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CONTENTS
CORPORATE DIRECTORY
3
CHAIRMAN AND MANAGING DIRECTOR LETTER TO SHAREHOLDERS 4
OPERATIONS REVIEW
DIRECTORS’ REPORT
7
16
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 CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EMPIRE
ENERGY GROUP LIMITED
SHAREHOLDER INFORMATION
32
33
34
35
36
37
84
85
89
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CORPORATE DIRECTORY
Directors
Paul Espie AO (Chairman)
Alexander Underwood (Managing Director)
John Gerahty (retired 11 March 2021)
Prof John Warburton
Peter Cleary (appointed 25 May 2020)
Louis Rozman (appointed 11 March 2021)
Executives
Ben Johnston (Vice President – Business Development)
Dr Alex Bruce (Chief Geoscientist)
Financial Controller
Kylie Arizabaleta
Company Secretary
Andrew Phillips
Registered Office
Level 19, 20 Bond Street Sydney NSW 2000
Australian Auditors
Nexia Sydney Audit Pty Ltd
Level 16,1 Market Street, Sydney NSW 2000
US Auditors
Schneider Downs & Co. Inc
One PPG Place, Suite 1700, Pittsburgh PA 15222
Australian Solicitors
Baker McKenzie
Level 46, Tower One, International Towers Sydney
100 Barangaroo Avenue, Barangaroo NSW 2000
US Solicitors
Bankers
Depew Rathbun & Gillen McInteer, LLC
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 Investor 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:
- 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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CHAIRMAN AND MANAGING DIRECTOR LETTER TO SHAREHOLDERS
Dear Shareholders,
We are pleased to present you Empire’s 2020 Annual Report.
The Beetaloo Sub-basin continued to gain prominence in Australia’s energy industry over 2020, characterised
by increasing field activity and support measures designed to accelerate commercial production from the
basin, as part of the Federal Government’s Gas Fired Recovery Strategy. Australia will require new sources of
affordable gas to support industrial activity and household energy needs for decades to come.
The Australian Energy Market Operator is forecasting gas supply shortfalls in the years ahead as existing
sources decline, particularly the offshore fields in the Bass Strait, the onshore Cooper Basin and the coal
seam methane fields of Queensland.
The Beetaloo Sub-basin is likely to play an important role in addressing these shortfalls given its globally
significant resource volumes and proximity to domestic and international markets. Comparisons to the major
US shale basins such as the Marcellus are compelling. Fracture stimulated natural gas from shale formations
now comprises over 70% of US gas production, which has been the key driver for material reductions in
aggregate US CO2 emissions as coal fired power is displaced. This has brought a proliferation of
manufacturing and employment, particularly in regional areas.
Our overall objective is to progress our Northern Territory projects focused on the prime parts of the
Company’s extensive land holdings through proving up phases, exploration into development, to generate
cash flow, taking advantage of access to existing and planned infrastructure and markets domestic and
international.
In 2020 Empire saw success in the ongoing execution of this objective. We interpreted seismic data acquired
in late 2019 which demonstrated that the shales of the Beetaloo Sub-basin extend into EP187. This was
followed by the drilling of Carpentaria-1, which identified the thickest sequence of Velkerri gas-bearing
shales of any well drilled in the basin to date, with the highest ratio of liquids-rich gas in that formation. This
has been reflected in material growth in the Company’s market capitalisation over the last 12 months.
We will soon be carrying out a vertical fracture stimulation of the most prospective Velkerri shale zones in
Carpentaria-1. The primary objective of this program will be to flow gas to surface, while assessing the
production and gas / liquids composition of each zone. These results will allow the Company to prioritise
horizontal drilling targets.
The pending vertical fracture stimulation of Carpentaria-1 has been approved, and the regulatory process for
additional seismic acquisition and up to 6 fracture stimulated horizontal wells across EP187 is underway.
Once approved, these consents will remain in place for 5 years.
The increasing activity by our neighbours is advantageous to Empire as the interpretation of regional geology
is enhanced. Santos carried out a vertical fracture stimulation of its Tanumbirini-1 well in 2020 focused on
the Velkerri shale which achieved strong flow rates and has announced plans to drill two fracture stimulated
wells at the same location this year. Origin has flowed liquids-rich gas to surface from its Kyalla-117 well and
plans to drill the Velkerri-76 well in 2021 focused on the liquids-rich gas window of the Velkerri shale
formation. Tamboran Resources announced their plan to drill a well and have executed an MOU with
pipeline operator Jemena.
Empire’s plans for commercialisation are progressing. The proximity of our drilling sites to existing
infrastructure is strategic, as is our approach to regulatory approvals. Federal Government support for the
industry through the Beetaloo Strategic Basin Plan incentivises operators to expand and accelerate work
programs. Empire has commenced the process to apply for drilling grants under the Government’s Beetaloo
Cooperative Drilling Program.
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Empire’s plans for commercialisation are progressing. The proximity of our drilling sites to existing
infrastructure is strategic, as is our approach to regulatory approvals. Federal Government support for the
industry through the Beetaloo Strategic Basin Plan incentivises operators to expand and accelerate work
programs. Empire has commenced the process to apply for drilling grants under the Government’s Beetaloo
Cooperative Drilling Program.
There are ready local markets for our gas which, in the success case, will allow Empire to commercialise our
properties prior to the construction of major pipeline infrastructure connecting the Beetaloo to the East
Coast and Darwin.
Empire’s low-cost operating model and commercial approach provide strategic advantages as we seek to be
the first operator to commence gas sales, initially focused on these local markets, then later export gas to
the East Coast and Asia via Darwin or Gladstone.
As the Company progresses its work programs it is conscious of the climate change issues in the countries in
which it operates. The global transition towards energy sources with lower carbon intensity gathered pace
during 2020 and we are exploring opportunities that flow from that. The Board has implemented a
Foundation Review of Social and Environmental Factors and will complete an Environmental, Social and
Governance Policy in 2021.
In NY State, a jurisdiction which is prioritising renewable energy generation, we are in advanced discussions
over the installation of third party solar and wind farms on our acreage. If these transactions complete, we
will receive lease payments for providing this access, while capital expenditures are borne by the third-party
operators.
The contribution of renewables for electricity generation in Australia continues to rise, reaching 24% of total
electricity generation in 2019. However, this has brought challenges including increased grid instability and
acceleration of the planned retirement of coal-fired power stations which presently provide most baseload
power. Gas will play a critical role in the transition. Gas generates approximately half of the life cycle
emissions of coal and one tenth of the particulate pollutants. Gas fired peaking plants can be switched on
and off rapidly to address the intermittency of renewable-based fuel sources.
The importance of gas extends to Asia. Asian LNG imports are forecast to increase in the decades ahead
when Asian energy markets reduce their reliance on coal. Established LNG export infrastructure in Darwin
will help to meet this demand, and Beetaloo gas is likely to be a feedstock.
While Empire’s Beetaloo gas has low in situ CO2 compared to other major Australian gas basins, the
company is exploring further mitigants to its future carbon footprint. Future opportunities for carbon
mitigation may include reforestation initiatives, geo-sequestration and soil carbon sequestration.
Our commitment to ESG principles extends beyond climate change. Empire has spent over a decade building
relationships with the landowners, particularly traditional owners, regulators and stakeholders in the areas
in which we operate. This reflects the respect we have for traditional owners, the importance we attach to
protecting local environments and the contribution we can make to these interests and society generally.
The Board has recognised the contribution that our recently retired Non-Executive Director, John Gerahty,
has played in the rebuilding of our company over the last three years as we deleveraged and shifted our
strategic focus to the Northern Territory’s shale basins and wishes him well. While his business acumen and
corporate experience will be missed, the recent appointments of Peter Cleary and Louis Rozman to the
Board, both of whom have specialist oil and gas industry experience, will be of value as we execute our
growth strategies.
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We have continued to build our management team with the appointment of Dr Alex Bruce, Chief
Geoscientist and Charles Dack, Environmental and Compliance Reporting Officer, and our operations team at
inGauge Energy has provided outstanding project management leadership. We thanked David Evans for his
contribution on his departure from Empire in January 2021.
We are grateful to our people in Australia and the United States for their hard work and dedication over the
last 12 months and to all shareholders for your support.
Yours sincerely,
Paul Espie AO
Chairman
Empire Energy Group Limited
Alex Underwood
Managing Director
Empire Energy Group Limited
Australian Energy Market Operator, 2021 Gas Statement of Opportunities
Figure1: Projected eastern and south-eastern Australia gas production (including export LNG), Central
scenario, existing, committed, and anticipated developments, 2021-40 (PJ)
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OPERATIONS REVIEW
A.
2020 OVERVIEW & HIGHLIGHTS
Empire Energy Group Limited (“Empire”) has changed its functional currency from United States Dollars to Australian
Dollars reflecting the increased focus on its Australian operations. All references to dollars are Australian Dollars unless
otherwise stated.
GROUP FINANCIAL HIGHLIGHTS
- Group Revenue $6.5 million (2019: $7.8 million)
- Net production 4,697 Mcfe per day (2019: 6,352 Mcfe per day)
- Outstanding debt US$6.5 million (2019: US$7.5 million)
-
Cash at bank $14.1 million (2019: $14.1 million)
AUSTRALIA – NORTHERN TERRITORY
-
-
-
-
-
Empire holds a 100% working interest in over 14.5 million acres of tenements across the McArthur Basin and
Beetaloo Sub-basin, Northern Territory, Australia.
In January 2020, Empire announced that new EP187 2D seismic processing and interpretation confirmed
Empire holds a significant Beetaloo Sub-basin position. A large prospective area was identified containing thick
continuous Velkerri Shales, undisturbed by faulting.
In May 2020, Empire announced an independent assessment of its Northern Territory petroleum resources by
Netherland Sewell & Associates Inc, with a total best estimate prospective resource of 13.5 TCF gas. Of this,
2.3 TCF was assessed in the Velkerri Shale in EP187.
In October 2020, Empire’s Carpentaria-1 well in EP187 located on the eastern side of the Beetaloo Sub-basin
intersected an extensive interval of liquids-rich gas in the Velkerri formation based on mud gas readings. The
proportion of liquids-rich gas intersected in the Velkerri exceeded that of analogue wells previously drilled
across the Beetaloo Sub-basin, exceeding Empire’s pre-drill expectations.
In December 2020, Empire submitted an Environment Management Plan (“EMP”) to the Northern Territory
Government for hydraulic stimulation of the vertical Carpentaria-1 well and the drilling and hydraulic
stimulation of a horizontal section from the Carpentaria-1 wellbore. On 16 February 2021, Empire received
approval for the EMP.
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L to R: Chairman Paul Espie, Managing Director Alex Underwood, NT Opposition Leader Lia Finochiarro, Federal
Minister for Energy and Emissions Reduction Hon. Angus Taylor MP and Senator Sam McMahon at Carpentaria-1
site
Wellsite geologist examining drill cuttings at Carpentatria-1
Carpentaria-1 drilling with casing
Core taken from Carpentatria-1 well
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USA – APPALACHIA
-
Empire’s Appalachia operations had a strong operational performance throughout 2020 with minimal
production declines across the asset base despite minimal capital investment. Low gas prices throughout 2020
reduced revenues. The US operations continued throughout the COVID-19 lock-down periods as an essential
service business given gas produced by Empire’s operations is used for electricity generation and heating.
- Gross natural gas production for 2020 was 2.11 Bcf (Net 1.70 Bcf) (2019: Gross 2.22 Bcf). Gas production in
2020 experienced natural field decline compared to the prior year and some production was temporarily shut
in due to the low market gas prices.
-
Empire was granted a US$552,600 forgivable loan under the US Paycheck Protection Program (“PPP”) which
formed part of the US Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP was
legislated by the US Federal Government to incentivise small and medium sized business to keep employees
during the COVID-19 pandemic. Throughout the year Empire applied these funds to eligible expenses including
payroll, interest, rent and utilities and as such US$542,600 of the loan was forgiven during the year. The
remaining US$10,000 was forgiven after year-end.
B.
RESERVES
US RESOURCE UPDATE
The Company’s USA 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.
Reserves as at December 31, 2020 – USA (NYMEX Strip Dec 31, 2020 including hedges)
Reserves - As of Dec 31, 2020
Reserves (Reserves)
Proved Developed Producing
Proved Developed Non-producing
Proved Behind Pipe
Shut-in
Proved Undeveloped
Total 1P
Probable
Total 2P
Possible
Total 3P
USA Reserves by: Graves & Co Consulting
Oil
(Mbbls)
Gas
(MMcf)
MBoe
Capex
$M
PV0
$M
PV10
$M
32
25,729
4,320
-
-
25,729
10,087
35,816
3,880
39,696
-
32
-
32
158
190
-
4,320
1,680
6,000
805
6,805
-
-
$14,139
$(62)
$8,630
$(28)
$(563)
$(255)
-
$7,809
$7,809
$5,102
$12,911
$13,514
$16,545
$30,059
$11,085
$41,144
$8,347
$1,992
$10,339
$1,780
$12,119
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Notes to Reserves
- The quantities presented are estimated reserves and resources of oil and natural gas that geologic and
engineering data demonstrate are “In-Place” and can be recovered from known reservoirs.
- Oil prices are based on NYMEX West Texas Intermediate (WTI).
- Gas prices are based on NYMEX Henry Hub (HH).
- Prices were adjusted for any pricing differential from field prices due to adjustments for location, quality and
gravity, against the NYMEX price. This pricing differential was held constant to the economic limit of the
properties.
- All costs are held constant throughout the lives of the properties.
- The 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.
- Reserve estimates have been prepared by the following independent reserve engineers:
- New York & Pennsylvania (Appalachia)– Graves & Co Consulting.
- The following NYMEX prices, as at December 31, 2020, were used to calculate reserves and cash flow:
Year
2021
2022
2023
2024
2025
2026
2027
2028
US$/Bbl
48.36
46.76
45.72
45.10
44.84
44.80
44.89
44.99
US$/Mcf
2.656
2.583
2.459
2.482
2.524
2.548
2.581
2.614
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NORTHERN TERRITORY RESOURCE UPDATE
Empire, through its 100% owned subsidiary Imperial Oil & Gas Pty Ltd (“Imperial”), holds a 100% interest in 59,000 square
km (14.5 million 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 several identified
shale targets and abundant indications for the presence of gas and oil.
In March 2021, Netherland, Sewell and Associates, Inc. (“NSAI”), updated its independent resource assessment for
Empire’s Northern Territory acreage. NSAI assessed a total best estimate prospective resource of 14.5 TCF gas,
including 3.45 TCF of gas and 27mmbbl of condensate in the Velkerri Shale in EP187. NSAI assessed a maiden best
estimate contingent gas resource of 41 BCF gas in the immediate vicinity of the Carpentaria-1 well location.
A summary of the NSAI report is detailed in the table below:
Contingent Resources
Net Sales Gas (BCF)
NT Resources –
March 2021
Low
Estimate
(1C)
Best
Estimate
(2C)
High
Estimate
(3C)
Unrisked Gross (100%)
Prospective Sales Gas
Resources (BCF)
Best
Estimate
(2U)
Low
Estimate
(1U)
High
Estimate
(3U)
Unrisked Gross (100%)
Prospective Condensate
Resources (MMBL)
Best
Estimate
(2U)
Low
Estimate
(1U)
High
Estimate
(3U)
Velkerri 1
Barney Creek 1,2
Total
-
-
-
41
-
41
86
1,990
3,446
7,091
-
1,633
11,053
45,380
86
3,623
14,499
52,471
4
-
4
27
-
27
99
-
99
1. Empire derived arthmetic summation of Netherland, Sewell & Associates, Inc. assessed resources
2. Barney Creek formation shale targets across EP180, EP181, EP182, EP183, EP184 and EP188.
NSAI did not evaluate the Wollogorang Formation, which has been previously externally evaluated.
L to R: Chairman Paul Espie, Schlumberger site manager, Managing Director Alex
Underwood and NT Senator Sam McMahon at Carpentaria-1 site
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C.
CREDIT FACILITY
The Company has a Credit Facility with Macquarie Bank Limited. The facility has the following key terms:
Principal Amount
US$7.5 million
Availability/Drawings US$6.5 million
Maturity Date
September 2024
Interest Rate
LIBOR + 650 bps
Repayment Terms
100% of Appalachia Net Operating Cashflow subject to minimum
amortisation of US$550,000 per annum
Hedging
Key Covenants
Empire shall maintain a rolling hedging program whereby 55% of
forecast Proved Developed Producing Reserves shall be hedged for 3
years
Net Debt > 1.3x Proved Developed Producing Reserves PV10
Net Debt > 1.3x Adjusted Proved Reserves PV10
Interest Coverage ratio > 1.3x
Current Ratio 1.0x
The draw down on the Macquarie Bank Limited Credit Facility as at December 31, 2020 was US$6,537,500. On 27 March
2020, Macquarie Bank waived all past and existing defaults and any potential defaults up to and including 31 December
2020 in consideration for Empire making repayments of US$825,000. Empire made a further repayment of US$137,500
during November 2020.
At the balance date, Empire also had a forgivable loan with a balance of US$10,000 under the Paycheck Protection
Program which was used for allowable expenses. The loan was originated through PNC Bank, carried a fixed interest
rate of 1% per annum and was due to mature in June 2022. The PPP loan was unsecured and subordinated to the Credit
Facility with Macquarie Bank Limited. The loan was forgiven in March 2021 in accordance with its terms.
After the balance date, a new Paycheck Protection Loan was approved and drawn down in the amount of US$343,602
with a 1% per annum interest rate and 5 year term. Empire is utilising the funds for forgiveable purposes and intends
to apply for loan forgiveness.
D.
HEDGING
Due to the risk model implemented by Empire, a comprehensive hedging strategy has been adopted to mitigate
commodity price risk associated with its producing assets.
The fair value (marked to market) of combined oil and gas hedges in place as at December 31, 2020 was US$0.75
million. Oil and gas hedge contracts were valued based on NYMEX Henry Hub forward curves at market close on
December 31, 2020.
E. BUSINESS RISK
COVID-19 – As at the date of this report, Australian international borders are closed. During the year the Northern
Territory Government closed its internal borders in response to the virus to mitigate the risk of transmission. These
restrictions could impact Empire’s ability to operate in New York State, Pennsylvania and the Northern Territory.
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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.
Regulatory Risk – Empire has operations spanning two 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 rectification costs, and significant legal consequences.
Title Risk – Interests in onshore tenements in Australia are governed by the respective state 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 proposed 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.
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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.
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.
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, debt or equity, will be available or available on suitable terms. The could
adversely impact the value of the Company.
F. 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
Consulting LLC
&
Co.
BSc
Mr John G. Hattner
Netherland Sewell &
Associates Inc
MBA, Master of Science in
Geological Oceanography, BSc
Mr Joseph M. Wolfe Netherland Sewell &
Associates Inc
Master of Petroleum
Engineering, BSc Mathematics
Professional
Organisation
SPE
Licenced Professional
Geophysicist in the
State of Texas, USA
Licenced Professional
Engineer in the State
of Texas, USA
* 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 report 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 historical fact are forward-looking statements.
14
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an d i ts c o ntr o l le d e nt i t i es
Above and below: Managing Director, Alex Underwood with Traditional Owners at the on-country meeting held
at Borroloola, NT in November 2020.
15
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
DIRECTORS’ REPORT
For the financial year ended 31 December 2020
In respect of the financial year ended 31 December 2020, the Directors of Empire Energy Group Limited
(“Empire” or “the 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:
Mr Paul Espie AO
Non-Executive Chairman
Mr Alexander Underwood
Managing Director and Chief Executive Officer
Mr John Gerahty
Non-Executive Director (retired 11 March 2021)
Prof John Warburton
Non-Executive Director
Mr Peter Cleary
Non-Executive Director (appointed 25 May 2020)
Mr Louis Rozman
Non-Executive Director (appointed 11 March 2021)
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
exploration tenements and applications located in the highly petroleum prospective Northern Territory
McArthur Basin (including the Beetaloo Sub-Basin). Key activities completed during the year included the
successful drilling of the Carpentaria-1 well in Empire’s EP187 permit, intersection of liquids-rich gas at
Carpentaria-1, certification of a prospective resources by Netherland, Sewell and Associates Inc and
preparation for further exploration and appraisal activities.
The production 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.
CONSOLIDATED RESULTS
The consolidated net loss including asset write-downs of the Empire Group for the financial year ended 31
December 2020 after providing for income tax was $7,684,455 compared to a consolidated net loss for the
previous corresponding reporting period of $23,233,902.
REVIEW OF OPERATIONS
For information on a review of the Empire Group’s operations refer to the Operations Review contained on
pages 7 to 15 of this report.
16
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
DIVIDENDS
The Directors have not recommended the payment of a final dividend.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
There were no significant changes in the state of affairs of the consolidated entity during the financial period
under review.
LIKELY DEVELOPMENTS
Except for information disclosed on certain developments and the expected results of those developments
included in this report under review of operations, further information on likely developments in the
operations of the consolidated entity and the expected results of those operations have not been disclosed in
this report because the Directors believe it would be likely to result in unreasonable prejudice to the
consolidated entity.
MATTERS SUBSEQUENT TO BALANCE DATE
1) On 4 January 2021, ASIC form 315 Removal of Auditor was lodged due to the Company current auditors
Nexia Sydney Partnership, merging with another company and renaming it from Nexia Sydney Partnership
to Nexia Sydney Audit Pty Ltd. Aside from a name change, no other changes occurred.
2) As at 31 December 2020, the Company was not compliant with the Interest Coverage Ratio under the
Macquarie Credit agreement. Macquarie had previously waived all existing / prior defaults under the
credit agreement and waived any potential breaches up to and including 31 December 2020. Empire is in
advanced discussions with Macquarie Bank relating to a potential refinancing of the credit facility including
amending certain financial covenants.
3) On 16 February 2021, Empire was granted a second loan of US$343,602 under the Paycheck Protection
Program (PPP). The second tranche is fully forgivable provided the loan proceeds are used for eligible
expenses including payroll, carries a fixed interest rate of 1% per annum and has a maturity of 5 years.
4) 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 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.
5) An Environment Management Plan submitted to the Northern Territory Government for the hydraulic
stimulation and flow testing of the vertical Carpentaria-1 well was approved on 16 February 2021. The
EMP will remain active for five years from the date of approval. Empire intends to commence fracture
stimulation and flow testing operations at Carpentaria-1 in Q2 2021.
6) On 22 February 2021, Empire advised shareholders that Netherland, Sewell & Associates Inc had updated
its independent resource assessment for Empire’s EP187 permit in the Northern Territory. The assessment
increased Empire’s best estimate prospective gas resource in EP187 by 47% to 3.5 TCF and assessed a
maiden best estimate prospective condensate resource of 27mmbbls. In addition, a maiden best estimate
contingent resource of 41 BCF in the immediate vicinity of the Carpentaria-1 well location was assessed.
7) On 11 March 2021, Empire announced the appointment of Mr Louis Rozman as a Non-Executive Director
of the Company, effective immediately. At the same time, Mr John Gerahty retired from the Board of
Directors.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
INFORMATION ON DIRECTORS
Paul Espie AO, BSc, MBA
Non-Executive Chairman
Appointed Non-Executive Chairman 5 February 2019
Age 76
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 a Fellow of the
Australian Institute of Company Directors, Trustee of the Australian Institute of Mining & Metallurgy, Educational
Endowment Fund, and a Director of the Menzies Research Centre.
Special Responsibilities:
Chairman of Empire Energy Group Limited
Other Current Listed Public Company Directorships:
Aurelia Metals Limited
Former Listed Public Company Directorships in Last 3 Years:
Nil
Alexander Underwood, LLB, BCom (Hons)
Managing Director and Chief Executive Officer
Age 38
Mr Underwood has nearly fifteen years of specialist upstream oil and gas 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
Executive Director of Imperial Oil & Gas Pty Limited
President and 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
John Gerahty, BCom, MBA
Non-Executive Director
Age 78
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 Hardie Grant Pty Ltd publishing group, its major shareholder 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.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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
Professor John Warburton, PhD, FGS, FPESA, MAICD
Non-Executive Director
Age 63
John Warburton has 38 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.
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 ten years on the External Advisory Board of
Geosolutions, Leeds (formerly Petroleum Leeds) which is the focus for integrated Petroleum Engineering,
Geoscience and Climate Research.
Special Responsibilities
Non-Executive Director of Imperial Oil & Gas Pty Limited
Chairman 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
Peter Cleary, BCom. & LLB
Non-Executive Director
Age 63
Mr Cleary is a leader in the oil and gas sector. He holds relationships with commercial and government entities
gained over a distinguished 29-year career representing Santos, the North West Shelf Venturers and BP in Asia.
His executive career was in LNG, pipeline gas and chemicals operations.
Mr Cleary is currently a member of the Executive Committee of the Australia Japan Business Co-operation
Committee and the Australia Korea Business Council. He is Fellow of the Australian Institute of Energy – SA
Branch and the President of Water Polo South Australia.
He previously held positions as a Board member of the Australian Petroleum Production & Exploration
Association (APPEA), the Australia China Council and the Australia Japan Foundation. He is a Graduate of the
Australian Institute of Company Directors.
19
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
Special Responsibilities:
Chairman of Remuneration Committee
Member of the Audit & Risk Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
Louis Rozman, BEng, MGeoSc
Non-Executive Director
Age 63
Mr Rozman is a mining engineer and executive with 40 years’ experience in operating and constructing
projects in Africa, Australia and Papua New Guinea. Mr Rozman was the Chief Operating Officer of
AurionGold Limited and was instrumental in the growth and development of its predecessor, Delta Gold
Limited. He was the Chief Executive Officer of CH4 Gas Limited, during its pioneering coal seam gas
development in Queensland.
He has held numerous senior management positions in the industry. His experience as Chief Executive
Officer of CH4 Gas Limited (“CH4”) a successful Queensland coal seam gas developer and producer, is of
direct relevance to Empire’s growth plans. CH4 was one of the first companies to commercialise a
Queensland coal seam methane project. CH4 merged with Arrow Energy in 2006, and the enlarged business
was later acquired by Royal Dutch Shell and PetroChina for >A$3 billion.
Mr Rozman is a Fellow of the Australian Institute of Company Directors, the Australasian Institute of Mining
and Metallurgy (“AusIMM”) and a Chartered Professional (Management). He is the Chairman of the VALMIN
Code Committee for the AusIMM and Australian Institute of Geoscientists. He has a Bachelor of Engineering
(Mining) degree from the University of Sydney and a Masters in Geoscience (Mineral Economics) from
Macquarie University.
Special Responsibilities:
Member of the Remuneration Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
COMPANY SECRETARY
Andrew Phillips
Mr Phillips was appointed Company Secretary in November 2020. Mr Phillips has over 25 years’ experience
working in senior financial and commercial management positions with public and multinational companies
based in Australia and New Zealand and has served as Company Secretary for a number of ASX listed companies.
He is currently Executive Director, CFO and Company Secretary of Lithium Power International Limited and holds
independent directorships for ASX listed companies, Southern Cross Exploration NL and Donaco International
Limited.
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E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
EXECUTIVES
Alex Bruce BSc (Hons), PHD, Grad. Cert Geostatistics
Chief Geoscientist
Dr Bruce was appointed Chief Geoscientist in March 2020 to lead the Company’s technical analysis and
understanding of its Northern Territory assets and the wider Basin. Prior to joining the Company, Dr Bruce was
most recently with Cooper Basin focused player Bridgeport Energy which is owned by New Hope Corporation.
He is a well-credentialed oil and gas professional serving in similar roles with other mid-cap ASX oil and gas
companies including AWE (now Mitsui), Drillsearch Energy (acquired by Beach Energy) and ROC oil. Dr Bruce is
the President of the NSW Branch of the Petroleum Exploration Society of Australia and earned his PhD from the
University of NSW in Reservoir Characteristics.
Ben Johnston 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.
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 P Cleary
7
7
7
7
4
7
7
7
7
4
-
1
-
2
2
-
1
-
2
2
-
1
2
2
-
-
1
2
2
-
During the Financial Year, the Audit and Risk Committee comprised of Mr Gerahty and Mr Warburton. The
Remuneration Committee comprised of Mr Espie and Prof Warburton.
Retirement, Election and Continuation in Office of Directors
- Mr Peter Cleary was appointed Non-Executive Director on 25 May 2020
- Mr John Gerahty retired as Non-Executive Director on 11 March 2021
- Mr Louis Rozman was appointed Non-Executive Director on 11 March 2021
21
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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 for Non-Executive Directors.
The members of the Remuneration Committee during the period were:
P Cleary
J Warburton
Independent Non-Executive Director (Chairman)
Independent Non-Executive Director
The Committee meets as often as required but not less than once per year. The Committee met two 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 pre-
determined performance criteria tied to operational outcomes and total shareholder return (“Key
Performance Indicators” or “KPIs”).
In addition to base salary, remuneration packages include superannuation and other incentives. Executive
Directors and executives can participate in a Share Rights Plan 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 utilises the services of independent remuneration consultants for advise
regarding remuneration benchmarks.
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. Incentive 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.
22
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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 specified executive 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 $300,000. This was
approved by shareholders on 30 May 2019.
Use of remuneration consultants
During the financial year ended 31 December 2020, the consolidated entity, through the Remuneration
Committee, engaged Godfrey Remuneration Group to review share-based payments remuneration and
provide general advice. Godfrey Remuneration Group was paid $4,200 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 consultants’
processes at the conclusion of the engagement to ensure that they are satisfied that any recommendations
made have been free from undue influence. The Board is satisfied that these protocols were followed and that
there was no undue influence.
2020 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
$
-
-
-
-
-
20,531
-
3,558
3,359
-
35,195
-
-
-
-
369,469
-
50,000
50,000
30,137
Directors
A Underwood
P Espie (a)
J Gerahty
J Warburton
P Cleary (b)
Executives
D Evans
451,085
* 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. The non-cash cost of the above options issued under the ESOP over the year was $6,714 and the non-cash
loss on options relating to the above directors that expired over the year was $43,192. The net non-cash cost of options issued to the above
directors and executives for the year was $36,477.
(a) Paul Espie received Director Fees as Restricted Rights in lieu of a cash payment as approved at the 2020 AGM held 14 July 2020.
(b) Peter Cleary has elected to take his Director fees in Restricted Rights in lieu of cash. The $30,137 is accrued not paid and will be paid in
share rights if approved at the next AGM.
374,398
83,623
-
186,000
-
799,593
83,623
53,558
239,359
30,137
320,000
-
-
-
-
-
-
-
-
-
-
46,081
64,000
21,004
-
-
-
**
23
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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
$
-
-
-
-
-
-
18,967
-
-
-
-
-
10,266
30,000
-
4,941
3,558
3,359
401,374
-
2,056
52,006
37,452
71,956
Directors
A Underwood
D H Sutton
L Tang
P Espie
J Gerahty
J Warburton
Executives
A Boyer**
D Evans
* 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. The non-cash cost of the above options issued under the ESOP over the year was $6,714 and the non-cash
loss on options relating to the above directors that expired over the year was $43,192. The net non-cash cost of options issued to the above
directors and executives for the year was $36,477.
** Al Boyer’s employment was terminated on 16 April 2019. He was paid termination benefits in accordance with the terms of his
termination.
143,183
25,964
25,964
-
-
-
573,790
55,964
28,020
56,947
41,010
75,315
115,651
62,100
262,655
119,628
77,675
-
20,143
53,452
49,186
-
-
4,076
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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:
Alex Underwood
Managing Director
Base Salary for the year ended 31 December 2020 of $369,469 plus superannuation of
$20,531 to be reviewed annually by the Remuneration Committee. Entitled to received
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 2020 of $320,000 plus superannuation of
$21,004 to be reviewed annually by the Remuneration Committee. Entitled to received
short-term incentives (STIs) and long-term incentives (LTIs) under the Company’s Rights
Plan. Mr Evans’ employment with Empire ceased on 28 January 2021.
There were no other service agreements in place.
Loans to Directors and Executives
There were no loans made to Directors or Specified Executives of the Company and the consolidated entity
during the period commencing at the beginning of the financial period and up to the date of this report.
There are no loans outstanding to Directors or Specified Executives at the date of this report.
24
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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.
Service, Performance and Restricted 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
No. of granted
Service Rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise
price
J Warburton
600,000
7 Aug 2020
31 Dec 2020
31 Dec 2035
Nil
Performance Rights
Director
A Underwood
D Evans
No. of granted
Performance
Rights
1,427,089
984,891
Restricted Rights
Director
A Underwood
P Espie
No. of granted
Restricted
Rights
750,000
269,753
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise
price
7 Aug 2020
7 Aug 2020
31 Dec 2022
31 Dec 2022
31 Dec 2035
31 Dec 2035
Nil
Nil
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise
price
7 Aug 2020
7 Aug 2020
5 Nov 2020
5 Nov 2020
31 Dec 2035
31 Dec 2035
Nil
Nil
Fair value of
Rights at
grant date
$186,000
Fair value
of Rights at
grant date
$60,465
$46,081
Fair value
of Rights at
grant date
$232,500
$83,623
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, Service Rights or Restricted 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
Director
A Underwood
P Espie
J Gerahty
J Warburton
P Cleary
Balance at
1 January 2020
1,950,000
4,850,000
12,245,000
194,000
-
Acquired during
period through
Capital Raisings
-
-
-
-
-
Acquired on
Market
Other changes
during period*
Balance at
31 December 2020
100,000
-
-
160,633
250,000
250,000
375,000
5,562,500
-
-
2,300,000
5,225,000
17,807,500
354,633
250,000
25
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
*Other changes during the period relates to the exercise of options held by Directors of the Company that
were granted to the Directors in partial consideration for their participation in a capital raise in 2019 on the
same terms as other investors in that capital raise. Exercise of options by Directors was in cash and the funds
were utilised for the Company’s Northern Territory exploration programs and corporate purposes.
Option holdings
Number of options over ordinary shares in the Company held during the financial period by each Director of
the Company, including their related entities are set out below:
Director
A Underwood
P Espie
J Gerahty
J Warburton
P Cleary
Balance at 1
January 2020
850,000
375,000
5,562,500
-
-
Granted during
the period
-
-
-
-
-
Exercised during
the period
250,000
375,000
5,562,500
-
-
Expired/
forfeited/
other
-
-
-
-
-
Balance at
31 December
2020
600,000
-
-
-
-
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 are
exercisable on the following basis and subject to a minimum term of employment:
Director
A Underwood
No. of options
600,000
Exercise Price A$
$0.30
Expiry Date
30 December 2021
Performance Rights holdings
The 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 2020
A Underwood
D Evans
3,150,000
362,317
Granted during
the period
1,427,089
984,891
Exercised during
the period
-
-
Expired/
forfeited/
other
-
-
Balance at
31 December
2020
4,577,089
1,347,208
Service Rights holdings
The 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 2020
A Underwood
J Warburton
1,000,000
-
Granted during
the period
-
600,000
Exercised during
the period
-
-
Expired/
forfeited/
other
-
-
Balance at
31 December
2020
1,000,000
600,000
Service Rights granted to Prof Warburton during the period were in connection with a Contract Services
Agreement between Prof Warburton and the Company and were approved at the 2019 AGM.
26
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
Restricted Rights holdings
Number of restricted 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
A Underwood
P Espie
Balance at 1
January 2020
-
-
Granted during
the period
750,000
269,753
Exercised during
the period
-
-
Expired/
forfeited/
other
-
-
Balance at
31 December
2020
750,000
269,753
Restricted Rights issued to Mr Underwood during the period were granted in lieu of a cash short term incentive
in relation to the 2019 financial year and were approved by shareholders at the 2019 AGM.
Restricted Rights issued to Mr Espie during the period were granted in lieu of cash Director’s fees and were
approved at the 2019 AGM.
End of Audited Remuneration Report
SHARE OPTIONS
Movements
Cancelled
No options were cancelled during the financial year or in the period since the end of the financial year and up
to the date of this report.
Grant of Options
No options were granted during the financial year or in the period since the end of the financial year and up
to the date of this report.
Exercise of Options
A total of 27,770,001 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 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
906,250
9,311,753
Unlisted options
Unlisted options
Exercise Price A$
$0.32
$0.30
Expiry Date
31 July 2020
26 September 2020
27
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
At the date of this report the total number of unissued shares held under option was 18,400,000. These options
are exercisable on the following terms:
Number
1,300,000
600,000
12,000,000
1,700,000
2,800,000
18,400,000
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Exercise
Price A$
$0.30
$0.30
$0.32
$0.30
$0.60
Expiry Date
30 December 2021
30 December 2021
31 December 2021
30 December 2022
30 December 2022
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 $25.0 million
Performance rights exercisable
0.0%
At least $25.0 million but less than $45.0
million
Percentage calculated by dividing Fair Market
Value of Consideration received by the Company
by $45.0 million.
$45.0 million or more
100.0%
-
-
If the holder of the Performance Rights in any way disposes of more than 75% of the 4 million ordinary
shares assigned as part of the minority interest buy back transaction prior to either the moratorium being
terminated or a third party sale being consummated then the performance rights will be cancelled.
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 Managing
Director, Alex Underwood under the terms of the Company’s Rights Plan approved by Shareholders
on 30 May 2019. The award of Rights to Mr Underwood was approved by shareholders on 30 May
2019.
28
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
3) During the 2019 financial year, the Company issued 962,811 Performance Rights to senior executives
(excluding the Managing Director) under the under the terms of the Company’s Rights Plan approved
by Shareholders on 30 May 2019.
4) During the 2020 financial year, the Company issued 3,913,960 Performance Rights to the Managing
Director and senior executives under the under the terms of the Company’s Rights Plan approved by
Shareholders on 14 July 2020.
SERVICE RIGHTS
During the 2020 financial year the Company issued 838,558 Service Rights to Prof John Warburton and a senior
executive under the terms of the Company’s Rights Plan approved by Shareholders on 14 July 2020.
RESTRICTED RIGHTS
During the 2020 financial year the Company issued 1,019,753 Restricted Rights to the Chairman and Managing
Director under the terms of the Company’s Rights Plan approved by Shareholders on 14 July 2020.
DIRECTORS’ AND OFFICERS’ INDEMNITIES AND INSURANCE
During the financial year Empire Energy Group Limited paid an insurance premium, insuring the Company’s
Directors (as named in this report), Company Secretary, executive officers and employees against liabilities
not prohibited from insurance by the Corporations Act 2001.
A confidentiality clause in the insurance contract prohibits disclosure of the amount of the premium and the
nature of insured liabilities.
Proceedings on Behalf of the Company
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any
proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company
for all or any part of those proceedings. The Company was not a party to any such proceedings during the year.
Environmental Regulations
There are environmental regulations surrounding oil and gas activities which have been conducted by the
Empire Group. 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 Managing Director and Chief Financial Controller
The Directors have received and considered declarations from the Managing Director 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 2020
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.
29
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Directors’ Report
for the year ended 31 December 2020
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 2020.
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
Managing Director
Sydney 30 March 2021
30
To the Board of Directors of
Empire Energy Group Limited
Level 19, 20 Bond Street
SYDNEY NSW 2000
Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
As lead audit director for the audit of the financial statements of Empire Energy Group Limited for the
financial year ended 31 December 2020, 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 Audit Pty Ltd
Lester Wills
Director
Date: 30 March 2021
31
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the year ended 31 December 2020
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 2020
A$
6,464,202
(5,266,429)
1,197,773
Year ended
December 2019
A$
7,763,090
(6,025,621)
1,737,469
1,038,608
(5,308,876)
(253,947)
(3,403,196)
(6,729,638)
223,585
(4,115,309)
(203,800)
(13,794,619)
(16,152,674)
(754,995)
(916,108)
Loss before income tax from continuing operations
(7,484,633)
(17,068,782)
Income tax expense
10a
(199,822)
(194,005)
Loss after income tax from continuing operations
(7,684,455)
(17,262,787)
Loss after income tax from discontinued operations
20
-
(5,971,115)
Loss after income tax expense for the year
(7,684,455)
(23,233,902)
Other comprehensive (loss)/income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translation of foreign operations
(258,669)
(97,530)
Other comprehensive (loss)/income for the year, net of tax
(258,669)
(97,530)
Total comprehensive loss for the year
(7,943,124)
(23,331,432)
Cents per share
Cents 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
(2.73)
(2.73)
(9.92)
(9.92)
The above statements of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
32
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2020
Note
As at
December 2020
A$
As at
December 2019
A$
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Inventories
Financial assets, including derivatives
Assets of discontinued assets
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
14,145,866
2,536,059
619,469
39,717
482,240
-
14,105,603
2,589,807
193,580
47,963
609,122
360,080
17,823,351
17,906,155
493,664
46,441,614
566,797
1,149,087
88,571
374,373
37,505,476
509,489
201,537
97,369
48,739,733
38,688,244
66,563,084
56,594,399
5,969,972
7,823,606
311,233
150,608
-
4,789,976
9,250,600
142,623
71,292
142,848
14,255,419
14,397,339
972,287
21,099,654
180,524
22,511,419
22,071,941
22,691,943
36,327,360
37,089,282
30,235,724
19,505,117
139,060,493
6,862,086
(115,686,855)
121,420,294
6,087,223
(108,002,400)
TOTAL SHAREHOLDERS’ EQUITY
30,235,724
19,505,117
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
33
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2020
Consolidated
Issued Capital
Fair Value
Reserve
Foreign Currency
Translation Reserve
Options
Reserve
Accumulated
Losses
Total Equity
Balance at 31 December 2019
121,420,294
180,499
(380,008)
6,286,732
(108,002,400)
19,505,117
Total Comprehensive income for year
Loss after income tax
Exchange differences on translation of foreign operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Plus: share issue transaction costs
Options/rights issued during the year – share-based payments
Warrants lapsed in period, transferred to issue capital
Total transactions with owners
-
-
-
18,272,877
(632,678)
-
-
17,640,199
-
-
-
-
-
-
-
-
-
(258,669)
(258,669)
-
-
-
(7,684,455)
-
(7,684,455)
(258,669)
(7,684,455)
(7,943,124)
-
-
-
-
-
-
-
1,033,532
-
1,033,532
-
-
-
-
-
18,272,877
(632,678)
1,033,532
-
18,673,731
Balance at 31 December 2020
139,060,493
180,499
(638,677)
7,320,264
(115,686,855)
30,235,724
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
34
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Consolidated
Issued
Capital
Fair Value
Reserve
Foreign Currency
Translation Reserve
Options
Reserve
Accumulated
Losses
Total Equity
Balance at 31 December 2018
110,400,710
180,499
(282,478)
8,637,104
(88,439,595)
30,496,240
Total Comprehensive income for year
Loss after income tax
Exchange differences on translation of foreign operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Issue of ordinary shares
Less: share issue transaction costs
Options/rights issued during the year – share-based payments
Warrants lapsed in period, transferred to issue capital
Total transactions with owners
-
-
-
12,508,371
(1,488,787)
-
-
11,019,584
-
-
-
-
-
-
-
-
-
(97,530)
(97,530)
-
-
-
-
-
-
-
-
(23,233,902)
-
(23,233,902)
(97,530)
(23,233,902)
(23,331,432)
-
-
1,320,725
(3,671,097)
-
-
-
3,671,097
12,508,371
(1,488,787)
1,320,725
-
(2,350,372)
3,671,097
12,340,309
Balance at 31 December 2019
121,420,294
180,499
(380,008)
6,286,732
(108,002,400)
19,505,117
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
35
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2020
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 2020
A$
Year ended
31 December 2019
A$
7,851,651
(9,821,260)
-
(754,995)
(199,822)
16,265,845
(14,443,943)
469
(2,712,497)
(194,005)
Net cash flows from operating activities
30(b)
(2,924,426)
(1,084,131)
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
184
(12,841,410)
-
27,698,113
(2,657,727)
-
Net cash flows from investing activities
(12,841,226)
25,040,386
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuing of shares
Repayment of interest-bearing liabilities
Finance lease payments
Share Issue Transaction Costs
18,272,877
(1,414,314)
(430,986)
(632,678)
12,208,874
(26,608,801)
(334,137)
(647,307)
Net cash flows from financing activities
15,794,899
(15,381,371)
Net increase/(decrease) in cash and cash equivalents
29,247
8,574,884
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
14,105,603
5,890,018
11,016
(359,299)
30(a)
14,145,866
14,105,603
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
36
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
Notes to the Financial Statements
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 Northern Territory.
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 2020 was authorised for issue in
accordance with a resolution of Directors on 30 March 2021.
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’).
Change in presentation currency
As the Group's strategy is focussed on the operations in the Northern Territory, Australia, the Group's
cashflows are now principally denominated in Australian dollars ("AUD$"). From 1 January 2019, the Group
changed the currency in which it presents its consolidated and parent Company financial statements from US$
to AUD$. The change has no impact on the net results of the consolidated entity other than presentation in
AUD$ instead of US$. The Directors consider the change in presentation currency will provide shareholders
with a more meaningful presentation of the Empire Group's underlying performance.
To effect the change in presentation currency, the US dollar functional currency assets and liabilities at 31
December 2018 were converted at the spot rate of AUD$1:US$1.4273 on the reporting date; revenue and
expenses for the twelve month period ended 31 December 2019 were converted at the average exchange rate
of AUD$1: US$1:4835 for the reporting period, or at the exchange rates ruling at the date of the transaction
to the extent practicable and equity balances were converted at applicable historical rates.
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 2020.
37
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 Australian Dollars (A$) 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 and the reporting currency of Empire Energy Group Limited is Australian Dollars.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting
period are translated to United States Dollars at the foreign exchange rate ruling at that date.
38
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign operations
The assets and liabilities of entities that have a functional currency in US Dollars are translated to AUD Dollars
at exchange rates at the reporting date. The revenue and expense of entities that have a functional currency
in US Dollars are translated to AUD 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.
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.
39
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Government grants
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to
match them with the costs that they are intended to compensate.
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.
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.
40
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivatives are classified as current or non-current depending on the expected period of realisation.
Oil and gas properties
Oil and gas properties are stated at cost, less accumulated depreciation and accumulated impairment losses.
Oil and natural gas exploration and development expenditure is accounted for using the successful efforts
method of accounting for gas producing activities. Costs to acquire mineral interests in gas properties, drill and
equip exploratory wells that find proved reserves, and drill and equip development wells and related asset
retirement costs are capitalised. Depletion is based on cost less estimated salvage value using the unit-of-
production method. The process of estimating and evaluating gas reserves is complex, requiring significant
decisions in the evaluation of geological, geophysical, engineering and economic data. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining
unproved properties are expensed.
Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of
assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated
and is now written off is replaced and it is probable that future economic benefits associated with the item
will flow to the Empire Group, the expenditure is capitalised. Where part of the asset was not separately
considered as a component, the replacement value is used to estimate the carrying amount of the replaced
assets which is immediately written off.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.
The capitalised value of a finance lease is also included within property, plant and equipment. Plant and
equipment are depreciated over their estimated useful lives using the straight line method as follows:
Plant and equipment: 10-20%
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.
41
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
42
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Changes in the estimated timing of decommissioning or decommissions cost estimates are dealt with
prospectively by recording an adjustment to the provision, and a corresponding adjustment to oil and gas
properties. The unwinding of the discount of the asset retirement obligation is recognised as a finance cost.
Income tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation of
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at
the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Tax consolidation
Empire Energy Group and its wholly-owned Australian resident entities form a tax-consolidated Empire Group.
As a consequence, all members of the tax-consolidated Empire Group have been taxed as a single entity since
1 July 2003. The head entity within the tax-consolidated Empire Group is Empire Energy Group Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences
of the members of the tax-consolidated Empire Group are recognised in the separate financial statements of
the members of the tax-consolidated Empire Group using the ‘separate taxpayer within Empire Group’
approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of
each entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries
are assumed by the head entity in the tax-consolidated Empire Group and are recognised by the Empire Group
as amounts payable/(receivable) to/from other entities in the tax-consolidated Empire Group in conjunction
with any tax funding arrangement amounts (refer below). Any difference between these amounts is
recognised by the Empire Group as an equity contribution or distribution.
The Empire Group recognises deferred tax assets arising from unused tax losses of the tax consolidated Empire
Group to the extent that it is probable that future taxable profits of the tax consolidated Empire Group will be
available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised
assessments of the probability of recoverability is recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated Empire Group, has entered into
a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated Empire
Group in respect of tax amounts.
43
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
44
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Conceptual Framework for Financial Reporting
The consolidated entity has adopted the revised Conceptual Framework from 1 January 2020. The Conceptual
Framework contains new definition and recognition criteria as well as new guidance on measurement that
affects several Accounting Standards, but it has not had a material impact on the consolidated entity's financial
statements.
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.
45
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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.
46
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact
on others and individual variables rarely change in isolation. Additionally, management can be expected to
respond to some movements, to mitigate downsides and take advantage of upsides, as circumstances allow.
Consequently, it is impracticable to estimate the indirect impact that a change in one assumption has on other
variables and hence, on the likelihood, or extent, of impairments or reversals of impairments under the
different sets of assumptions in subsequent reporting periods.
Asset retirement obligations
Asset retirement costs will be incurred by the Empire Group at the end of the operating life of some of Empire
Group’s facilities and properties. The ultimate asset retirement costs are uncertain and cost estimates can vary
in response to many factors including changes to relevant legal requirements, the emergence of new
restoration techniques or experience at other production sites.
The expected timing and amount of expenditure can also change, for example, in response to changes in
reserves or changes in laws and regulations or their interpretation. As a result, there could be significant
adjustments to the provisions established which would affect future financial results.
Share-based payments
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the
fair value of the equity instruments at the date which they are granted. The fair value is determined by using
either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the
instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based
payments would have no impact on the carrying amounts of assets and liabilities within the next annual
reporting period but may impact profit or loss and equity.
3. GOING CONCERN
The consolidated financial statements have been prepared on a going concern basis, which contemplates the
realisation of assets and settlement of liabilities in the normal course of business.
The Group incurred net losses of $7.7m for the year ended 31 December 2020, experienced net cash outflows
from operating activities of $2.9m and had net assets of $30.2m.
Given the above and cash reserves at 31 December 2020 of $14.1m, 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
US$19.25m.
The sale proceeds were principally used to retire debt to a maximum remaining gross debt balance of US$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.
47
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
4. DISCONTINUED OPERATIONS (continued)
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.
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 Australia where the main expenditures are recorded. The
Statement of Financial Position can be affected by movement in the A$/US$ exchange rates upon translation
of the US operations into the A$ 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.
48
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
5.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(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.
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 2020 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’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 2020.
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 2020
Financial Assets
Cash and cash equivalents
Trade and other
receivables
Financial assets
Financial Liabilities
Trade & other payables
Interest-bearing liabilities
6.65
0.10
14,145,866
-
-
14,145,866
-
-
-
-
-
-
-
-
7,823,606
7,823,606
-
-
-
-
-
-
-
14,145,866
2,536,059
975,904
3,511,963
2,536,059
975,904
17,657,829
-
5,969,972
-
5,969,972
5,969,972
7,823,606
13,793,578
49
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
5.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
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
(iv)
Empire Group Sensitivity
0.01
14,105,603
-
-
-
-
-
9,250,600
9,250,600
-
-
-
-
-
-
-
-
14,105,603
2,589,807
983,495
3,573,302
2,589,807
983,495
17,678,905
4,789,976
4,789,976
-
4,789,976
9,250,600
14,040,576
-
-
14,105,603
-
% -
-
Based on the financial instruments held at 31 December 2020, 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.
Should interest rates increase by 1% the impact on post-tax profit would be a decrease of approximately
$78,000.
(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.
50
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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
2020
$
3,511,963
2019
$
3,573,302
The maximum exposure to credit risk at balance by country is as follows:
Australia
United States of America
(C)
LIQUIDITY RISK
2020
$
-
3,511,963
2019
$
-
3,573,302
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 2020
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
$
5,969,972
7,823,606
5,969,972
7,823,606
5,969,972
8,488,055
5,969,972
714,120
-
7,773,935
-
-
-
-
-
(975,904)
-
(975,904)
-
(975,904)
-
(482,240)
-
(493,664)
-
51
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
5.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
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
(D)
EQUITY RISK
Fair
Value
$
Carrying
Amount
$
Contractual
Cash flows
$
1 year
$
1-5 years
$
4,789,976
9,250,600
4,789,976
9,250,600
4,789,976
10,705,110
4,789,976
1,177,562
-
9,527,548
-
-
-
-
-
(983,495)
-
(983,495)
-
(983,495)
-
(609,122)
-
(374,373)
-
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.
52
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
5.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Consolidated
31 December 2020
Assets
Fair value of derivatives
Total assets
Consolidated
31 December 2019
Assets
Fair value of derivatives
Total assets
Level 1
Level 2
Level 3
Total
-
-
-
-
Level 1
975,904
975,904
Level 2
Level 3
983,495
983,495
-
-
-
-
975,904
975,904
Total
983,495
983,495
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
Government stimulus packages
Other income
7. COST OF SALES
Oil and gas production
8. INTEREST EXPENSE
Interest paid/payable on financial liabilities
2020
$
4,832,351
625,074
1,006,777
6,464,202
9,885
-
1,043,871
(15,148)
1,038,608
2019
$
6,391,318
675,976
695,796
7,763,090
469
8,638
-
214,478
223,585
5,266,429
6,025,621
754,995
916,108
53
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
9. EXPENSES
a. Other non-cash expenses
Leasing expiration expenses (note 9c)
Impairment of assets (note 9c)
Depreciation, depletion and amortisation (note 9c)
Finance costs (note 9b)
Unrealised derivative movement
Share-based payments expense (note 27)
Other expenses including foreign currency movements
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)
Right-of-use-asset (note 19)
Employee benefits expense
Defined contribution superannuation expense
Other employee expenses
Total employee benefits expense
Impairment expense (i)
Impairment/(Write-back) of additional asset retirement
obligation
Impairment of property plant & equipment
Total impairment expense
Leasing expiration expense (ii)
2020
$
2019
$
-
-
1,290,186
1,414,314
(90,652)
958,532
(169,184)
3,403,196
3,596
9,367,454
2,002,484
1,678,826
142,914
518,725
80,620
13,794,619
694,257
720,057
1,414,314
801,707
877,119
1,678,826
876,415
413,771
1,290,186
102,668
4,407,013
4,509,681
2,002,484
-
2,002,484
36,981
5,382,514
5,419,495
-
-
-
-
3,784,445
5,583,009
9,367,454
3,596
(i) Impairment expense
There was no impairment on the Company’s assets for the year 31 December 2020.
(ii) Leasing expiration expense
No charge 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 nil charge is a non-cash entry which has no effect on cash-flows.
54
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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 discontinuing operations
Tax at the Australian tax rate of 27.5% (2019: 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
2020
$
2019
$
-
199,822
199,822
-
194,005
194,005
(7,484,633)
-
(7,484,633)
(17,068,782)
(5,971,115)
(23,039,897)
(2,058,275)
(6,325,003)
199,822
194,005
2,052,668
5,607
199,822
6,117,209
207,794
194,005
10,542,726
201,841
5,013,964
15,758,531
8,716,356
203,420
6,509,496
15,429,272
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 2020.
55
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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 receivables
GST receivable
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
2020
$
2019
$
268,382
5,475,641
2,246,404
7,990,427
243,795
2,929,261
1,053,538
4,226,594
(7,990,427)
-
(4,226,594)
-
1,253,859
2,786,798
19,775
4,060,432
(4,060,432)
-
1,771,306
3,624,926
1,536,600
6,932,832
(6,932,832)
-
2020
$
2019
$
1,930,760
50,539
554,760
2,536,059
2,267,317
62,823
259,667
2,589,807
619,469
193,580
39,717
47,963
482,240
609,122
493,664
374,373
56
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Commodity hedge contracts outstanding as at 31 December 2020 are outlined below.
2020 NATURAL GAS - HENRY HUB - NYMEX – Swaps
2019 NATURAL GAS - HENRY HUB - NYMEX - Swaps
Period
Swap Price
Premium
Product
Period
Jan 21 – Mar 21
Apr 21 – Sep 21
Oct 21 – Dec 21
US$3.10
US$2.85
US$3.10
-
-
-
150,000
mmbtu
Jan 20 – Mar 20
300,000
mmbtu
150,000
mmbtu
-
-
Swap
Price
US$2.91
-
-
Premium
-
-
-
Product
227,500 mmbtu
-
-
-
-
2020 NATURAL GAS - HENRY HUB - NYMEX – Options
2019 NATURAL GAS - HENRY HUB - NYMEX - Options
Period
Floor Price
Premium
Volume
Period
Jan 21 – Dec 21
US$2.50
US$0.23 – US$0.41
900,000
mmbtu
Jan 20 – Dec 20
Floor
Price
US$2.50
Premium
Volume
US$0.23
1,440,000 mmbtu
Jan 22 – Dec 22
US$2.50
US$0.35 – US$0.41
900,000
mmbtu
Jan 21 – Dec 21
US$2.50 US$0.23 - US$0.37
600,000 mmbtu
Jan 23 – Dec 23
US$2.50
US$0.41
300,000
mmbtu
Jan 22 – Dec 22
US$2.50 US$0.23 - US$0.35
300,000 mmbtu
57
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT
Cost in $
At 1 January 2020
Additions
Disposals
Expiration costs
Oil & Gas –
Proved
Oil & Gas –
Unproved
84,290,679
-
-
-
8,129,233
12,599,879
-
-
At 31 December 2020
84,290,679
20,729,112
Accumulated Depreciation in $
At 1 January 2020
Depreciation and depletion
Disposals
Impairment
At 31 December 2020
(55,258,369)
(726,702)
-
-
(55,985,071)
-
`
-
-
-
Opening written down value
29,032,310
8,129,233
Impact of foreign currency adjustments
(1,986,121)
(606,985)
Closing written down value
26,319,487
20,122,127
Land
Buildings
Equipment
Motor Vehicles
Total
6,530
-
-
-
6,530
-
-
-
-
-
6,530
(38)
6,492
333,045
-
-
-
1,088,981
221,632
(1,646)
1,056,246
19,899
-
-
94,904,714
12,841,410
-
(1,646)
333,045
1,308,967
1,076,145
107,744,478
(113,658)
(7,669)
-
-
(973,413)
(93,944)
1,451
-
(854,045)
(48,100)
-
-
(57,199,485)
(876,415)
1,451
-
(121,327)
(1,065,906)
(902,145)
(58,074,449)
219,387
115,568
202,201
37,705,228
(15,927)
(13,460)
(39,087)
(2,361,618)
195,791
229,601
134,913
47,008,411
58
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
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
Opening written down value
Oil & Gas –
Proved
Oil & Gas –
Unproved
166,869,517
-
3,755,067
(13,408)
(86,320,497)
-
-
-
8,980,918
2,558,333
-
-
(3,409,850)
-
3,428
(3,596)
84,290,679
8,129,233
(102,182,142)
(1,880,695)
58,179,854
-
(7,935)
(9,367,451)
(55,258,369)
-
-
-
-
-
-
-
Land
Buildings
Equipment
Motor Vehicles
Total
43,342
-
-
-
(36,812)
-
-
-
6,530
470,102
-
-
-
(137,057)
-
-
-
1,302,380
17,584
-
-
(190,984)
(21,629)
(18,370)
-
981,275
81,808
-
178,647,535
2,657,727
3,755,067
-
(13,408)
(6,837)
-
-
-
(90,102,038)
(21,629)
(14,942)
(3,596)
333,045
1,088,981
1,056,246
94,904,714
-
-
-
-
-
-
-
(133,593)
-
19,935
-
-
-
(113,658)
(1,116,296)
(73,573)
194,480
21,976
-
-
(812,669)
(48,216)
6,840
-
-
-
(104,244,701)
(2,002,484)
58,401,109
21,976
(7,935)
(9,367,451)
(973,413)
(854,045)
(57,199,485)
64,687,375
8,980,918
43,342
336,509
186,084
168,606
74,402,834
Impact of foreign currency adjustments
Closing written down value
296,061
47,872
29,328,371
8,177,105
(100)
6,430
(42,094)
177,293
(4,301)
111,267
12,297
309,735
214,498
38,014,965
59
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
15. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
At 31 December 2020, the group assessed the carrying amounts of its non-current assets for indicators of
impairment in accordance with the Group’s accounting policy.
Estimates of recoverable amounts for producing assets are based on an asset’s value in use or fair value less
costs to sell, using a discounted cash flow method, and are most sensitive to the key assumptions described in
note 2.
The pre-tax discount rate that has been applied in assessing oil and gas assets is 12% (2019: 12%).
16. INTANGIBLE ASSETS
Goodwill(a)
(a) Movements in goodwill relate to foreign currency fluctuations.
17. TRADE AND OTHER PAYABLES
Current
Trade creditors
Other creditors
18. INTEREST-BEARING LIABILITIES
Current
Bank loan - secured
Classification of Borrowings
2020
$
2019
$
88,571
88,571
97,369
97,369
5,935,271
34,701
5,969,972
4,746,474
43,502
4,789,976
7,823,606
7,823,606
9,250,600
9,250,600
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 consisting of the following, as restated in October 2018 and amended
in September 2019, 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, 3.25% at December 31, 2020 or the London InterBank Offered Rate (30-Day LIBOR) (.15% at 31
December 2020) plus 6.5%. At 31 December 2020, the Company’s rate option was the 30-day LIBOR.
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 2020 and 2019 were approximately US$962,500 and US$18,497,000, respectively.
60
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
18. INTEREST-BEARING LIABILITIES (continued)
The most restrictive operational and financial covenants for which the Company is required to maintain is the
adjusted proved developed producing (PDP) and present value (PV) ratios and interest coverage ratio. The
Company was either compliant with or received a waiver for certain covenants as of 31 December 2020. The
credit facility is guaranteed by a related party.
On May, 8, 2020, the Company received a Paycheck Protection Program (PPP) Term Note for approximately
US$553,000. This loan bears a fixed interest rate of 1%. Principal and interest payments are deferred for six
months. All or a portion of the loan may be forgiven based on the program requirements. As of December 31,
2020, approximately US$543,000 of the loan has been forgiven, which has been recognised as a gain on PPP
loan forgiveness in Statement of Profit or Loss and Other Comprehensive Income in the current year. The
Company has included the portion of the loan that has not been forgiven in long-term debt. As of March 2021,
the remaining balance of $US10,000 was paid in full by the Small Business Administration under the Economic
Aid to Hard-Hot Small Businesses, Nonprofits and Venues Act.
In connection with multiple debt transactions, the Company had issued warrants of a wholly owned subsidiary
of the Company, which expired in February 2019.
Due to the debt restructuring in October 2018, the Company accumulated deferred financing costs of
approximately US$1,622,000. Amortisation expense of the deferred financing costs is included with other non-
cash expenses in the Statement of Profit or Loss and Other Comprehensive Income.
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
US$7,500,000.
The credit facility balance on 31 December 2020 was US$6,537,500 (A$8,488,290).
Uses of credit facility:
Term Loan:
To refinance the existing secured loan facilities with Macquarie.
Credit facility structure
Term Loan:
Availability
Interest rate
US$6,537,500
LIBOR+6.5%
Drawn balance as at 31 December 2020
US$6,537,500
Term
Repayment
Matures in September 2024
100% of Appalachia Net
Operating Cashflow subject to
amortisation of
minimum
US$550,000 per annum.
61
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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
A summary of period end debt is as follows:
Facility
PP term note
Sub-Total
Less deferred financing costs, net
Total Debt in USD
Total Debt in AUD
19. LEASE ASSETS AND LIABILITIES
ASSETS
Right-of-use assets
LIABILITIES
Current
Leases – minimum lease payments
Non-Current
Leases – minimum lease payments
2020
$
6,537,500
10,000
6,547,500
(521,759)
2019
$
7,500,000
-
7,500,000
(1,019,030)
6,025,741
6,480,970
7,823,606
9,250,600
1,149,087
201,537
311,233
142,623
972,287
180,524
62
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
19. LEASE ASSETS AND LIABILITIES (continued)
Movement in Right-of-use-assets
Balance at beginning of the period
Adoption of AASB16
Additions for the period
Depreciation
Disposals (net)
Foreign currency translation movements
Balance at end of the period
2020
$
201,537
-
1,391,359
(413,771)
-
(30,038)
1,149,087
2019
$
-
474,609
-
-
(273,072)
-
201,537
The Company leases its US corporate headquarters under a non-cancellable operating lease recognised as a
right-of-use asset and lease liability, with monthly payments ranging from US$3,665 to US$3,966 through
February 2022. The US corporate headquarters moved in 2019 to Mayville, New York into a building owned
by the Company. The Company is still obliged to make payments on the last office. Net rental expense
approximated US$51,000 and US$52,000, for the years ended 31 December 31, 2020 and 2019 respectively.
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 recognised as a right-of-use asset and lease liability.
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 2020 and 2019 were approximately US$144,000 and US$188,000 respectively. The Empire
Energy Group has the option to acquire the leased assets at the agreed value on the expiry of the leases.
The Company leases its Australian corporate headquarters in Sydney under a 5-year operating sublease
recognised as a right-of-use asset and lease liability, with monthly payments approximately A$18,600. The
rental agreement has a 4% fixed rent review on the anniversary of the commencement date of the sublease
being 29th January 2020.
The Company leases a photocopier under a 4-year operating agreement which commenced in November 2021.
Monthly lease payments are A$399.
20. 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
Unrealised gain/loss on hedges
Administration costs
Lease expiration costs
Interest expense, including amortisation of deferred financing
costs
Other income, net
Loss from discontinued operations
2020
$
2019
$
-
-
-
-
-
-
-
-
-
-
-
-
-
7,496,287
226,319
7,722,606
3,762,963
722,570
2,291,623
213,985
2,009,560
9,000,701
1,796,389
(66,307)
1,730,082
3,008,178
63
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
20. DISCONTINUED OPERATIONS (continued)
Proceeds
Proceeds on completion of sale
Proceeds from post-closing adjustment
Net assets disposed
Total Loss from discontinued operations
Total loss from discontinued operations
Cash flow information
Net cash from operating activities
Net cash from investing activities
Net decrease in cash and cash equivalents from discontinued
operations
Carrying amounts 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
Assets and liabilities of disposal groups classified as discontinued:
Accounts receivable
Assets classified as held for sale
Revenue payable
Liabilities directly associated with assets classified as held
for sale
Net assets
2020
$
2019
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,475,620)
(222,495)
30,661,052
2,962,937
(5,971,115)
(716,554)
18,823
(697,731)
293,036
729,049
2,273,835
29,975,268
33,271,188
368,537
2,479,599
2,848,136
30,423,052
360,080
360,080
142,848
142,848
217,232
64
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
21. PROVISIONS
Current
Employee entitlements
Non-current
Asset retirement obligations
Movement in Asset Retirement Obligation
Balance at beginning of the period
Disposed – discontinued operations
Write-off accrued plugging costs
Accretion expense for the period, included in finance costs
Change in estimate
Foreign currency translation movements
Balance end of the period
Asset Retirement Obligation
2020
$
2019
$
150,608
71,292
21,099,654
22,511,419
22,511,419
-
-
694,257
-
(2,106,022)
21,099,654
20,325,903
(2,479,599)
(36,300)
801,707
3,755,067
144,641
22,511,419
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.
22. CONTRIBUTED EQUITY
a) Shares
Issued Capital
Balance at beginning of period
2020
$
2019
$
121,420,294
110,400,710
Movement in ordinary share capital
- 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 30,000,000 fully paid ordinary shares in November 2019 as a
private placement to raise funds
-
-
-
-
112,500
75,000
180,000
12,000,000
65
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
22 CONTRIBUTED EQUITY (continued)
- 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
Issue of 150,000 fully paid ordinary shares in January 2020 due to
conversion of options
- Issue of 93,750 fully paid ordinary shares in February 2020 due to
conversion of options
- Issue of 6,250 fully paid ordinary shares in February 2020 due to
conversion of options
2020
$
2019
$
-
-
-
-
45,000
30,000
1,875
- Issue of 33,333,334 fully paid ordinary shares in September 2020 as a
private placement to raise funds
10,000,000
- Issue of 3,575,000 fully paid ordinary shares in September due to
conversion of options
- Issue of 4,087,500 fully paid ordinary shares in September 2020 due to
conversion of options
- Issue of 19,245,001 fully paid ordinary shares in September 2020 due to
conversion of options
- Issue of 412,500 fully paid ordinary shares in November 2020 due to
conversion of options
1,072,500
1,226,250
5,773,500
123,750
7,500
52,500
20,870
60,000
-
-
-
-
-
-
-
-
Less costs associated with the shares issues detailed above
(632,676)
(1,488,786)
Balance as at 31 December 2020
b) Shares
Issued shares
139,060,493
121,420,294
2020
No. of shares
2019
No. of shares
Balance at beginning of period
262,838,649
2,313,084,176
Movement in ordinary share capital
- Effect of Share Consolidation in May 2019 on a 1:10 basis
- Issue of 883 fully paid ordinary shares due to the round up on
consolidation
-
(2,081,775,758)
-
883
66
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
22 CONTRIBUTED EQUITY (continued)
2020
No. of shares
2019
No. of shares
- 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 30,000,000 fully paid ordinary shares in November as a private
placement to raise funds
- 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 due to
conversion of options
- Issue of 150,000 fully paid ordinary shares in February 2020 due to
conversion of options
- Issue of 93,750 fully paid ordinary shares in February 2020 due to
conversion of options
- Issue of 6,250 fully paid ordinary shares in February 2020 due to
conversion of options
- Issue of 33,333,334 fully paid ordinary shares in September 2020 as a
private placement to raise funds
- Issue of 3,575,000 fully paid ordinary shares in September due to
conversion of options
- Issue of 4,087,500 fully paid ordinary shares in September 2020 due to
conversion of options
- Issue of 19,245,001 fully paid ordinary shares in September 2020 due to
conversion of options
- Issue of 412,500 fully paid ordinary shares in September 2020 due to
conversion of options
Balance as at 31 December 2020
-
-
-
-
-
-
-
375,000
250,000
600,000
30,000,000
25,000
175,000
104,348
200,000
150,000
93,750
6,250
33,333,334
3,575,000
4,087,500
19,245,001
-
-
-
-
-
-
-
-
412,500
____________
323,941,984
-
_____________
262,838,649
67
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
22 CONTRIBUTED EQUITY (continued)
Shares
At balance date the Empire Group had the following securities on issue:
- 323,941,984 (2019: 262,838,649) 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.
c) Share Options
Movements
Granted
No options were granted during the year.
Exercise of Options
27,770,001 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
10,405,503 unlisted options expired during the financial year, or in the period since the end of the financial
year and up to the date of this report.
Options
At balance date the Company had 18,400,000 (2019: 56,575,504) unissued shares under option. These options
are exercisable on the following terms:
Number
1,300,000
600,000
12,000,000
1,700,000
2,800,000
18,400,000
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Exercise Price A$
$0.30
$0.30
$0.32
$0.30
$0.60
Expiry Date
30 December 2021
30 December 2021
31 December 2021
30 December 2022
30 December 2022
d) Performance Rights
At balance date the Company had 8,267,771 unissued shares subject to Performance Rights. The Performance
Rights are subject to certain preconditions being met.
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:
68
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
22 CONTRIBUTED EQUITY (continued)
-
-
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 $25.0 million
Performance rights exercisable
0.0%
At least $25.0 million but less than $45.0
million
Percentage calculated by dividing Fair Market
Value of Consideration received by the Company
by $45.0 million.
$45.0 million or more
100.0%
-
-
If the holder of the Performance Rights in any way disposes of more than 75% of the 4 million ordinary
shares assigned as part of the minority interest buy back transaction prior to either the moratorium being
terminated or a third party sale being consummated then the performance rights will be cancelled.
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.
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 at the Shareholders on 30
May 2019.
During the 2020 financial year, the Company issued 3,913,960 Performance Rights to the Company’s Managing
Director and employees under the terms of the Company’s Rights Plan approved at the Shareholders on 14
July 2020.
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
No. of granted
performance
rights
Grant
Date
A Underwood
D Evans
1,427,089
984,891
7 Aug 2020
7 Aug 2020
Vesting date
and
exercisable
date
31 Dec 2022
31 Dec 2022
Expiry
Date
Exercise
price
31 Dec 2035
31 Dec 2035
Nil
Nil
Fair value of
performance
rights at
grant date
$60,465
$46,081
69
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
22 CONTRIBUTED EQUITY (continued)
e) Service Rights
At balance date, the Company had 1,838,558 unissued shares subject to Service Rights. The Service Rights are
subject to certain preconditions being met.
During the 2019 financial year, the Company issued 1,000,000 Service rights to the Company’s Managing
Director, under the terms of the company’s Rights Plans approved at the Shareholders meeting on 30 May
2019.
During the 2020 financial year, the Company issued 838,558 Service Rights to the Company’s Non-Executive
Director and employees under the terms of the Company’s Rights Plan approved at the Shareholders Meeting
on 14 July 2020.
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
No. of granted
service rights
Grant Date
J Warburton
600,000
7 Aug 2020
Vesting date
and
exercisable
date
31 Dec 2020
Expiry date
Exercise
price
Fair value of
service rights
at grant date
31 Dec 2035
Nil
$186,000
f) Restricted Rights
At balance date, the Company had 1,019,753 unissued shares subject to Restricted Rights. The Restricted
Rights are subject to certain preconditions being met.
During the 2020 financial year, the Company issued 1,019,753 Restricted Rights to the Company’s Managing
Director/Non-Executive Chairman Director under the terms of the Company’s Rights Plan approved at the
Shareholders on 14 July 2020.
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:
Restricted Rights
Director
No. of granted
restricted rights
Grant Date
A Underwood
P Espie
750,000
269,753
7 Aug 2020
7 Aug 2020
Vesting date
and
exercisable
date
5 Nov 2020
5 Nov 2020
Expiry date
Exercise
price
31 Dec 2035
31 Dec 2035
Nil
Nil
Fair value of
restricted
rights at grant
date
$232,500
$83,623
70
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
23. RESERVES
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, service rights and restricted 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 2020, 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.
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 2020.
71
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
27. SHARE BASED PAYMENTS
Year Ending – 31 December 2020
During the 2020 financial period the following share-based payments occurred:
The Company granted the following service, performance and restricted rights to the Company’s Managing
Director, Non-Executive Directors and employees under the terms of the Company’s Rights Plan approved by
Shareholders on 30 May 2019.
Service Rights
No. of granted
service rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
600,000
238,558
7 Aug 2020
7 Aug 2020
31 Dec 2020
31 Dec 2020
31 Dec 2035
31 Dec 2035
Nil
Nil
Performance Rights
No. of granted
performance
rights
3,191,922*
722,038**
* Tranche 1 ** Tranche 2
Restricted Rights
No. of granted
restricted rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
7 Aug 2020
7 Aug 2020
31 Dec 2022
31 Dec 2022
31 Dec 2035
31 Dec 2035
Nil
Nil
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
750,000
269,753
7 Aug 2020
7 Aug 2020
5 Nov 2020
5 Nov 2020
31 Dec 2035
31 Dec 2035
Nil
Nil
Options
No options were granted during the 2020 financial year.
Fair value of
service rights at
grant date
$186,000
$73,953
Fair value of
performance
rights at grant
date
$75,329
$111,916
Fair value of
restricted rights at
grant date
232,500
$83,623
Service Rights
For the Service Rights granted during the 2020 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted
during year
600,000
238,558
Grant Date
Vesting date
7 Aug 2020
7 Aug 2020
31 Dec 2020
31 Dec 2020
Share price at
grant date A$
$0.31
$0.31
Expected
volatility
114.65%
114.65%
Dividend
yield
Nil
Nil
Risk-free
interest rate
0.83%
0.83%
72
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
27. SHARE BASED PAYMENTS (continued)
Performance Rights
For the Performance Rights granted during the 2020 financial year, the valuation model inputs used to
determine the fair value at the grants date, are as follows:
Granted
during year
3,913,960
Grant Date
Vesting date
7 Aug 2020
31 Dec 2022
Share price at
grant date A$
$0.31
Expected
volatility
114.65%
Dividend
yield
Nil
Risk-free
interest rate
0.83%
Restricted Rights
For the Restricted Rights granted during the 2020 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted during
year
Grant Date
Vesting date
1,019,753
7 Aug 2020
5 Nov 2020
Share price
at grant
date A$
$0.31
Expected
volatility
Dividend
yield
Risk-free
interest rate
114.65%
Nil
0.83%
The weighted average share price during the financial year was A$0.311 (2019: A$0.294 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 2 years (2019: 3 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
year (2019: 1.7).
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 2 years (2019: 1.8).
The weighted average remaining time to Vesting Date of Restricted 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
0.3 years (2019: n/a).
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 Amicaa Pty Ltd 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$0.20 per share.
During the financial year the following options were granted:
No. of Options
2,800,000
Grant Date
30 Dec 2019
Vesting Date
30 Dec 2019
Exercise Price A$
$0.60
Expiry Date
30 Dec 2022
73
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
27. SHARE BASED PAYMENTS (continued)
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
No. of granted
service rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
1,000,000
14 Jun 2019
31 Aug 2021
30 Jun 2034
Nil
Fair value of
service rights at
grant date
$180,000
Performance Rights
No. of granted
performance rights
Grant Date
Vesting date and
exercisable date
3,150,000
792,903*
169,908*
14 Jun 2019
30 Dec 2019
30 Dec 2019
31 Aug 2021
31 Dec 2021
31 Dec 2021
Expiry date
30 Jun 2034
30 Dec 2034
30 Dec 2034
Exercise
price
Nil
Nil
Nil
Fair value of
performance rights
at grant date
$89,100
$104,663
$37,380
* Tranche 1
** Tranche 2
Options
For the options granted during the 2019 financial year, the valuation model inputs used to determine the fair
value at the grants date, are as follows:
Granted
during year
2,800,000
Grant Date
Expiry date
30 Dec 2019
30 Dec 2022
Share price at
grant date A$
$0.44
Expected
volatility
115.59%
Dividend
yield
Nil
Risk-free
interest rate
0.88%
Service Rights
For the Service Rights granted during the 2019 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted
during year
1,000,000
Grant Date
Expiry date
14 Jun 2019
30 Jun 2034
Share price at
grant date A$
$0.18
Expected
volatility
104.36%
Dividend
yield
Nil
Risk-free
interest rate
1.38%
Performance Rights
For the Performance Rights granted during the 2019 financial year, the valuation model inputs used to
determine the fair value at the grants date, are as follows:
Granted
during year
3,150,000
962,811
Grant Date
Expiry date
14 Jun 2019
30 Dec 2019
30 Jun 2034
30 Dec 2034
Share price at
grant date A$
$0.18
$0.44
Expected
volatility
104.36%
103.22%
Dividend
yield
Nil
Nil
Risk-free
interest rate
1.38%
1.31%
74
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
27. SHARE BASED PAYMENTS (continued)
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).
a)
Expenses arising from share-based payment transactions
Year ending - 31 December 2020
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$958,532
Recognised directly against issued capital as a cost associated with the share A$nil
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$518,725
Recognised directly against issued capital as a cost associated with the share A$784,000
75
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
28. SEGMENT INFORMATION
The Empire Group has two 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
2020
6,464,202
-
938,608
537,944
2019
7,763,090
-
213,347
488,401
2020
-
-
-
(3,649,144)
2019
-
-
1,600
(731,869)
2020
-
3,162,341
100,000
(215,241)
2019
-
332,800
8,868
(1,821,560)
2020
-
(3,162,341)
-
-
2019
-
(332,800)
-
(332,800)
2020
6,464,202
-
1,038,608
(3,326,441)
2019
7,763,090
-
223,815
(2,397,828)
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
-
-
(1,998,222)
(722,995)
(2,721,217)
-
-
(1,940,502)
(913,861)
(2,854,363)
-
652
(1,507,276)
-
(1,506,624)
-
253
(765,730)
-
(765,477)
3,505,498
8,523
-
(41,175)
3,472,846
2,706,231
4,531
-
(7,031)
2,703,731
(3,505,498)
-
3,505,498
-
-
(2,706,231)
-
2,706,231
-
-
-
9,175
-
(764,170)
(754,995)
-
4,784
-
(920,892)
(916,108)
(1,023,252)
-
-
-
-
90,652
(694,257)
(720,057)
-
(1,973,748)
-
(5,583,011)
(3,784,443)
(3,596)
(142,915)
(801,707)
(877,118)
(40,845)
(17,690)
-
-
-
-
-
-
-
-
(7,677)
-
-
-
-
-
-
-
-
(249,244)
(958,532)
-
-
-
-
-
-
169,183
(21,058)
(518,725)
-
-
-
-
-
-
-
(4,530,187)
(15,573,345)
(5,173,458)
(1,505,023)
2,219,012
342,387
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,290,186)
(958,532)
-
-
-
90,652
(694,257)
(720,057)
169,183
(2,002,484)
(518,725)
(5,583,011)
(3,784,443)
(3,596)
(142,915)
(801,707)
(877,118)
(40,845)
(332,800)
(7,484,633)
(17,068,781)
Reportable segment assets
Reportable segment liabilities
Capital expenditure
33,596,007
(57,785,746)
-
39,370,655
(57,444,206)
(56,790)
18,390,703
(36,005,503)
(12,653,271)
6,015,128 111,623,338
(1,753,821)
(41,763)
(18,456,472)
(2,580,307)
93,323,430
(482,977)
-
(97,046,964)
59,217,710
-
(82,114,814)
39,294,375
-
66,563,084
(36,327,360)
(12,695,034)
56,594,399
(37,089,282)
(2,637,097)
76
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
28. SEGMENT INFORMATION (Continued)
The revenue reported above represents revenue generated from external customers. Intersegment revenue
relates to Corporate overhead charges only. Included in Other income above are gains disclosed separately of
the face of the Statement of Profit and Loss and Other Comprehensive Income. Information reported to the
Chief Operating Decision Maker (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 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 – includes all exploration and drilling activity of the Group in the Northern Territory,
conducted through Imperial Oil & Gas.
• Corporate - includes all centralised administration costs, minor other income and investments/loans
in Empire Group USA and imperial Oil and Gas (eliminated on consolidation).
Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of central
administration costs and directors’ salaries, finance income and finance expense, gains or losses on disposal
of associates and discontinued operations. This is the measure reported to the chief operating decision maker
for the purposes of resource allocation and assessment of segment performance.
Geographical information
All revenue 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 and is nearing
completion of the first producing well.
Major customers
Revenues from two major customers of the Empire Group’s US Operations segment represents approximately
$4,848,152 (2019: two major customers $7,505,508) of the Empire Group’s total revenues.
29. RELATED PARTY DISCLOSURES
a. Disclosures Relating to Directors
The names of persons who were directors of the Company at any time during the financial year were:
• A Underwood
• P Espie
• J Gerahty
• J Warburton
• P Cleary
Details of remuneration and equity holdings of directors and other key management personnel are included
in the remuneration report.
77
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
29. RELATED PARTY DISCLOSURES (continued)
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.
c.
Investments in Controlled Companies
Country of
Incorporation
Class of
Share
Controlling Empire Group
Empire Energy Group Limited
Australia
Interest Held
December
2020
%
December
2019
%
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 Audit Pty Ltd 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.
78
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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
14,145,866
14,105,603
December
2020
$
December
2019
$
(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
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
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
(7,684,455)
(23,233,902)
413,771
876,415
-
-
-
720,057
694,257
958,532
(90,652)
(169,184)
-
(4,281,259)
354,781
2,002,484
5,583,009
3,784,445
2,013,156
877,119
801,707
518,725
2,395,005
80,620
2,968,960
(1,853,891)
2020
$
53,748
(65,809)
8,246
1,281,332
79,316
1,356,833
(2,924,426)
2019
$
486,917
381,520
117,619
(262,175)
45,878
769,759
(1,084,132)
79
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
30. NOTES TO THE STATEMENT OF CASH FLOWS (continued)
(c) Changes in Liabilities arising from Financing Activities
Balance at
1 January
2020
Financing
Cashflows
9,250,600
(1,414,314)
Options
and
refinance
costs
-
Amortisation of
deferred finance
costs
Effect of
changes in
FX
Balance at
31 December
2020
720,057
(732,737)
7,823,606
Balance at
1 January
2019
Financing
Cashflows
Options
and
refinance
costs
Amortisation of
deferred finance
costs
Effect of
changes in
FX
Balance at
31 December
2019
34,526,285
(26,608,801)
-
877,118
455,998
9,250,600
Interest
bearing
borrowings
Interest
bearing
borrowings
31. EARNINGS PER SHARE
Basic earnings per share from continuing operations (cents per share)
Diluted earnings per share from continuing operations (cents per share)
2020
(2.73)
(2.73)
2019
(7.37)
(7.37)
Loss used in the calculation of basic and diluted earnings per share from
continuing operations
(7,684,455)
(17,262,787)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share from continuing operations
281,399,784
234,326,722
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share from continuing operations
281,399,784
234,326,722
Basic earnings per share from discontinued operations (cents per share)
Diluted earnings per share from discontinued operations (cents per share)
Loss used in the calculation of basic and diluted earnings per share from
discontinued operations
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share from discontinued operations
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share from discontinued operations
2020
-
-
-
-
-
2019
(2.55)
(2.55)
(5,971,115)
234,326,722
234,326,722
80
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
31. EARNINGS PER SHARE (continued)
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2020
(2.73)
(2.73)
2019
(9.92)
(9.92)
Loss used in the calculation of basic and diluted earnings per share
(7,685,455)
(23,233,902)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share
281,399,784
234,326,722
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share
281,399,784
234,326,722
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.
33. PARENT ENTITY INFORMATION
Information relating to Empire Energy Group Limited:
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Shareholders’ Equity:
Issued Capital
Reserves
- Fair value reserve
- Foreign currency translation reserve
- Options reserve
- Share based payment reserve
- General Reserve
Accumulated Losses
Total Shareholders’ Equity
Loss for the period
Total Comprehensive Loss/(Income)
2020
$
2019
$
13,569,775
30,967,743
971,767
1,759,322
12,443,321
12,527,619
411,841
338,374
(139,060,493)
(121,420,294)
(607,280)
(177,261)
(4,079,053)
(236,630)
(337,482)
115,289,778
29,208,421
(607,280)
(4,028,453)
(3,047,771)
(234,380)
(337,482)
117,308,967
12,366,693
2,019,189
148,381
5,870,381
(172,481)
81
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
34. AUDITORS’ REMUNERATION
Audit Services
Auditors of the Company – Nexia Sydney:
Audit and review of financial reports
Other auditors:
Audit and review of financial reports
Other services
Auditors of the Company – Nexia Sydney :
Taxation services
Other auditors:
Taxation services
2020
$
2019
$
121,059
116,000
137,712
148,672
258,771
264,672
18,182
7,590
48,623
66,805
35,546
43,136
35. MATTERS SUBSEQUENT TO BALANCE DATE
1) On 4 January 2021, ASIC form 315 Removal of Auditor was lodged due to the Company current
auditors Nexia Sydney Partnership, merging with another company and renaming it from Nexia
Sydney Partnership to Nexia Sydney Audit Pty Ltd. Aside from a name change, no other changes
occurred.
2) As at 31 December 2020, the Company was not compliant with the Interest Coverage Ratio under the
Macquarie Credit agreement. Macquarie had previously waived all existing / prior defaults under the
credit agreement and waived any potential breaches up to and including 31 December 2020. Empire
is in advanced discussions with Macquarie Bank relating to a potential refinancing of the credit facility
including amending certain financial covenants.
3) On 16 February 2021, Empire was granted a second loan of US$343,602 under the Paycheck
Protection Program (PPP). The second tranche is fully forgivable provided the loan proceeds are used
for eligible expenses including payroll, carries a fixed interest rate of 1% per annum and has a maturity
of 5 years.
4) 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 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.
5) An Environment Management Plan submitted to the Northern Territory Government for the hydraulic
stimulation and flow testing of the vertical Carpentaria-1 well was approved on 16 February 2021. The
EMP will remain active for five years from the date of approval. Empire intends to commence fracture
stimulation and flow testing operations at Carpentaria-1 in Q2 2021.
82
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
35. MATTERS SUBSEQUENT TO BALANCE DATE (continued)
6) On 22 February 2021, Empire advised shareholders that Netherland, Sewell & Associates Inc had
updated its independent resource assessment for Empire’s EP187 permit in the Northern Territory.
The assessment increased Empire’s best estimate prospective gas resource in EP187 by 47% to 3.5
TCF and assessed a maiden best estimate prospective condensate resource of 27mmbbls. In addition,
a maiden best estimate contingent resource of 41 BCF in the immediate vicinity of the Carpentaria-1
well location was assessed.
7) On 11 March 2021, Empire announced the appointment of Mr Louis Rozman as a Non-Executive
Director of the Company, effective immediately. At the same time, Mr John Gerahty retired from the
Board of Directors.
83
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2020
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
2020 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 2020.
Signed in accordance with a resolution of the directors.
Alexander Underwood
Managing Director
Date: 30 March 2021
84
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 2020,
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 2020 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 & Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (including Independence Standards) (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 proved oil and gas assets
Refer to note 15 (Oil and Gas properties and
property, plant and equipment).
At 31 December 2020, the Group has capitalised
proved producing oil and gas assets of $26.3m.
AASB 136 – ‘Impairment of Assets’ requires that
the recoverable amount of an asset, or cash
Our procedures included, amongst others:
reviewing management’s identification of
impairment indicators existing during the period;
85
Key audit matter
How our audit addressed the key audit matter
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, including declined oil and gas prices.
However, the management assessment based
on the external expert valuation concluded that
there is no impairment of the carrying value at
reporting date.
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 prices,
available reserves, residual values and discount
rates.
Exploration and evaluation expenditure
- oil and gas assets
Refer to note 15 (Oil and Gas properties and
property, plant and equipment).
At 31 December 2020, the Group has capitalised
exploration and evaluation expenditure in
relation to unproved oil and gas assets of
$20.1m. These costs predominately relate to
the Northern Territory area of interest. The
Group’s accounting policy in respect of
exploration and evaluation assets is outlined in
note 1.
This is a key audit matter because the carrying
value of the assets are material to the financial
statements, and significant judgements have
been applied in determining whether an
indicator of impairment exists in relation to
capitalised expenditure assets in accordance
with Australian Accounting Standard AASB 6 –
‘Exploration for and Evaluation of Mineral
Resources’.
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 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:
We confirmed the existence and tenure of the
exploration permits in the Northern Territory area
of interest;
We tested a sample of additions of capitalised
exploration expenditure to supporting
documentation;
In assessing whether an indicator of impairment
exists in relation to the Group’s exploration assets
in accordance with AASB 6 – ‘Exploration for and
Evaluation of Mineral Resources’, we:
- reviewed the minutes of the Group’s board
meetings, market announcements and
management assessment;
- discussed with management the Group’s ability
and intention to undertake further exploration
and evaluation activities.
86
Key audit matter
How our audit addressed the key audit matter
Asset retirement obligations
Refer to note 21 (Provisions)
Our procedures included, amongst others:
At 31 December 2020, the Group has a carrying
value of Asset Retirement Obligations of
$21.1m.
evaluating management’s process of estimating
and measuring the provision for asset retirement
obligations;
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.
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 2020;
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.
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 2020, 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
87
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/admin/file/content102/c3/ar1_2020.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 2020.
In our opinion, the Remuneration Report of Empire Energy Group Limited for the year ended 31
December 2020, 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 Audit Pty Ltd
Lester Wills
Director
Dated: 30 March 2021
Sydney
88
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
SHAREHOLDER INFORMATION
ORDINARY SHARES
a
Substantial Shareholders as at 29 March 2021 (grouped)
Name
Global Energy and Resources Development Limited
Macquarie Bank Limited
Elphinstone Group
Liangrove Media Pty Limited
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
Number of
Shares
28,211,000
26,451,367
19,916,667
17,807,500
%
Holding
8.71
8.17
6.15
5.50
Holders
179
530
318
785
371
Number of
Shares
52,970
1,636,583
2,581,615
31,797,913
287,872,903
%
Holding
0.02
0.51
0.80
9.82
88.87
Total number of holders
2,183
287,872,903
100.00
i
ii
Number of holders of less than a marketable parcel
217
Percentage held by 20 largest holders
48.31%
c
Twenty Largest Shareholders as at 29 March 2021 (ungrouped)
Name
CHEOY LEE YACHTS AUSTRALIA PTY LTD
GLOBAL ENERGY AND RESOURCES DEVELOPMENT LIMITED
ELPHINSTONE HOLDINGS PTY LTD
LIANGROVE MEDIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CHA QIAN
1
2 MACQUARIE BANK LIMITED
3
4
5
6
7
8 MR KOOI ONN CHYE
9
10 NETWEALTH INVESTMENTS LIMITED
11 GROSVENOR EQUITIES PTY LTD
12 MR ANDREW FORSTER
13 NATIONAL NOMINEES LIMITED
14
15
16 ORACLE FINANCIAL PLANNING PTY LTD
17
18 MR CHARLES PHILLIP LOWSLEY PEAKE
19 MR TEIK TATT OH
20 ALL-STATES FINANCE PTY LIMITED
INVIA CUSTODIAN PTY LIMITED
INVIA CUSTODIAN PTY LIMITED
JETAN PTY LTD
Number of
Shares
28,211,000
26,451,367
18,666,667
17,807,500
11,369,498
7,699,435
7,245,000
4,643,363
4,130,000
3,615,750
3,111,692
3,000,000
2,792,680
2,725,000
2,677,405
2,575,000
2,500,000
2,490,000
2,420,000
2,371,530
156,502,887
%
Holding
8.71
8.17
5.76
5.50
3.51
2.38
2.24
1.43
1.27
1.12
0.96
0.93
0.86
0.84
0.83
0.79
0.77
0.77
0.75
0.73
48.31
89
E M PI R E EN E RG Y G R O U P LI M IT ED 2 0 2 0 AN N UA L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
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 2021
Class of unquoted securities
No. of securities No. of holders
- 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$0.32 expiring 31 December 2021
- Unlisted options exercisable at A$0.30 expiring 30 December 2022
- Unlisted options exercisable at $0.60 expiring 30 December 2022
- Unlisted Performance Rights
- Unlisted Service Rights
- Unlisted Restricted Rights
1.300,000
600,000
12,000,000
1,700,000
2,800,000
8,276,771
1,838,558
1,019,753
9
1
1
11
2
5
3
2
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 2021. 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
90