1
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CONTENTS
CORPORATE DIRECTORY
3
CHAIRMAN AND MANAGING DIRECTOR LETTER TO SHAREHOLDERS 4
OPERATIONS REVIEW
DIRECTORS' REPORT
8
18
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF
THE CORPORATIONS ACT 2001
52
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2020
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
53
54
55
56
57
58
106
107
112
2
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CORPORATE DIRECTORY
Directors
Paul Espie AO (Chairman)
Alexander Underwood (Managing Director)
Peter Cleary
Paul Fudge (appointed 16 August 2021)
Jacqui Clarke (alternate Director to Paul Fudge – appointed 16 August 2021)
John Gerahty (retired 11 March 2021)
Louis Rozman (appointed 11 March 2021)
Prof John Warburton
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
3
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
CHAIRMAN AND MANAGING DIRECTOR LETTER TO SHAREHOLDERS
Dear Shareholders,
We are pleased to present you Empire’s 2021 Annual Report.
2021 Achievements and Outlook
2021 has been a momentous year for Empire.
Empire acquired Pangaea (NT) Pty Limited’s and EMG Northern Territory Holdings Pty Limited’s 100%
interests in EP167, EP168, EP169, EP198 and EP305, increasing our Northern Territory Beetaloo Sub-basin
and greater McArthur Basin acreage position to 28.9 million acres. A globally significant resource and land
position.
Empire successfully drilled, cased and suspended Carpentaria-2H, our first horizontal well located within
100% owned and operated EP187. Carpentaria-2H was drilled on time and budget with the longest
horizontal cased section of 1,345 metres in the Velkerri Formation to date. This followed the fracture
stimulation of the Carpentaria-1 vertical well which flowed at 0.364 mmscf / day over a 10 day testing
period. Empire also acquired 164-line km of 2D infill seismic over EP187 which demonstrated a materially
increased breadth and depth of Velkerri Shale resource within the tenement.
These operational and technical results drove a substantial increase to EP187 resources following
completion of the successful 2021 work program. Netherland, Sewell & Associates, Inc (“NSAI”)
independently assessed 2C Contingent Resources of 396 BCF, an increase of 866%, and a 23% increase in
best estimate P(50) Prospective Resources to ~4.3 TCF, respectively for EP187. Empire’s total Beetaloo Sub-
basin 2C Contingent Resources are now 554 BCF.
Your Board and management look forward with you to recommencement of on-ground operations at
Carpentaria-2H after the wet season. Long-lead items for Carpentaria-2H have been ordered and fracture
stimulation design completed in readiness for the fracture stimulation and extended production testing of
this horizontal well. Working with leading fracture stimulation technical experts in Australia and USA, Empire
will test advanced fracture stimulation design techniques in order to optimise the completion of future
development wells.
Empire is focused on becoming the first operator in the Beetaloo Sub-basin to enter into commercial
production. Commensurate with this goal, during 2021 we executed Memoranda of Understanding
(“MOUs”) with APA Group (ASX: APA) to optimise development pathways for the development of Beetaloo
Sub-basin mid-stream infrastructure and access to the existing Amadeus Gas Pipeline and with the Northern
Territory’s own Power and Water Corporation for gas sales and transportation arrangements utilising the
McArthur River Gas Pipeline.
4
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Other Beetaloo Sub-basin Activity
Activity by our Beetaloo Sub-basin neighbours increased during 2021. The Origin / Falcon JV announced
impressive results from extended production testing and logging at the Amungee NW-1H horizontal appraisal
well. Origin stated that the result suggests a normalised gas flow rate equivalent of between 5.2 and 5.8
mmscf / day per 1,000 metre lateral. Given future production wells may be ~3,000 metres long, this Velkerri
result aligns with the production rates achieved in the premier US shale plays, despite being the very first
horizontal well drilled in the basin.
The Origin / Falcon JV also drilled the Velkerri 76 vertical appraisal well on the eastern flank of the Beetaloo
Sub-basin which confirmed the presence of middle Velkerri Shales likely within the wet gas maturity window
as evidenced by mud gas data.
The Santos JV successfully drilled the Tanumbirini-2H and 3H wells in the adjoining EP161 to EP187, and
reported significant gas shows across the relevant horizontal sections. Both wells have been fracture
stimulated and are presently on 300 day extended production tests. Santos’ partner, Tamboran Resources,
reported average gas flow rates for Tanumbirini-2H and 3H of 2.0 mmscf / day (normalised at 3.0 mmscf /
day over 1,000 metres) and 1.7 mmscf / day (normalised at 2.9 mmscf / day over 1,000 metres), respectively.
Global Gas Market Dynamics
The strategic importance of gas has been reinforced by current events in Eastern Europe and the resulting
supply shortages and increases to oil & gas prices. The importance of the Beetaloo Sub-basin and Empire’s
Northern Territory assets to Australia was demonstrated via the Australian Government’s decision to award
grant funding of up to $19.4 million to Empire under the Beetaloo Cooperative Drilling Program.
Notwithstanding minority group activities around fossil fuels (including gas), the economies of Australia and
developing nations cannot function without reliable gas supply. The low CO2 gas composition places the
Beetaloo Sub-basin optimally to meet both energy supply demand and carbon intensity reductions. Gas is an
essential raw material feedstock for many everyday products upon which we rely including global food
production and medicine.
The outlook for both domestic and international gas demand is strong. On 16 February 2022, the Australian
Competition and Consumer Commission (“ACCC”) noted that new gas supply is needed to address forecast
gas shortage for Australia’s southern states. The ACCC recommends governments implement a range of
reforms to encourage greater diversity of supplies and reduce the barriers faced by producers. ACCC
Chairman, Rod Sims, said “There is a gas shortage forecast for Australia’s southern states from as soon as this
year, which is likely to continue next year and beyond. Southern states will be reliant on gas from
Queensland until additional supply from new sources comes on.”1
Royal Dutch Shell analysis showed that global LNG demand rose 6% to 380 million tonnes in 2021 and
forecast global demand of 700 million tonnes by 2040, demonstrating the reliance in the world on gas and
LNG. The Director of Integrated Gas, Renewables and Energy Solutions at Shell said “As countries develop
lower-carbon energy systems and pursue net-zero emissions goals, focusing on cleaner forms of gas and
decarbonisation measures will help LNG to remain a reliable and flexible energy source for decades to
come.”2
1 https://www.accc.gov.au/media-release/gas-prices-increase-as-supply-shortfall-emerges-for-southern-states
2 https://www.shell.com/promos/energy-and-innovation/v1/lng-outlook-2022-media-
release/_jcr_content.stream/1645193450373/184c9dd6d1f5348175c22ad38117dbcc95937f9a/shell-lng-outlook-
2022-media-release.pdf
5
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Corporate Governance
Empire remains committed to high standards of environmental, social and governance. Today we released
our ESG Policy which cements our commitment to ESG including how we sustainably interact with Traditional
Owners, the environment, Government, and the communities in which we operate.
In 2021, the Empire Board was reinforced by the appointments of Mr Louis Rozman, Mr Paul Fudge and Ms
Jacqui Clarke to the Board. The skills of our new Non-Executive Directors strengthen our organisation’s
strategic, commercial, and operational decision-making capability. The Empire management team has also
been reinforced by the appointment of Ms Sonia Harvey, Vice President based in Darwin. We appreciate the
efforts and performance of our consultants, particularly our operational team at InGauge Energy.
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
6
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Royal Dutch Shell, Shell LNG Outlook 2022
7
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
OPERATIONS REVIEW
A.
2021 OVERVIEW & HIGHLIGHTS
All references to dollars are Australian Dollars unless otherwise stated.
GROUP FINANCIAL HIGHLIGHTS
-
Sales revenue $8.5 million (2020: $6.5 million)
- Net production 4,633 Mcfe per day (2020: 4,697 Mcfe per day)
- Outstanding debt US$5.85 million (2020: US$6.5 million)
-
Cash at bank $25.6 million (2020: $14.1 million)
AUSTRALIA – NORTHERN TERRITORY
-
-
-
-
Empire holds a 100% working interest in over 28 million acres (113,000 square kilometres) of
tenements across the McArthur Basin and Beetaloo Sub-basin, Northern Territory, Australia.
In February 2021, Empire announced that Netherland, Sewell & Associates, Inc (“NSAI”), had prepared
an updated resource report for Empire’s 100% owned and operated EP187 tenement located in the
Beetaloo Sub-basin, Northern Territory, utilising the technical results of the Carpentaria-1 drilling
program. Empire’s best estimate prospective gas resource for EP187 increased by 47% to 3.5 TCF and
Empire booked a maiden best estimate contingent gas resource of 41 BCF in the immediate vicinity of
the Carpentaria-1 well location.
In March 2021, Empire announced that Mr Louis Rozman had joined the Board of Directors. Mr
Rozman has had a distinguished career in the natural resources sector across operations,
development, and project financing.
In April 2021, Empire announced it had signed a binding Sale and Purchase Agreement with Pangaea
(NT) Pty Ltd (“Pangaea”) as trustee of the Pangaea (NT) Unit Trust to acquire Pangaea’s Beetaloo Sub-
basin portfolio for $5 million in cash, 140 million Empire shares and 8 million unlisted options with an
exercise price of $0.70 per share.
- Also in April 2021, EMG Northern Territory Holdings Pty Limited (“EMG NT”), a member of The Energy
& Minerals Group (“EMG”), delivered a Notice of Exercise of Tag Along Right (“the Tag Along”) to
Pangaea pursuant to which it had exercised its right to sell its 17.5% interest in EP167, EP168, EP169,
EP198 and EP305 to Empire on the same pro-rata terms as the Pangaea transaction.
-
-
In June 2021, Empire announced that the Carpentaria-1 vertical well had flowed gas to surface at rates
that exceeded expectations, including an initial peak rate of >0.5 mmscf / day, an initial stabilised rate
of 0.37 mmscf / day over a 72-hour test period, and an instantaneous peak rate following a short shut-
in period of >1.6 mmscf / day. As a result, Empire lodged a Discovery Notice with the Northern
Territory Government.
In July 2021, Empire announced that the Australian Government had approved up to $21 million in
grant funding to Empire under the Beetaloo Cooperative Drilling Program. The funding will support
the drilling and flow testing of up to three fracture stimulated horizontal appraisal wells in Empire’s
100% owned EP187 tenement, and additional seismic acquisition and other associated costs.
8
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
- On 28 July 2021, an activist organisation, Environment Centre NT Inc (“ENT”), commenced proceedings
in the Federal Court against the Minister and Commonwealth seeking judicial review of various
government decisions relating to the Beetaloo Cooperative Drilling Program. On 23 September 2021,
the Federal Court granted leave to ENT to join to the proceedings Empire’s subsidiary Imperial Oil &
Gas Pty Limited (“Imperial”).
-
-
-
-
-
-
-
-
-
-
In August 2021, Empire announced it had completed the acquisition of Pangaea and EMG’s 100%
interests in EP187, EP168, EP169, EP198 and EP305. Mr Paul Fudge, the sole shareholder of Pangaea,
joined the Board of Empire as a Non-Executive Director and Ms Jacqui Clarke as his alternate.
In August 2021, Empire announced that the vertical hydraulic fracture stimulation and production test
of the Carpentaria-1 well confirmed the flow of liquids-rich gas to surface and its composition, with
contributions from all four stimulated zones of the middle Velkerri shales, with strong contributions
from the B shale and C shale.
In September 2021, Empire’s subsidiary, Imperial, executed three grant agreements with the
Australian Government under the Beetaloo Cooperative Drilling Program. The grants will facilitate an
acceleration of work program activities consistent with Empire’s rapid commercialisation strategy.
In October 2021, Empire announced a 45% increase in Carpentaria-1 vertical well average flow rate to
0.364 mmscf / day over the first 10 days following recommencement of extended production testing.
Northern Territory Government approvals were received for the drilling and hydraulic fracture
stimulation of up to seven horizontal wells in EP187 and 2D seismic acquisition.
In October 2021, APA Group (ASX: APA) and Empire executed a Memorandum of Understanding
(“MOU”) to explore opportunities for the development of Beetaloo Sub-basin mid-stream
infrastructure, including gas and liquids gathering, processing and pipelines. Empire and APA will
promote a ‘common user’ model for development of Beetaloo Sub-basin infrastructure to drive
economic outcomes.
In November 2021, Power and Water Corporation (“PWC”) and Empire executed a MOU to facilitate
negotiations for potential gas sales and transportation arrangements. PWC is a Northern Territory
Government owned corporation and is the Northern Territory’s largest provider of gas, electricity
networks, water, and sewerage services. It is the owner and operator of the McArthur River Pipeline
which crosses EP187.
In November 2021, Empire acquired a seven-line 2D acquisition survey totalling ~162 kilometres
(Charlotte 2D Seismic Survey) which infilled and extended the coverage of the EP187 seismic survey
acquired in 2019.
In November 2021, Empire commenced drilling Carpentaria-2H, the first horizontal appraisal well
targeting the Velkerri Formation in its 100% owned and operated EP187. Carpentaria-2H is located 11
kilometres north of Carpentaria-1 and on the same 2D seismic line.
In December 2021, Empire announced it had successfully drilled, cased, and suspended Carpentaria-
2H. Carpentaria-2H was drilled to a total measured depth of 3,150 metres, with the horizontal section
length being 1,345 metres and wholly placed within the Velkerri B shale target window.
In December 2021, the Federal Court rejected ENT’s legal challenge to the Commonwealth
Government’s Beetaloo Sub-basin exploration grants program but ruled initial contracts invalid for
procedural reasons. Subsequent to the balance date, three replacement grant agreements were
executed by which funding of $19.4 million will be provided by the Australian Government.
9
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Empire’s Northern Territory Acreage Position
Carpentaria-2H site
10
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
USA – APPALACHIA
-
-
-
Empire’s Appalachia (New York and Pennsylvania) operations had a strong operational performance
throughout 2021. The US operations are benefiting from higher gas prices which has allowed Empire
to return approximately 180 wells to production over 2021 which were previously shut-in.
The US operations continued operating during the COVID-19 outbreaks as an essential service
business given gas produced by Empire’s operations is used for electricity generation and heating.
Empire commenced its renewable energy leasing initiative during 2021 which has resulted in total
cash payments received of US$110,000 during 2021. Empire continues to progress further renewable
energy leasing transactions. These transactions facilitate increased penetration of renewable energy
into the New York State electricity grid.
- Gross natural gas production for 2021 was 2.08 Bcf (Net 1.68 Bcf) (2020: Gross 2.11 Bcf).
-
Empire was granted a second tranche 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”) of US$343,602. 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 the US$343,602 loan and outstanding interest were forgiven in full.
B.
RESERVES
US RESERVES 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 at November 30, 2021 – USA (NYMEX Strip Nov 30, 2021 including hedges)
Reserves - As of Nov 30, 2021
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
46
-
-
-
-
46
-
46
158
204
28,032
155
-
-
-
28,187
10,177
38,364
3,916
42,280
28,308
155
-
-
-
28,463
10,177
38,640
4,864
43,504
-
$54
-
-
-
$54
$7,809
$7,863
$5,102
$12,965
$27,809
$(155)
-
-
-
$27,654
$23,176
$50,830
$14,234
$65,064
$15,867
$(63)
-
-
-
$15,804
$4,304
$20,108
$3,542
$23,650
11
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
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, at November 30, 2021, were used to calculate reserves and cash flow:
Year
2022
2023
2024
2025
2026
2027
2028
2029
US$/Bbl
64.31
60.74
58.59
57.42
56.72
56.19
56.00
55.91
US$/Mcf
4.12
3.55
3.23
3.13
3.06
3.11
3.21
3.26
12
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NORTHERN TERRITORY RESOURCE UPDATE
Empire, through its 100% owned subsidiaries Imperial Oil & Gas Pty Ltd (“Imperial”) and Imperial Oil & Gas A Pty
Limited (“Imperial A”), holds a 100% interest in 28.9 million acres of highly prospective exploration permits in the
McArthur Basin and Beetaloo Sub-basins, Northern Territory. Work undertaken by the Company since 2010
demonstrates that the Eastern depositional Trough of the McArthur Basin, of which the Company holds around
80%, has enormous conventional and unconventional hydrocarbon potential. The Beetaloo Sub-basin, in which
Empire holds a substantial position, has world-class hydrocarbon volumes in place and a ramp up in industry
activity to appraise substantial discoveries already made by major Australian oil and gas operators is ongoing.
Empire announced the transformational acquisition of Pangaea (NT) Pty Ltd on 14 August 2021, further
cementing Empire’s position as a leading onshore Northern Territory oil and gas explorer and developer focused
on the Beetaloo Sub-basin.
After year-end 2021, Netherland, Sewell and Associates, Inc. (“NSAI”), updated its independent resource
assessment for Empire’s EP187 which incorporated the technical results from the Carpentaria-2H (“C-2H”) well
which was drilled in Q4 2021, the Carpentaria-1 (“C-1”) vertical fracture stimulation and flow test, which was
carried out in Q2 2021, and the Charlotte 2D Seismic Survey which was acquired in Q4 2021. Following
completion of the updated NSAI independent resource assessment, Empire’s total Northern Territory
Contingent and Prospective Resources are as follows:
Zone
Unrisked Net
Contingent Resources
Liquids (MMBBL)
Estimate
Best
(2C)
High
(3C)
Low
(1C)
Unrisked Net
Contingent Resources
Sales Gas (BCF)
Estimate
Best
(2C)
Low
(1C)
High
(3C)
Unrisked Net
Prospective Resources
Liquids (MMBBL)
Estimate
Best
(2U)
High
(3U)
Low
(1U)
Unrisked Net
Prospective Resources
Gas (BCF)
Estimate
Best
(2U)
Low
(1U)
High (3U)
Kyalla*
0.8
Mid Velkerri* 0.1
3.0
0.5
11.1
3.0
0.8
138
4.5
27.7
549
1,680
Barney
Creek*
-
-
-
-
-
-
88
82
-
378
1,571
184
857
4,891
419
2,062 10,744 31,018 89,217
-
-
1,633 11,053 45,380
Total*
*Empire derived arithmetic summation of previous and current NSAI probabilistic resources estimations
14.1 138.8 553.5 1,707.7 170
797
0.9
3.5
3,633 12,561 42,928 139,488
13
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
C.
CREDIT FACILITY
The Company has a Credit Facility with Macquarie Bank Limited. The facility has the following key terms:
Principal Amount
US$7.50 million
Availability/Drawings US$5.85 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 production shall be
hedged for 3 years
Proved Developed Producing (PDP) Reserves PV(10) / Net Debt > 1.3x
Current Ratio >= 1.0x
Working Capital > 0
The current drawings on the Macquarie Bank Limited Credit Facility at 31 December 2021 were US$5.85
million.
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 at 31 December 2021 was $0.35
million. Oil and gas hedge contracts were valued based on NYMEX Henry Hub forward curves at market close
on 31 December 2021.
E. BUSINESS RISK
COVID-19 – During the year the Northern Territory Government closed its internal borders in response to the
virus to mitigate the risk of transmission. Future COVID-19 restrictions could impact Empire’s ability to operate
in New York State, Pennsylvania, and the Northern Territory.
Exploration Risk - Empire and its subsidiaries have interests in assets at various stages of exploration, appraisal,
development, and production. 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 of Empire’s Northern Territory assets are in a preferred 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.
14
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Debt Facility Risk – Empire, through its US subsidiaries, has a debt facility in place with Macquarie Bank
Limited. Whilst Empire has financial flexibility and expects to generate sufficient cash flow to repay the
outstanding debt in full, there is a risk in the future that financial and other covenants under the facility, could
be breached, which could result in Macquarie exercising its security rights under the facility agreement. The
facility matures in September 2024 and will need to be repaid or refinanced prior to maturity.
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 may be 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’s and its subsidiaries’ ability to carry out their 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, their rights
to carry on their 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 and Territory
legislation and are evidenced by the granting of licences or leases. Each licence or lease is for a specific term
and carries with it annual expenditure and reporting commitments, as well as other conditions requiring
compliance. Consequently, Empire’s subsidiaries’ could lose title to their interests 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 – Empire’s exploration permits extend over areas in which legitimate
common law native title rights of indigenous Australians exist. The ability of the Empire’s subsidiaries’ to gain
access to their tenements and to conduct exploration, development and production operations remains
subject to native title rights and aboriginal land rights and the terms of registration of such title agreements.
Reserves Risk – Reserves assessment is a subjective process that provides an estimate of the volume of
recoverable reserves. Oil and gas estimates are not precise and are based on knowledge, experience,
interpretation, and industry practices. There is a risk that the Company’s reserves do not generate the actual
revenues and cashflows that are currently being budgeted, which could adversely impact the Company.
Services Risk – Empire engages the services of third-party service providers to carry out exploration, appraisal,
development, and operating activities. The cost of such services is subject to very high price volatility,
particularly in remote areas. There is a risk that such services may not be able to be provided at a reasonable
price, thereby preventing exploration, appraisal, development, and operations activities from occurring.
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 may not materialise. The carrying
values of these assets could also be adversely impacted. Production risk has the potential to adversely impact
the Company.
15
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
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 oil and gas 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 capital in the future to progress the development of its acreage. There
can be no guarantee that capital, debt, or equity, will be available or available on suitable terms. This could
adversely impact the value of the Company.
Climate Change Risk – Empire recognises the science supporting climate change and that the world is
transitioning to a lower carbon economy in which natural gas has a crucial role to play. Climate change and
management of future greenhouse gas emissions may lead to increasing regulation, activism, and costs.
Climate change may also have a direct physical impact on our operations e.g. through changing climate
patterns such as wet seasons and increased frequency of large storms.
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 engineers,
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
Mr William Vail Jr
Graves & Co.
Consulting LLC
BSc in Petroleum Engineering,
MBA
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
Society of Petroleum
Engineers
Licenced Professional
Geophysicist in the
State of Texas, USA
Licenced Professional
Engineer in the State
of Texas, USA
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.
16
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
Above: Silver City Drilling worker and Empire’s VP Community and Government Relations inspecting the Silver City Drilling
Rig 40 on the Carpentaria 2H site
Above: Control room inside the Silver City Drilling Rig 40 at the Carpentaria-2H site
17
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
In respect of the financial year ended 31 December 2021, 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
Mr John Gerahty
Non-Executive Director (retired 11 March 2021)
Prof John Warburton
Non-Executive Director
Mr Peter Cleary
Non-Executive Director
Mr Louis Rozman
Non-Executive Director (appointed 11 March 2021)
Mr Paul Fudge
Non-Executive Director (appointed 16 August 2021)
Ms Jacqui Clarke
Non- Executive Director – Alternate (appointed 16 August 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
acquisition of Pangaea and EMG’s Northern Territory asset portfolio, hydraulic fracture stimulation of the
vertical Carpentaria-1 well and gas flow to surface, drilling of Empire’s first horizontal well Carpentaria-2H in
EP187 and acquisition of 2D seismic.
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 of the Empire Group for the financial year ended 31 December 2021 after providing
for income tax was $11,047,609 compared to a consolidated net loss for the previous corresponding reporting
period of $7,684,455.
18
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
REVIEW OF OPERATIONS
For information on a review of the Empire Group’s operations refer to the Operations Review contained on
pages 8 to 17 of this report.
DIVIDENDS
The Directors have not recommended the payment of a final dividend.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
During the financial year, Empire acquired the Northern Territory exploration permits held by Pangaea (NT)
Pty Ltd and EMG Northern Territory Holdings Pty Ltd for a combination of cash, scrip and unlisted options.
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 16 February 2022, Empire announced the successful 2021 Beetaloo work program had resulted in a
substantial increase in Contingent and Prospective resources independently assessed by Netherland,
Sewell & Associates Inc for EP187.
2) On 23 February 2022, Empire provided an update regarding grants awarded under the Australian
Government’s Beetaloo Cooperative Drilling Program. Empire’s wholly owned subsidiary, Imperial Oil &
Gas Pty Limited, had executed replacement grant agreements with the Australian Government totalling
up to $19.4 million which will offset 25% of the cost of seismic acquisition and the drilling, fracture
stimulation and flow testing of three horizontal appraisal wells in its 100% owned EP187 tenement,
located in the Beetaloo Sub-basin, Northern Territory.
3) After year-end Empire executed two fixed price swaps with EnergyMark LLC its largest gas customer in the
USA. The terms of the swaps are: 1 April 2022 to 30 September 2022 (50,000 mmbtu per month at $4.21)
and 1 October 2022 to 31 March 2023 (50,000 mmbtu per month at $5.35) referenced against NYMEX
Henry Hub.
4) On 18 February 2022, Empire issued 993,774 Performance Rights and 568,778 Restricted Rights to its
employees for the 2021 Financial year.
5) On 23 February 2022, Empire issued 1,200,000 ordinary shares following the exercise of 1,200,000 unlisted
options at $0.30 per share. The proceeds of the conversion of the options to shares was $360,000.
19
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
INFORMATION ON DIRECTORS
Paul Espie AO, BSc, MBA
Non-Executive Chairman (Independent)
Age 77
Mr Paul Espie AO was the founding principal of Pacific Road Capital, a private equity fund 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’s 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. He is also Chairman of the Menzies Research Centre.
Special Responsibilities:
Chairman of Empire Energy Group Limited
Other Current Listed Public Company Directorships:
NIl
Former Listed Public Company Directorships in Last 3 Years:
Aurelia Metals Limited
Alexander Underwood, LLB, BCom (Hons)
Managing Director
Age 39
Mr Underwood has nearly 20 years of specialist upstream oil and gas investing, financing and management
experience. Previously he spent two years with the Commonwealth Bank of Australia, Singapore as Director
of Natural Resources and 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
Executive Director of Imperial Oil & Gas A 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
20
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Professor John Warburton, PhD, FGS, FPESA, MAICD
Non-Executive Director (Independent)
Age 64
John Warburton has 39 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 twelve 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
Member of the Technical 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 (Independent)
Age 64
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.
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.
Special Responsibilities:
Chairman of Remuneration Committee
Member of the Audit & Risk Committee
Other Current Listed Public Company Directorships:
Nil
21
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Former Listed Public Company Directorships in Last 3 Years:
Nil
Louis Rozman, BEng, MGeoSc
Non-Executive Director (Independent)
Age 64
Mr Rozman is a mining engineer and executive with 40 years’ experience in operating and constructing
projects internationally. He has held numerous senior executive positions in the mining and energy industries
and has been a non-executive director of several ASX and TSX listed companies.
Mr. Rozman’s experience as Chief Executive Officer of CH4 Gas Limited (“CH4”) a successful and pioneering
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 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
Member of the Technical Committee
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
Paul Fudge
Non-Executive Director
Age 73
Mr Fudge was appointed to the board of Empire in August 2021. Mr Fudge brings significant business and
investment experience to Empire, having acquired vast investment experience in onshore Australian oil and
gas, including being an early mover in the Queensland Coal Seam Gas industry and in the Beetaloo Sub-Basin.
He is the controlling shareholder of Pangaea (NT) Pty Limited, Empire’s largest shareholder.
Special Responsibilities:
Nil
Other Current Listed Public Company Directorships:
Nil
Former Listed Public Company Directorships in Last 3 Years:
Nil
22
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Jacqui Clarke
Non-Executive Director (Alternate)
Age 50
Ms Clarke was appointed to the board of Empire in August 2021.
With over 30 years in professional practice with the Big 4, including more than 16 years as a Partner of Deloitte,
Ms Clarke is an experienced professional with extensive executive track record for building a performance
culture, driving profitable growth, developing and executing on strategy and delivering results. Ms Clarke
advises a broad range of groups, including private family groups, entrepreneurial growth companies and not-
for-profit organisations.
Her experience extends across Australia, NZ, China and Singapore and covers many industries and sectors
including property, professional services, technology, agriculture and oil and gas.
Presently, Ms Clarke sits on the Fudge Group Advisory Board, acts as Treasurer and Non-Executive Director of
the Humpty Dumpty Foundation and is also a Founder of Maxima Private.
Ms Clarke is a Chartered Accountant and Fellow of the Institute of Chartered Accountants, Graduate of AICD
(Australian Institute of Company Directors), Chartered Tax Advisor and Justice of the Peace.
Special Responsibilities:
Member of the Audit & Risk Committee
Other Current Listed Public Company Directorships:
BKI Investments Limited
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.
23
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
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
Technical Committee
Meetings
Director
Attended
Mr A Underwood
Mr P Espie
Mr J Gerahty
Prof J Warburton
Mr P Cleary
Mr L Rozman
Mr P Fudge
Ms J Clarke
9
9
1
9
9
8
2
4
Held
Whilst in
Office
9
9
1
9
9
8
4
4
Attended
-
-
-
1
3
2
-
-
Held
Whilst in
Office
-
-
-
1
3
2
-
-
Attended
-
-
-
1
1
-
-
-
Held
Whilst in
Office
-
-
-
1
1
-
-
-
Attended
Held
Whilst in
Office
-
-
-
3
-
3
-
-
3
-
3
-
-
During the financial year, the Audit and Risk Committee comprised of Mr Cleary and Mr Warburton, with Ms
Clarke being appointed on 20 October 2021. The Remuneration Committee comprised of Mr Cleary, Mr. Louis
Rozman and Prof Warburton (who resigned from the Remuneration Committee to become Chair of the Audit
and Risk Committee on 11 March 2021). A Technical Committee was established on 19 August 2021.
Retirement, Election and Continuation in Office of Directors
- Mr John Gerahty retired as Non-Executive Director on 11 March 2021
- Mr Louis Rozman was appointed Non-Executive Director on 11 March 2021
- Mr Paul Fudge was appointed Non-Executive Director on 16 August 2021
- Ms Jacqui Clarke was appointed Alternate Non-Executive Director on 16 August 2021
24
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Remuneration Report – Audited
The Remuneration Report for the year ended 31 December 2021 (2021 Financial Year or FY21) forms part of
the Directors’ Report. It has been prepared in accordance with the Corporations Act 2001 (Cth) (the Act),
Corporations Regulation 2M.3.03, in compliance with AASB124 Related Party Disclosures, and audited as
required by section 208(3C) of the Act. It also includes additional information and disclosures that are intended
to support a deeper understanding of remuneration governance and practices, for shareholders, where
statutory requirements are not sufficient.
Letter from the Chair of the Remuneration Committee
Dear Shareholders,
As the Chair of the Remuneration Committee and on behalf of the Board, I am pleased to present Empire
Energy’s (EEG) Remuneration Report for the year ended 31 December 2021 (FY21).
FY21 has seen significant progress in the Beetaloo Sub-basin operations with the:
1. Completion of the production testing of the Carpentaria-1 (C-1) vertical well
2. Approval of Environment Management Plans for future activity
3. Successful Charlotte 2D Seismic program in November
4. Drilling of the Carpentaria-2H (C-2H well) in December
5. Ongoing positive engagement through on-country meetings with Traditional Owners and pastoral
stakeholders
Items 1-4 were completed on time and within budget, demonstrating EEG’s cost and operational efficiencies
within the basin. EEG is also pleased to report the substantial increase in the revised estimate of Contingent
and Prospective Resources resulting from the progress of C-1 and C-2H. The Board is confident that we will
continue to observe further progress and cost reductions during FY22 and beyond.
During FY21, EEG’s current remuneration framework remained consistent with prior years. The Committee
recognises the importance of strong governance and linkages between company performance and
remuneration to increase alignment with shareholders. As EEG’s Beetaloo Sub-basin asset is still in the
exploration phase, the company is not currently revenue generating from its most material asset. As such, to
preserve cash reserves, the Managing Director has elected to take his Short-Term Variable Remuneration
(STVR) award in the form of Restricted Rights. Some Non-executive Directors have also elected to receive
Restricted Rights in lieu of cash payment.
In March 2021 the Committee engaged Godfrey Remuneration Group to review the structure and total
remuneration of the Managing Director and other executives to ensure that we remained compliant and
benchmarked appropriately with like organisations. Looking to 2022 and beyond, the review recommended
continuing with the current structure for Fixed Pay, STVR and LTVR however with a rebalancing between these
items as well as more focused Key Performance Indicators (“KPI”) to better align with market practices.
Peter Cleary
Chair, Remuneration Committee
25
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
1. People covered by this report
This report covers Key Management Personnel (KMP) which are defined as those who have the authority and
responsibility for planning, directing and controlling the activities of Empire Energy.
Table 1
Name
Non-Executive KMP
Mr Paul Espie AO
Role
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Alternate Director
Prof John Warburton
Mr Peter Cleary
Mr Louis Rozman
Mr Paul Fudge
Ms Jacqui Clarke
Executive KMP
Mr Alex Underwood Managing Director
Mr David Evans
✓ = Member, C = Chair
Chief Operating Officer
Audit & Risk
Committee Membership
Remuneration
Technical
C
✓
✓
✓
C
✓
✓
Appointed
5/02/2019
8/11/2018
6/02/2019
25/5/2020
11/03/2021
16/08/2021
16/08/2021
30/08/2018
21/10/2019
The following changes to KMP occurred during FY21 or between the end of FY21 and the date of publication
of this report:
• Mr David Evans ceased to be employed by the Company on 28 January 2021.
• Mr John Gerahty retired as Non-Executive Director on 11 March 2021, which was disclosed in the 2020
Remuneration Report.
• Mr Louis Rozman was appointed to the Board on 11 March 2021. He also replaced Prof John
Warburton as a member of the Remuneration Committee on 15 March 2021.
• Prof John Warburton was appointed as Chair of the Audit and Risk Committee on 15 March 2021.
• Prof John Warburton and Mr Louis Rozman were appointed as Members of the Technical Committee
on 19 August 2021.
• Ms Jacqui Clarke was appointed as a Member of the Audit and Risk Committee on 20 October 2021.
2. Remuneration Overview
2.1 Remuneration Policy
EEG’s Remuneration Policy (the Policy) was last updated in March 2021 under the Remuneration Committee
Charter. The Remuneration Committee retains overall responsibility for the review and recommendations in
relation to the remuneration of Executive Directors (including the Managing Director) and executives reporting
to the Managing Director as well as Non-executive Director Board Fees. In discharging these responsibilities,
the Committee adheres to the following:
•
•
•
•
to ensure the Company’s remuneration structures are equitable and aligned with the long-term
interests of the Company and its shareholders; having regard to relevant Company policies without
rewarding conduct that is contrary to the Company’s values or risk appetite,
to attract and retain skilled executives,
to structure short and long term incentives that are challenging and linked to the creation of
sustainable shareholder returns, and
to ensure any termination benefits are justified and appropriate.
26
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
The primary objective of the Policy is to ensure that the quantum and elements of remuneration attract and
retain key talent and are aligned with the company’s current strategy and business objectives. Executive KMP
remuneration is currently made up of Fixed Pay and Variable Remuneration (split into short and long term
components).
Fixed Pay is made up of base salary and any other fixed elements such as superannuation, and other benefits
where applicable. Fixed Pay is intended to be positioned against the median of market benchmarks from a
group of comparable resources and energy companies of similar size to ensure remuneration is competitive
and fair, subject to a ±20% pay range to account for individual factors such as experience, qualifications, and
performance.
Total Remuneration Package (TRP) is intended to be composed of an appropriate mix of remuneration
elements including Fixed Pay, short term variable remuneration (STVR) and long-term variable remuneration
(LTVR). The Target TRP (TRP for expected performance) is generally intended to fall between the median and
upper quartile of market benchmarks. This is because market data often shows nil or negative variable
remuneration values, despite an incumbent having a real variable remuneration opportunity, when
benchmarks are based on statutory disclosure by other companies. As a result, total package market data
median benchmark values are lower than actual median opportunities offered to incumbents in the market.
This has been established by research conducted by the Board’s appointed independent External
Remuneration Consultant (ERC). The Board has selected a competitive TTRP market position between median
and upper quartile benchmarks to adjust for the impact of nil and negative reported variable remuneration.
Variable Remuneration fills the gap between Fixed Pay and Total Remuneration Package and is intended to be
a mix of “at-risk” and “incentive” remuneration. The “at-risk” component of variable remuneration that is
below “Target policy” is designed to be what an executive would stand to lose for not meeting expectations.
The “incentive” component is the upside for performing above expectations and represent the true “bonus”.
Metrics selected are intended to be linked to the primary drivers of value creation for stakeholders, and
successful implementation of the long-term strategy over both the short and long term.
The Committee also regularly engages with External Remuneration Consultants (ERCs) to ensure the current
policy and frameworks are aligned with current market practices and remain competitive and fair (refer to
section 5.5.1 for ERCs engaged during FY21).
During FY21, external benchmarking was undertaken as a result of which the Managing Director’s Fixed Pay
was increased by 10% to $430,000 (including superannuation), commencing on 1st January 2022, to align Fixed
Pay with the median of market benchmarks in accordance with the Remuneration Policy set out above. This
was the first time the Managing Director’s fixed pay was adjusted since his appointment to the role in 2018.
27
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
2.2 Executive Remuneration – Executive Framework Overview
The following table outlines Empire Energy’s approach to executive remuneration:
Purpose
Delivery
FY21
Approach
Fixed Pay
Fixed Pay (FP) is set with
reference to the median of
benchmarks and aimed at
paying fairly for meeting the
requirements of a role.
Base Salary, superannuation
and other benefits.
Short Term Variable
Remuneration for FY21
To link achievement of EEG’s
short-term performance
objectives with the remuneration
received by the executive.
Long Term Variable
Remuneration
To link achievement of EEG’s
shareholder wealth creation with
the remuneration received by the
executive.
The Board has discretion to settle
STVR awards in the form of cash
or Restricted Rights.
Performance Rights to receive
EEG shares, subject to LTVR
performance over a 3-year
Measurement Period.
Fixed Pay is set with reference
to the median of tailored
benchmarks designed around
companies of comparator
market capitalisation and
market sector.
The Board’s current intention is
to award STVR outcomes in the
form of Restricted Rights as
means of cash preservation.
Opportunity as % of FP:
Intended opportunity as % of FP:
MD
Target
40%*
Stretch
60%*
MD
Target
40%**
Stretch
80%**
STVR KPIs:
Social & Environmental
- Health & Safety
-
- NT Work Program
-
Cost management and
financial coverage for
activities
Total Assets Under
Management
Individual
-
-
LTVR Performance Measures:
-
-
75% Absolute TSR
25% Milestones
A 'Gate' of no major health,
safety or environmental incidents
occurring during the
measurement period applies.
A 'Gate' of zero fatalities applies.
*Reduced for FY2022 as part of a
realignment of Managing Directors
Total Remuneration Package.
** The independent valuation of
Performance Rights awarded to the
Managing Director during FY2021
demonstrated that the actual
opportunity as a % of FP was a Target
to Stretch range of 12% - 24%
respectively.
28
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
The following diagram outlines the executive KMP remuneration structure and timing under the remuneration
framework as applicable to FY21 where STVR is Short Term Variable Remuneration, and LTVR is Long Term
Variable Remuneration.
Chart A
FY21
Fixed Pay
FY22
FY23
FY24
STVR Performance Period
Audit & STVR Assessment
Award Paid**
LTVR Performance Period (75%) - Performance Rights with an Absolute TSR Vesting
Condition
LTVR Performance Period (25%) - Performance Rights with a Milestone Vesting
Condition
*STVR awards are generally awarded soon after the release of the audited Annual Report
**STVR awards can be paid in either cash or equity (Restricted Rights).
2.3 FY21 Company Performance At-A-Glance
Vesting Assessments and
Vesting
The following outlines the Company’s performance in FY21, which is intended to assist in demonstrating the
link between performance, value creation for shareholders, and executive reward:
Table 1 – Statutory Performance Disclosure
FY End
Date
Share Price
(beginning
of period)
Share Price
(end of
period)
Change in
Share
Price
$
Dividends
(paid
during
period)
31/12/2021
31/12/2020
31/12/2019
31/12/2018
31/12/2017
$0.36
$0.45
$0.14
$0.12
$0.08
$0.34
$0.36
$0.45
$0.14
$0.12
-$0.02
-$0.09
$0.31
$0.02
$0.04
$0.00
$0.00
$0.00
$0.00
$0.00
Change in
Shareholder
Wealth
(SP Change +
Dividends)
Total
Value
-$0.02
-$0.09
$0.31
$0.02
$0.04
%
-4%
-20%
218%
17%
50%
NT P(50)
Prospective
Resource
(TCFe)
NT 2C
Contingent
Resource
(BCFe)
47.7
14.7
12.4
12.4
12.4
575
41
-
-
-
Total
Company
2P
Reserves
(MBOE)
6,440
6,000
6,075
11,634
15,012
29
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
2.4 FY21 Executive Remuneration Opportunities and Outcomes At-A-Glance
The following charts outline the remuneration opportunities under executive remuneration structures, with
the outcomes dependent on performance over FY21 for STVR and LTVR, and the “Realised” remuneration
payable in respect of the completed FY21 year and performance delivered:
Chart B
MD/CEO - Realised
64%
0%
28%
8%
MD/CEO - Target
56%
0%
22%
22%
MD/CEO - Stretch
42%
0%
25%
33%
$0
$100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000
Fixed Pay
Cash STVR
Equity-Settled STVR
LTVR
Note:
-
-
“Achieved” refers to Fixed Pay received during FY21 and Cash STVR awarded in respect of FY21 performance and LTVR
that vested during FY21.
The Realised STVR outcome was above Target but below Stretch in absolute terms, however a proportion of TRP appears
above Stretch due to Realised LTVR being significantly below Target.
2.5 Key KMP Remuneration Governance Considerations and Changes
The following summarises the key remuneration governance matters that were the focus of considerations in
FY21, and those that are expected to be addressed in FY22, including planned changes:
a) Developing remuneration governance structures, frameworks, and policies suitable to an ASX listed
status. (Completed 2021)
b) Benchmarking executive and director remuneration against ASX listed market data to inform quantum
and mix decisions intended to meet strategy and market positioning requirements. (Completed 2021)
c) Development of KMP equity structures for both executives and Non-executive Directors that are
sensitive to the governance requirements applicable to each group. (2022)
d) Benchmarking and review of non-Executive remuneration (2022)
30
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
3. The Empire Energy Strategy, Policy and Framework
3.1 FY21 Short Term Variable Remuneration (STVR) Plan
A description of the STVR plan is set out below:
Purpose
Measurement
Period
Opportunity
Outcome
Metrics and
Weightings
To provide at-risk remuneration and incentives that rewards executives for
performance against annual safety, operational and financial performance objectives
set by the Board at the beginning of the financial year. The objectives selected are
linked to the Company’s long-term strategy which is designed to provide sustainable
value creation for shareholders.
The Financial Year of the Company (1 January – 31 December)
Managing Director
Opportunity as % of Fixed Pay
Target
40%
Stretch
60%
For FY21, the following metrics and weightings – at Target - applied:
Social & Environmental – 15%
• Health & Safety – 5%
•
• NT Work Program – 40%
• Cost management and funding coverage for activities – 20%
• Total Assets Under Management – 10%
•
Individual – 10%
These metrics were selected because they were viewed by the Board as being the key
drivers of value creation for FY21.
Gate
Zero fatalities
Award &
Settlement
Awards will be calculated following the auditing of accounts.
STVR awards may be paid as cash or equity. The Board’s current position is to pay
STVR awards in the form of Restricted Rights to preserve cash reserves. There is
currently no STVR deferral mechanism.
Restricted Rights are granted for nil consideration under the EEGLRP, and vest
immediately upon grant. Restricted Rights are subject to a 90 day exercise restriction
and can exercised anytime following vesting and before the end of the Term (15
years).
Disposal
Restrictions
Shares acquired on exercise of vested Restricted Rights ("Restricted Shares") will be
subject to disposal restrictions until all of the following cease to restrict disposals:
•
•
•
the Company’s share trading policy,
the Corporations Act insider trading provisions, and
temporary Specified Disposal Restriction of one (1) year from their date of
issue.
31
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Board Discretion
The Board has discretion to vary awards upwards or downwards, including to nil, in
the circumstance that the award would otherwise be likely to be viewed as
inappropriate given the circumstances that prevailed over the Measurement Period
(such as in the case of harm to the Company’s stakeholders for which participants are
accountable).
3.2 FY22 Short Term Variable Remuneration (STVR) Plan
EEG intends to apply the following KPIs and weightings - at Target -in relation to FY22 to provide a sharper
focus on operational expectations:
• NT Work Program – 50%
• Cost management and funding coverage for activities – 30%
• Management of US Assets – 10%
•
Individual Effectiveness – 10%
3.3 FY21 Long Term Variable Remuneration (LTVR) Plan
A description of the LTVR plan, which is operated under the EEGLRP, is set out below:
Purpose
The purpose of LTVR is to create a strong link between performance and reward for senior
executives over the long term and to align the interests of participants with those of
stakeholders through share ownership and performance testing.
Measurement
Period
Grant
Calculation
Opportunity &
Grant Value
1 January 2021 to 31 December 2023 (3 years)
The number of Rights in a Tranche of LTVR to be granted are calculated via the application of
the following formula:
Target LTVR $ x Tranche Weight at Target ÷ Right Value ÷ % Vesting at Target
where Right Value is the 2020 VWAP of $0.336
Opportunity as % of Fixed Pay
Target
Stretch
40%
80%
Managing
Director
Based on the Right Value of $0.336, the maximum/stretch level of grants made to KMP disclosed
in this report in respect of FY21 LTVR for the Managing Director, Alex Underwood was 1,015,625
Performance Rights.
Instrument
The LTVR is in the form of Performance Rights with a nil Exercise Price, which are subject to
performance and service vesting conditions.
32
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Performance
Metrics and
Weightings
The Board has discretion to set Vesting Conditions for each tranche of each Invitation. For FY21
LTVR grants, the following Vesting Conditions are anticipated to apply:
Tranche 1 (75% weight at Target) is to be subject to an Absolute Total Shareholder Return (ATSR)
vesting condition. The vesting of such Performance Rights will be determined by comparing the
Company’s TSR over FY21 to FY23 according to the following vesting scale:
Table 2
Performance Level
Stretch
Between Target and Stretch
Target
Between Threshold and Target
Threshold
Below Threshold
Empire Energy's
Absolute TSR
(per annum)
≥ 40%
> 25% & < 40%
= 25%
> 10% & < 25%
= 10%
< 10%
% of Tranche
Vesting
100%
Pro-rata
50%
Pro-rata
25%
0%
TSR is the sum of Share Price appreciation and dividends (assumed to be reinvested in Shares)
during the Measurement Period. It is annualised for the purpose of the above vesting scale. The
TSR of the Company over the Measurement Period will be calculated and converted to a
compound annual growth rate (CAGR) value for the purpose of assessment against this scale.
During periods of nil dividends being declared, TSR is equal to the change in Share Price.
The Board is aware that some investors prefer relative TSR over absolute TSR due to the
potential of impact of broad market windfall gains and losses. The Board has set the TSR
objectives sufficiently high such that vesting would not be expected to occur in relation to broad
market movements alone.
This metric was selected in this year and past years because the Board views that this is the best
measure of long-term value creation for shareholders at this stage of Empire’s strategy.
Tranche 2 (25% weight at Target) is to be subject to the Board’s determination of whether
material value has been added to the Company’s assets through delivering on the Company’s
strategy, including but not limited to exploration results, increasing reserves, operating cash
flow and production rates.
This metric was selected in this and past years because the Board views that this is the best
measure of long-term value creation for shareholders at this stage of EEG’s strategy particularly
when the company held significant producing assets in the USA as well as exploration
opportunities in Australia.
Gates
The Board intends to review the metrics to better align with the market and to reflect that the
Company is primarily in the exploration and resource build phase.
A 'Gate' of no major health, safety or environmental incidents occurring during the
measurement period applies. A Gate is a performance hurdle which must be satisfied before
any Performance Rights can vest.
33
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Settlement
The Rights are “Indeterminate Rights” which may be settled in the form of a Company Share, or
cash equivalent, upon valid exercise.
Term and
Lapse
The Term of the Performance Rights are 15 years from the Grant Date. If not exercised within
the term, the Performance Rights will lapse.
Service
condition &
Cessation of
Employment
Measurement
Period
Modifier
Cessation of
Employment
Under the Rules, in addition to the performance conditions, continued service during the
Measurement Period is a requirement for all Rights to become eligible to vest. On termination,
a portion of Performance Rights granted in the financial year in which the termination occurs
will be forfeited. The proportion that will be forfeited will be equal to the remainder of the
financial year following the termination as a proportion of the full financial year. This provision
recognises that grants of Performance Rights are part of the remuneration for the year of grant
and that if part of the year is not served then some of the Performance Rights will not have been
earned.
The EEGLRP Rules allow for the Measurement Period to be extended by 12 months, if an
executive is still employed, and nil vesting occurred at the first test. The start of the
Measurement Period would not be affected by this, and modification of the Measurement
Period can only apply to vesting scales that are expressed on an annualised basis, which ensures
the adjustment does not make vesting easier (i.e. will not apply to milestone conditions, only
TSR). The Measurement Period would be extended from three years to four years. The purpose
of this feature is to address short term anomalies that arise at the relevant calculation points,
and to motivate management to strive for improvement if the LTI fails to vest at the end of the
Measurement Period.
Unvested Performance Rights held at the date of termination and granted in the financial year
of the termination will be forfeited in the proportion that the remainder of the financial year
following the termination bears to the full financial year, unless otherwise determined by the
Board.
All other unvested Performance Rights will be retained for possible vesting based on
performance during the Measurement Period, to be assessed following the completion of the
Measurement Period. If at the time of vesting subsequent to termination of employment the
share price is lower than at the date of cessation of employment the value of the Rights will be
paid in cash only, not Shares, unless otherwise determined by the Board.
Corporation
Actions
Change of Control
In the event of a Change of Control:
• Unvested Performance Rights granted in the financial year of the Change of Control will
lapse in proportion that the remainder of the financial year bears to the full financial
year,
For all remaining unvested Performance Rights, the number of Performance Rights to
vest will be determined by the number of unvested Performance Rights multiplied by
the change in share price at the commencement of the Measurement Period and the
share price at Change of Control.
•
Major Return of Capital to Shareholders
In the event of a major return of capital to shareholders, the Board has discretion to determine
how unvested Performance Rights will be dealt with.
The Board retains discretion to increase or decrease, including to nil, the vesting percentage in
relation to each Tranche of Performance Rights if it forms the view that it is appropriate to do
so given the circumstances that prevailed during the Measurement Period.
Board
Discretion
34
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
3.4 FY21 Non-Executive Director (NED) Remuneration
3.4.1
Fee Policy
The following outlines the principles that EEG applies to governing NED remuneration:
Fee Policy
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 following table outlines the current Fee Policy:
Role/Function
Main Board
Audit Committee
Chair
Member
$75,000
$50,000
n/a
n/a
Fees are exclusive of superannuation.
Remuneration
Committee
n/a
n/a
Note: Non-executive Directors are also reimbursed for reasonable out-of-pocket expenses
that are directly related to EEG’s business. Equity grants, if any, are deducted from the
foregoing fees.
Aggregate
Board Fees
The total amount of fees paid to Non-executive Directors in the year ended 31 December
2021 is within the aggregate fee limit of $400,000 which was last approved by shareholders
on 30 May 2019. Grants of equity approved by shareholders are excluded from counting
towards the aggregate Board Fees, in accordance with the ASX Listing Rules.
35
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
3.4.2
FY21 NED Equity Grants
A description of the terms Non-executive Director (NED) equity grants for FY21 is described below:
Purpose
The purpose of NED equity grants in FY21 is to allow Non-executive Directors to exchange cash
Board Fees for grants of equity in respect of FY21 remuneration.
Opportunity
NEDs may elect to receive up to 100% of their Board Fees excluding superannuation in lieu of cash
payment.
Instrument
The FY21 NED Equity Plan grant is to be in the form of Restricted Rights.
Price and
Exercise Price
The Price is nil, because it forms part of the remuneration of the participant, however grants are
generally based on an agreement to forego cash Board Fees.
The Exercise Price is nil.
Allocation
method
The Rights are valued using the following method:
Right Value = Share Price – (Dividends expected to be lost before first exercise date)
The Number of Rights to be granted = Sacrificed$ ÷ Right Value
Vesting
Conditions,
Exercise
Restrictions
Disposal
Restriction
Share Price = 3-month Volume Weighted Average Price during each quarter
In order to ensure NED independence is not compromised, and to recognise that the instruments
are an alternative to cash remuneration, the Rights are not subject to any vesting conditions.
Rights may not be exercised within 90 days of the Grant Date.
The Director Fee Restricted Rights may not be disposed of at any time, but can be exercised
following vesting, up to the end of their Term. Shares acquired on exercise of vested Director Fee
Restricted Rights ("Restricted Shares") will be subject to disposal restrictions until all of the
following cease to restrict disposals:
a) the Company’s share trading policy,
b) the Corporations Act insider trading provisions, and
c) Specified Disposal Restriction of one (1) year from their date of issue.
Term and
Lapse
Director Fee Restricted Rights will have a term of 15 years and if not exercised within the term
the Rights will lapse. On exercise, each Director Fee Restricted Right will convert into one ordinary
share.
Fraud, Gross
Misconduct
etc.
In the event that the Board forms the opinion that a Director has committed an act of fraud,
defalcation or gross misconduct in relation to the Company, the Director will forfeit all unvested
Director Fee Restricted Rights.
36
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
4. The Link Between Performance and Reward in FY21
4.1 FY21 STVR Outcomes
The STVR plan is designed to reward executives for the achievement against annual performance objectives
set by the Board at the beginning of the performance period. The payment of an STVR is dependent on the
delivery of performance against a range of outcome metrics. The performance metrics and outcomes of
assessment against those metrics are summarised below:
Table 3
FY21 Business/Group Performance Scorecard Outcomes
Metric/Measure
Health and Safety
Social & Environment
NT Work Program
Cost management &
Funding coverage
Total Assets Under
Management
Met all health and safety targets whilst
undergoing the Carpentaria-1 fracture
stimulation, drilling of Carpentaria-2H
and EP187 seismic program.
Zero Reportable environmental
incidents that had a detrimental
environmental impact.
Completed the Carpentaria-1 fracture
stimulation on time. Also conducted
the 165km seismic program and
obtained an Environment
Management Plan that allows EEG to
drill multiple wells from multiple pads.
Drilling and successful casing of
Carpentaria-2H achieved.
Drilling, fracture stimulation and
seismic programs completed within
budget. Funds coverage over forecast
activity met Board expectations
Completed Pangaea merger
Weighting
Outcome
(% of
Target)
Weighted
Outcome ( %
of Target)
5%
100%
5%
15%
100%
15%
40%
110%
50%
20%
100%
20%
10%
100%
10%
Individual Performance Continues to achieve high standards
with respect to workplace culture and
stakeholder engagement
10%
100%
10%
Total
100%
110%
*Stretch partially achieved on NT work program by drilling Carpentaria-2H the longest horizontal well drilled in the
Beetaloo on time and under budget.
Overall STVR outcomes for FY21 are determined through the Board’s assessment of the Business and Individual
Outcomes, as outlined below:
37
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Table 4
Executive KMP
Mr Alex
Underwood
Opportunity as % of
Fixed Pay
Maximum
STVR
Target
STVR
STVR
Outcome
as % of
Target
Total
STVR
Awarded
($)
Cash
($)
Restricted
Rights ($)
% Maximum STVR
Awarded
%
Forfeited
%
60%
40%
110%
$171,600
$0
$171,600
73%
27%
4.2 Recent LTVR Outcomes
The LTVR that vested to executives in respect of the completed FY21 reporting period was granted in FY19,
and may be summarised as follows (noting that the FY19 LTVR grant was issued under the same terms and
conditions as the FY21 LTVR plan outlined in section 3.3):
Instrument
Performance Rights under the EEGLRP.
Measurement
Period
CEO: 1 September 2018 – 31 August 2021 (3-year Measurement Period)*
COO: 1 January 2019 – 31 December 2021 (3-year Measurement Period)
*It should be noted that the Measurement Period was out of cycle with the EEG’s
financial year because of the timing of shareholder approval for the grant of
Performance Rights to the Managing Director in that year.
Performance
Metrics and
Weightings
Tranche 1 (75% weight at Target) is to be subject to an Absolute Total Shareholder Return
(ATSR) vesting condition. The vesting of such Performance Rights will be determined by
comparing the Company’s TSR over the Measurement Period according to the following
vesting scale:
Table 2
Performance Level
Stretch
Between Target and Stretch
Target
Between Threshold and
Target
Threshold
Below Threshold
Empire Energy's
Absolute TSR
(per annum)
≥ 40%
> 25% & < 40%
= 25%
> 10% & < 25%
= 10%
< 10%
% of Tranche Vesting
100%
Pro-rata
50%
Pro-rata
25%
0%
TSR is the sum of Share Price appreciation and dividends (assumed to be reinvested in
Shares) during the Measurement Period. It is annualised for the purpose of the above
vesting scale. The TSR of the Company over the Measurement Period will be calculated
and converted to a compound annual growth rate (CAGR) value for the purpose of
assessment against this scale. During periods of nil dividends being declared, TSR is equal
to the change in Share Price.
38
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
The Board is aware that some investors prefer relative TSR over absolute TSR due to the
potential of impact of broad market windfall gains and losses. The Board has set the TSR
objectives sufficiently high such that vesting would not be expected to occur in relation
to broad market movements alone.
Tranche 2 (25% weight at Target) is to be subject to the Board’s determination of whether
material value has been added to the Company’s assets through delivering on the
Company’s strategy, including exploration results, increasing reserves, operating cash
flow and production rates.
Gate
A 'Gate' of no major health, safety or environmental incidents occurring during the
measurement period applies. A Gate is a performance hurdle that must be satisfied
before any Performance Rights can vest.
Performance
Outcome and
Vesting
Determination
Board
Discretions
Applied
Settlement
The Board has assessed that the performance vesting conditions have been met, and as
a result, 41% vesting applies in respect of the completed FY21 reporting period for the
CEO that held unvested Performance Rights at the Vesting Date.
The Board did not apply any discretionary adjustments to the performance assessment
or vesting.
Rights are not exercised automatically upon vesting. The Rights are “Indeterminate
Rights” which may be settled in the form of a share, or cash equivalent, upon valid
exercise.
39
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Table 5
Role
Tranche
Weighting
No. Eligible To Vest
In Reporting Period
for FY21
performance
Target
Performance
Actual
Outcome
% of
Tranche
Vested
Number
Vested
Grant Date
Valuation
$ Value of LTVR
that Vested (as
per Grant Date
Valuation)
Realisable
Value (Number
x Vesting Date
SP net of
Exercise Price)
Absolute TSR
75%
2,700,000
25% TSR p.a.
19.3% TSR p.a.
44%
1,188,000
14-Jun-19
$21,384
$332,640
Managing
Director
Chief Operating
Officer
Milestones
Absolute TSR
Milestones
25%
75%
25%
450,000
Board
Discretion
Board
Discretion
25%
112,500
14-Jun-19
$10,125
$31,500
298,379
25% TSR p.a.
37.8% TSR p.a.
93%
276,275
30-Dec-19
$36,629
$93,934
63,938
3,512,317
Board
Discretion
N/A
0%
0
31-Dec-19
$0
$0
1,576,775
$68,138
$458,074
Achieved Total Remuneration Package for FY21
The following outlines “Achieved” (what became payable, awarded or vested in respect of FY21 performance completed) total remuneration, including the portions of maximum
variable remuneration that were awarded or vested, and portions that were forfeited or lapsed as the result of performance assessments that were completed as at the completion of
FY21: Table 6
Name
Role(s)
Year
Fixed
Package
(incl Super)
Total STVR
Awarded Following
Completion of the
Financial Year
(cash)*
Total STVR Awarded
Following
Completion of the
Financial Year
(equity-settled)
Value of LTVR that
Vested Following
Completion of the
Measurement Period**
Total
Remuneration
Package (TRP
Gains/Losses on Vested
LTVR from Change in
Value During Vesting
Period***
Mr Alex
Underwood
Managing Director
2021
$390,000
$0
Managing Director
2020
$390,000
$110,000
$171,600
$110,000
$31,509
$0
$593,109
$610,000
$332,631
N/A
* This is the value of the total STVR/bonus award calculated following the end of the Financial Year. The STVR will be paid in the form of Restricted Rights, subject to Shareholder Approval.
** This is the grant value of the LTVR/Equity that vested in respect of the FY21 performance i.e. the number that vested multiplied by the Black-Scholes value at grant.
*** This is the difference between the Black-Scholes value at grant, and the realisable value based on the market value of a share at the time of vesting, for the LTVR that vested immediately following the end of the
reporting period.
40
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
.
4.3 Use of Board Discretion
During the financial year and to the date of this report, the Board did not exercise any discretions available to it to modify STVR or LTVR outcomes, vesting or awards.
5
Statutory Tables and Supporting Disclosures
5.1 Executive KMP Statutory Remuneration for FY21
The following table outlines the statutory remuneration of executive KMP:
Table 7
Fixed Pay
Variable Remuneration
Name
Roles
Year
Salary
Super
Other
Benefits***
Total
Fixed
Pay
Cash
STVR*
Equity-
Settled
STVR*
LTVR**
Total
Remuneration
Package (TRP)
Variable
Remuneration
as % TRP
Termination
Benefits
Change in
Accrued
Leave
Current Executive KMP
Mr Alex
Underwood
Managing Director
2021 $369,469
$23,684
$24,577
$417,730
$110,000 $112,946 $49,766
$690,442
Managing Director
2020 $369,469
$23,684
$35,195
$428,348
$0
$232,500 $60,465
$721,313
39%
41%
$0
$0
$26,947
$13,756
Former Executive KMP
Chief Operating Officer
2021
$28,000
$7,577
$20,386
$55,963
$64,000
$0
$0
$119,963
53%
$84,000
($20,386)
Mr David Evans
Chief Operating Officer
2020 $320,000
$21,004
$0
$341,004
$64,000
$0
$46,081
$451,085
24%
$0
$19,877
*Note that the STVR/bonus value reported in this table is the bonus that was paid during the reporting period, being the award earned during the previous period. Variable remuneration outcomes for the
reporting period are outlined elsewhere in this report.
**Note that the LTVR/Equity value reported in this table is the amortised accounting charge of all grants that have not lapsed or vested as at the start of the reporting period. Where a market based measure
of performance is used such as TSR or share price, no adjustments can be made to reflect actual LTVR vesting.
***Other benefits for Alex Underwood include items such as FBT and depreciation associated with motor vehicle running costs. $1500 per month is deducted from Alex Underwood’s remuneration pre-tax to
cover motor vehicle running costs including car parking, fuel, interest etc.
*** Other benefits for David Evans include payout of annual leave.
41
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
5.2 Non-executive Director (NED) KMP Statutory Remuneration for FY21
The following table outlines the statutory and audited remuneration of NEDs ($, except where otherwise indicated):
Table 8
Name
Role(s)
Year
Board
Fees
Committee
Fees
Superannuation
Other
Benefits
Equity
Grant *
Termination
Benefits
Total
Mr Paul Espie AO (a)
Non-Executive Chairman
2021
Non-Executive Chairman
2020
Prof John Warburton (b)
Mr Peter Cleary (c)
Mr Louis Rozman
Mr Paul Fudge
Ms Jacqui Clarke
Mr John Gerahty (d)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Alternate Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
-
-
$50,000
$50,000
-
-
$40,205
-
$19,178
-
$19,178
-
$9,589
$50,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$4,875
$3,359
-
-
$4,084
-
$1,912
-
$1,912
-
$911
$3,558
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$74,236
$83,623
$207,000
$186,000
$56,391
$31,850
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
* Share 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.
$74,236
$83,623
$261,875
$239,359
$56,391
$31,850
$44,289
-
$21,090
-
$21,090
-
$10,500
$53,558
42
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
(a) Paul Espie has elected to take his Director Fees in Restricted Rights in lieu of a cash payment. The $74,236 was approved at the 2021 AGM and relates to director fees
from September 2020 to June 2021. The $83,623 was approved by the 2020 AGM and relates to director fees from September 2019 to June 2020.
(b)Prof Warburton was granted Service Rights during the period and were in connection with a Contract Services Agreement between Prof Warburton and the Company
which were approved at the 2020 and 2021 AGMs. This Contract Services Agreement concluded on 31 December 2021.
(c) Peter Cleary has elected to take his Director Fees in Restricted Rights in lieu of a cash payment. The $24,540 and $31,850 was approved at the 2021 AGM and relates to
director fees from June 2020 to June 2021.
(d) John Gerahty retired as Non-Executive Director on 11 March 2021.
5.3 KMP Equity Interests and Changes During FY21
Movements in equity interests held by executive KMP during the reporting period, including their related parties, are set out below:
Table 9
Name
Instrument
Number
Held at
Open FY21
Number
Granted FY21
Forfeited
during FY21
Vested
during FY21
FY21 Exercised
(or Shares
received from
Exercising)
FY21
Purchased
/
Other
FY21 Sold
Number
Held at
Close 2021
Date
Granted
Number
Number
Number
Number
Number
Number
Number
Mr Alex Underwood
Shares
2,300,000
-
-
-
-
Vested Rights
750,000
2/06/2021
327,381
2,300,500
-
Unvested Rights
5,577,089 16/08/2021
1,015,625
(1,849,500)
(2,300,500)
-
-
-
Options
Shares
Mr David Evans
Vested Rights
600,000
-
-
Unvested Rights
1,347,208
TOTALS
10,574,297
-
-
-
-
-
-
-
-
-
-
-
-
-
-
276,275
(86,042)
(276,275)
(600,000)
-
-
-
600,000
(500,000)
2,400,000
-
-
-
-
-
-
-
-
-
-
-
-
3,377,881
2,442,714
-
-
276,275
984,891
1,343,006
(1,935,542)
-
(600,000)
600,000
(500,000)
9,481,761
43
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
Movements in equity interests held by non-executive KMP during the reporting period, including their related parties, are set out below:
Table 10
Name
Instrument
Number Held
at Open FY21
Number
Shares
5,225,000
Mr Paul Espie AO
Vested Rights
269,753
Prof John Warburton
Mr Peter Cleary
Mr Louis Rozman
Mr Paul Fudge
Ms Jacqui Clarke
Unvested Rights
Shares
Vested Rights
Unvested Rights
Shares
Vested Rights
Unvested Rights
Shares
Vested Rights
Unvested Rights
Shares
Unissued Shares
Vested Rights
Unvested Rights
Shares
Vested Rights
Unvested Rights
-
354,633
600,000
-
250,000
-
-
-
-
-
-
-
-
-
-
-
-
Shares
17,807,500
Mr John Gerahty
Vested Rights
Unvested Rights
-
-
TOTALS
24,506,886
Granted FY21
Forfeited
during
FY21
Vested
during
FY21
FY21 Exercised (or
Shares received
from Exercising)
FY21
Purchased
/Other
FY21 Sold
Number Held
at Close 2021
Date
Granted
-
2/06/2021
2/07/2021
-
-
2/06/2021
-
-
1/06/2021
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Number
Number
Number
Number
Number
Number
Number
-
219,304
-
-
600,000
-
-
166,202
-
-
-
-
-
-
-
-
-
-
-
-
-
-
985,506
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,501,271
-
-
100,000
-
-
340,000
-
-
167,000
-
-
119,894,868
20,105,132
-
-
-
-
-
-
-
-
144,108,271
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,726,271
489,057
-
454,633
1,200,000
-
590,000
166,202
-
167,000
-
-
119,894,868
20,105,132
-
-
-
-
-
17,807,500
-
-
169,600,663
44
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
The following outlines the accounting values and potential future costs of equity remuneration granted during FY21 for executive KMP:
Table 11
2021 Equity Grants
Name
Tranche
Grant Type
Vesting
Conditions
Grant Date
Total Value at
Grant
FY20 STVR Restricted Rights
Mr Alex Underwood
FY21 LTVR Performance Rights
FY21 LTVR Performance Rights
STVR
LTVR
LTVR
n/a*
1/06/2021
Absolute TSR
3/08/2021
Milestones
3/08/2021
$ 112,946
$ 28,728
$ 21,038
Value Expensed
in FY 21
Max Value to be
Expensed in
Future Years
$ 112,946 $ -
$ 4,897 $ 23,831
$3,586 $ 17,452
Note: the minimum value to be expensed in future years for each of the above grants made in FY21 is nil. A reversal of previous expense resulting in a negative expense in the future may occur in
the event of an executive KMP departure or failure to meet non market-based conditions including failure for Gate to open.
*Pursuant to Section 300A (1)(d) of the Corporations Act, The FY20 STVR Restricted Rights are not subject to the satisfaction of a performance condition as the Restricted Rights have been used to
settle short term awards already subject to performance conditions.
The following outlines the accounting values and potential future costs of equity remuneration granted during FY21 for Non-executive KMP:
Table 12
2021 Equity Grants
Name
Tranche
Mr Paul Espie AO
Restricted Rights
Restricted Rights
Grant Type
Fee Sacrifice
Fee Sacrifice
Vesting
Conditions
n/a*
n/a*
Prof John Warburton
Service Rights
Service Contract
n/a**
Mr Peter Cleary
Restricted Rights
Restricted Rights
Fee Sacrifice
Fee Sacrifice
n/a*
n/a*
Grant Date
1/06/2021
2/07/2021
1/06/2021
1/06/2021
2/07/2021
Total Value at
Grant
Value Expensed
in FY 21
Max Value to be
Expensed in
Future Years
$ 56,014
$18,222
$207,000
$44,242
$12,148
$56,014
$ -
$18,222
$ -
$207,000
$ -
$44,242
$ -
$12,148
$ -
Note: the minimum value to be expensed in future years for each of the above grants made in FY21 is nil. A reversal of previous expense resulting in a negative expense in the future may occur in
the event of a NED departure or failure to meet non market-based conditions.
*Pursuant to Section 300A (1)(d) of the Corporations Act, The Restricted Rights to Mr Paul Espie and Mr Peter Cleary are not subject to the satisfaction of a performance condition as the
Restricted Rights have been granted in lieu of cash payments for the fulfilment of their roles as Non-Executive Directors.
**Pursuant to Section 300A (1)(d) of the Corporations Act, The Service Rights to Prof John Warburton are not subject to the satisfaction of a performance condition as the Service Rights have
been granted in relation to the provision of technical services by Prof Warburton (in lieu of a cash payment) under the terms of a Consultancy Contract with Empire Energy This consultancy
contract concluded on 31 December 2021.
45
EMPIRE ENERGY G ROUP LIMITED 2021 ANNUAL REPORT
and its controlled entities
Directors’ Report
for the year ended 31 December 2021
5.4 KMP Service Agreements
5.4.1 Executive KMP Service Agreements
The following outlines current executive KMP service agreements:
Table 13
Name
Position Held at
Close of FY21
Employing Company
Duration of
Contract
Period of Notice
From Company
From KMP
Mr Alex Underwood Managing Director
Empire Energy Group Limited
Permanent
12 months
12 months
Termination Payments*
12 months of salary in
lieu of notice
*Note: Under the Corporations Act the Termination Benefit Limit is 12 months average Salary (over prior 3 years) unless shareholder approval is obtained.
5.4.2 Non-executive directors (NEDs) Service Agreements
The appointment of Non-executive Directors is subject to a letter of engagement. Under this approach NEDs are not eligible for any termination benefits following
termination of their office, nor any payments other than those required under law such as in respect of superannuation. There are no notice periods applicable to either
party under this approach.
46
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
5.5 Other Statutory Disclosures
5.5.1 External Remuneration Consultants
The Remuneration Committee may engage the assistance and advice of External Remuneration Consultants
to provide information on remuneration related matters. During FY21 the Board retained Godfrey
Remuneration Group Pty Ltd (GRG) as an External Remuneration Consultant to provide assistance on any
remuneration related matters as they arise. During FY21, GRG provided the following services:
• Analysis and recommendations regarding executive remuneration in relation to the Managing
Director and Direct Reports - $15,000 + GST
GRG has also provided assistance with the drafting of the FY21 Remuneration Report the fees for which will
be included in the FY22 Remuneration Report.
An agreed set of protocols has been put in place in prior years to ensure that the remuneration
recommendations are 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.
5.5.2
Loans to KMP and their related parties
During the financial year and to the date of this report, the Company made no loans to directors and other
KMP and none were outstanding as at 31 December 2021 (2020: Nil).
5.5.3 Other transactions with KMP
Certain directors and KMP, or their personally-related entities (Related Parties), hold positions in other entities
that result in them having control or significant influence over the financial or operating policies of those
entities. A number of these entities transacted with the Company in the FY21 reporting periods. The terms
and conditions of the transactions were no more favourable than those available, or which might reasonably
be expected to be available, on similar transactions with unrelated entities on an arms-length basis.
The following transactions occurred with entities controlled by Related Parties:
Related Party
Related Entity
Transactions
Prof John Warburton
Non-Executive Director
Paul Espie
Non-Executive Director
End of Audited Remuneration Report
Service Rights granted to Prof Warburton during the
period
in connection with a Contract Services
Agreement between Prof Warburton and the Company
and were approved at the 2021 AGM
Payment for marketing services to Menzies Research
Centre Limited (director-related entity of Chairman Paul
Espie)
47
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
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
The following options were granted during the financial year:
Number
8,000,000
1,696,970
Unlisted options
Unlisted options
Exercise Price A$
$0.70
$0.70
Expiry Date
31 August 2024
31 August 2024
8,000,000 unlisted options exercisable at $0.70 were issued to Pangaea (NT) Pty Ltd as part of the total
consideration for the Pangaea/EMG tenement acquisition.
1,696,970 unlisted options exercisable at $0.70 were issued to EMG Northern Territory Holdings Pty Ltd as
part of the total consideration for the Pangaea / EMG tenement acquisition.
Exercise of Options
A total of 13,800,000 unlisted options were exercised during the financial year or in the period since the end
of the financial year and up to the date of this report.
Expiry of Options
The following options expired during the financial year or in the period since the end of the financial year and
up to the date of this report:
Number
100,000
Unlisted options
Exercise Price A$
$0.30
Expiry Date
31 December 2021
At the date of this report the total number of unissued shares held under option was 14,196,970. These options
are exercisable on the following terms:
Number
1,700,000 Unlisted options
2,800,000 Unlisted options
8,000,000 Unlisted options
1,696,970 Unlisted options
14,196,970
Exercise Price A$
$0.30
$0.60
$0.70
$0.70
Expiry Date
30 December 2022
30 December 2022
31 August 2024
31 August 2024
48
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
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 400,000
(on a post-consolidation bias) 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 2020 financial year, the Company issued 3,913,960 Performance Rights to the Managing
Director and senior executives under the terms of the Company’s Rights Plan and was approved by
Shareholders on 14 July 2020.
3) During the 2021 financial year, the Company issued 1,015,625 Performance Rights to the Managing
Director and senior executives under the terms of the Company’s Rights Plan and was approved by
Shareholders on 3 August 2021.
SERVICE RIGHTS
During the 2021 financial year the Company issued 600,000 Service Rights to Prof John Warburton under the
terms of the Company’s Rights Plan approved by Shareholders on 27 May 2021.
RESTRICTED RIGHTS
During the 2021 financial year the Company issued 2,212,707 Restricted Rights to the Chairman, Mr Peter
Cleary, Managing Director and senior executives under the terms of the Company’s Rights Plan approved by
Shareholders on 27 May 2021.
49
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
DIRECTORS’ AND OFFICERS’ INDEMNITIES AND INSURANCE
During the 2021 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 2021
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 33 to the financial
statements.
The audit firm is engaged to provide tax compliance services. The Directors believe that given the size of the
Empire Group’s operations and the knowledge of those operations by the audit firm that it is appropriate for
the auditor to provide these services. The Directors are of the opinion that these services will not compromise
the auditor’s independence requirements of the Corporations Act 2001.
50
E M PI R E EN E RG Y G R O U P LI M IT ED
an d i ts c o ntr o l le d e nt i t i es
2 02 1 AN NU A L R E PO RT
Directors’ Report
for the year ended 31 December 2021
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 52 and forms part of the Director’s Report for the financial year ended 31 December 2021.
Auditor
Nexia Sydney Audit 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 31 March 2022
51
To the Board of Directors of
Empire Energy Group Limited
Level 19, 20 Bond St,
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 2021, 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
Joseph Santangelo
Director
Date: 31 March 2022
52
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
Sales Revenue
Cost of Sales
Gross Profit
Other income
General and administration expenses
Exploration expenses
Other non-cash expenses
Asset acquisition completion costs
Operating Loss before interest costs
Note
5a
6
5b
8a
8b
Year ended
December 2021
A$
8,502,389
(5,005,174)
3,497,215
Year ended
December 2020
A$
6,464,202
(5,266,429)
1,197,773
1,605,667
(6,569,465)
(1,770,955)
(4,882,798)
(2,146,971)
(10,267,307)
1,038,608
(5,308,876)
(253,947)
(3,403,196)
-
(6,729,638)
Net interest expense
7
(567,563)
(754,995)
Loss before income tax from continuing operations
(10,834,870)
(7,484,633)
Income tax expense
9a
(212,739)
(199,822)
Loss after income tax from continuing operations
(11,047,609)
(7,684,455)
Loss after income tax expense for the year
(11,047,609)
(7,684,455)
Other comprehensive income/(loss)
Items that may subsequently be reclassified to profit and
loss:
Exchange differences on translation of foreign operations
124,582
(258,669)
Other comprehensive income/(loss) for the year, net of tax
124,582
(258,669)
Total comprehensive loss for the year
(10,923,027)
(7,943,124)
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
30
30
(2.41)
(2.41)
(2.73)
(2.73)
The above statements of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
53
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
Note
As at
December 2021
A$
As at
December 2020
A$
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Inventories
Financial assets, including derivatives
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Financial assets, including derivatives
Oil and gas properties
Property, plant and equipment
Exploration and evaluation assets
Intangible assets
Right-of-use assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Interest-bearing liabilities
Lease liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Contributed equity – unissued
Reserves
Accumulated losses
10
11
12
13
13
14
14
15
16
19
17
18
19
20
19
20
21
21
25,649,699
5,359,851
267,624
44,604
244,171
14,145,866
2,536,059
619,469
39,717
482,240
31,565,949
17,823,351
106,360
34,899,982
553,413
90,849,806
94,015
752,993
493,664
29,266,292
566,797
17,175,322
88,571
1,149,087
127,256,569
48,739,733
158,822,518
66,563,084
11,568,698
8,027,261
439,926
213,482
5,969,972
7,823,606
311,233
150,608
20,249,367
14,255,419
389,341
28,863,656
972,287
21,099,654
29,252,997
22,071,941
49,502,364
36,327,360
109,320,154
30,235,724
220,905,029
5,629,437
9,520,152
(126,734,464)
139,060,493
-
6,862,086
(115,686,855)
TOTAL SHAREHOLDERS’ EQUITY
109,320,154
30,235,724
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
54
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
Consolidated
Issued
Capital
Unissued
shares
Fair Value
Reserve
Foreign Currency
Translation Reserve
Options
Reserve
Accumulated
Losses
Total Equity
Balance at 31 December 2020
139,060,493
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
83,702,870
(1,858,334)
5,629,437
-
-
-
Total transactions with owners
81,844,536
5,629,437
180,499
(638,677)
7,320,264
(115,686,855)
30,235,724
-
-
-
-
-
-
-
-
124,582
124,582
-
-
-
-
-
-
-
-
-
2,533,484
2,533,484
(11,047,609)
-
(11,047,609)
124,582
(11,047,609)
(10,923,027)
-
-
-
-
89,332,307
(1,858,334)
2,533,484
90,007,457
Balance at 31 December 2021
220,905,029
5,629,437
180,499
(514,095)
9,853,748
(126,734,464)
109,320,154
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
55
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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
Unissued
Shares
Fair Value
Reserve
Foreign Currency
Translation Reserve
Options
Reserve
Accumulated
Losses
Total Equity
Balance at 31 December 2019
121,420,294
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
Balance at 31 December 2020
-
-
-
18,272,877
(632,678)
-
-
17,640,199
139,060,493
-
-
-
-
-
-
-
-
-
-
180,499
(380,008)
6,286,732
(108,002,400)
19,505,117
-
-
-
-
-
-
-
-
-
(258,669)
(258,669)
-
-
-
-
-
-
-
-
-
-
1,033,532
-
1,033,532
(7,684,455)
-
(7,684,455)
(258,669)
(7,684,455)
(7,943,124)
-
-
-
-
-
18,272,877
(632,678)
1,033,532
-
18,673,731
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.
56
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
R&D tax incentive received
Note
Year ended
31 December 2021
A$
Year ended
31 December 2020
A$
8,140,099
(15,183,614)
13,322
(580,885)
(212,739)
5,363,923
7,851,651
(9,821,260)
-
(754,995)
(199,822)
-
Net cash flows used in operating activities
29(b)
(2,459,894)
(2,924,426)
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
Payments for acquisition of exploration assets
Payments for acquisition of assets completion costs
-
(12,965,477)
(249,779)
(9,680,824)
(1,546,991)
184
(12,841,410)
-
-
-
Net cash flows used in investing activities
(24,443,071)
(12,841,226)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuing of shares
Repayment of interest-bearing liabilities
Finance lease payments
Share Issue transaction costs
41,217,154
(456,750)
(360,566)
(1,858,333)
18,272,877
(1,414,314)
(430,986)
(632,678)
Net cash flows from financing activities
38,541,505
15,794,899
Net increase in cash and cash equivalents
11,638,540
29,247
Cash and cash equivalents at beginning of financial year
Effect of exchange rate changes on cash and cash equivalents
14,145,866
(134,707)
14,105,603
11,016
CASH AND CASH EQUIVALENTS AT THE END OF FINANCIAL
YEAR
29(a)
25,649,699
14,145,866
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
57
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
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”)
consisting of Empire Energy Group Limited and the entities it controlled at the end of and during the year.
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 2021 was authorised for issue in
accordance with a resolution of Directors on 31 March 2022.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the
Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply
with International Financial Reporting Standards as issued by the International Accounting Standards Board
('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where
applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets
at fair value through other comprehensive income, investment properties, certain classes of property, plant
and equipment and derivative financial instruments.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the consolidated entity's accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements, are disclosed in note 2.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the
consolidated entity only. Supplementary information about the parent entity is disclosed in note 32.
58
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Empire Energy
Group Limited ('company' or 'parent entity') as at 31 December 2021 and the results of all subsidiaries for the
year then ended. Empire Energy Group Limited and its subsidiaries together are referred to in these financial
statements as the 'Empire Group'.
Subsidiaries are all those entities over which the Empire Group has control. The Empire Group controls an
entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Empire Group. They are de-consolidated
from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the Empire
Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with the policies adopted by the Empire Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in
ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference
between the consideration transferred and the book value of the share of the non-controlling interest acquired
is recognised directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of
profit or loss and other comprehensive income, statement of financial position and statement of changes in
equity of the Empire Group.
Losses incurred by the Empire Group are attributed to the non-controlling interest in full, even if that results
in a deficit balance.
Where the Empire Group loses control over a subsidiary, it derecognises the assets including goodwill,
liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences
recognised in equity. The Empire Group recognises the fair value of the consideration received and the fair
value of any investment retained together with any gain or loss in profit or loss.
Operating segments
The financial statements are presented in Australian dollars, which is Empire Energy Group Limited's functional
and presentation currency.
Operating segments are presented using the 'management approach', where the information presented is on
the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM
is responsible for the allocation of resources to operating segments and assessing their performance.
Foreign Currency Translations
The financial statements are presented in Australian dollars, which is Empire Energy Group Limited's functional
and presentation currency.
59
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates
at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars
using the average exchange rates, which approximate the rates at the dates of the transactions, for the period.
All resulting foreign exchange differences are recognised in other comprehensive income through the foreign
currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is
disposed of.
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 revenue
Revenue from the sale of oil 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.
60
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
Government grants related to assets, including non-monetary grants at fair value, are presented in the
statement of financial position by deducting the grant in arriving at the carrying amount of the asset.
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 Empire Group’s 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 Empire Group'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 that are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
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.
61
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in
fair value depends on whether the derivative is delighted as a hedging instrument, and if so, the nature of the
item being hedged.
Cash flow hedges
Cash flow hedges are used to cover the Empire Group’s exposure to price volatility that is attributable to
particular risks associated with a recognised asset or liability or a firm commitment which could affect profit
or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other
comprehensive income through the cash flow hedges reserve in equity, whilst the ineffective portion is
recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the
measurement of the hedged transaction when the forecast transaction occurs.
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%
62
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Assets are depreciated from the date of acquisition. Profits and losses on sales of property, plant and
equipment are taken into account in determining the results for the year.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.
Exploration assets
Mineral exploration and evaluation expenditure is written off as incurred or accumulated in respect of each
identifiable area of interest and capitalised. These costs are carried forward only if they relate to an area of
interest for which rights of tenure are current and in respect of which:
-
such costs are expected to be recouped through the successful development and exploitation of the area
of interest, or alternatively by its sale; or
exploration and/or evaluation activities in the area have not reached a stage which permits a reasonable
assessment of the existence or otherwise of economically recoverable reserves and active or significant
operations in, or in relation to, the area of interest are continuing.
-
In the event that an area of interest is abandoned or if the Directors consider the expenditure to be of reduced
value, accumulated costs carried forward are written off during the period in which that assessment is made.
A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry
forward costs in relation to that area of interest.
Immediate restoration, rehabilitation and environmental costs necessitated by exploration and evaluation
activities are expensed as incurred and treated as exploration and evaluation expenditure. Exploration
activities resulting in future obligations in respect of restoration costs result in a provision to be made by
capitalising the estimated costs, on a discounted cash basis, of restoration and depreciating over the useful
life of the asset.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-
use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate
specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent
cash flows are grouped together to form a 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.
63
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at
cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments
made at or before the commencement date net of any lease incentives received, any initial direct costs
incurred, and except where included in the cost of inventories, an estimate of costs expected to be incurred
for dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the
estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain
ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life.
Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.
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 Empire Group'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.
Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end
of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised
cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Provisions – Employee Benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave
expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected
to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the
reporting date are measured at the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date using the projected unit credit method. Consideration
is given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on corporate bonds with
terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
64
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based payments
Equity-settled and cash-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in
exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of
services, where the amount of cash is determined by reference to the share price.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes option pricing model that takes into account the
exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the
option, together with non-vesting conditions that do not determine whether the consolidated entity receives
the services that entitle the employees to receive payment. No account is taken of any other vesting
conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity
over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value
of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the
vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at
each reporting date less amounts already recognised in previous periods.
The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by
applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and
conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the
liability is calculated as follows:
-
-
during the vesting period, the liability at each reporting date is the fair value of the award at that date
multiplied by the expired portion of the vesting period.
from the end of the vesting period until settlement of the award, the liability is the full fair value of
the liability at the reporting date.
All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the
cash paid to settle the liability.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to
market conditions are considered to vest irrespective of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not
been made. An additional expense is recognised, over the remaining vesting period, for any modification that
increases the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy
the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity
or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised
over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled
award, the cancelled and new award is treated as if they were a modification.
65
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset Retirement Obligations
Asset retirement obligations are recognised when the Empire Group has a present legal or constructive
obligation as a result of past events, and it is probable that an outflow of resources will be required to settle
the obligation, and a reliable estimate of the amount of obligation can be made. The present value of the
estimated asset retirement costs is capitalised as part of the carrying amount oil and gas properties. For the
Empire Group, asset retirement obligations primarily relate to the plugging and abandonment of oil and gas-
producing facilities.
The estimated liability is based on historical experience in plugging and abandoning wells, estimated remaining
lives of those based on reserve estimates, external estimates as to the cost to plug and abandon the wells in
the future, and regulatory requirements. The liability is discounted using a discount rate that reflects market
conditions as at reporting date. Revisions to the liability could occur due to changes in estimates of plugging
and abandonment costs, remaining lives of the wells, if regulations enact new plugging and abandonment
requirements, or there is a change in the market-based discount rate.
Changes in the estimated timing of decommissioning or decommissions cost estimates are dealt with
prospectively by recording an adjustment to the provision, and a corresponding adjustment to oil and gas
properties. The unwinding of the discount of the asset retirement obligation is recognised as a finance cost.
Income tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation of
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at
the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Tax consolidation
Empire Energy Group and its wholly-owned Australian resident entities form a tax-consolidated Empire Group.
As a consequence, all members of the tax-consolidated Empire Group have been taxed as a single entity since
1 July 2003. The head entity within the tax-consolidated Empire Group is Empire Energy Group Limited.
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
66
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
as amounts payable/(receivable) to/from other entities in the tax-consolidated Empire Group in conjunction
with any tax funding arrangement amounts (refer below). Any difference between these amounts is
recognised by the Empire Group as an equity contribution or distribution.
The Empire Group recognises deferred tax assets arising from unused tax losses of the tax consolidated Empire
Group to the extent that it is probable that future taxable profits of the tax consolidated Empire Group will be
available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised
assessments of the probability of recoverability is recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated Empire Group, has entered into
a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated Empire
Group in respect of tax amounts.
The tax funding arrangements require payments to/from the head entity equal to the current tax
liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity,
resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax
liability/(asset) assumed. The inter-entity receivables/(payables) are at call. Contributions to fund the current
tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s
obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity in conjunction with other members of the tax-consolidated Empire Group, has also entered
into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of
income tax liabilities between the entities should the head entity default on its tax payment obligations. No
amounts have been recognised in the financial statements in respect of this agreement as payment of any
amounts under the tax sharing agreement is considered remote.
Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where
the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these
circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the
expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in
the Consolidated Statement of Financial Position.
Cash flows are included in the statement of cash lows on a gross basis. The GST components of cash flows
arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified
as operating cash flows.
67
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset acquisition costs
All costs incurred up until the date ownership of the assets acquired transferred to the Empire Group have
been recognised as expenses in Statement of Profit/Loss & Other Comprehensive Income. Any costs incurred
thereafter has been capitalised in accordance with exploration and evaluation assets.
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.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not
yet mandatory, have not been early adopted by the Empire Group for the annual reporting period ended 31
December 2021. The Empire Group has not yet assessed the impact of these new or amended Accounting
Standards and Interpretations.
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates
its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the
circumstances. The resulting accounting judgements and estimates will seldom equal the related actual
results. The judgements, estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next
financial year are discussed below.
In particular, information about significant areas of estimation uncertainty considered by management
in preparing the consolidated financial statements are described in the following notes:
• Note 9
• Note 14
• Note 20
• Note 26
– 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:
68
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
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.
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.
69
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
2. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
Impairment of oil and gas assets
For oil and gas assets, the expected future cash flow estimation is based on a number of factors, variables and
assumptions, the most important of which are estimates of reserves, future production profiles, commodity
prices, costs and foreign exchange rates. In most cases, the present value of future cash flows is most sensitive
to estimates of future oil price and discount rates.
The estimated future cash flows for the value-in-use calculation are based on estimates, the most significant
of which are hydrocarbon reserves, future production profiles, commodity prices, operating costs and any
future development costs necessary to produce the reserves.
Estimates of future commodity prices are based on the Group’s best estimate of future market prices with
reference to external market analysts’ forecasts, current spot prices and forward curves. Future commodity
prices are reviewed at least annually.
The discount rates applied to the future forecast cash flows are based on the Group’s weighted average cost
of capital, adjusted for risks where appropriate, including functional currency of the asset, and risk profile of
the country in which the asset operates.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s
oil and gas assets could change materially and result in impairment losses or the reversal of previous
impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact
on others and individual variables rarely change in isolation. Additionally, management can be expected to
respond to some movements, to mitigate downsides and take advantage of upsides, as circumstances allow.
Consequently, it is impracticable to estimate the indirect impact that a change in one assumption has on other
variables and hence, on the likelihood, or extent, of impairments or reversals of impairments under the
different sets of assumptions in subsequent reporting periods.
Asset retirement obligations
Asset retirement costs will be incurred by the Empire Group at the end of the operating life of some of Empire
Group’s facilities and properties. The ultimate asset retirement costs are uncertain and cost estimates can vary
in response to many factors including changes to relevant legal requirements, the emergence of new
restoration techniques or experience at other production sites.
The expected timing and amount of expenditure can also change, for example, in response to changes in
reserves or changes in laws and regulations or their interpretation. As a result, there could be significant
adjustments to the provisions established which would affect future financial results.
Share-based payments
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the
fair value of the equity instruments at the date which they are granted. The fair value is determined by using
either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the
instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based
payments would have no impact on the carrying amounts of assets and liabilities within the next annual
reporting period but may impact profit or loss and equity.
70
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
3. CORONAVIRUS (COVID-19) PANDEMIC
Coronavirus (COVID-19) pandemic
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had,
or may have, on the Empire Group based on known information. This consideration extends to the nature of
the products and services offered, customers, supply chain, staffing and geographic regions in which the
Empire Group operates. Other than as addressed in specific notes, there does not currently appear to be either
any significant impact upon the financial statements or any significant uncertainties with respect to events or
conditions which may impact the Empire Group unfavourably as at the reporting date or subsequently as a
result of the Coronavirus (COVID-19) pandemic.
4.
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.
71
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Foreign exchange risk arises from commercial transactions and recognised assets and liabilities denominated
in a currency that is not the entity’s functional currency. The Empire Group seeks to mitigate the effect of its
foreign currency exposure by borrowing in US$ for US operations and maintaining a minimum cash balance in
Australia. Excluding presentation translation adjustments, the Empire Group’s exposure to foreign exchange
risk at the reporting date is limited to loans and investments between the Parent entity and the US subsidiaries.
(ii)
Commodity Price Risk
The Empire Group’s revenues and cash flows are exposed to commodity price fluctuations, in particular oil and
gas prices. The Empire Group enters option and forward commodity hedges to manage its exposure to falling
spot oil and gas prices.
To mitigate a portion of the exposure to adverse market changes, the Empire Group’s commodity hedging
programs utilise financial instruments based on regional benchmarks including NYMEX Henry Hub Natural Gas.
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 2021 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 2021.
The Empire Group monitors forecasts and actual cash flows and the maturity profiles of financial assets and
liabilities to manage its liquidity risk.
72
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
4. 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 2021
Financial Assets
Cash and cash equivalents
Trade and other receivables
Financial assets
0.05
25,649,699
-
-
25,649,699
Financial Liabilities
Trade & other payables
Interest-bearing liabilities
6.59
-
-
-
-
-
-
-
-
8,027,261
8,027,261
-
-
-
-
-
-
-
-
5,359,851
350,531
5,710,382
25,649,699
5,359,851
350,531
31,360,081
11,568,698
-
11,568,698
11,568,698
8,027,261
19,595,959
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
0.10
Financial Liabilities
Trade & other payables
Interest-bearing liabilities
6.65
(iv)
Empire Group Sensitivity
14,145,866
-
-
14,145,866
-
-
-
-
-
-
-
-
7,823,606
7,823,606
-
-
-
-
-
-
-
-
2,536,059
975,904
3,511,963
14,145,866
2,536,059
975,904
17,657,829
5,969,972
-
5,969,972
5,969,972
7,823,606
13,793,578
Based on the financial
index 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.
instruments held at 31 December 2021, had Henry Hub
Should interest rates increase by 1% the impact on post-tax profit would be a decrease of approximately
$80,000.
(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.
73
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
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.
The maximum exposure to credit risk at balance date is as follows:
Trade, other receivables, and derivatives
2021
$
5,710,382
2020
$
3,511,963
The maximum exposure to credit risk at balance by country is as follows:
Australia
United States of America
(C)
LIQUIDITY RISK
2021
$
1,483,512
4,226,870
2020
$
605,300
2,906,663
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.
74
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Fair
Value
$
Carrying
Amount
$
Contractual
Cash flows
$
1 year
$
1-5 years
$
11,568,698
8,027,261
11,568,698
8,027,261
11,568,698
8,062,307
11,568,698
8,027,261
-
-
-
-
-
-
-
(350,531)
(350,531)
(350,531)
(244,171)
(106,360)
-
-
-
-
-
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)
-
Maturity Analysis
31 December 2021
Non Derivatives
Current
Trade and other payables
Interest bearing liabilities
Non-current
Interest bearing liabilities
Derivatives
Financial asset
Financial liability
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
(D)
EQUITY RISK
The Empire Group relies on equity markets to raise capital for its exploration and development activities and
is thus exposed to equity market volatility.
Equity price risk arises from investments in equity securities and Empire Group Limited’s issued capital.
The Company’s equity risk is considered minimal and as such no sensitivity analysis has been completed.
Fair Value of Financial Assets and Liabilities
The fair value of all monetary financial assets and liabilities of Empire Group Limited approximate their carrying
value there were no off-balance financial assets and liabilities at year end.
75
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
The Empire Group is required to classify financial instruments, measured at fair value, using a three level
hierarchy, being:
•
•
•
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices); and
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
An instrument is required to be classified in its entirety on the basis of the lowest level of valuation inputs that
is significant to fair value. Considerable judgement is required to determine what is significant to fair value
and therefore which category the financial instrument is placed in can be subjective.
The fair value of financial instruments classified as level 3 is determined by the use of valuation models. These
include discounted cash flow analysis or the use of observable inputs that require significant adjustments
based on unobservable inputs.
Consolidated
31 December 2021
Assets
Fair value of derivatives
Total assets
Consolidated
31 December 2020
Assets
Fair value of derivatives
Total assets
Level 1
Level 2
Level 3
Total
-
-
350,531
350,531
-
-
350,531
350,531
Level 1
Level 2
Level 3
Total
-
-
975,904
975,904
-
-
975,904
975,904
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.
76
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
5. 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
Government stimulus packages
Other income
Disaggregation of revenue
The disaggregation of revenue
customers is as follows:
from contract with
Geographical regions
United States
Australia
Timing or revenue recognition
Recognised over a point in time
Recognised at a point in time
6. COST OF SALES
Oil and gas production
INTEREST EXPENSE
7.
Interest paid/payable on financial liabilities
8.
EXPENSES
a. General and administration expenses
Salaries and wages – Australia
Insurances including NT work program
Legal and advisory fees – Litigation costs
Other advisory fees
Overhead expenses
Total G&A expenses
b. Other non-cash expenses
Depreciation, depletion and amortisation (note 8d)
Finance costs (note 8c)
Unrealised derivative movement
Share-based payments expense (note 26)
Other expenses including foreign currency movements
Total other expenses
2021
$
7,886,493
497,758
118,138
8,502,389
2020
$
4,832,351
625,074
1,006,777
6,464,202
13,322
1,551,081
41,264
1,605,667
9,885
1,043,871
(15,148)
1,038,608
8,502,389
-
6,646,202
-
-
8,502,389
-
6,646,202
5,005,174
5,266,429
567,563
754,995
2,080,682
562,701
222,105
370,846
3,333,131
6,569,465
1,692,144
1,425,405
661,782
1,103,467
-
4,882,798
1,720,179
486,464
-
353,584
2,784,649
5,308,876
1,290,186
1,414,314
(90,652)
958,532
(169,184)
3,403,196
77
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
8. EXPENSES (continued)
c. Finance expenses (non-cash)
Accretion of asset retirement obligation (note 20)
Unwind of discount of debt
Total finance costs (non-cash)
d. Depreciation, depletion and amortisation
Oil & Gas properties and plant and equipment (note 14)
Right-of-use assets (note 19)
e. Loss before income tax includes the following specific
expenses:
Employee benefits expense (a)
Defined contribution superannuation expense
Other employee expenses
Total employee benefits expense
2021
$
2020
$
765,000
660,405
1,425,405
694,257
720,057
1,414,314
1,390,098
302,046
1,692,144
876,415
413,771
1,290,186
140,720
4,645,291
4,786,011
102,668
4,407,013
4,509,681
(a) Comprising an average 37 permanent full-time employees throughout FY2021. 30 employees are based
in the US where the employee benefit expense has been recognised in Cost of Sales (note 6) and 7
employees are based in Australia whereby the employee benefits expense has been recognised in
General and Administration expense (note 8a).
9.
INCOME TAX
a. Income tax expense
Current tax
Deferred tax
Income tax benefit attributable to continuing operations
-
212,739
212,739
-
199,822
199,822
b. Numerical reconciliation of income tax expense to prima
facie tax payable
Loss before income tax
(10,834,890)
(7,484,633)
Tax at the Australian tax rate of 26% (2020: 27.5%)
(2,817,071)
(2,058,275)
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 not recognised
-
Effect of difference in overseas tax rates
Income tax expense
212,739
199,822
2,671,522
145,549
212,739
2,052,668
5,607
199,822
78
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
9.
INCOME TAX (continue)
c. Deferred tax assets not recognised relate to the following:
Tax losses
Capital losses
Other
2021
$
2020
$
13,940,952
201,841
4,966,105
19,108,898
10,542,726
201,841
5,013,964
15,758,531
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 2021.
e. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Forward commodity contracts
Oil & Gas Properties 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
2021
$
2020
$
(88,204)
(3,729,327)
(108,875)
(3,926,406)
268,382
5,475,641
2,246,404
7,990,427
(3,926,406)
-
(7,990,427)
-
2,140,298
2,180,824
644,983
4,966,105
1,253,859
2,786,798
19,775
4,060,432
(4,966,105)
-
(4,060,432)
-
79
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
10. TRADE AND OTHER RECEIVABLES
Current
Trade receivables (a)
Other receivables
GST receivable
(a) Trade receivables aging
Current
31 to 60 days overdue
61 to 90 days overdue
Over 90 days overdue
11. PREPAYMENTS
Prepayments
12. INVENTORIES
Crude oil and production supplies
13. FINANCIAL ASSETS, INCLUDING DERIVATIVES
Current
Oil and gas price forward contracts
Non-current
Oil and gas price forward contracts
2021
$
3,077,852
871,404
1,410,595
5,359,851
2,827,432
15,296
5,831
229,293
3,077,852
2020
$
1,930,760
50,539
554,760
2,536,059
1,638,616
10,367
30,464
251,313
1,930,760
267,624
619,469
44,604
39,717
244,171
482,240
106,360
493,664
80
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021 are outlined below.
2021 NATURAL GAS - HENRY HUB - NYMEX – Swaps
2020 NATURAL GAS - HENRY HUB - NYMEX - Swaps
Period
Swap Price
Premium
Product
Period
Swap Price
Premium
Product
-
-
-
-
-
-
-
-
-
-
-
-
Jan 21 – Mar 21
US$3.10
Apr 21 – Sep 21
US$2.85
Oct 21 – Dec 21
US$3.10
-
-
-
150,000 mmbtu
300,000 mmbtu
150,000 mmbtu
2021 NATURAL GAS - HENRY HUB - NYMEX – Options
2020 NATURAL GAS - HENRY HUB - NYMEX - Options
Period
Jan 22 – Dec 22
Floor Price
US$3.25
Premium
US$0.29
Volume
840,000
mmbtu
Period
Jan 21 – Dec 21
Floor Price
US$2.50
Premium
Volume
US$0.23 – US$0.41 900,000 mmbtu
Jan 22 – Dec 22
US$2.50
US$0.35 – US$0.41
900,000
mmbtu
Jan 22 – Dec 22
US$2.50
US$0.35 – US$0.41 900,000 mmbtu
Jan 23 – Dec 23
US$2.50
US$0.27 – US$0.41
600,000
mmbtu
Jan 23 – Dec 23
US$2.50
US$0.41
300,000 mmbtu
81
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT
Cost in $
At 1 January 2021
Additions
Disposals
Change in estimate at balance date
Oil & Gas –
Producing
Oil & Gas –
Non Producing
84,290,679
-
-
5,412,007
3,553,790
-
-
-
At 31 December 2021
89,702,686
3,553,790
Accumulated Depreciation in $
At 1 January 2021
Depreciation and depletion
Disposals
Plugged sale of wells
At 31 December 2021
Closing written down value before
foreign currency adjustment
(55,985,071)
(1,109,217)
-
4,687
(57,089,601)
-
-
-
-
-
Land
Buildings
Equipment
Motor Vehicles
Total
6,530
-
-
-
6,530
-
-
-
-
-
333,045
10,715
(25,719)
-
1,308,967
226,279
(101,986)
-
1,076,145
12,785
(234,613)
-
90,569,156
249,779
(362,318)
5,412,007
318,041
1,433,260
854,317
95,868,624
(121,327)
(10,400)
25,719
-
(1,065,906)
(229,702)
101,986
-
(902,145)
(40,779)
234,613
-
(58,074,449)
(1,390,098)
362,318
4,687
(106,008)
(1,193,622)
(708,311)
(59,097,542)
32,613,085
3,553,790
6,530
212,033
239,638
146,006
36,771,082
Cumulative impact of foreign currency
adjustments
(713,562)
(553,331)
Closing written down value
31,899,523
3,000,459
361
6,891
(4,270)
(10,362)
(36,523)
(1,317,687)
207,763
229,276
109,483
35,453,395
82
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
Cost in $
At 1 January 2020
Additions
Disposals
Expiration costs
Oil & Gas –
Producing
Oil & Gas –
Non Producing
Land
Buildings
Equipment
Motor Vehicles
Total
84,290,679
-
-
-
3,553,790
-
-
-
6,530
-
-
-
333,045
-
-
-
1,088,981
221,632
-
(1,646)
1,056,246
19,899
-
-
90,329,271
241,531
-
(1,646)
At 31 December 2020
84,290,679
3,553,790
6,530
333,045
1,308,967
1,076,145
90,569,156
Accumulated Depreciation in $
At 1 January 2020
Depreciation and depletion
Disposals
(55,258,369)
(726,702)
-
At 31 December 2020
(55,985,071)
-
`
-
-
-
-
-
-
(113,658)
(973,413)
(854,045)
(57,199,485)
(7,669)
-
(93,944)
1,451
(48,100)
-
(876,415)
1,451
(121,327)
(1,065,906)
(902,145)
(58,074,449)
Closing written down value before
foreign currency adjustment
Cumulative impact of foreign currency
adjustments
28,305,608
3,553,790
6,530
211,718
243,061
174,000
32,494,707
(1,986,121)
(606,985)
(38)
(15,927)
(13,460)
(39,087)
(2,661,618)
Closing written down value
26,319,487
2,946,805
6,492
195,791
229,601
134,913
29,833,089
83
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
14. OIL AND GAS PROPERTIES AND PROPERTY PLANT & EQUIPMENT (continued)
At 31 December 2021, 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% (2020: 12%).
15. EXPLORATION ASSETS
Capitalised exploration and evaluation assets
2021
$
2020
$
90,849,806
90,849,806
17,175,322
17,175,322
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Consolidated
Balance at the beginning of the year
Additions during the year
Evaluation and exploration assets
Pangaea acquisition
-
-
- Offset research and development grant
16. INTANGIBLE ASSETS
Goodwill(a)
(a) Movements in goodwill relate to foreign currency fluctuations.
17. TRADE AND OTHER PAYABLES
Current
Trade creditors (a)
Accruals
Other creditors
17,175,321
4,615,227
20,640,009
58,398,399
(5,363,923)
90,849,806
12,560,094
-
-
17,175,321
94,015
94,015
88,571
88,571
9,725,159
1,806,704
36,835
11,568,698
4,887,738
1,047,533
34,701
5,969,972
(a) Increase from prior year largely represents $4.4 million of Carpentaria-2H drilling costs which did not
become payable until after the reporting period.
84
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
18. INTEREST-BEARING LIABILITIES
Current
Bank loan - secured
Classification of Borrowings
2021
$
2020
$
8,027,261
8,027,261
7,823,606
7,823,606
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 borrowings at the 30-Day US LIBOR (0.09% at 31 December 2021) plus
6.5%. At 31 December 2021, the Company’s rate option was the 30-day US 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 2021 and 2020 were approximately US$687,500 and US$962,500, respectively.
On 16 February 2021, the Company received a second term note with a collective principal amount of
approximately US$344,000 pursuant to the Second Draw Paycheck Protection Program (PPP2 Term Note)
under the Coronavirus Aid, Relief and Economic Security Act. The PPP2 Term Note was evidenced by a
promissory note, which incurred interest at a fixed annual rate of 1.00%, with the first 10 months of interest
deferred. The original agreement stated that beginning December 2021, the Company would make equal
monthly payments of principal and interest with the final payment due in February 2026. Subsequent
legislation extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s
loan forgiveness amount to the lender or (2) if the borrower did not apply for loan forgiveness, 10 months
after the end of the borrower’s loan forgiveness covered period. The Company had eligible expenditures in
excess of the PPP loan amount during the year ended 31 December 2021 and received forgiveness in
November 2021, therefore the Company recognized approximately US$344,000 in gain on PPP loan
forgiveness in the Statement of Profit or Loss and Other Comprehensive Income.
Due to debt restructuring in October 2018, the Company accumulated deferred financing costs of
approximately US$1,622,000. Amortization expense of the deferred financing costs is included with non-cash
expenses in the Statement of Profit or Loss and Other Comprehensive Income and approximated US$153,000
for the year.
85
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
18. INTEREST-BEARING LIABILITIES (continued)
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$6,537,500 on 1 January 2021.
The credit facility balance on 31 December 2021 was US$5,850,010 (A$8,062,321).
The Company has a Credit Facility with Macquarie Bank Limited. The facility has the following key terms:
Principal Amount
US$7.5 million (availability and outstanding loan balance US$5.85 million)
Term
5 years
Interest Rate
LIBOR + 650 bps
Repayment Terms
100% of Appalachia Net Operating Cashflow subject to minimum amortisation
of US$550,000 per annum
Hedging
Empire shall maintain a rolling hedging program whereby 55% of forecast
Proved Developed Producing Reserves production shall be hedged for 3 years
Key Covenants
Proved Developed Producing Reserves PV10 / Net Debt > 1.3x
Current Ratio > 1.0x
Working capital > 0
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
2021
$
5,850,010
-
5,850,010
(25,429)
5,824,581
8,027,261
2020
$
6,537,500
10,000
6,547,500
(521,759)
6,025,741
7,823,606
86
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
19. LEASE ASSETS AND LIABILITIES
ASSETS
Right-of-use assets
LIABILITIES
Current
Leases – minimum lease payments
Non-Current
Leases – minimum lease payments
Movement in Right-of-use-assets
Balance at beginning of the period
Additions for the period
Depreciation
Foreign currency translation movements
Balance at end of the period
2021
$
2020
$
752,993
1,149,087
439,926
311,233
389,341
972,287
1,149,087
-
(302,407)
(93,687)
752,993
201,537
1,391,359
(413,771)
(30,038)
1,149,087
The Company leased its former US corporate headquarters in Pittsburgh under a non-cancellable lease, with
monthly payments ranging from US$3,665 to US$3,966 through November 2021. The US corporate
headquarters moved in 2019 to Mayville, New York State, into a building owned by the Company. The
Company was still obligated to make payments on the office for months throughout 2021, before the lease
was terminated early in November 2021. Net rental expense approximated US$48,000 and US$51,000, for
the years ended 31 December 2021 and 2020, respectively.
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 delivery of each truck and lasts for a period of up to 48
months. Lease payments in 2021 and 2020 were approximately US$83,000 and US$144,000, respectively.
The Empire 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 4-year operating sublease
recognised as a right-of-use asset and lease liability, with monthly payments approximately $20,124. 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 $399.
87
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
20. PROVISIONS
Current
Employee entitlements
Non-current
Asset retirement obligations (USA)
Provision for rehabilitation (Northern Territory)
Movement in Asset Retirement Obligation
Balance at beginning of the period
Write-off accrued plugging costs
Accretion expense for the period, included in finance costs
Provision for rehabilitation
Change in estimate
Foreign currency translation movements
Balance end of the period
Asset Retirement Obligation
2021
$
2020
$
213,482
150,608
28,161,781
701,875
28,863,656
21,099,654
-
21,099,654
21,099,654
(13,401)
765,000
701,875
5,412,007
898,521
28,863,656
22,511,419
-
694,257
-
-
(2,106,022)
21,099,654
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
2048. 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.
88
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
21. CONTRIBUTED EQUITY
Ordinary shares - fully paid
612,074,341
323,941,984
220,905,029
139,060,493
2021
Shares
2020
Shares
2021
$
2020
$
Unissued ordinary shares
20,105,132
-
5,629,437
-
Movements in ordinary share capital
Details
Shares
Issue price
$
Balance - 1 January 2020
Issue of shares on the exercise of options
Issue of shares on the exercise of options
Issue of shares on the exercise of options (a)
Share issue transaction costs, net of tax
Balance - 31 December 2020
Issue of shares on the exercise of options
Issue of shares on the exercise of options
Issue of shares on the exercise of options (b)
Issue of shares as a private placement to raise funds
Issue of shares in lieu of cash payment for fees and services
rendered
Issue of shares for asset acquisition
Share issue transaction costs, net of tax
262,838,649
60,809,585
93,750
200,000
-
323,941,984
600,000
12,000,000
-
123,940,519
2,000,000
149,591,838
-
$0.30
$0.32
$0.30
$0.32
$0.30
$0.30
$0.30
$0.28
121,420,294
18,242,876
30,000
-
(632,678)
139,060,492
180,000
3,840,000
15,000
37,182,156
600,000
41,885,715
(1,858,334)
Balance - 31 December 2021
612,074,341
220,905,029
Movements in unissued ordinary share capital
Details
Shares
Issue price
$
Balance - 1 January 2021
Unissued shares for asset acquisition
Share issue transaction costs, net of tax
Balance - 31 December 2021
-
20,105,132
-
20,105,132
$0.28
-
5,629,437
-
5,629,437
(a) Funds received in December 2019, issued in January 2020
(b) Funds received in December 2021, issued in January 2022
89
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
21. CONTRIBUTED EQUITY (continued)
Shares
At balance date the Empire Group had the following securities on issue:
- 612,074,341 (2020: 323,941,984) 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.
a) Share Options
Movements
Granted
8,000,000 unlisted options exercisable at $0.70 were granted to Pangaea (NT) Pty Ltd as part of the total
consideration for the Pangaea/EMG tenement acquisition.
1,696,970 unlisted options exercisable at $0.70 were granted to EMG Northern Territory Holdings Pty Ltd as
part of the total consideration for the Pangaea/EMG tenement acquisition.
Exercise of Options
13,800,000 unlisted options were exercised during the financial year or in the period since the end of the
financial year and up to the date of this report.
Expiry/Lapse of Options
100,000 unlisted options expired during the financial year, or in the period since the end of the financial year
and up to the date of this report.
Options
At balance date the Company had 14,196,970 (2020:18,400,000) unissued shares under option. These options
are exercisable on the following terms:
Number
1,700,000
2,800,000
8,000,000
1,696,970
14,196,970
Unlisted options
Unlisted options
Unlisted options
Unlisted options
Exercise Price A$
$0.30
$0.60
$0.70
$0.70
Expiry Date
30 December 2022
30 December 2022
31 August 2024
31 August 2024
b) Performance Rights
At balance date the Company had 6,142,396 unissued shares subject to Performance Rights. The Performance
Rights are subject to certain preconditions being met.
At balance date the Company had 1,300,500 unissued shares from Performance Rights that have vested during
the period.
90
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
21. CONTRIBUTED EQUITY (continued)
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.
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.
During the 2021 financial year, the Company issued 1,015,625 Performance Rights to the Company’s Managing
Director under the terms of the Company’s Rights Plan approved by the Shareholders on 3 August 2021.
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
91
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
21. CONTRIBUTED EQUITY (continued)
Director
No. of granted
performance
rights
Grant
Date
A Underwood
1,015,625
3 Aug 2021
Vesting date
and
exercisable
date
31 Dec 2023
Expiry
Date
Exercise
price
31 Dec 2036
Nil
Fair value of
performance
rights at
grant date
$49,766
c) Service Rights
At balance date, the Company had 2,438,558 unissued shares subject to Service Rights. The Service Rights are
subject to certain preconditions being met.
During the 2020 financial year, the Company issued 838,558 Service Rights to the Company’s Non-Executive
Directors and employees under the terms of the Company’s Rights Plan approved at the Shareholders Meeting
on 14 July 2020.
During the 2021 financial year, the Company issued 600,000 Service Rights to the Company’s Non-Executive
Director, Prof. John Warburton under the terms of the Company’s Rights Plan approved at the Shareholders
Meeting on 27 May 2021.
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
1 Jun 2021
Vesting date
and
exercisable
date
31 Dec 2021
Expiry date
Exercise
price
Fair value of
service rights
at grant date
31 Dec 2036
Nil
$207,000
d) Restricted Rights
At balance date, the Company had 3,232,460 unissued shares subject to Restricted Rights. The Restricted
Rights are subject to certain preconditions being met.
During the 2021 financial year, the Company issued the following:
- 783,201 Restricted Rights were issued to the Company’s employees and Managing Director under the
terms of the Company’s Rights Plan approved at the Shareholders Meeting on 27 May 2021.
- 1,044,000 Restricted Rights were issued to the Company’s US employees under the terms of the
Company’s Rights Plan approved at the Shareholders Meeting on 27 May 2021.
- 385,506 Restricted Rights were issued to the Company’s Non-Executive Directors in lieu of Director Fees
paid in cash under the terms of the Company’s Rights Plan approved at the Shareholders Meeting on
27 May 2021.
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:
92
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
21. CONTRIBUTED EQUITY (continued)
Restricted Rights
Director
No. of granted
restricted rights
Grant Date
A Underwood
P Espie
P Cleary
P Espie
P Cleary
22. RESERVES
327,381
162,359
128,239
56,945
37,963
1 Jun 2021
1 Jun 2021
1 Jun 2021
2 Jul 2021
2 Jul 2021
Vesting date
and
exercisable
date
31 Aug 2021
31 Aug 2021
31 Aug 2021
30 Sep 2021
30 Sep 2021
Expiry date
Exercise
price
1 Jun 2036
1 Jun 2036
1 Jun 2036
2 Jul 2036
2 Jul 2036
Nil
Nil
Nil
Nil
Nil
Fair value of
restricted
rights at grant
date
$112,946
$56,014
$44,242
$18,222
$12,148
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.
23. 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 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 2021, the Empire Group
had $701,875 environmental contingencies requiring specific disclosure.
There have been no other changes in contingent liabilities since the last annual reporting date.
24.
CONTINGENT ASSETS
There are no contingent assets as at the date of this annual report.
93
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
25.
COMMITMENTS FOR EXPENDITURE
Exploration and Petroleum 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 2021.
26.
SHARE BASED PAYMENTS
Year Ending – 31 December 2021
During the 2021 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.
Performance Rights
No. of granted
performance
rights
870,536*
145,089**
* Tranche 1 ** Tranche 2
Restricted Rights
No. of granted
restricted rights
327,381
129,850
1,369,970
290,598
94,908
Service Rights
No. of granted
service rights
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
600,000
1 Jun 2021
31 Dec 2021
31 Dec 2036
Nil
Grant Date
Vesting date and
exercisable date
Expiry date
Exercise price
3 Aug 2021
3 Aug 2021
31 Dec 2023
31 Dec 2023
31 Dec 2035
31 Dec 2035
Nil
Nil
Fair value of
service rights at
grant date
$207,000
Fair value of
performance
rights at grant
date
$28,728
$21,038
Grant Date
1 Jun 2021
23 Dec 2020
23 Dec 2020
1 Jun 2021
2 Jul 2021
Vesting date and
exercisable date
Expiry date
Exercise price
31 Aug 2021
23 Mar 2021
23 Dec 2021
31 Aug 2021
30 Sep 2021
1 Jun 2036
23 Dec 2035
23 Dec 2035
1 Jun 2036
2 Jul 2036
Nil
Nil
Nil
Nil
Nil
Fair value of
restricted rights at
grant date
$112,946
$46,746
$493,189
$100,256
$30,371
94
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021
26. SHARE BASED PAYMENTS (continued)
Options
During the 2021 financial period the following option issues occurred:
Number
8,000,000
1,696,970
Unlisted options
Unlisted options
Exercise Price A$
$0.70
$0.70
Expiry Date
31 August 2024
31 August 2024
8,000,000 unlisted options exercisable at $0.70 were issued to Pangaea (NT) Pty Ltd as part of the total
consideration for acquisition of interests in certain exploration permits in the Northern Territory during the
year.
1,696,970 unlisted options exercisable at $0.70 were issued to EMG Northern Territory Holdings Pty Ltd as
part of the total consideration for acquisition of interests in certain exploration permits in the Northern
Territory during the year.
Service Rights
For the Service Rights granted during the 2021 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted
during year
600,000
Grant Date
Vesting date
1 Jun 2021
31 Dec 2021
Share price at
grant date A$
$0.345
Expected
volatility
100.80%
Dividend
yield
Nil
Risk-free
interest rate
1.59%
Performance Rights
For the Performance Rights granted during the 2021 financial year, the valuation model inputs used to
determine the fair value at the grants date, are as follows:
Granted
during year
1,015,625
Grant Date
Vesting date
6 Aug 2021
31 Dec 2023
Share price at
grant date A$
$0.29
Expected
volatility
99.28%
Dividend
yield
Nil
Risk-free
interest rate
1.15%
Restricted Rights
For the Restricted Rights granted during the 2021 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted during
year
Grant Date
Vesting date
290,598
94,908
1 Jun 2021
2 Jul 2021
31 Aug 2021
30 Sep 2021
Share price
at grant
date A$
$0.345
$0.320
Expected
volatility
Dividend
yield
Risk-free
interest rate
100.8%
99.73%
Nil
Nil
1.50%
1.43%
The weighted average share price during the financial year was A$0.337 (2020: A$0.311 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 2.7 years (2020: 2 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
0.5 year (2020: 1).
95
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
26. SHARE BASED PAYMENTS (continued)
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 (2020: 2).
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
years (2020: 0.3).
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
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
Fair value of
service rights at
grant date
$186,000
$73,953
Fair value of
performance
rights at grant
date
$75,329
$111,916
On 18 February 2022, Empire issued 993,774 Performance Rights to its employees for the 2021 Financial year.
Restricted Rights
No. of granted
restricted rights
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
Fair value of
restricted rights at
grant date
232,500
$83,623
On 18 February 2022, Empire issued 568,778 Restricted Rights to its employees for the 2021 Financial year.
Options
No options were granted during the 2020 financial year.
96
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021
26. SHARE BASED PAYMENTS (continued)
Service Rights
For the Service Rights granted during the 2020 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted
during year
600,000
238,558
Grant Date
Vesting date
7 Aug 2020
7 Aug 2020
31 Dec 2020
31 Dec 2020
Share price at
grant date A$
$0.31
$0.31
Expected
volatility
114.65%
114.65%
Dividend
yield
Nil
Nil
Risk-free
interest rate
0.83%
0.83%
Performance Rights
For the Performance Rights granted during the 2020 financial year, the valuation model inputs used to
determine the fair value at the grants date, are as follows:
Granted
during year
3,913,960
Grant Date
Vesting date
7 Aug 2020
31 Dec 2022
Share price at
grant date A$
$0.31
Expected
volatility
114.65%
Dividend
yield
Nil
Risk-free
interest rate
0.83%
Restricted Rights
For the Restricted Rights granted during the 2020 financial year, the valuation model inputs used to determine
the fair value at the grants date, are as follows:
Granted during
year
Grant Date
Vesting date
1,019,753
7 Aug 2020
5 Nov 2020
Share price
at grant
date A$
$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$0.294 on a post
consolidation basis).
The weighted average remaining contractual life of options granted during the financial year and outstanding
at the end of the financial year was 2 years (2019: 3 years).
The weighted average remaining time to Vesting Date of Service Rights (unless extended in accordance with
the rights Plan Rules) granted during the financial year and outstanding at the end of the financial year was 1
year (2019: 1.7).
The weighted average remaining time to Vesting Date of Performance Rights (unless extended in accordance
with the rights Plan Rules) granted during the financial year and outstanding at the end of the financial year
was 2 years (2019: 1.8).
The weighted average remaining time to Vesting Date of Restricted Rights (unless extended in accordance with
the Rights Plan Rules) granted during the financial year and outstanding at the end of the financial year was
0.3 years (2019: n/a).
97
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT
an d i ts c o ntr o l le d e nt i t i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021
26. SHARE BASED PAYMENTS (continued)
a)
Expenses arising from share-based payment transactions
Year ending - 31 December 2021
The share-based payments during the year have been recognised as follows:
-
-
Expense relating to issued equity-based payments based on a pro-rata portion
of the vesting period
Recognised directly against issued capital as a cost associated with the share A$nil
A$1,103,467
Year ending - 31 December 2020
The share-based payments during the year have been recognised as follows:
-
-
Expense relating to issued equity-based payments based on a pro-rata portion
of the vesting period
Recognised directly against issued capital as a cost associated with the share A$nil
A$958,532
98
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A L R E PO RT a nd its
c on tr ol l e d e nt it i es
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021
27. SEGMENT INFORMATION
The Empire Group has three reportable segments as described below. Information reported to the Empire Group’s chief executive officer for the purpose of resource allocation and
assessment of performance is more significantly focused on the category of operations.
in AUD
Revenue (external)
Revenue (internal)
Other income (excluding interest
income)
Reportable segment result before tax
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
- Unrealised gain/loss on derivatives
- Finance cost - ARO accretion
- Finance cost - Discount on debt
- Other non-cash expenses
Loss before income tax - continuing
operations
US Operations
2021
8,502,389
-
2020
6,464,202
-
1,605,667
938,608
Northern Territory
2021
2020
-
-
-
-
-
-
Corporate
Eliminations
Total
2021
-
5,391,040
2020
-
3,162,341
2021
2020
-
(5,391,040)
-
(3,162,341)
2021
8,502,389
-
2020
6,464,202
-
-
100,000
-
-
-
-
1,605,667
1,038,608
(5,384,509)
(3,326,441)
3,123,197
537,944
(7,783,009)
(3,649,144)
(724,697)
(215,241)
-
-
(2,127,389)
(557,152)
(2,684,541)
-
-
(1,998,222)
(722,995)
(2,721,217)
-
602
(2,839,367)
-
(2,838,765)
-
652
(1,507,276)
-
(1,506,624)
4,966,517
10,113
-
(20,887)
4,955,743
3,505,498
8,523
-
(41,175)
3,472,846
(4,966,517)
-
4,966,517
-
-
(3,505,498)
-
3,505,498
-
-
-
10,715
(239)
(578,039)
(567,563)
-
9,175
-
(764,170)
(754,995)
(1,286,527)
-
-
(661,782)
(765,000)
(660,405)
-
(1,023,252)
-
-
90,652
(694,257)
(720,057)
-
(131,625)
-
-
-
-
-
-
(17,690)
-
-
-
-
-
-
(273,992)
(1,103,467)
-
-
-
-
-
(249,244)
(958,532)
-
-
-
-
169,183
(2,935,058)
(4,530,187)
(10,753,399)
(5,173,458)
2,853,587
2,219,012
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,692,144)
(1,103,467)
-
(661,782)
(765,000)
(660,405)
-
(1,290,186)
(958,532)
-
90,652
(694,257)
(720,057)
169,183
-
(10,834,870)
(7,484,633)
Reportable segment assets
Reportable segment liabilities
Capital expenditure
40,731,366
(67,782,221)
(154,308)
33,596,007
(57,785,746)
-
93,999,011
(122,367,210)
(79,113,129)
18,390,703 206,535,235 111,623,338
(1,753,821)
(1,577,620)
(41,763)
(20,750)
(36,005,503)
(12,653,271)
(182,443,094)
142,224,687
-
(97,046,964) 158,822,518
(49,502,364)
(79,288,187)
59,217,710
-
66,563,084
(36,327,360)
(12,695,034)
99
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
27. 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 and Imperial Oil & Gas A.
• Corporate - includes all centralised administration costs, minor other income and investments/loans in
Empire Group USA, Imperial Oil and Gas and Imperial Oil & Gas A (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.
Major customers
Revenues from two major customers of the Empire Group’s US Operations segment represents approximately
$7,397,078 (2020: two major customers $2,654,414) of the Empire Group’s total revenues.
28. 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
• P Fudge
• J Warburton
• P Cleary
• J Clarke
• L Rozman
• J Gerahty
100
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
28. RELATED PARTY DISCLOSURES (continued)
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Empire
Group is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Transactions with related parties
The following transactions occurred with related parties
2021
$
734,196
44,966
104,386
500,339
1,383,887
2020
$
918,801
48,452
-
690,102
1,657,355
Payment for marketing services from Menzies Research Centre Limited
(director-related entity of Chairman, Paul Espie)
5,000
20,000
Prof Warburton received Service Rights in connection with the
consultancy contract between Prof Warburton and the Company (a)
207,000
212,000
186,000
206,000
(a) Prof Warburton provided technical advisory services to the Company with payment in Service Rights in lieu of
cash under the terms of the Company’s Rights Plan approved at the Shareholders Meeting on 27 May 2021.
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 Empire Group. 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
2021
%
December
2020
%
Controlled Companies
Imperial Oil & Gas Pty Limited
Imperial Oil & Gas A Pty Limited
Empire Energy Holdings, LLC
Empire Energy USA, LLC
Empire Energy (MidCon), LLC
Empire Energy E&P, LLC
Australia
Australia
USA
USA
USA
USA
Ordinary
Ordinary
Units
Units
Units
Units
100
100
100
100
100
100
100
-
100
100
100
100
101
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
28. RELATED PARTY DISCLOSURES (continued)
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 & Co Inc.
29. 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
25,649,699
14,145,866
2021
$
2020
$
(b) Reconciliation of loss after income tax expense to net cash flows
from operating activities
(Loss) for the period after income tax expense
Adjustments for non-cash items:
Government grant offset against oil and gas properties
Asset acquisition costs in Income Statement disclosed as investing
activities
Amortisation on right-of-use assets
Depreciation & amortisation expense
Discount on debt
Asset retirement obligation accretion
Share-based payment expense
Unrealised loss/(gain) on forward commodity contracts
Other non-cash expenses
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
(11,047,609)
(7,684,455)
5,363,923
-
1,546,991
227,987
1,464,157
660,405
765,000
1,103,447
661,782
600,000
1,346,083
(2,823,792)
351,845
(4,887)
(1,392,017)
62,874
(3,805,977)
(2,459,894)
-
413,771
876,415
720,057
694,257
958,532
(90,652)
(169,184)
(4,281,259)
53,748
(65,809)
8,246
1,281,332
79,316
1,356,833
(2,924,426)
102
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
29. NOTES TO THE STATEMENT OF CASH FLOWS (continued)
(c) Changes in Liabilities arising from Financing Activities
Balance at
1 January
2021
7,823,606
Financing
Cashflows
(1,425,405)
Options and
refinance
costs
-
Amortisation
of deferred
finance costs
661,782
Effect of
changes in
FX
967,278
Balance at
31 December
2021
8,027,261
Balance at
1 January
2020
9,250,600
Financing
Cashflows
(1,414,314)
Options and
refinance
costs
-
Amortisation
of deferred
finance costs
720,057
Effect of
changes in
FX
(732,737)
Balance at
31 December
2020
7,823,606
Interest bearing
borrowings
Interest bearing
borrowings
30. EARNINGS PER SHARE
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2021
$
(2.41)
(2.41)
2020
$
(2.73)
(2.73)
Loss used in the calculation of basic and diluted earnings per share
(11,047,609)
(7,684,455)
Weighted average number of ordinary shares on issue used in the calculation
of basic earnings per share
459,010,151
281,399,784
Weighted average number of potential ordinary shares used in the
calculation of diluted earnings per share
459,010,151
281,399,784
Potential ordinary shares are excluded from calculation of diluted earnings per share as they are anti-dilutive.
31. 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.
103
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
32. 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
33. 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
2021
$
2020
$
23,975,135
206,535,235
1,208,342
1,577,620
13,569,275
111,623,338
966,266
1,753,822
(226,534,466)
(139,060,493)
(607,280)
(2,617,052)
(6,309,945)
(539,224)
(337,482)
31,987,834
(204,957,615)
(607,280)
(177,261)
(4,004,053)
(311,630)
(337,482)
34,628,683
(109,869,516)
2,640,849
2,019,189
2,640,849
2,019,189
128,225
121,059
65,423
137,712
193,648
258,771
28,980
18,182
22,623
51,603
48,623
66,805
104
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2021
34. MATTERS SUBSEQUENT TO BALANCE DATE
1) On 16 February 2022, Empire announced the successful 2021 Beetaloo work program had resulted in a
substantial increase in Contingent and Prospective resources independently assessed by Netherland, Sewell &
Associates Inc for EP187.
2) On 23 February 2022, Empire provided an update regarding grants awarded under the Australian Government’s
Beetaloo Cooperative Drilling Program. Empire’s wholly owned subsidiary, Imperial Oil & Gas Pty Limited, had
executed replacement grant agreements with the Australian Government totalling up to $19.4 million which
will offset 25% of the cost of seismic acquisition and the drilling, fracture stimulation and flow testing of three
horizontal appraisal wells in its 100% owned EP187 tenement, located in the Beetaloo Sub-basin, Northern
Territory.
3) After year-end Empire executed two fixed price swaps with EnergyMark LLC its largest gas customer in the USA.
The terms of the swaps are: 1 April 2022 to 30 September 2022 (50,000 mmbtu per month at $4.21) and 1
October 2022 to 31 March 2023 (50,000 mmbtu per month at $5.35) referenced against NYMEX Henry Hub.
4) On 18 February 2022, Empire issued 993,774 Performance Rights and 568,778 Restricted Rights to its
employees for the 2021 Financial year.
5) On 23 February 2022, Empire issued 1,200,000 ordinary shares following the exercise of 1,200,000 unlisted
options at $0.30 per share. The proceeds of the conversion of the options to shares was $360,000.
105
E M PI R E EN E RG Y G R O U P LI M IT ED
an d i ts c o ntr o l le d e nt i t i es
2 02 1 AN NU A L R E PO RT
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021
DIRECTORS’ DECLARATION
In the directors’ opinion:
•
•
•
•
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting
Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board as described in note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the consolidated entity's financial
position as at 31 December 2021 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act
2001.
____________________
Alexander Underwood
Managing Director
31 March 2022
Sydney, Australia
106
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 2021,
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 2021 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.
107
Key audit matter
How our audit addressed the key audit matter
Carrying value of oil and gas assets
Refer to note 14 (Oil and Gas properties and
property, plant and equipment).
At 31 December 2021, the Group has capitalised
Oil and Gas Assets - Producing of $31.9m. AASB
136 – ‘Impairment of Assets’ requires that the
recoverable amount of an asset, or cash
generating unit to which it belongs, be
determined whenever an indicator of
impairment exists.
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 oil and 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 (Exploration assets).
At 31 December 2021, the Group has capitalised
exploration and evaluation expenditure of
$90.8m. These costs predominately relate to
the Northern Territory area of interest and were
the result of exploration campaigns and the
purchase of new exploration tenements referred
to as the Pangaea acquisition.
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 –
Our procedures included, amongst others:
▪ 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 oil and 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:
▪ agreeing the ownership and tenure of the
exploration permits in the Northern Territory area
of interest to the Spatial Territory Resource
Information Kit for Exploration (“STRIKE”) online
registry;
▪
testing a sample of additions of capitalised
exploration expenditure to supporting
documentation;
▪
In relation to the Pangaea acquisition,
- We reviewed the sale and purchase
agreement to identify and gain an
understanding of the key terms;
- We agreed the transfer of the tenement titles
to the “STRIKE” online registry;
108
Key audit matter
How our audit addressed the key audit matter
‘Exploration for and Evaluation of Mineral
Resources’.
- We assessed the significant components of
the purchase price consideration for accuracy
and appropriate valuation; and
- We assessed whether the acquisition was
appropriately measured and recognised in
accordance with Australian Accounting
Standards.
▪ 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.
Asset retirement obligations
Refer to note 20 (Provisions)
Our procedures included, amongst others:
At 31 December 2021, the Group has a carrying
value of Asset Retirement Obligations (USA) of
$28.2m.
▪ 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 2021;
▪ 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
▪ benchmarking on management’s estimates used in
calculating the obligations.
109
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 2021, but does not
include the financial report and the auditor’s report thereon. Our opinion on the financial report does not
cover the other information and we do not express any form of assurance conclusion thereon. In
connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of the other
information we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibility for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at The Australian
Auditing and Assurance Standards Board website at:
www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor’s
report.
110
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 25 to 47 of the directors’ Report for the year
ended 31 December 2021.
In our opinion, the Remuneration Report of Empire Energy Group Limited for the year ended 31
December 2021, 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
Joseph Santangelo
Director
31 March 2022
Sydney
111
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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
Substantial Shareholders as at 21 March 2022 (grouped)
Name
Pangaea (NT) Pty Limited*
Elphinstone Group
Global Energy and Resources Development Limited
* Pangaea (NT) Pty Limited also holds 20,105,132 unissued shares
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
119,894,868
53,333,969
32,294,969
%
Holding
19.53
8.69
5.26
Holders
189
630
350
977
485
Number of
Shares
47,036
1,891,356
2,821,506
39,774,319
569,419,469
%
Holding
0.01
0.31
0.46
6.48
92.74
Total number of holders
2,631
613,953,686
100.00
i
ii
Number of holders of less than a marketable parcel
272
Percentage held by 20 largest holders
62.65%
Twenty Largest Shareholders as at 29 March 2021 (ungrouped)
Name
PANGAEA (NT) PTY LTD
ELPHINSTONE HOLDINGS PTY LTD
GLOBAL ENERGY AND RESOURCES DEVELOPMENT LIMITED
EMG NORTHERN TERRITORY HOLDING PTY LTD
MACQUARIE BANK LIMITED
CITICORP NOMINEES PTY LIMITED
LIANGROVE MEDIA PTY LIMITED
GROSVENOR EQUITIES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CHA QIAN
ALL-STATES FINANCE PTY LIMITED
ROBMAR INVESTMENTS PTY LIMITED
INVIA CUSTODIAN PTY LIMITED
MR ANDREW FORSTER
CRITICAL INVESTMENTS PTY LTD
NATIONAL NOMINEES LIMITED
CHEOY LEE YACHTS AUSTRALIA PTY LTD
BNP PARIBAS NOMINEES PTY LTD
MS SWATI SHUKLA
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
Number of
Shares
119,894,868
52,000,000
32,294,969
26,515,152
26,451,367
24,129,803
17,807,500
15,874,720
9,335,000
9,245,000
9,238,671
7,284,069
5,917,302
5,000,000
4,643,363
4,298,642
4,130,000
3,982,577
3,400,000
3,217,117
384,660,120
%
Holding
19.53
8.47
5.26
4.32
4.31
3.93
2.90
2.59
1.52
1.51
1.50
1.19
0.96
0.81
0.76
0.70
0.67
0.65
0.55
0.52
62.65
112
E M PI R E EN E RG Y G R O U P LI M IT ED 2 02 1 AN NU A 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 2022
Class of unquoted securities
No. of securities No. of holders
- Unlisted options exercisable at A$0.30 expiring 30 December 2022
- Unlisted options exercisable at A$0.60 expiring 30 December 2022
- Unlisted options exercisable at A$0.70 expiring 31 August 2024
- Unlisted Performance Rights
- Unlisted Performance Rights (Vested)
- Unlisted Service Rights
- Unlisted Restricted Rights
1,700,000
2,800,000
9,696,970
6,173,359
2,140,634
2,438,558
3,801,238
11
2
2
9
4
3
39
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 2022. 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
113