employee Share Option Plan:
No. of Options
Grant Date
Vesting Date
Exercise Price A$
Expiry Date
3,000,000
3,000,000
17,000,000
16 April 2018
16 April 2018
18 June 2018
16 April 2018
16 April 2019
18 June 2020
$0.03
$0.03
$0.03
30 December 2021
30 December 2021
30 December 2022
During the financial year the following options were granted to Macquarie Bank Limited in connection with the
refinanced credit facility:
No. of Options
120,000,000
Grant Date
26 September 2018
Vesting Date
26 October 2018
Exercise Price A$
$0.032
Expiry Date
31 December 2021
During the financial year the following options were granted to the lead managers of the February 2018 capital
raising:
No. of Options
5,000,000
Grant Date
16 February 2018
Vesting Date
16 February 2018
Exercise Price A$
$0.03
Expiry Date
31 January 2020
For the options granted during the 2018 financial year, the valuation model inputs used to determine the fair
value at the grant date, are as follows:
Granted
during year
Grant date
Expiry date
Share
price at
grant
date A$
Exercise
price A$
Expected
volatility
Dividend
yield
interest
rate
Risk-free
16 April 2018
16 April 2018
18 June 2018
16 February 2018 31 January 2020 $0.023
5,000,000
30 December 2021 $0.023
3,000,000
30 December 2021 $0.018
3,000,000
30 December 2022 $0.036
17,000,000
375,000,000 26 September 2018 26 September 2020 $0.022
10,000,000 26 September 2018
$0.022
120,000,000 26 September 2018 31 December 2021 $0.019
26 September 2018 26 October 2020 $0.019
31 July 2020
6,000,000
$0.03
$0.03
$0.03
$0.03
$0.03
$0.032
$0.032
$0.03
123.95%
118.99%
118.99%
114.90%
132.50%
133.25%
124.04%
131.28%
-
-
-
-
-
-
-
-
1.99%
2.20%
2.20%
2.34%
2.07%
2.07%
2.03%
1.99%
The weighted average share price during the financial year was A$0.028 (2017: A$0.010).
The weighted average remaining contractual life of options outstanding at the end of the financial year was 2.1
years (2017: 3.8 years)
Page 73 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
27. SHARE BASED PAYMENTS (Continued)
a)
Expenses arising from share-based payment transactions
Year ending - 31 December 2019
The share-based payments during the year have been recognised as follows:
-
-
Expense relating to issued options based on a pro-rata portion of the vesting period
A$518,724
Recognised directly against issued capital as a cost associated with the share issue
A$784,000
Year ending - 31 December 2018
The share-based payments during the year have been recognised as follows:
-
-
-
Expense relating to issued options based on a pro-rata portion of the vesting period A$203,574
Recognised directly against issued capital as a cost associated with the capital raising
A$195,000
Recognised directly against debt as a cost of arranging finance
A$1,560,000
Page 74 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
28. SEGMENT INFORMATION
The Empire Group has three reportable segments as described below. Information reported to the Empire Group’s chief executive officer for the purpose of resource allocation and
assessment of performance is more significantly focused on the category of operations.
US Operations
Northern Territory
Corporate
Eliminations
Total
in USD
Revenue (external)
Revenue (internal)
Other income (excluding interest income)
Reportable segment result before tax
2019
5,396,603
-
148,311
367,166
2018
6,592,523
-
89,999
1,062,282
2019
-
-
1,112
(508,767)
2018
-
-
-
(890,881)
2019
-
231,350
6,005
(1,266,279)
2018
-
619,471
2,101,942
1,026,221
2019
-
(231,350)
-
(231,350)
2018
-
(619,471)
-
(619,471)
2019
5,396,603
-
155,428
(1,639,229)
2018
6,592,523
-
2,191,941
578,151
Adjustments:
Effect of interest income and expense:
- Interest income (internal)
- Interest income (external)
- Interest expense (internal)
- Interest expense (external)
Material non-cash expenses not included
in segment result
- Depreciation and amortisation
- Share-based payment expense
- Impairment of assets
- (Impairment) / write-back of ARO
- Lease expiration costs
- Unrealised gain/loss on derivatives
- Finance cost - ARO accretion
- Finance cost - Discount on debt
- Other non-cash expenses
Loss before income tax - continuing
operations
-
-
(1,348,963)
(635,281)
(1,984,244)
-
-
(889,710)
(855,286)
(1,744,996)
-
176
(532,306)
-
(532,130)
-
347
(482,502)
-
(482,155)
1,881,268
3,150
-
(4,888)
1,879,530
1,372,213
62,432
-
(8,386)
1,426,259
(1,881,268)
-
1,881,268
-
-
(1,372,213)
-
1,372,213
-
-
-
3,326
-
(640,169)
(636,843)
-
62,779
-
(863,672)
(800,893)
(1,372,074)
-
(3,881,096)
(2,630,800)
(2,500)
(99,349)
(557,316)
(609,739)
(28,394)
(527,681)
-
(2,688,917)
1,642,361
(124,900)
(1,320,575)
(526,706)
(963,814)
(238,588)
(5,337)
-
-
-
-
-
-
-
-
(298)
-
-
-
-
-
-
-
-
(14,639)
(360,598)
-
-
-
-
-
-
-
(14,041)
(152,253)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,392,049)
(360,598)
(3,881,096)
(2,630,800)
(2,500)
(99,349)
(557,316)
(609,739)
(28,394)
(542,020)
(152,253)
(2,688,917)
1,642,361
(124,900)
(1,320,575)
(526,706)
(963,814)
(238,588)
(10,798,346)
(5,431,534)
(1,046,233)
(1,373,335)
238,015
2,286,185
(231,350)
(619,471)
(11,837,913)
(5,138,154)
Reportable segment assets
Reportable segment liabilities
Capital expenditure
27,583,085
(40,245,411)
(39,787)
58,830,073
(56,449,527)
(291,264)
4,214,199
(12,930,604)
(1,807,763)
1,586,198 65,382,395 58,155,325
(1,473,516)
(338,374)
-
-
(9,278,579)
(37,395)
(57,529,639)
27,529,639
-
(54,500,481)
24,500,481
-
39,650,040
(25,984,750)
(1,847,550)
64,071,115
(42,701,142)
(328,659)
Page 75 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
28. SEGMENT INFORMATION (Continued)
The revenue (external) reported above represents revenue generated from external customers. Revenue
(internal) represents service charges between segments in the period. Information reported to the Chief
Operating Decision Makers (CODM) allows resources to be allocated and subsequent performance to be
analysed. This is reviewed on a monthly basis.
The Empire Group’s reportable segments under AASB 8 and reviewed by the CODM are as follows:
• US 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.
• Northern Territory gas operations - includes all exploration oil and gas tenements in the Northern
Territory, Australia.
• Corporate – includes all head-office investments and expenses related the Empire Group.
Segment profit/(loss) represents the profit/(loss) earned by each segment before finance income and finance
expenses, other non-cash expenses 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 generated from the sale of oil and gas to external customers is derived from operations in the USA.
All of the Company’s producing oil and gas assets are located in the USA.
The Company has exploration oil and gas tenements in the Northern Territory, Australia.
Major customers
Revenues from two major customers of the Empire Group’s Oil & Gas segment represents approximately
$7,505,508 (2018: two major customers $9,012,547) of the Empire Group’s total revenues.
29. 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:
• A Underwood
• D H Sutton (to 30 June 2019)
• L Tang (to 6 February 2019)
• P Espie
• J Gerahty
• J Warburton
Details of remuneration and equity holdings of directors and other key management personnel are included
in the remuneration report.
b. Disclosures Relating to Controlled Entities
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.
Page 76 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
29. RELATED PARTY DISCLOSURES (Continued)
c.
Investments in Controlled Companies
Country of
Incorporation
Class of
Share
Controlling Empire Group
Empire Energy Group Limited
Australia
Interest Held
December
2019
%
December
2018
%
Controlled Companies
Imperial Oil & Gas Pty Limited
Empire Energy Holdings, LLC
Empire Energy USA, LLC
Empire Energy (MidCon), LLC
Empire Energy E&P, LLC
Australia
USA
USA
USA
USA
Ordinary
Units
Units
Units
Units
100
100
100
100
100
100
100
100
100
100
All entities are audited by Nexia Sydney Partnership with the exception of Empire Energy Holdings, LLC, Empire
Energy USA LLC, Empire Energy (MidCon), LLC and Empire Energy E&P, LLC which are companies incorporated
in the USA and are audited by Schneider Downs & Co. Inc.
30. 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
9,882,386
4,157,175
December
2019
$
December
2018
$
(b) Reconciliation of profit after income tax expense to net cash flows
from operating activities
(Loss) for the period after income tax expense
Adjustments for non-cash items:
Amortisation on right-of-use assets
Depreciation & amortisation expense
Impairment of property, plant & equipment
Write-back of Asset Retirement Obligation
(Gain)/loss on disposal of property, plant & equipment
Expiration of leases
Discount on debt
Asset retirement obligation accretion
Share-based payment expense
Unrealised loss/(gain) on forward commodity contracts
Other non-cash expenses
Loss on disposal of discontinued operations
Operating loss before changes in working capital and provisions
(16,123,669)
(15,867,054)
246,630
1,392,050
3,881,096
2,630,800
-
1,399,469
609,739
(557,316)
333,116
1,692,396
28,395
2,059,722
(1,292,940)
-
1,717,523
16,586,509
(1,642,361)
(33,234)
142,500
442,614
526,706
226,092
(2,391,765)
-
-
(292,470)
Page 77 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
30. NOTES TO THE STATEMENT OF CASH FLOWS (Continued)
Change in Trade and other receivables
Change in Prepayments and other current assets
Change in Inventories
Change in Trade and other payables
Change in Provisions
Net cash flows used in operating activities
(c) Non-Cash Financing and Investing Activities
2019
$
341,134
267,293
82,404
(183,680)
32,142
539,292
(753,647)
2018
$
(215,286)
(165,678)
(86,072)
492,782
5,516
31,262
(261,208)
(i) Reconciliation of Liabilities arising from Financing Activities – refer also to Note 18.
Balance at
1 January
2019
Financing
Cashflows
Options
and
refinance
costs
Amortisation of
deferred finance
costs
Debt to
Equity
Balance at
31 December
2019
24,368,652
(18,497,421)
-
609,739
-
6,480,970
Balance at
1 January
2018
Financing
Cashflows
Options
and
refinance
costs
Amortisation of
deferred finance
costs
Debt to
Equity
Balance at
31 December
2018
36,905,176
(7,878,290)
(1,622,048)
963,814
(4,000,000)
24,368,652
Interest
bearing
borrowings
Interest
bearing
borrowings
(ii) During the year share-based payments were made as partial consideration for capital raising and other
financial advisory services. Refer to Note 27.
Page 78 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
31. EARNINGS PER SHARE
Basic earnings per share from continuing operations (cents per share)
Diluted earnings per share from continuing operations (cents per share)
2019
(5.11)
(5.11)
2018
(2.24)
(2.24)
Profit/(loss) used in the calculation of basic and diluted earnings per share
from continuing operations
(11,972,778)
(5,235,624)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share from continuing operations
234,326,722
150,883,670
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share from continuing operations
234,326,722
150,883,670
Basic earnings per share from discontinued operations (cents per share)
(1.77)
Diluted earnings per share from discontinued operations (cents per share)
(1.77)
(4.53)
(4.53)
Profit/(loss) used in the calculation of basic and diluted earnings per share
from discontinued operations
(4,150,891)
(10,613,430)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share from discontinued operations
234,326,722
150,883,670
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share from discontinued operations
234,326,722
150,883,670
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
(6.88)
(6.88)
(6.77)
(6.77)
Profit/(loss) used in the calculation of basic and diluted earnings per share
(16,123,669)
(15,867,054)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share
234,326,722
150,883,670
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share
234,326,722
150,883,670
32. 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.
Page 79 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
33. 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
2019
$
2018
$
8,717,791
65,382,395
338,374
338,374
3,588,600
58,155,325
1,473,516
1,473,516
(101,523,681)
(94,163,284)
(575,677)
8,035,212
(2,552,601)
(196,300)
(233,858)
30,985,628
(66,061,278)
(575,677)
7,946,386
(1,547,184)
(191,846)
(233,644)
33,138,185
(55,627,064)
Profit for the period
103,149
2,152,473
Total Comprehensive Income
(119,902)
581,293
34. AUDITORS’ REMUNERATION
Audit Services
Auditors of the Company – Nexia Sydney Partnership:
Audit and review of financial reports
Other auditors:
Audit and review of financial reports
Other services
Auditors of the Company – Nexia Sydney Partnership:
Taxation services
Other auditors:
Taxation services
80,639
77,681
103,351
174,000
183,990
251,681
5,276
7,484
24,710
29,986
374
7,858
Page 80 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
35. MATTERS SUBSEQUENT TO BALANCE DATE
1) On 23 January 2020, the Company announced the completion of processing and interpretation of the
recently acquired (231-line kilometres) 2D seismic data set in its 100% owned Northern Territory EP187
permit, across the eastern sector of the Beetaloo Sub-Basin. The seismic data confirmed that the target
shale sequences were present in the Company’s EP187 tenement.
2) On 1 February 2020, the Company’s Australian corporate headquarters moved office location. The
Company will enter into a 5-year lease which had not been finalised as at the date of the report.
3) On 6 March 2020, the Company advised its shareholders that it had received Northern Territory
Government Ministerial consent for the drilling of Carpentaria-1 in EP187.
4) As at 31 December 2019, the Company breached the Adjusted PV Ratio under the Macquarie Credit
agreement. On 27 March 2020, Macquarie waived all existing / prior defaults under the credit agreement
and waived any potential breaches up to and including 31 December 2020. In consideration for Macquarie
granting those waivers, Empire made principal repayments totalling $825,000 on 27 March 2020 which
were funded from existing USD cash balances.
5) At the date of completion of the Financial Report, the Group is continuing to monitor and respond to the
effects of COVID-19. Empire has implemented robust COVID-19 policies designed to minimise the risk of
transmission of COVID-19 among its workforce and local communities while minimising the risk of
disruption to its ongoing business activities. Any potential financial effect of the virus on Empire’s
operations is currently unquantifiable.
Page 81 of 94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 22 to 27, 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
2019 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 Officer and the Chief Financial Controller for the year ended 31 December 2019.
Signed in accordance with a resolution of the directors.
Alexander Underwood
Managing Director
Date: 31 March 2020
Page 82 of 94
Independent Auditor’s Report to the Members of Empire Energy Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Empire Energy Group Limited (the Company and its subsidiaries (the Group)), which
comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of profit or loss and
other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’
declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
i)
giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its financial performance for the
year then ended; and
ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the ‘auditor’s responsibilities for the audit of the financial report’ section of our report. We are independent of the
Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial
report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the
Company, would be in the same terms if given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Impairment of oil and gas properties
Refer to note 15 (Oil and Gas properties and property,
plant and equipment)
At 31 December 2019, the Group has capitalised proved
and unproved oil and gas assets of $26.2m. AASB 136
Impairment of Assets requires that the recoverable amount
of an asset, or cash generating unit to which it belongs, be
determined whenever an indicator of impairment exists.
Management identified that such indicators did exist during
the reporting period, included declined oil and gas prices.
The Group’s assessment of the recoverable amount of its
producing gas properties was a key audit matter because
the carrying value of the assets are material to the
financial statements and management’s assessment of
recoverable amounts incorporate significant internal and
external judgements and assumptions including commodity
Our procedures included, amongst others:
reviewing management’s identification of impairment indicators
existing during the period;
assessing whether the external expert engaged by management
to provide independent valuations was appropriately experienced
and qualified;
evaluating management’s key assumptions and estimates used
to determine the recoverable amount of its assets, including
those related to forecast commodity prices and revenue, costs,
discount rates and estimated residual values;
checking the mathematical accuracy of the cash flow models,
testing inputs from valuation reports produced, as well as
external inputs, including spot and forward prices for gas at the
reporting date;
assessing the accuracy of management’s forecasting by
evaluating the reliability of historical forecasts and reviewing
83
Key audit matter
How our audit addressed the key audit matter
prices, available reserves, residual values and discount
rates.
whether current market conditions would impact those forecasts;
and
assessing whether appropriate disclosure regarding significant
areas of uncertainty has been made in the financial report.
Our procedures included, amongst others:
evaluating management’s process of estimating and measuring
the provision for asset retirement obligations;
evaluating whether the discount rate applied by management to
the forecast cash outflows is appropriate and consistent with the
requirements of AASB 137 - Provisions, Contingent Liabilities and
Contingent Assets;
considering the Group’s estimates of plugging costs per well,
including assessment of whether there have been changes in
technology or costs that would materially impact those
estimates. We compared the estimates for plugging costs against
actual costs incurred in 2019;
considering whether the key assumptions and judgements used
in management’s estimates were consistently applied in
measuring the asset retirement obligations and in assessing the
recoverable amount of the related assets; and
performing sensitivity analysis on management’s estimates used
in calculating the obligations.
Our procedures included, amongst others:
testing the accuracy of management’s calculation of the loss on
disposal of the discontinued operation;
checking the completeness and accuracy of management’s
computation of the separately classified and presented assets
and liabilities of discontinued operations; and
testing that the disclosure of the discontinued operations is
compliant with the Australian Accounting Standards.
Asset retirement obligations
Refer to note 21 (Provisions)
At 31 December 2019, the Group has a carrying value of
Asset Retirement Obligations of $15.8m.
The measurement of the provision for Asset Retirement
Obligations incorporates significant judgement and
uncertainty, with restoration cost estimates varying in
response to many factors including changes in technology,
legal requirements, discount rates, past experience at
other production sites, and estimates of future restoration
well plugging costs.
The expected timing and amount of expenditure can also
change, for example, in response to changes in laws and
regulations or their interpretation.
This was a key area of audit focus due to the size and
nature of these estimates and their consequential effects
on assessing the recoverable amount of producing assets.
Discontinued operations/Sale of Kansas
Refer to notes 4 and 20 (Discontinued Operations)
During the year the Group recognised a loss after income
tax from discontinued operations of $4.2m (2018: $10.6m)
and classified and presented separately in the statement of
financial position, current assets of discontinued operations
of $0.25m (2018: $25.6m) and current liabilities of
discontinued operations of $0.1m (2018: $2.0m).
In June 2019, the directors entered into an agreement to
sell the Group’s assets and interests in the Kansas
operations. The sale was effective as at 30 September
2019.
This was a key area of audit focus due to the significance
of the transaction, its materiality to the financial report and
the extent of audit effort needed to test the calculation of
the loss on disposal of the discontinued operation and the
related disclosures of discontinued operations in
accordance with Australian Accounting Standards,
especially AASB 5 - Non-current Assets Held for Sale and
Discontinued Operations and AASB 107 - Statement of
Cash Flows.
84
Other information
The directors are responsible for the other information. The other information comprises the information in Empire Energy Group
Limited’s annual report for the year ended 31 December 2019, but does not include the financial report and the auditor’s report
thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of the other information we are
required to report that fact. We have nothing to report in this regard.
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 preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibility for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial
report.
A further description of our responsibilities for the audit of the financial report is located at The Australian Auditing and Assurance
Standards Board website at: www.auasb.gov.au/auditors_files/ar1.pdf. This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 22 to 27 of the directors’ Report for the year ended 31 December
2019. In our opinion, the Remuneration Report of Empire Energy Group Limited for the year ended 31 December 2019, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our
audit conducted in accordance with Australian Auditing Standards.
Nexia Sydney Partnership
Lester Wills
Partner
Dated: 31 March 2020, Sydney
85
E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
SHAREHOLDER INFORMATION
ORDINARY SHARES
a
Substantial Shareholders as at 29 March 2020 (grouped)
Name
Macquarie Bank Limited
Global Energy and Resources Development Limited
Elphinstone Group
Number of
Shares
26,459,867
25,711,000
13,250,000
%
Holding
10.07
9.77
5.05
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
Holders
160
403
254
636
315
Number of
Shares
49,757
1,297,776
2,066,553
25,887,531
233,987,032
%
Holding
0.02
0.49
0.78
9.83
88.87
Total number of holders
1,768
263,288,649
100.00
i
ii
Number of holders of less than a marketable parcel
347
Percentage held by 20 largest holders
49.18%
c
Twenty Largest Shareholders grouped as at 29 March 2020 (ungrouped)
Name
GLOBAL ENERGY AND RESOURCES DEVELOPMENT LIMITED
LIANGROVE MEDIA PTY LIMITED
ELPHINSTONE HOLDINGS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
CHA QIAN
1 MACQUARIE BANK LIMITED
2
3
4
5
6
7
8 MR KOOI ONN CHYE
9
CHEOY LEE YACHTS AUSTRALIA PTY LTD
10 GROSVENOR EQUITIES PTY LTD
11 MR ANDREW FORSTER
12 KUARKA PTY LIMITED
13 MR TEIK TATT OH
14
15 ORACLE FINANCIAL PLANNING PTY LTD
16 MR CHARLES PHILLIP LOWSLEY PEAKE
17
18
19 RHB SECURITIES SINGAPORE PTE LTD
20 GARFIELD SUPER CO PTY LTD
INVIA CUSTODIAN PTY LIMITED
JOHN WARDMAN & ASSOCIATES PTY LTD
JETAN PTY LTD
Number of
Shares
26,451,367
25,711,000
12,245,000
12,000,000
8,031,470
6,919,496
5,145,000
4,643,363
4,130,000
3,597,921
2,500,000
2,500,000
2,500,000
2,350,000
2,101,000
2,003,000
1,896,487
1,715,095
1,535,029
1,500,000
%
Holding
10.05
9.77
4.65
4.56
3.05
2.63
1.95
1.76
1.57
1.37
0.95
0.95
0.95
0.89
0.80
0.76
0.72
0.65
0.58
0.57
129,475,228
49.18
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 01 9 A N NU A L R EP O RT
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.
UNQUOTED SECURITIES AS AT 29 MARCH 2020
Class of unquoted securities
No. of securities No. of holders
- Unlisted options exercisable at A$0.30 expiring 26 November 2020
- Unlisted options exercisable at A$0.30 expiring 30 December 2021
- Unlisted options exercisable at A$0.30 expiring 30 December 2021
- Unlisted options exercisable at A$0.30 expiring 30 December 2021
- Unlisted options exercisable at A$0.30 expiring 30 December 2022
- Unlisted options exercisable at A$0.30 expiring 31 July 2020
- Unlisted options exercisable at A$0.30 expiring 26 October 2020
- Unlisted options exercisable at A$0.30 expiring 30 December 2021
- Unlisted options exercisable at A$0.60 expiring 30 December 2022
- Unlisted options exercisable at A$0.32 expiring 31 December 2021
- Unlisted Performance Rights
- Unlisted Service Rights
- Unlisted Performance Rights
- Unlisted Performance Rights
36,768,754
1.300,000
300,000
300,000
1,700,000
906,250
600,000
600,000
2,800,000
12,000,000
250,000
1,000,000
3,150,000
962,811
129
9
1
1
11
4
2
1
2
1
1
1
1
3
Voting Rights
There are no voting rights attached to any of the unquoted securities listed above
LIST OF MINERAL LEASES – USA AND AUSTRALIA
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 31 March 2020. Given the extensive list 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
Page 87 of 94
EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Interview with Prof. John Warburton 30th July 2019
(Originally published in the Australian Resource Investment Magazine, Vol 13, Number 4, December 2019).
Empire Energy Director tells how the company ignited the Northern
Territory’s shale gas potential
My career had been entirely focused on conventional international big-field oil and gas until I met Bruce
McLeod, an industry veteran with a mathematics and economics background. In 1993, I was part of the
exploration team that led BP into the Northern Caspian Sea, both in Azerbaijan and Kazakhstan. Eventually the
massive Kashagan oil field was discovered with recoverable reserves of about 13 billion barrels of oil - the
world’s biggest oil discovery since the 1970s.
Bruce’s knowledge of shale geology was cursory, but he knew Empire Energy’s producing oil and gas fields in
the US overlay prospective Utica Shale sequences in Pennsylvania and New York State.
From about 2008 onwards, horizontal drilling with multi-stage fracking provided the breakthrough in the USA
to enable commercial oil and gas production from tight shale rock, and Bruce had seen the dramatic impact
of shale gas on the US economy and simply queried why that couldn’t happen elsewhere.
The first thing Bruce asked me during our first lunch meeting in 2010 was ‘What do you know about shale?’
That threw me a bit and I said ‘Well, to be honest Bruce, I’ve spent my life in conventional oil and gas, so I
know pretty much nothing about shale other than as a conventional petroleum source rock’. Rather than being
the end of the conversation, and to my surprise, Bruce said ‘So, when can you start?’
We agreed I would spend six months finding a shale play somewhere else in the world that Empire Energy
could acquire and monetize.
In the previous four years I’d completed a major business development review of South East Asia for a
multinational petroleum company. My mission had been to identify big conventional gas exploration
opportunities that were geologically simple, easily developed, with a low entry cost, substantial acreage
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
footprint, low fiscal risk and where there was a high chance of finding a super-giant gas field. It was a relatively
quick task to screen the entire region once again, and essentially applying the same screening metrics, but this
time with a view to shale plays.
By 2010, Shale gas had been spoken about in Australia for at least a year and I’d assumed all the prospective
acreage would already have been snapped-up, but this was not so.
We wanted large contiguous areas at 100% equity, to allow ourselves to be unfettered by others. On the 24th
March 2010 I planted myself in the Information Centre of the Northern Territory Geological Survey (NTGS).
One particular report described the results from a mineral well named GRNT-09. It had been drilled by Amoco
Minerals in the Glyde Sub-Basin back in 1979 during their exploration for lead and zinc mineralization in the
vicinity of what is now Glencore’s zinc-lead McArthur River Mine in the McArthur Basin.
These metals were hosted in ancient black shale formations laid down in a relatively deep-water sedimentary
basin an astonishing 1.64 billion years ago during the Palaeo-Proterozoic Era. If I may, I’ll tell you a bit about
how these extraordinary rocks formed.
They were of enormous interest to me as a petroleum man. The atmosphere of the early Earth from about 3.5
to 2.5 billion years ago had only a small fraction of the present-day oxygen level. That was because all the
oxygen created by photosynthetic blue-green algae - some of the earliest life-forms on Earth - was captured
by iron in the oceans to form the thick banded iron-ore formations. After the free iron available in the early
oceans was exhausted, oxygen levels increased modestly until about two billion years ago, and yet the oceans
remained relatively ‘anoxic’.
Those conditions allowed for the preservation of organic carbon and the deposition of black carbonaceous,
sulphide-rich black shales. The best analogue today is around the deep-sea ‘black smoker’ hydrothermal vents
where life thrives in the form of bacterial colonies, shrimps and crabs.
In the Proterozoic Era, the dominant life form on Earth was prolific microscopic cyanophyte, or blue-green
algal blooms. These rained in vast numbers onto the seabed forming layers of concentrated carbon in what
became shale rock. The sulphide layers were interbedded with layers of black shale that was also raining down
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
from the oceanic water column. And it still amazes me that world-class, zinc-lead deposits can be interspersed
with fine layers of world-class organic, petroleum-prone black shale.
But the real lightbulb moment came as I ploughed through the completion report for the 1979 Amoco 534
metre-deep GRNT-09 mineral well. The rig had struck a layer containing natural gas and caught fire! It was a
mineral well so didn’t have sophisticated blow-out preventers that are requisite on petroleum wells. A grainy
photo of the flaming gas showed it blew six meters or so into the air and had a yellow smoky appearance
indicating the gas contained condensate liquid or light oil.
The well burned into the wet season until the hole had filled with water and the gas escape was reduced to
bubbles. Somebody in Amoco had the presence of mind to sample that gas, which comprised about 75%
methane plus heavier components of C2 to C8 and with very little carbon dioxide contaminant. It had
intersected a viable petroleum source in the Barney Creek Formation which had been historically mined for
lead and zinc. I simply then used the published NTGS geological maps to track the geographic distribution of
that rock formation.
I phoned Bruce and said ‘Look, we are potentially onto a winner here; this is a shale play that fits all our
screening metrics’. As far as I was aware at the time nobody else had spotted it. This was what we’d been
looking for. An aerially extensive, proven gas and liquids-rich petroleum system in our own ‘back-yard’, not
overseas.
The Barney Creek Formation was estimated by the NTGS Geologists to be up to 900 meters thick in places,
almost an order of magnitude greater that many of the US shale fields. The area that contained the Barney
Creek Formation was mostly flat, sparsely vegetated stony land with little agricultural potential so - subject to
the approval of its traditional owners - the play could be accessed, exploited and remediated quite easily. On
26th March 2010, I applied for seven license areas occupying 59,000 square kilometers, or about five per cent
of the entire onshore Northern Territory - an area about the size of Croatia.
Unknown to us, at the time that I was submitting Empire’s License Applications a competitor, Armour Energy,
was also active. Amour’s presence became evident when two of the areas I had submitted applications for
were refused by the Northern Territory Petroleum Licensing Department. Evidently, and just days before,
Armour had also submitted applications for the same two licenses to the south of Empire’s acreage.
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
Armour Energy has since drilled a number of successful exploration wells, including one with a horizontal leg.
Despite being 1.64 billion years old, those wells have confirmed that the Barney Creek Formation shales are
a prolific and potentially commercially viable petroleum system. Being exceedingly old (almost one third of
the age of the Earth itself), such ancient rocks like these have typically been deeply buried, or may have
suffered recrystallization or even melting, thus depriving them of any petroleum.
The rocks of McArthur and Beetaloo Basins have never been buried so deep as to ruin their petroleum
prospectivity. It is very clear that during their history they experienced just the right pressures and
temperatures for petroleum generation and preservation - almost like a petroleum ‘Goldilocks zone’.
What are the chances that the McArthur and Beetaloo Basins can make
Australia self-sufficient in liquid fuels?
I genuinely believe there is a very high chance that shale petroleum will play an enormous part in Australia’s
energy self-sufficiency - and ultimately exports. The numbers quoted by most operators for the volumes of
hydrocarbons, albeit currently at ‘prospective resource’ status, are enormous. They dwarf Australia’s proven
present-day conventional oil and gas volumes.
The NTGS estimates that in excess of 500 trillion cubic feet of gas-in-place is present just within the Middle
Velkerri Shale in the Beetaloo Basin. Empire’s independent expert certification is that the P50 - or ‘most likely’
- resource in Empire’s acreage to be about two billion barrels of oil equivalent - or 13 trillion cubic feet of gas
- but is up five billion barrels of oil equivalent at P10. This is a substantial prospective petroleum volume, yet
is conservative when compared with the NTGS’s estimate. NTGS has also assumed up to 75% of the shale
formation is not petroleum-bearing. And we have the McArthur Basin potential on top of that.
The part of the McArthur Basin within Empire Energy’s acreage occupies a similar area to the United States’
Fayetteville Basin. After many years of drilling, the United States Department of Energy has estimated that the
Fayetteville Basin contains about 42 trillion cubic feet of gas.
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
How do you know where to start exploratory drilling in such an enormous area?
Isn’t it like trying to find a needle in a haystack?
The United States has been developing shale petroleum for a number of years now, and geologists have a
good knowledge of where the richest shales, or ‘sweet-spots’, are located. The rule-of-thumb from the United
States, from hindsight, is that about 10 per cent of the area of a shale play is a real sweet-spot. Furthermore,
it’s suggested that the sweet-spot contains about 45 per cent of the total economic value of the basin. So
clearly that’s where you want to start drilling.
Early sweet-spot development enhances the project economics; achieving good early production rates means
the initial investment will be paid back quicker. Lower quality shales can be exploited later.
How do the Geologists go about predicting shale petroleum sweet-spots in a
basin?
You look for the relationships between the color, hardness and composition of the various layers of rock and
identify which layers have the high organic carbon content. You also look at the fine sedimentary structures
that describe the conditions in which the sediment was originally laid down. Those details will tell you a lot
about how the rock was deposited, whether sand was being introduced into the basin (diluting the shales),
and whether the depositional environment was anoxic, so the carbon content is preserved. And then you
correlate the rock layers between many wells and mineral cores, and see if they are continuous over great
distances or fragmented.
This approach will allow you to draw contour maps and determine the geographic variation in things such as
total thickness of black shale layers with high organic carbon, the depths at which the rocks are buried, and if
they are deep enough to generate oil and gas. The areas with thick shale, little sandstone dilution, a large
number of layers with organic carbon, at the right palaeo-temperature and at optimum depth to drill, will be
the sweet-spots. Seismic data helps to establish the horizontal continuity across the basin and identify local
geological complexities to stay away from.
Analyzing the shapes in the rock layers on seismic tells us about the relative sea level under which successive
rock layers were originally deposited, and the likely overall chemistry of the rocks at different depths. You can
say ‘Right, we see a particular shape in the seismic data; that’s a particular place of interest’.
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
I’m really looking forward to seeing first-hand the seismic data we are acquiring across EP187 right now.
As a frontrunner, Empire Energy acquired not just a sizable portion of the Beetaloo Basin, but also a major
segment of the older McArthur Basin. Along with Empire, only Armour Energy has substantial claim over the
McArthur, which may have an even greater petroleum potential than the Beetaloo.
How will Empire commercialize its gas?
The supply-demand conversations and possibilities between the Northern Territory and Queensland are real.
In 2018, Jemena constructed the North East Gas Interconnector between Tennent Creek and the eastern
pipeline network connecting the systems at Mt Isa. Such investment proves there is already growing, and
Australia-wide recognition of the energy potential of the Northern Territory shale basins.
Empire Energy plans to start commercial gas production as early as possible initially, for example, with
customers from the local mining and fertilizer industries looking to replace diesel with cleaner and cheaper
gas. The McArthur River mine has a gas pipeline that passes right through Empire Energy’s license EP187.
Longer term, if there really is 29 trillion cubic feet of gas - which external assessments currently attribute to
Empire Energy’s McArthur Basin acreage - this will lead us to the possibility of liquefied natural gas (LNG)
exports and examining Australia’s strategic security of supplies, as well as in liquid fuels.
Empire’s prospective shale acreage extends 600 kilometers, south to north, up to the very top of East Arnhem
Land. Near the site of Pacific Aluminium’s now-closed Gove Refinery, there is functioning deepwater port at
Nhulunbuy in East Arnhem Land, just 80 kilometers to the east of Empire Energy’s northernmost exploration
area. Furthermore, a right of way for a 600-kilometer spur pipeline from Katherine to Nhulunbuy has been
surveyed and passes right through Empire Energy’s tenements EPA 180 and EPA 181.
The town of Nhulunbuy is in one of Australia’s most northerly locations and faces the South East Asian LNG
markets. We are extremely well positioned to be a substantial player in the emerging shale petroleum export
story.
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EMPIRE ENERGY GROUP LIMITED
and its controlled entities
My personal view is that the industry must embrace the conversation about this new frontier, about energy
security, and of the huge potential for the exportation of liquefied natural shale gas. It created a massive
change in the United States, with daily shale gas production increasing dramatically from about two billion
cubic feet in 2007 to 50 billion cubic feet in 2015 - with a 10 per cent decrease in national annual carbon
emissions. There will be intense market pull, both domestic (from gas usage and prices) and international (for
LNG) if the shale resource is realized.
John Warburton is a Non-Executive Director of Empire Energy Group. Previously, he spent 14 years with BP
Exploration, where he held senior technical and management positions, then moved to senior positions with
substantial oil and gas companies, including LASMO plc, Eni Pakistan Ltd and Oil Search Ltd. John is an
Independent Non-Executive Director of Senex Energy Ltd and Visiting Professor in the School of Earth &
Environment at the University of Leeds, United Kingdom.
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