More annual reports from Empire Energy Group Limited:
2023 Report3 2 0 2 ANNUAL REPORT EMPIRE ENERGY GROUP LIMITED AND ITS CONTROLLED ENTITIES ABN 29 002 148 361 ON THE COVER: SILVER CITY RIG #40 DURING DRILLING OPERATIONS AT CARPENTARIA-2H Empire Energy Group Limited Contents 31 December 2023 Corporate directory Chair and Managing Director letter to shareholders Operations review Directors' report Directors' report - remuneration report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of Empire Energy Group Limited Shareholder information 2 4 6 14 25 44 45 46 47 48 49 96 97 101 1 Empire Energy Group Limited Corporate directory 31 December 2023 Directors Peter Cleary (Chairman) Alexander Underwood (Managing Director) Louis Rozman Prof John Warburton Karen Green Company Secretary Ben Johnston Notice of Annual General Meeting The details of the annual general meeting of Empire Energy Group Limited are: 28 May 2024 at 9.30 am Level 2, 259 George Street, Sydney NSW 2000 Registered Office Share Registry Australian Auditor US Auditor Australian Solicitors US Solicitors Bankers Level 5 6-10 O'Connell Street Sydney NSW 2000 Computershare Investors Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Nexia Sydney Audit Pty Ltd Level 22 2 Market Street Sydney NSW 2000 Schneider Downs & Co. Inc One PPG Place Suite 1700 Pittsburgh PA 15222 Baker McKenzie Level 46, Tower One International Towers Sydney 100 Barangaroo Avenue Barangaroo NSW 2000 Hodgson Russ LLP 140 Pearl Street, Suite 100 Buffalo, NY 14202 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 2 Empire Energy Group Limited Corporate directory 31 December 2023 Stock Exchange Listing 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 Empire Energy Group Limited Chair and Managing Director letter to shareholders 31 December 2023 Dear Shareholders, Empire continues progress to first commercial gas in the Beetaloo with the Carpentaria Pilot project. We anticipate commencing pilot production and sales in the first half of 2025 (subject to a final investment decision by the Board) which would make Empire the first company to sell gas from the Beetaloo Basin. The critical shortage of new gas supply in Australia is most acute in the Northern Territory where declining supply from the Blacktip Gas Field and other sources is putting extreme pressure on alternative sources of gas to power their network. The Beetaloo Basin enjoys existing infrastructure to connect the enormous Beetaloo resource to markets in dire need. We continue to process data acquired through our drilling and stimulation of four wells in EP187 as we progress our pilot project. Flow rates from C2 and C3 indicate to us that the resource is likely commercially viable and we expect further productivity gains as we apply and continue to build upon the valuable IP we have developed to date. Independent third-party reservoir engineering consultants Subsurface Dynamics, Inc. have assessed our results and predict that 3km horizontal development wells can generate EUR of 6-8 BCF of gas per well. Netherland Sewell & Associates, Inc. has upgraded the 2C contingent resource to 1,739 PJ (>1.5 Tcf), over an area of less than 1% of our leasehold position. Late in 2023, an opportunity arose to acquire a fit for purpose gas plant that had been processing gas for AGL near Sydney. Empire acquired the plant for A$2.5 million utilising existing cash at bank, a small fraction of the cost of an equivalent new build plant. The plant was relocated to Roma in Queensland and is in the process of being refurbished ahead of transport and reassembly as the Carpentaria Pilot Gas Plant (CPGP). Empire believes the cost of acquisition, refurbishment and relocation will result in saving ~$30m when compared with new build alternatives. Perhaps more importantly due to current global supply chain issues we may save ~12 months to first commercial gas. We have managed this without dilution of capital. The receipt of $15.6m in R&D and the final Beetaloo Cooperative Drilling Program funds of $7.7m has meant we have not approached the capital markets since June 2022. The Empire team is focused on being a careful steward of your capital. At the Annual General Meeting in May 2023, former Chairman Paul Espie AO announced his retirement from the Board of Empire Energy. We thank Paul for his substantial contribution to the Company’s strategic direction as Chairman over the last five years and for his support as a shareholder, and wish him the best for his retirement. The Board welcomed Karen Green to its ranks upon the retirement of Paul Fudge and his alternate Jacqui Clarke. Karen’s deep knowledge of the Northern Territory where she has lived and worked since 1991 brings valuable experience and relationships as we move into the next phase of our development. We thank Paul and Jacqui for their service to the Board and we look forward to continuing our important relationship with them. Late 2023 saw some extraordinary M&A transactions in global oil and gas, particularly in relation to the US shale industry. The Exxon Mobil takeover of Pioneer Natural Resources and Chevron’s of acquisition of Hess continues a consolidation trend amongst large oil and gas companies as the world transitions to lower carbon dioxide emissions while continuing to satisfy the developed and emerging world’s insatiable demand for energy. The future for gas in Australia’s energy security is bright. Governments both Federal and State / Territory are productively engaging with the industry to ensure supply to underwrite gas supply for manufacturing and energy for decades to come. As Empire progresses towards pilot production, we are focused on financing options that will maximise shareholder value while minimizing dilution of your interests in the Company. We have commenced a farmout process. Non-disclosure agreements have been signed with multiple global upstream energy companies and discussions are proceeding well. We are also exploring options for financing including project finance that, in the success case, will provide efficient capital solutions as we push towards production and cash flow. 4 Empire Energy Group Limited Chair and Managing Director letter to shareholders 31 December 2023 We thank Empire’s management, technical and operations teams for your hard work and outstanding safety and environmental performance over the course of 2023 and our shareholders and stakeholders across all of our operating areas for your support. Yours sincerely, Peter Cleary Chair Empire Energy Group Limited Alex Underwood Managing Director Empire Energy Group Limited 5 Empire Energy Group Limited Operations review 31 December 2023 A. 2023 OVERVIEW & HIGHLIGHTS Empire Group’s functional currency is Australian Dollars. All references to dollars are Australian Dollars unless otherwise stated. GROUP FINANCIAL HIGHLIGHTS • Group Revenue $6.1 million (December 2022: $13.7 million) • Net production 3,759 Mcfe per day (December 2022: 4,581 Mcfe per day) • Outstanding debt $8.8 million (December 2022: $7.8 million) • Cash at bank $13.6 million (December 2022: $21.9 million) AUSTRALIA – NORTHERN TERRITORY • • • • • • • Empire holds a 100% working interest and operatorship in approximately 28.9 million acres of petroleum exploration tenements across the McArthur Basin and the Beetaloo Sub-basin in onshore Northern Territory, Australia. In January 2023, Carpentaria-3H (“C-3H”) was successfully stimulated, significantly below budget, delivering all 40 planned stages across 1,989 metres (6,526 feet) of horizontal well bore. Carpentaria-4V (“C-4V”) was also successfully drilled to a depth of 2,000 metres (6,562 feet). C-4V encountered thick, gas charged Velkerri shales consistent with pre-drill prognosis. These shales are ~150 metres deeper than at the C-3H location, providing additional pressure support to drive enhanced gas flow rates in future development scenarios. In March 2023, C-3H was flow tested for 27 days and then shut in for soaking (the practice of shutting in a well for a period following fracture stimulation to maximise long-term productivity). The gas production rate ranged between 2.3 million standard cubic feet per day (“mmcf / day”) and 5.7 mmcf / day with an average of 2.6 mmcf / day. C-2H was also brought back online to test the benefit of soaking, with excellent results. C-2H achieved a new average flow rate over 30 days (“IP30”) of 2.81 mmcf per day, equating to a normalized flow rate of over 3 mmscf per day per 1,000 metres of horizontal section. This represents an increase of approximately 17% over the initial IP30 rates announced in September 2022 despite partial reservoir depletion following the initial 51-day flow testing program. In May 2023, C-2H flow testing was completed with continued strong gas production rates, producing a total of 323 Terajoules (“TJ”) (281 mmscf) over 127 days. Gas composition remained consistent with high calorific value and extremely low CO2. This equates to a normalized rate of 2.75 TJ (2.4 mmscf) per day per 1,000 metres for the entire test period. The post-soak 2023 IP30 was confirmed at 3.5 TJ (3.0 mmscf) per day per 1,000 metres. C-2H was shut-in for availability as a future gas producer. Also during May 2023, Empire announced a major EP187 Contingent Resources upgrade following its 2022 Beetaloo work program. Contingent Resources as independently assessed by Netherland, Sewell & Associates, Inc. (“NSAI”) for Empire’s wholly owned and operated EP187 evidence an LNG scale resource at EP187. Empire has now booked 2C Contingent Resources of 1,739 PJ for EP187 representing an average Estimated Ultimate Recovery (“EUR”) per well of 7.9 PJ. In August 2023, Empire and APA Group (ASX: APA) executed an initial agreement for the establishment of exclusive midstream infrastructure early works and proposed long-form agreements furthering the memorandum of understanding announced by Empire on 27 October 2021. Subject to entering long-form agreements and approvals by each party, APA may fund the Carpentaria Pilot Project midstream gas infrastructure facilities under a proposed partnering agreement, which would materially reduce the capital requirements for Empire to commence commercial production. In September 2023, Empire reported C-3H had flowed gas at an average rate of 3.3 mmcf / day (3.8 TJ / day) over the first 30 days following reopening. C-3H was brought back online on 3 August 2023 and has demonstrated the material benefits to productivity of soaking, through significantly increased gas flow rates. 6 Empire Energy Group Limited Operations review 31 December 2023 • During October 2023, Empire received an R&D Tax Offset for FY2022 of $15.6 million in cash following finalisation of its 2022 Australian tax return. • • In November 2023, Ms Karen Green joined the Board as an independent Non-Executive Director and Chair of the Audit & Risk Committee. Empire also announced that Mr Paul Fudge and Ms Jacqui Clarke retired as a Non-Executive Director and alternate Director of the Company. Mr Paul Fudge remains Empire’s largest shareholder. In December 2023, Empire acquired the Rosalind Park Gas Plant (“RPGP”) from AGL Limited for $2.5 million cash. The RPGP is a fit for purpose facility that may result in >$30 million in cost savings and reduce lead time by ~12 months compared with new build alternatives for the Carpentaria Pilot Project. • During the year the Empire team advanced Front-End Engineering and Design, financing, gas sales and transportation and regulatory approvals for the proposed Carpentaria Pilot Project in EP187. C-2H Restart - C-2H was brought back online to test the benefit of soaking, with excellent results C-3H Restart - C-3H was brought back online on 3 August 2023 and has demonstrated the material benefits to productivity of soaking, through significantly increased gas flow rates 7 Empire Energy Group Limited Operations review 31 December 2023 Managing Director Alex Underwood inspecting the newly acquired RPGP at the Camden Gas Project Site Part of the newly acquired RPGP – low pressure gas is compressed to sales gas pressure using gas engine driven reciprocating compressors Part of the newly acquired RPGP - Gas will be delivered to the Carpentaria Gas Plant via the buried gas gathering system at low pressures to maximise well deliverability Empire staff visiting the Elliott Community, NT 8 Empire Energy Group Limited Operations review 31 December 2023 Sonia Harvey (Empire) and Jon Bennett (inGauge Energy) at the Empire stand at the Alice Springs Show Managing Director Alex Underwood presenting at the SEAAOC Conference 9 Empire Energy Group Limited Operations review 31 December 2023 USA – APPALACHIA • • Empire’s Appalachia operations reported reduced gas production for the year ended 31 December 2023 compared to the prior year. The decreased gas production reflects temporary downtime at a gas pipeline owned by the local infrastructure utility, National Fuel Gas Company (NYSE: NFG). During part of the year a key export pipeline for Empire's gas was offline, this reduced production. Later in the year the pipeline was reopened. The Henry Hub gas price has also moderated during 2023 reflecting a mild Northern Hemisphere winter leading to growing gas in storage. Empire has elected to shut-in marginal wells which can be reopened when gas prices improve. This allows Empire to preserve its gas reserves to maximise returns when prices are higher. • Net gas production of 1,355,860 Mcf (2022: 1,654,481 Mcf). • Net oil production of 2,722 Bbls (2022: 2,919 Bbls) reflects timing of oil sales. B. CREDIT FACILITIES The outstanding balance of the USA Macquarie Bank Limited Credit Facility as at 31 December 2023 was US$4.75 million. Total repayments of US$550,000 were made during the year. The Company’s USA Credit Facility with Macquarie Bank Limited has the following key terms: Principal amount Initial amount US$7.5 million (outstanding loan balance and availability US$4.75 million, undrawn nil) Term 5 years to 30 September 2024 Interest rate 30-Day SOFR (5.36% at 31 December 2023) plus 6.61% Repayment terms 100% of Appalachia Net Operating Cashflow subject to minimum amortisation of US$550,000 per annum Key covenants Proved Developed Producing Reserves PV10 / Net Debt > 1.3x Current Ratio > 1.0x Working capital > 0 The Company established an additional credit facility with Macquarie Bank Limited in 2022 to support its Northern Territory operations. The outstanding balance as at 31 December 2023 was $1.827 million. Key terms of this credit facility are set out below: Principal amount $7.25 million comprising: • • Facility A (Revolving Credit Facility, $2.25 million) Facility B (Performance Bond Facility, $5 million) Drawn amount Facility A: $1.827 million at 31 December 2023 Facility B: undrawn at 31 December 2023 Borrowers Imperial Oil & Gas Pty Limited Imperial Oil & Gas A Pty Limited Guarantor Empire Energy Group Limited and Borrowers Security Fees First ranking security over all present and after-acquired property of each Borrower First ranking security Utilisation Fee: 1.5% of utilisation Commitment Fee: 40% of margin 10 Empire Energy Group Limited Operations review 31 December 2023 Margin: Facility A (5.5% p.a.), Facility B (10% p.a.) Interest rate Margin plus BBSW Financial covenants Ratio of current assets to current liabilities of at least 1.00 to 1.00 Minimum cash balance in the Borrowers and Guarantor of at least $5 million (or its equivalent in any other currency or currencies) Repayment date 31 December 2025 Repayment arrangements Facility A: on receipt of relevant R&D Tax Incentive payment Facility B: on release of environmental bonds after rehabilitation C. HEDGING As at 31 December 2023, Empire’s US production assets were unhedged. D. BUSINESS RISK Exploration risk – Empire and its subsidiaries have interests in assets at various stages of exploration, appraisal and development. Many leases have had very low levels of exploration undertaken to date and may not yield commercial quantities of hydrocarbons. Oil and gas exploration is inherently subject to numerous risks, including the risk that drilling will not result in commercially viable oil and gas production. Application risk – Several of Empire’s Northern Territory assets are in application stage requiring native title and / or regulatory approvals to be granted as leases capable of being explored on. Such approvals may or may not be granted which could adversely impact the value of the Company. Regulatory risk – Empire has operations spanning two states in the USA and the Northern Territory, Australia. Regulatory approvals are required to explore, appraise, develop and produce from the assets. Where such regulatory approvals are already in place, there is a risk that they could be revoked. Where such regulatory approvals are not in place, there is a risk that they may not be granted. Debt facility risk – Empire, through its subsidiaries, has debt facilities in place with Macquarie Bank Limited. Whilst Empire has financial flexibility and expects to generate sufficient cash flow to repay the debts in full, there is a risk in the future that financial and other covenants under the debt facilities could be breached, which could result in Macquarie exercising its security rights under the facilities. The facilities mature in September 2024 and December 2025 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 maybe subject to domestic Australian gas price risk, LNG price risk and oil price risk. Reliance on key personnel – Empire’s success depends in large measure on certain key personnel. The loss of the services of such key personnel may have a material adverse effect on the business, financial condition, operational results and prospects. Economic risk – General economic conditions, movements in interest rates, inflation rates and foreign exchange rates, investor sentiment, demand for, and supply of capital and other general economic conditions may have a negative impact on Empire and its subsidiaries ability to carry out its exploration, appraisal, development and production plans. Environmental risk – The upstream oil and gas industry is exposed to environmental risks, including the risk of oil and chemical spills, the risk of uncontrolled gas venting, and other material environmental risks. If an environmental incident was to occur, it may result in Empire’s subsidiaries’ licenses being revoked, its rights to carry on its activities suspended or cancelled, or rectification costs, and significant legal consequences. Title risk – Interests in onshore tenements in Australia are governed by the respective state/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. 11 Empire Energy Group Limited Operations review 31 December 2023 Consequently, the Company could lose title to or its interest in the Tenements if licence conditions are not met or if insufficient funds are available to meet expenditure commitments. The Northern Territory Government has declared proposed Reserved Blocks over parts of Empire’s tenements which are likely to impact the Company’s ability to carry out petroleum exploration and development activities on those areas. Native title and Aboriginal land - The Tenements extend over areas in which legitimate common law native title rights of indigenous Australians exist. The ability of the Company to gain access to its Tenements and to conduct exploration, development and production operations remains subject to native title rights and aboriginal land rights and the terms of registration of such title agreements. Reserves risk – Reserves assessment is a subjective process that provides an estimate of the volume of recoverable hydrocarbons. 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 will not materialise. The carrying values of these assets could also be adversely impacted. Production risk has the potential to adversely impact the Company. Insurance risk – The Company intends to insure its operations in accordance with industry practice. However, in certain circumstances, the Company’s insurance may not be of a nature or level to provide adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of the Company. Insurance against all risks associated with 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 future capital, debt or equity, will be available or available on suitable terms. It 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 gas has a crucial role to play. Climate change and management of future carbon 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. 12 Empire Energy Group Limited Operations review 31 December 2023 E. 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 Mr John G. Hattner Graves & Co. Consulting LLC Netherland Sewell & Associates Inc Mr Joseph M. Wolfe Netherland Sewell & Associates Inc BSc in Petroleum Engineering, MBA MBA, Master of Science in Geological Oceanography, BSc 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. 13 Empire Energy Group Limited Directors' report 31 December 2023 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group' or 'Empire Group') consisting of Empire Energy Group Limited (referred to hereafter as the 'Company' or 'Parent entity' or 'Empire') and the entities it controlled at the end of, or during, the year ended 31 December 2023. Directors The following persons were Directors of Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Peter Cleary Alexander Underwood Louis Rozman Prof John Warburton Karen Green Paul Espie AO Paul Fudge Jacqui Clarke Non-Executive Director and Chairman (appointed as Chairman on 30 May 2023) Managing Director Non-Executive Director Non-Executive Director Non-Executive Director (appointed on 17 November 2023) Non-Executive Director and Chairman (retired on 30 May 2023) Non-Executive Director (retired on 17 November 2023) Non-Executive Director – Alternate Director to Paul Fudge (retired on 17 November 2023) Principal activities During the financial year the principal continuing activities of the Group consisted of: ● The progression of appraisal work programs in Empire's wholly owned and operated exploration tenements located in the highly prospective Northern Territory Beetaloo sub-basin. Key activities completed during the year include the flow testing of the Carpentaria-2H and Carpentaria-3H wells. 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. ● Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Business risks Refer to Operations review for details of the Group's business risks. Review of operations The loss for the Group after providing for income tax amounted to $22,081,916 (31 December 2022: $6,003,206). For information on a review of the Empire Group’s operations refer to the Operations review prior to the Directors' report. 14 Empire Energy Group Limited Directors' report 31 December 2023 Significant changes in the state of affairs (1) On 6 March 2023 Empire reported that Carpentaria-3H had been flow tested for 27 days. This gas production rate ranged between 2.6TJ/d and 6.6TJ/d. (2) On 29 March 2023 Empire announced that Carpentaria-2H had achieved an average flow rate of 3.2TJ/d. This represents an increase of ~17% over the initial IP30 rates announced in September 2022. (3) Following Empire's successful 2022 EP187 work programs, Empire announced an increase in its EP187 2C Contingent Resources to 1,739PJ, on LNG scale discovered resources. (4) On 30 May 2023, Peter Cleary was appointed Chairman following the retirement of Paul Espie AO. (5) On 4 August 2023, Empire announced that Carpentaria-3H had been reopened for extended production testing. (6) On 4 August 2023, Empire advised that 84,848,485 ordinary shares in the Company previously issued to Pangaea (NT) Pty Limited and EMG Northern Territory Holdings Pty Limited would be released from escrow on 13 August 2023. (7) On 8 August 2023, Empire announced it had executed an initial agreement with APA Group (ASX: APA) for the establishment of exclusive midstream gas infrastructure to support the development of its Beetaloo assets. (8) On 5 September 2023, Empire announced Carpentaria-3H (“C-3H”) had flowed gas at an average rate of 3.3 mmscf / day (3.8 TJ / day) over the first 30 days (“IP30”) following reopening. (9) On 24 October 2023, Empire announced it had received $15.6 million R&D tax offset for the 2022 Financial year. (10) On 17 November 2023, Empire announced changes to the Board of Directors. Mr Paul Fudge and Ms Jacqui Clarke retired as a Non-Executive Director and alternate Director of the Company. Empire also announced the appointment of Ms Karen Green as an independent Non-Executive Director. Ms Green was appointed Chair of the Audit & Risk Committee. (11) On 4 December 2023, Empire acquired the AGL Limited's Rosalind Park Gas Plant for $2.5 million in cash. The acquisition has accelerated the path to Carpentaria Pilot Project production and reduces capital expenditure required to commence gas sales. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year On 1 March 2024, Empire issued 276,275 ordinary fully paid shares for the conversion of Vested Performance Rights belonging to former employees under the Empire Energy Group Limited Rights Plan for no consideration. No other matter or circumstance has arisen since 31 December 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations 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 Group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Group. Environmental regulation 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. 15 Empire Energy Group Limited Directors' report 31 December 2023 Information on Directors Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Peter Cleary Non-Executive Director and Chair (appointed as Chair on 30 May 2023) 66 BCom, LLB 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 a senior adviser to Mitsubishi’s international LNG and Australian Carbon businesses. He is currently on the Executive of the Australia Korea Business Council. He is a Graduate of the Australian Institute of Company Directors and a 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. In 2023 he retired after 15 years as a member of the Executive Committee of the Australia Japan Business Co- operation Committee. Australia - Korea Business Council Australia Japan Business Co-operation Council None 1,044,546 ordinary shares 227,273 unlisted options expiring on 14 June 2024 @ $0.35 per share 752,707 restricted rights Alexander Underwood Managing Director 41 LLB, BCom (Hons) 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. None None 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 2,750,000 ordinary shares None 3,329,553 unvested performance rights 1,649,436 vested performance rights 1,000,000 service rights 1,586,579 restricted rights 16 Empire Energy Group Limited Directors' report 31 December 2023 Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Louis Rozman Non-Executive Director 66 BEng, MGeoSc Mr Rozman is a mining engineer and executive with over 40 years’ experience in operating, constructing and financing resource 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 resource companies. Mr. Rozman’s executive experience as a successful pioneer of coal seam gas development and production in Queensland is of direct relevance to Empire’s plans. Mr Rozman is a Fellow of the Australian Institute of Company Directors and a Fellow and Chartered Professional (Management) of the Australasian Institute of Mining and Metallurgy. He has a Bachelor of Engineering degree from the University of Sydney and a Masters in Geoscience from Macquarie University. None None Chair of the Remuneration Committee Member of the Technical Committee 683,546 ordinary shares 227,273 unlisted options expiring on 14 June 2024 @ $0.35 per share None Prof John Warburton Non-Executive Director 66 PhD, FGS, FPESA, MAICD Prof Warburton has over 40 years of professional oil and gas experience in operated and non-operated conventional and unconventional petroleum discovery, development and in new business delivery. Prof Warburton has worked in Western Europe, West Africa, Central Asia, Middle East, Pakistan, Papua New Guinea, throughout the Asia Pacific Region, including Australia and New Zealand, and most recently in Mongolia. He has resided as an expatriate in a number of these regions and has a keen focus on technical innovation, 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. He 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, Prof Warburton is Visiting Professor in the School of Earth & Environment at Leeds University UK where he has served fourteen years on the External Advisory Board for integrated Petroleum Engineering, Geoscience and Climate Research. Independent Non-Executive Director TMK Energy Limited Independent Non-Executive Director Senex Energy Limited Non-Executive Director of Imperial Oil & Gas Pty Limited Chair of the Technical Committee Member of the Audit and Risk Committee 772,815 ordinary shares 159,091 unlisted options expiring on 14 June 2024 @ $0.35 per share 1,200,000 service rights 17 Empire Energy Group Limited Directors' report 31 December 2023 Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Karen Green (appointed on 17 November 2023) Non-Executive Director 57 BCom, FCA, FCPA, GAICD Ms. Green has 37 years' experience in business advisory services in Western Australia and Northern Territory (“NT”). She has lived in the NT since 1991 where she was an equity partner in the Deloitte Australian partnership for over 20 years. Ms. Green was the Office Managing Partner of Deloitte in the NT for several years and the 5th female ever to become a Partner in the Deloitte Australia partnership. Ms. Green is currently a director of Advisory HQ which is a business focused on delivering growth for Northern Australia. Ms. Green has acted as an advisor to numerous public and private sector clients in Northern Australia, which has included consultation, facilitation, and development of strategic plans and financial strategies. Ms. Green has extensive experience in providing business plans, stakeholder engagement, development plans, strategic planning, and investment attraction to the private and public sector. Karen has also been an Advisory Board Member of a number of emerging companies. Ms. Green is recognised for her strategic direction and leadership through a variety of board roles including currently as a Non-Executive Director of the Airport Development Group Pty Ltd (the long term lease holder of Darwin International Airport, Alice Springs Airport and Tennant Creek Airport), Chair of the NT Screen Industry Advisory Committee and the NT Council of the Australian Institute of Company Directors. Airport Development Group comprising Airport Development Group Pty Limited, Northern Territory Airports Pty Limited, Darwin International Airport Pty Limited, Alice Springs Airport Pty Limited, Tennant Creek Airport Pty Limited, ADGI Pty Ltd, Darwin Airport Resort Operating Company Pty Ltd and Darwin Airport Resort Operating Company Pty Ltd. Nil Chair of the Audit and Risk Committee Member of the Remuneration Committee None None None 18 Empire Energy Group Limited Directors' report 31 December 2023 Name: Title: Age: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Age: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Paul Espie AO (retired on 30 May 2023) Former Non-Executive Director and Chairman 79 BSc, MBA 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. None Aurelia Metals Limited Former Chair of Empire Energy Group Limited Not applicable as no longer a director Not applicable as no longer a director Not applicable as no longer a director Paul Fudge (retired on 17 November 2023) Former Non-Executive Director 75 Mr Fudge was appointed to the board of Empire in August 2021. Mr Fudge brought 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. None None None Not applicable as no longer a director Not applicable as no longer a director Not applicable as no longer a director 19 Empire Energy Group Limited Directors' report 31 December 2023 Name: Title: Age: Qualifications: Experience and expertise: Jacqui Clarke (retired on 17 November 2023) Former Non-Executive Director (Alternate) 52 CA, FCA, CTA & GAICD 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. Presently, Ms Clarke is the Chair and Non-Executive Director ('NED') of SMEG Australia, a NED on ASX Listed BKI Investment Company Ltd, sits on the Fudge Group Advisory Board, is a Founder of Maxima Private and an author. Ms Clarke is a Chartered Accountant and Fellow of Chartered Accountants Australia and New Zealand, Graduate of AICD (Australian Institute of Company Directors), Chartered Tax Advisor and Justice of the Peace. BKI Investments Limited None Former Member of the Audit and Risk Committee Not applicable as no longer a director Not applicable as no longer a director Not applicable as no longer a director Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Ben Johnston Mr Johnston joined Empire as Vice President Business Development in November 2019. Ben is an energy sector specialist having worked across M&A, ECM and debt / project finance transactions while at leading banks including RBC Capital Markets and Commonwealth Bank. Ben is a chartered accountant having trained with KPMG and holds an MBA from the Australian Graduate School of Management. 20 Empire Energy Group Limited Directors' report 31 December 2023 Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2023, and the number of meetings attended by each Director were: Full Board Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Technical Committee Attended Held Peter Cleary Alexander Underwood* Louis Rozman Prof John Warburton** Karen Green Paul Espie AO Paul Fudge Jacqui Clarke 8 8 8 7 - 3 5 5 8 8 8 8 - 3 5 5 - - 1 - 1 - - - - - 1 - 1 - - - - - - 3 1 - - 2 - - - 3 1 - - 2 - - 9 9 - - - - - - 9 9 - - - - Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. * Mr Underwood excused himself from Remuneration Committee Meetings when matters relating to his remuneration were discussed. ** Mr Warburton was absent from one Full Board meeting as he had to attend to other Board business. Shares under option Unissued ordinary shares of Empire Energy Group Limited under option at the date of this report are as follows: Grant date Expiry date 13 August 2021 13 August 2021 9 September 2022 31 August 2024 31 August 2024 9 September 2024 Exercise price Number under option $0.700 8,000,000 1,696,970 $0.700 $0.350 69,227,558 78,924,528 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of Empire Energy Group Limited issued on the exercise of options during the year ended 31 December 2023 and up to the date of this report. 21 Empire Energy Group Limited Directors' report 31 December 2023 Shares under Performance Rights Unissued ordinary shares of Empire Energy Group Limited under Performance Rights at the date of this report are as follows: Grant date Unvested 13 September 2013 17 June 2022 22 December 2022 21 July 2023 21 December 2023 * Vested 3 August 2021 30 March 2022 27 January 2023 23 February 2024 Expiry date N/A 31 December 2037 31 December 2037 31 December 2038 31 December 2038 30 June 2034 30 December 2034 31 December 2035 31 December 2036 Number under rights 250,000 1,451,409 1,297,209 1,878,144 791,863 1,300,500 563,859 548,234 298,968 8,380,186 * Performance Rights granted on 21 December 2023 were issued on 15 March 2024. No person entitled to exercise the Performance Rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of Performance Rights On 1 March 2024, Empire issued 276,275 ordinary fully paid shares for the conversion of Vested Performance Rights belonging to former employees under the Empire Energy Group Limited Rights Plan for no consideration. Shares under Restricted Rights Unissued ordinary shares of Empire Energy Group Limited under Restricted Rights at the date of this report are as follows: Grant date Expiry date 7 August 2020 1 June 2021 23 December 2020 2 July 2021 21 December 2021 17 June 2022 17 June 2022 9 September 2022 22 December 2022 21 July 2023 21 December 2023 * 31 December 2035 1 June 2036 23 December 2035 2 July 2036 21 December 2036 17 June 2037 17 June 2037 9 September 2037 22 December 2037 21 July 2038 21 December 2038 Exercise price Number under rights $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 1,019,753 617,979 455,820 94,908 568,778 509,198 275,360 131,493 613,830 604,141 538,951 5,430,211 * Restricted Rights granted on 21 December 2023 were issued on 15 March 2024. No person entitled to exercise the Restricted Rights had or has any right by virtue of the restricted right to participate in any share issue of the Company or of any other body corporate. 22 Empire Energy Group Limited Directors' report 31 December 2023 Shares issued on the exercise of Restricted Rights There were no other ordinary shares of Empire Energy Group Limited issued on the exercise of Restricted Rights during the year ended 31 December 2023 and up to the date of this report. Shares under Service Rights Unissued ordinary shares of Empire Energy Group Limited under Service Rights at the date of this report are as follows: Grant date Expiry date Exercise price Number under rights Unvested 21 December 2023 * Vested 14 June 2019 4 August 2020 1 June 2021 21 December 2038 $0.00 1,248,161 30 June 2034 31 December 2035 31 December 2036 $0.00 $0.00 $0.00 1,000,000 838,558 600,000 3,686,719 * Service Rights granted on 21 December 2023 were issued on 15 March 2024. No person entitled to exercise the Service Rights had or has any right by virtue of the service right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of Service Rights There were no other ordinary shares of Empire Energy Group Limited issued on the exercise of Service Rights during the year ended 31 December 2023 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the Directors and executives of the Company for costs incurred, in their capacity as a Director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the Directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 29 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 23 Empire Energy Group Limited Directors' report 31 December 2023 The Directors are of the opinion that the services as disclosed in note 29 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. ● Officers of the Company who are former partners of Nexia Sydney Audit Pty Ltd There are no officers of the Company who are former partners of Nexia Sydney Audit Pty Ltd. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors' report. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors ___________________________ Alexander Underwood Managing Director 28 March 2024 Sydney 24 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 Remuneration Report – Audited The Remuneration Report for the year ended 31 December 2023 (2023 Financial Year or FY23) 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 2023 (FY23). FY23 has seen significant progress in the Beetaloo Sub-basin operations with: 1. All activities carried out safely and in an environmentally responsible manner. 2. The drilling of the Carpentaria 3H well that included the longest horizontal completed and cased well section in Beetaloo Sub-basin of 2,632 metres. 3. The successful production flow testing of the Carpentaria 2H and Carpentaria 3H wells. 4. The acquisition of a fit for purpose gas plant from AGL Limited for $2.5 million. 5. Ongoing positive engagement through on-country meetings with Traditional Owners and pastoral stakeholders. Items 2 and 3 were completed on time and within budget, demonstrating EEG’s cost and operational efficiencies within the basin. The Board is confident that we will continue to have further progress and cost efficiencies during FY23 and beyond. As indicated in the Remuneration Report for FY22, the Board undertook a review of the Managing Director’s total remuneration and rebalanced it so it better benchmarks with the market. The Managing Director’s FY23 Total Remuneration Package at Target was: Fixed Pay: Short term Variable Remuneration: Long term Variable Remuneration: $475,000 (FY22 $430,000) 25% of fixed pay (FY22 25%) 40% of fixed pay (FY22 40%) The Remuneration Committee assessed the Managing Director’s performance against the Key Performance Indicators (set out in Section 2.2) at 100% of Target primarily due to the successful production flow tests, material progress on the Carpentaria Pilot Project FEED and securing long lead items for project development by acquiring the suitably sized Rosalind Park Gas Plant from AGL in FY23. This translated into a Short Term Incentive award of $118,750 which the Board approved. The Board also gave the Managing Director the option of receiving his award in cash or Restricted Rights. The Remuneration Committee continually reviews the total remuneration packages of the senior executives including the Managing Director and is of the view that Empire Energy’s remuneration level is fairly benchmarked against its peers. Louis Rozman Chair, Remuneration Committee 25 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 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. Role Appointed Audit & Risk Remuneration Technical Committee Membership Table 1 Name Non-Executive KMP Mr Peter Cleary Non-Executive Chairman Non-Executive Director 30/05/2023 25/05/2020 Prof John Warburton Non-Executive Director 06/02/2019 Mr Louis Rozman Ms Karen Green Mr Paul Espie Mr Paul Fudge Non-Executive Director 11/03/2021 Non-Executive Director 17/11/2023 05/02/2019 Non-Executive Chairman Non-Executive Director 08/11/2018 Non-Executive Director 17/08/2021 Ms Jacqui Clarke Executive KMP Mr Alex Underwood Managing Director Alternate Director Mr Robin Polson (‘MD’) Chief Financial Officer (‘CFO’) 17/08/2021 23/07/2018 18/07/2022 C ✓ C ✓ ✓ C * C ✓ ✓ = Member, C = Chair * Mr Warburton was Chair of the Audit and Risk Committee prior to Ms Green been appointed Chair. The following changes to KMP occurred during FY23 or between the end of FY23 and the date of publication of this report: • Mr Paul Espie AO retired as Non-Executive Director and Chair on 30 May 2023. • Mr Peter Cleary was appointed as Chair on 30 May 2023. • Mr Louis Rozman replaced Mr Peter Cleary as Chair of the Remuneration Committee on 1 September 2023. Prof John Warburton was appointed Chair of the Technical Committee on 1 September 2023. • • Mr Paul Fudge and his alternate Ms Jacqui Clarke retired as Non-Executive Director on 17 November 2023. • Ms Karen Green was appointed a Non-Executive Director and replaced Prof John Warburton as Chair of the Audit and Risk Committee on 17 November 2023. 26 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 2. Remuneration Overview 2.1 Remuneration Policy EEG’s Remuneration Policy (the Policy) was updated in February 2024 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-term 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. 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-term 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 resource and energy companies of similar size to ensure remuneration is competitive and fair, subject to adjustments 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. The Board has selected a competitive TRP 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 FY23). 27 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 2.2 Executive Remuneration – Executive Framework Overview The following table outlines the Company’s approach to executive remuneration: 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 FY23 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. Purpose Delivery Fixed Pay is set with reference to the median of tailored benchmarks designed around companies of comparator market capitalisation and market sector. Opportunity as percentage of FP: Intended opportunity as percentage of FP: MD Target Stretch 25% 40% MD Target Stretch 40% 70% STVR Key Performance Indicators (‘KPIs’): LTVR Performance Measures: • 75% Absolute Total Shareholder Return (‘TSR’) 25% Milestones FY23 Approach • • NT Work Program – 50% • Cost management and funding coverage for activities – 35% • Management of US • Assets – 5% Individual Effectiveness – 10% A 'Gate' of no major health, safety or environmental incidents occurring during the measurement period applies. A 'Gate' of no major health, safety or environmental incidents occurring during the measurement period applies. Empire Energy has in place an executive incentive plan named the Empire Energy Group Limited Rights Plan or EEG Limited Rights Plan which was approved by shareholders at the 2019 Annual General Meeting and renewed by shareholders at the 2022 Annual General Meeting. 28 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 The following diagram outlines the executive KMP remuneration structure and timing under the remuneration framework as applicable to FY23 where STVR is Short Term Variable Remuneration, and LTVR is Long Term Variable Remuneration. Chart A FY23 Fixed Pay STVR Performance Period* FY24 FY25 FY26 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 Vesting Assessments and Vesting * 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 FY23 Company Performance At-A-Glance The following outlines the Company’s performance in FY23, 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) Change in Shareholder Wealth (Share Price Change + Dividends) Total Value % NT P(50) Prospective Resource (TCFe*) NT 2C Contingent Resource (BCFe**) USA 2P Reserves (MBOE***) 31/12/2023 $0.20 $0.20 $(0.00) $0.00 $(0.01) (3)% 46.3 1,669 4,439 31/12/2022 $0.34 $0.20 $(0.14) $0.00 $(0.14) (41)% 47.7 575 5,723 221 41 - - 6,440 6,000 6,075 11,634 31/12/2021 $0.36 $0.34 $(0.02) $0.00 $(0.02) (6)% 46.9 31/12/2020 $0.45 $0.36 $(0.09) $0.00 $(0.09) (20)% 14.7 31/12/2019 $0.14 $0.45 $0.31 $0.00 $0.31 221% 12.4 $0.12 31/12/2018 * TCFe: Trillion Cubic Feet ** BCFe: Billion Cubic Feet equivalent *** MBOE: Thousand barrels of oil equivalent $0.14 $0.02 $0.00 $0.02 17% 12.4 29 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 2.4 FY23 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 FY23 for STVR and LTVR, and the “Realised” remuneration payable in respect of the completed FY23 year and performance delivered: Chart B. Note: • • “Realised” refers to Fixed Pay received during FY23 and Cash STVR awarded in respect of FY22 performance and LTVR that vested during FY23. The Realised STVR outcome was above Target but below Stretch in absolute terms. 2.5 Key KMP Remuneration Governance Considerations and Changes The following summarises the key remuneration governance matters that were the focus of considerations in FY23, and those that are expected to be addressed in FY24, including planned changes: • benchmarking Managing Director’s compensation against ASX and other comparable listed market data to inform quantum and mix of compensation decisions, intended to meet EEG’s strategy and market positioning requirements. (Completed 2023); benchmarking and review of Non-Executive remuneration (Completed: 2023); and assessment of vesting conditions for LTVR (Completed 2023). • • 30 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 3 The Empire Energy Strategy, Policy and Framework 3.1 FY23 Short-Term Variable Remuneration (‘STVR’) 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). Opportunity as % of Fixed Pay Target 25% Stretch 40% MD For FY23, the following metrics and weightings – at Target - applied: • NT Work Program – 50% • Cost management and funding coverage for activities – 35% • Management of US Assets – 5% Individual Effectiveness – 10% • These metrics were selected because they were viewed by the Board as being the key drivers of value creation for FY23. Gate A 'Gate' of no major health, safety or environmental incidents occurring during the measurement period applies. Award and Settlement Awards will be calculated following the auditing of accounts. STVR awards may be paid as cash or equity. The Board offered the Managing Director the opportunity to receive his STVR in cash which he accepted. The overarching policy is to pay STVR awards in the form of Restricted Rights to preserve cash reserves however the decision to offer cash was based on the Board’s view that this was more appropriate in the current market. 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. 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). 31 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 3.2 FY24 Short-Term Variable Remuneration (‘STVR’) EEG intends to apply the following KPIs and weightings - at Target -in relation to FY24 to provide a sharper focus on operational expectations: • NT Work Program – 45% • Cost management and funding coverage for activities – 45% • Management of US Assets – 5% Individual Effectiveness – 5% • 3.3 FY23 Long-Term Variable Remuneration (‘LTVR’) 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 1 January 2023 to 31 December 2025 (3 years). Grant Calculation 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 2022 VWAP of $0.2604 Opportunity and Grant Value MD Opportunity as % of Fixed Pay Target 40% Stretch 70% Based on the Right Value of $0.2604, the maximum/stretch level of grants made to KMP disclosed in this report in respect of FY23 LTVR for the Managing Director, Alex Underwood was 1,878,144 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 . Performance Metrics and Weightings The Board has discretion to set Vesting Conditions for each tranche of each Invitation. For FY23 LTVR grants, the following Vesting Conditions were altered to reflect market practice and recognition of the significant value to shareholders if the Stretch target is achieved. 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 FY23 to FY25 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) ≥ 30% > 15% & < 30% = 15% > 10% & < 15% = 10% < 10% % of Tranche Vesting 100% Pro-rata 50% Pro-rata 25% 0% 32 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 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. The Board reviews these metrics annually. Gates 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. 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 and 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. Measurement Period Modifier 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. 33 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 Cessation of Employment 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. Board Discretion 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. 3.4 FY23 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 All Committees Chair Member $90,000 $60,000 Fees are exclusive of superannuation. $10,000 $5,000 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. 34 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 Aggregate Board Fees The total amount of fees paid to Non-Executive Directors in the year ended 31 December 2023 is within the aggregate fee limit of $400,000 which was last approved by shareholders on 30 May 2019. Grants of equity approved by shareholders are excluded from counting towards the aggregate Board Fees, in accordance with the ASX Listing Rules. 3.4.2 FY23 NED Equity Grants A description of the terms Non-Executive Director (NED) equity grants for FY23 is described below: Purpose The purpose of NED equity grants in FY23 is to allow Non-Executive Directors to exchange cash Board Fees for grants of equity in respect of FY23 remuneration. Opportunity NEDs may elect to receive up to 100% of their Board Fees including superannuation in Restricted Rights in lieu of cash payment. Instrument The FY23 NED Equity Plan grant is to be in the form of Restricted Rights. Price and Exercise Price The Price is nil, because it forms part of the remuneration of the Participant, however grants are generally based on an agreement to forego cash Board Fees. The Exercise Price is nil. Allocation method The Rights are valued using the following method: Right Value = Share Price – (Dividends expected to be lost before first exercise date) The Number of Rights to be granted = Sacrificed$ ÷ 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) b) c) Specified Disposal Restriction of one (1) year from their date of issue. the Company’s share trading policy; the Corporations Act insider trading provisions; and 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. 35 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 4 The Link Between Performance and Reward in FY23 4.1 FY23 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 - FY23 Business/Group Performance Scorecard Outcomes Metric/Measure Weighting NT Work Program Cost management & Funding coverage for activities US Assets Individual Effectiveness Total 50% 35% 5% 10% 100% Outcome (% of Target) 100% 100% 100% 100% Weighted Outcome ( % of Target) 50% 35% 5% 10% 100% Overall STVR outcomes for FY23 are determined through the Board’s assessment of the Business and Individual Outcomes, as outlined below: Table 4 Executive KMP Alex Underwood Opportunity as % of Fixed Pay Max STVR Target STVR STVR Outcome as % of Target Total STVR Awarded ($) Cash ($) Restricted Rights ($) % Max STVR Awarded % Max STVR 40% 25% 100% $118,750 $118,750 N/A N/A N/A 4.2 Recent LTVR Outcomes The LTVR that vested to executives in respect of the completed FY23 reporting period was granted in FY20, and may be summarised as follows (noting that the FY20 LTVR grant was issued under the same terms and conditions as the FY23 LTVR plan outlined in section 3.3): Instrument Performance Rights under the EEGLRP. Measurement Period Performance Metrics and Weightings CEO: 1 January 2021 – 31 December 2023 (3-year Measurement Period)* 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: 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% 36 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 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. 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 also assessed that the vesting conditions for Tranche 2 were met and as a result, 100% vesting applies in respect of the Tranche 2 Performance Rights issued. The Board exercised its discretion under the Empire Energy Group Limited Rights Plan to grant vesting of the Tranche 2 Performance Rights issued in 2021. 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. Table 5 Role Tranche g n i t h g i e W No. Eligible To Vest In Reporting Period for FY22 perform- ance Target Perform- ance Actual Outcome % of Tranche Vested Number Vested Absolute TSR Milestones 75% 2,093,778 25% TSR p.a 0% 0% 0 25% 145,089 Board Discretion Board Discretion 100% 145,089 $ Value of LTVR that Vested (as per Grant Date Valuat- ion) Realisable Value (Number x Vesting Date SP net of Exercise Price) $0 $0 $21,038 $28,292 Grant Date Valua tion N/A 3- Aug- 21 MD CFO No eligible rights vested in the reporting period for FY23 2,238,867 145,089 $21,038 $28,292 4.3 Achieved Total Remuneration Package for FY23 The following outlines “Achieved” (what became payable, awarded or vested in respect of FY23 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 31 December 2023. 37 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 Table 6 Name Role(s) Year Fixed Package (incl Super) Total STVR Awarded Following Completion of the Financial Year (cash)* Alex Underwood MD MD 2023 $475,000 $118,750 2022 $430,000 $129,600 Total STVR Awarded Following Completion of the Financial Year (equity- settled) $0 $0 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*** $21,038 $614,788 $7,254 $18,346 $577,946 $22,423 Robin Polson (commenced 18/07/2022) * CFO 2023 $341,345 $0 $78,750 $0 $420,095 $0 CFO 2022 $41,250 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. $190,342 $325,292 N/A N/A N/A ** This is the grant value of the LTVR/Equity that vested in respect of the FY23 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. Use of Board Discretion 4.4 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 FY23 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* Current Executive KMP Alex Underwood Robin Polson MD MD CFO CFO 2023 2022 2023 2022 Name Roles Year Current Executive KMP Alex Underwood Robin Polson MD MD CFO CFO 2023 2022 2023 2022 $449,708 $26,345 $18,454 $494,507 $118,750 $406,432 $24,430 $6,043 $436,905 $129,600 $315,000 $26,346 $137,500 $11,592 $0 $0 $341,346 $149,092 $0 $0 Total Remuneration Package (TRP) Variable Remuneration as % TRP Termination Benefits Change in Accrued Leave $649,478 $713,487 $420,096 $190,342 24% 35% 19% 22% $0 $0 $0 $0 $(10,452) $(8,159) $13,558 $13,330 Equity- Settled STVR* $0 $0 $78,750 $41,250 LTVR** $36,221 $147,342 $0 $0 * 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 38 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 performance is used such as TSR or share price, no adjustments can be made to reflect actual LTVR vesting. *** Other benefits for Alexander Underwood include items such as FBT and depreciation associated with motor vehicle running costs. $1000 per month is deducted from Mr Underwood’s remuneration pre-tax to cover motor vehicle running costs including car parking, fuel, interest etc. 5.2 Non-Executive Director (‘NED’) KMP Statutory Remuneration for FY23 The following table outlines the statutory and audited remuneration of NEDs ($, except where otherwise indicated): Table 8 Name Role(s) Year Board Fees Committee Fees Super- annuation Other Benefits Equity Grant * Total Paul Espie AO (a) John Warburton Peter Cleary (b) Louis Rozman (c) Paul Fudge (d) Jacqui Clarke (d) Karen Green (e) Non-Executive Chairman Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Alternate Director Alternate Director Non-Executive Director Non-Executive Director 2023 $82,500 2022 - - - $8,663 - 2023 $60,000 $16,904 $8,272 2022 $62,500 2023 2022 - - - - - $6,500 - - 2023 $30,000 $5,000 $3,675 2022 $60,000 2023 $52,726 2022 $55,000 - - - $6,238 $5,650 $5,713 2023 2022 2023 2022 $58,376 $6,967 - $60,913 - N/A - - N/A $2,563 - N/A There were no termination payments made to NEDs. - - - - - - - - - - - - - - $91,163 $54,382 $54,382 - - $85,176 $69,000 $63,565 $63,565 $36,255 $36,255 - - - - - - - $38,675 $66,238 $58,376 $60,713 $65,343 $63,476 - N/A N/A N/A * 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. (a) Paul Espie retired as Non-Executive Director and Chairman on 30 May 2023. Paul elected to take his 2023 Director Fees in cash and relates to director fees from July 2022 to May 2023. The $54,382 was approved at the 2022 AGM and relates to director fees from July 2021 to June 2022. (b) Peter Cleary has elected to take his Director Fees in Restricted Rights in lieu of a cash payment. The $63,565 and $36,255 were approved at the 2023 and 2022 AGMs, respectively and relate to director fees from July 2021 to June 2023. (c) Louis Rozman has elected to take his Director Fees in Restricted Rights in lieu of a cash payment from 1 July 2023. The equity grant for director fees from July 2023 to June 2024 is yet to be approved at the 2024 AGM. (d) Paul Fudge and his alternate Jacqui Clarke retired as Non-Executive Directors on 17 November 2023. (e) Karen Green was appointed Non-Executive Director on 17 November 2023. Karen has elected to take her Director Fees in Restricted Rights in lieu of a cash payment from date of appointment. The equity grant for director fees from date of appointment to June 2024 is yet to be approved at the 2024 AGM. 39 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 5.3 KMP Equity Interests and Changes During FY23 Movements in equity interests held by executive KMP during the reporting period, including their related parties, are set out below: Table 9 Name Instru- ment Number Held at Open FY23 Granted FY23 Forfeited during FY23 Vested during FY23 FY23 Exercised (or Shares received from Exercising) FY23 Purchased/ Other FY23 Sold Number Held at Close 2023 Number Number Number Number Number Number Number Number 2,550,000 Date Granted - 3,887,079 - - - - - - 203,847 3,894,123 21/07/23 1,878,144 (203,847) - - - - - - - - - - 22/12/22 266,418 - - - - - - - - - Alex Under- wood Robin Polson Shares Vested Rights Unvested Rights Options Shares Vested Rights Unvested Rights TOTALS 10,331,202 N/A 2,144,562 (203,847) 203,847 - - - - - - 200,000 - - - - 200,000 - - - - - - - 2,750,000 4,090,926 5,568,420 - - - 266,418 12,675,764 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 FY23 Granted FY23 Forfeited during FY23 Vested during FY23 FY23 Exercised (or Shares received from Exercising) FY23 Purchased /Other Number Held at Close FY23 Number Number Number Number Number Number Paul Espie AO John Warburton Peter Cleary Louis Rozman Paul Fudge Shares Vested Rights Unvested Rights Options Shares Vested Rights Unvested Rights Options Shares Vested Rights Unvested Rights Options Shares Vested Rights Unvested Rights Options Shares Unissued Shares Vested Rights Number 10,135,363 733,169 - 704,546 772,815 1,200,000 - 159,091 1,044,546 Date Granted - - - - - - - - - - - - - - - - - 328,943 21/07/23 423,764 - 227,273 621,546 - - 227,273 140,000,000 - - - - - - - - - - - - - - - - - - - - 40 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 62,000 - - - - - - 10,135,363 733,169 - 704,546 772,815 1,200,000 - 159,091 1,044,546 752,707 - 227,273 683,546 - - 227,273 140,000,000 - - Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 Name Instrument Unvested Rights Options Shares Vested Rights Unvested Rights Shares Vested Rights Unvested Rights Jacqui Clarke Karen Green Number Held at Open FY23 Number - 8,000,000 - - - - - - Date Granted - - - - - - - - Granted FY23 Forfeited during FY23 Vested during FY23 FY23 Exercised (or Shares received from Exercising) FY23 Purchased /Other Number Held at Close FY23 Number Number Number Number Number Number - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8,000,000 - - - - - - 62,000 164,640,329 TOTALS 164,154,565 - 423,764 - The following outlines the accounting values and potential future costs of equity remuneration granted during FY23 for executive KMP: Table 11 2023 Equity Grants Name Alex Underwood Max Value to be Expensed in Future Years $13,163 Tranche Grant Type Vesting Conditions Grant Date Total Value at Grant Value Expensed in FY 23 FY23 LTVR Performance Rights FY23 LTVR Performance Rights LTVR LTVR Absolute TSR Milestones 21/07/2023 $16,098 $2,935 21/07/2023 $20,123 $3,669 $16,454 Note: the minimum value to be expensed in future years for each of the above grants made in FY23 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 FY23 for Non-executive KMP: Table 12 2023 Equity Grants Name Peter Cleary Tranche Grant Type Vesting Conditions Grant Date Total Value at Grant Value Expensed in FY 23 Restricted Rights Fee Sacrifice n/a* 21/07/2023 $63,565 $63,565 Max Value to be Expensed in Future Years - Note: the minimum value to be expensed in future years for each of the above grants made in FY23 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 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. 41 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 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 FY23 Employing Company Duration of Contract Period of Notice From Company From KMP Alex Underwood Managing Director Empire Energy Group Limited Robin Polson Chief Financial Officer Empire Energy Group Limited Permanent 12 months 12 months Permanent 3 months 3 months Termination Payments* 12 months of salary in lieu of notice 3 months of salary in lieu of notice * 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. 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 FY23 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 FY23, GRG provided the following services: • Analysis and recommendations regarding executive remuneration in relation to the Managing Director and Direct Reports - $5,500 + GST 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 2023 (2022: Nil). 42 Empire Energy Group Limited Directors' report - remuneration report 31 December 2023 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 FY23 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 Melissa Underwood Related Entity Spouse of Managing Director Transactions Temporary employment as Accounts Executive End of Audited Remuneration Report 43 ` To the Board of Directors of Empire Energy Group Limited Level 5, 6-10 O’Connell Street SYDNEY NSW 2000 Auditor’s Independence Declaration under section 307C of the Corporations Act 2001 As lead audit director for the audit of the financial statements of Empire Energy Group Limited for the financial year ended 31 December 2023, 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 Brett Hanger Director Date: 28 March 2024 44 Empire Energy Group Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2023 Revenue Cost of goods sold Gross margin Other income Interest revenue calculated using the effective interest method Expenses Exploration expenses General and administration expenses Depreciation, depletion and amortisation Unrealised loss on forward commodity contracts Finance costs Loss before income tax expense Income tax expense Loss after income tax expense for the year attributable to the owners of Empire Energy Group Limited Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income/(loss) for the year, net of tax Total comprehensive loss for the year attributable to the owners of Empire Energy Group Limited Basic earnings per share Diluted earnings per share Consolidated Note 2023 $ 2022 $ 5 6 7 7 7 8 9 9 6,085,528 (5,892,491) 193,037 13,722,333 (5,960,674) 7,761,659 575,678 308,554 258,613 21,360 (9,093,337) (8,394,185) (1,488,031) (296,020) (3,636,499) (2,175,882) (7,990,122) (1,087,683) (272,099) (2,280,524) (21,830,803) (5,764,678) (251,113) (238,528) (22,081,916) (6,003,206) 311,481 (121,182) 311,481 (121,182) (21,770,435) (6,124,388) Cents Cents (2.86) (2.86) (0.86) (0.86) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 45 Empire Energy Group Limited Consolidated statement of financial position As at 31 December 2023 Consolidated Note 2023 $ 2022 $ Assets Current assets Cash and cash equivalents Trade and other receivables Other assets Inventories Derivative financial instruments Total current assets Non-current assets Oil and gas properties Property, plant and equipment Exploration and evaluation assets Right-of-use assets Intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 10 11 12 13 14 15 16 17 18 19 20 21 22 21 22 13,626,753 1,912,220 4,564,623 38,937 - 20,142,533 21,880,311 6,055,432 4,191,609 66,361 96,410 32,290,123 38,206,087 556,565 36,611,612 608,774 111,514,901 127,039,687 999,606 100,689 151,360,246 165,360,368 982,961 99,732 171,502,779 197,650,491 8,466,291 8,771,474 604,085 271,723 18,113,573 18,469,820 7,822,908 399,195 252,424 26,944,347 370,509 40,715,280 41,085,789 608,977 36,489,377 37,098,354 59,199,362 64,042,701 112,303,417 133,607,790 23 24 255,945,973 255,945,973 10,399,487 (154,819,586) (132,737,670) 11,177,030 112,303,417 133,607,790 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 46 Empire Energy Group Limited Consolidated statement of changes in equity For the year ended 31 December 2023 Consolidated Issued Capital $ Unissued Shares $ Reserves $ Accumulated losses $ Total equity $ Balance at 1 January 2022 220,905,029 5,629,437 9,520,152 (126,734,464) 109,320,154 Loss after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 23) Share-based payments - - - - - - - (6,003,206) (6,003,206) (121,182) - (121,182) (121,182) (6,003,206) (6,124,388) 35,040,944 - (5,629,437) - - 1,000,517 - - 29,411,507 1,000,517 Balance at 31 December 2022 255,945,973 - 10,399,487 (132,737,670) 133,607,790 Consolidated Issued Capital $ Unissued shares $ Reserves $ Accumulated losses $ Total equity $ Balance at 1 January 2023 255,945,973 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Share-based payments - - - - Balance at 31 December 2023 255,945,973 - - - - - - 10,399,487 (132,737,670) 133,607,790 - (22,081,916) (22,081,916) 311,481 - 311,481 311,481 (22,081,916) (21,770,435) 466,062 - 466,062 11,177,030 (154,819,586) 112,303,417 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 47 Empire Energy Group Limited Consolidated statement of cash flows For the year ended 31 December 2023 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Government grants (Beetaloo Cooperative Drilling Program) R&D tax incentive Interest received Interest and other finance costs paid Income taxes paid Consolidated Note 2023 $ 2022 $ 11,953,249 (35,577,593) 7,697,880 15,336,577 308,554 (1,939,642) (251,113) 10,693,582 (19,998,504) 7,558,421 7,764,603 21,360 (700,644) (238,528) Net cash (used in)/from operating activities 37 (2,472,088) 5,100,290 Cash flows from investing activities Payments for property, plant and equipment Payments for exploration and evaluation assets Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Net proceeds from issue of shares Proceeds from interest-bearing liabilities Repayments of interest-bearing liabilities Repayment of lease liabilities Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents 15 23 (137,043) (7,024,670) 403,970 (229,274) (37,356,304) - (6,757,743) (37,585,578) - 1,827,000 (804,094) (349,174) 29,411,507 - (811,808) (223,159) 673,732 28,376,540 (8,556,099) 21,880,311 302,541 (4,108,748) 25,649,699 339,360 Cash and cash equivalents at the end of the financial year 13,626,753 21,880,311 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 48 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 1. General information The financial statements cover Empire Energy Group Limited as a Group consisting of Empire Energy Group Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Empire Energy Group Limited's functional and presentation currency. Empire Energy Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 5 6 - 10 O’Connell Street Sydney NSW 2000 A description of the nature of the Group's operations and its principal activities are included in the Directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 28 March 2024. The Directors have the power to amend and reissue the financial statements. Note 2. Material accounting policies information New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Going concern The Group has prepared the financial report on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. As at 31 December 2023 the Group: ● Reported an operating loss after income tax of $22,081,916 and incurred net operating cash outflows of $2,472,088; and ● Has a loan facility with Macquarie Bank for the US operations totalling USD$4,750,020 (AUD$6,944,474) which matures in September 2024 and will need to have its maturity extended, be refinanced, or be repaid by that time. In addition, the Group continues to incur increased expenditure in the lead up to the sanction of the Carpentaria Pilot Project. The Group is also planning significant expenditures, not yet committed, for the development of the Carpentaria Pilot Project within the next 12 months. The existing Group’s cash on hand is not sufficient to meet all these obligations (committed or otherwise) as they come due over the next twelve months. These factors raise material uncertainty regarding the Group’s ability to continue as a going concern. The continuation of the Group as a going concern is dependent upon the ability of the Group to obtain necessary additional capital to fund ongoing activities and the repayment, refinance, or amendment of terms of the US loan facility within the next 12 months. Management has several plans in various stages of progress to source additional funding and the Directors are confident that funding will be available to provide operating capital and to address the maturity for the US debt. However, if the Group is not successful in securing sufficient additional funds or through other arrangements when required, then to meet its expenditure targets there may be uncertainty about whether the Group is able to realise assets and/or extinguish liabilities in the normal course of business at the amounts stated in the Financial Report. 49 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets and liabilities that might be necessary should the Group be unable to continue as a going concern. 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 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 Group'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 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group. Supplementary information about the parent entity is disclosed in note 34. 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 2023 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 'Group' or 'Empire Group'. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group 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 Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the 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 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. Where the 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 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 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. 50 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) Foreign currency translation Foreign currency transactions Foreign currency transactions are translated into the Company's functional currency 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 the Company's functional currency using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into the Company's functional currency 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 The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. 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. The timing differences between the delivery of natural gas and the Empire Group's receipt of a delivery statement results in 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. 51 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) 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 of variable consideration in oil contracts with customers and prices are determined based on prevailing market sales price data. Well operations Well operations and pipeline income are recognised when persuasive evidence of an arrangement exists, services have been rendered, collection of revenues is reasonably assured and the sales price is fixed or determinable. The Empire Group is paid a monthly operating fee for each well it operates for outside owners. The fee covers monthly operating and accounting costs, insurance and other recurring costs. The Empire Group might also receive additional compensation for special non-recurring 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. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. 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. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. 52 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Tax consolidation Empire Energy Group Limited and its wholly-owned Australian resident entities form a tax-consolidated Empire Group. As a consequence, all members of the tax-consolidated Empire Group have been taxed as a single entity since 1 July 2003. The head entity within the tax-consolidated Empire Group is Empire Energy Group Limited. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated Empire Group are recognised in the separate financial statements of the members of the tax-consolidated Empire Group using the ‘separate taxpayer within Empire Group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax-consolidated Empire Group and are recognised by the Empire Group as amounts payable/(receivable) to/from other entities in the tax-consolidated Empire Group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Empire Group as an equity contribution or distribution. The Empire Group recognises deferred tax assets arising from unused tax losses of the tax consolidated Empire Group to the extent that it is probable that future taxable profits of the tax consolidated Empire Group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only. Nature of tax funding arrangements and tax sharing arrangements The head entity, in conjunction with other members of the tax-consolidated Empire Group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated Empire Group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity receivables/(payables) are at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. 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. 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 Group'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. 53 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) A liability is classified as current when: it is either expected to be settled in the 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 with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 to 90 days. 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. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. 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 designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Cash flow hedges Cash flow hedges are used to cover the Group's exposure to variability in cash flows 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 changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non- financial asset or non-financial liability. This transfer does not affect other comprehensive income. Furthermore, if the Group expects that some or all of the loss accumulated in the cash flow hedging reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss. 54 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is reclassified immediately to profit or loss. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as outlined below, except for land which is not depreciated: Buildings Equipment Motor vehicles 40 years 5 years 5 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Oil and gas properties Oil and gas properties are stated at cost, less accumulated depletion 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. 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. 55 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) 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. 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 Group 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. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Intangible assets Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Impairment of non-financial assets Goodwill has an indefinite useful life and is not subject to amortisation, it is tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other 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. Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group 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. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. 56 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) 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 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. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. 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. 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 high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 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 the 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 Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. 57 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying the 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 Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group 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. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. 58 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 2. Material accounting policies information (continued) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Empire Energy Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming conversion of all dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. 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 Group for the annual reporting period ended 31 December 2023. The Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. The accounting policies adopted are consistent with those of the previous financial year, unless otherwise stated. Note 3. 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. 59 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 3. Critical accounting judgements, estimates and assumptions (continued) Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Impairment of non-financial assets other than goodwill The Group assesses impairment of non-financial assets other than goodwill at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision As discussed in note 2, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. 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 profit or loss. 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. 60 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 3. Critical accounting judgements, estimates and assumptions (continued) 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. 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. 61 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 3. Critical accounting judgements, estimates and assumptions (continued) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at 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. Note 4. Operating segments Identification of reportable operating segments The Group is organised into three operating segments: (1) 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; (2) Northern Territory - includes all exploration and drilling activity of the Group in the Northern Territory, conducted through Imperial Oil & Gas Pty Limited and Imperial Oil & Gas A Pty Limited; and (3) Corporate - includes all centralised administration costs, minor other income and investments/loans in Empire Group USA, Imperial Oil & Gas Pty Limited and Imperial Oil & Gas A Pty Limited (eliminated on consolidation). These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The revenue reported below represents revenue generated from external customers. Intersegment revenue relates to Corporate overhead charges only. Included in Other income are gains disclosed separately on the face of the Statement of Profit and Loss and Other Comprehensive Income. Information reported to the CODM allows resources to be allocated and subsequent performance to be analysed. This is reviewed on a monthly basis. Segment profit/(loss) represents the profit/(loss) earned by each segment without allocation of central administration costs and share-based payments, finance income and finance expense, gains or losses on disposal of associates and discontinued operations. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance. Major customers During the year ended 31 December 2023 approximately $4,381,580 (2022: $11,115,090) of the Group's external revenue was derived from sales to two (2022: two) major customers. 62 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 4. Operating segments (continued) Operating segment information Consolidated - 2023 Revenue Sales to external customers Intersegment sales Total sales revenue Other income Interest income (external) Intersegment interest income Total revenue Segment profit/(loss) Share-based payments expense Depreciation and amortisation Unrealised loss on forward commodity contracts Finance costs (net) Finance costs (non-cash) Intersegment interest expense (Loss)/profit before income tax expense Income tax expense Loss after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities US Operations $ Northern Territory $ Corporate $ Eliminations $ Total $ 6,085,528 - 6,085,528 521,961 58,813 - 6,666,302 - - - 53,717 6,896 - 60,613 - 4,827,588 4,827,588 - 242,845 9,757,939 14,828,372 - (4,827,588) (4,827,588) - - (9,757,939) (14,585,527) 6,085,528 - 6,085,528 575,678 308,554 - 6,969,760 (956,038) (14,016,792) 8,652,533 (9,643,894) (15,964,191) - (1,198,973) - (20,003) (446,062) (269,055) - - (446,062) (1,488,031) (296,020) (897,321) (1,696,857) (2,509,023) - (1,019,260) - (7,385,981) - (23,061) - - - - - 9,895,004 (296,020) (1,939,642) (1,696,857) - (7,554,232) (22,442,036) 7,914,355 251,110 (21,830,803) (251,113) (22,081,916) 45,826,070 116,534,967 253,594,035 (244,452,293) 171,502,779 171,502,779 (79,912,793) (178,800,101) (1,894,078) 201,407,610 (59,199,362) (59,199,362) 63 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 4. Operating segments (continued) Consolidated - 2022 Revenue Sales to external customers Intersegment sales Total sales revenue Other income Interest income (external) Intersegment interest income Total revenue Segment profit/(loss) Depreciation and amortisation Share-based payments Finance costs (net) Intersegment interest expense Finance costs (non-cash) Unrealised loss on forward commodity contracts Profit/(loss) before income tax expense Income tax expense Loss after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Geographical information US Operations $ Northern Territory $ Corporate $ Eliminations $ Total $ 13,722,333 - 13,722,333 258,613 21,360 - 14,002,306 - - - - - - - 6,249,828 (809,128) - (669,842) (2,381,970) (1,601,240) (11,132,729) (105,113) - - (4,790,771) - - 4,262,350 4,262,350 - - 7,175,887 11,438,237 6,783,723 (173,442) (1,000,517) (9,442) (3,146) - - (4,262,350) (4,262,350) - - (7,175,887) (11,438,237) (3,024,677) - - - 7,175,887 - 13,722,333 - 13,722,333 258,613 21,360 - 14,002,306 (1,123,855) (1,087,683) (1,000,517) (679,284) - (1,601,240) (272,099) - - - (272,099) 515,549 (16,028,613) 5,597,176 4,151,210 (5,764,678) (238,528) (6,003,206) 47,261,555 134,551,461 245,562,697 (229,725,222) 197,650,491 197,650,491 (74,133,741) (174,686,256) (1,794,148) 186,571,444 (64,042,701) (64,042,701) All revenue generated from the sale of oil and gas to external customers is derived from operations in the USA. All of the Group’s producing oil and gas assets are located in the USA. The Group has exploration oil and gas tenements in the Northern Territory, Australia. 64 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 5. Revenue Revenue from oil sales Revenue from gas sales Revenue from well operations Oil and gas price risk management income Consolidated 2023 $ 2022 $ 323,141 5,138,420 545,550 78,417 365,325 12,806,031 550,977 - 6,085,528 13,722,333 The Group's total revenue are all generated in the USA and recognised at a point in time. Note 6. Other income Net gain on disposal of property, plant and equipment US Government stimulus packages Other income Other income Consolidated 2023 $ 2022 $ 53,717 - 521,961 - 258,613 - 575,678 258,613 65 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 7. Expenses Loss before income tax includes the following specific expenses: Depreciation and depletion Depletion - oil and gas properties (note 14) Depreciation - property, plant and equipment (note 15) Depreciation - right-of-use assets (note 17) Total depreciation and depletion General and administration expenses Salaries and wages - Australia Other advisory fees Other overhead Insurance including NT work programs Share-based payments expense Short-term lease payments Finance costs Interest paid/payable on financial liabilities Unwinding of the discount Accretion of asset retirement obligation (note 22) Finance costs expensed Employee costs* Defined contribution superannuation expense Salaries and wages Total employee costs Consolidated 2023 $ 2022 $ 985,900 169,890 332,241 645,696 242,597 199,390 1,488,031 1,087,683 2,726,516 582,309 4,148,803 449,258 466,062 21,237 2,282,504 592,928 3,808,633 305,540 1,000,517 - 8,394,185 7,990,122 1,939,642 - 1,696,857 679,284 36,604 1,564,636 3,636,499 2,280,524 182,720 5,818,753 158,886 5,592,909 6,001,473 5,751,795 * 32 employees are based in the US and 7 employees are based in Australia. Employee costs for the US based employees are recognised in cost of sales and employee costs for Australia based employees are recognised in general and administration expenses. 66 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 8. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 25% Difference in overseas tax rates Changes in Australian tax rate Withholding tax paid Deferred tax asset in relation to tax losses and temporary differences not recognised Income tax expense Deferred tax assets not recognised Deferred tax assets not recognised comprises temporary differences attributable to: Tax losses Capital losses Other Total deferred tax assets not recognised Consolidated 2023 $ 2022 $ - 251,113 - 238,528 251,113 238,528 (21,830,803) (5,764,678) (5,457,701) (1,441,170) 67,652 - 251,113 100,210 96,941 238,528 5,390,049 1,244,019 251,113 238,528 Consolidated 2023 $ 2022 $ 24,000,839 201,841 8,995,776 18,689,936 201,841 7,739,633 33,198,456 26,631,410 The above potential tax benefit, which excludes tax losses, for deductible temporary differences has not been recognised in the statement of financial position as the recovery of this benefit is uncertain. The potential benefit of the deferred tax asset attributable to tax losses will only be obtained if: (i) the Group 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 the Group continues to comply with the conditions for deductibility imposed by the law; and (ii) (iii) no changes in tax legislation adversely affect the Group in realising the asset. 67 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 8. Income tax (continued) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Accrued asset retirement obligation Oil and gas properties and property, plant and equipment Other Set-off of deferred tax assets pursuant to set-off provisions Deferred tax asset Deferred tax liability Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss: Forward commodity contracts Oil and gas properties and property, plant and equipment Other Set-off of deferred tax liabilities pursuant to set-off provisions Deferred tax liability Note 9. Earnings per share Consolidated 2023 $ 2022 $ 3,618,421 4,738,466 638,889 (8,995,776) 2,944,649 4,130,777 664,207 (7,739,633) - - Consolidated 2023 $ 2022 $ - 4,144,737 114,035 (4,258,772) 23,616 4,132,842 118,081 (4,274,539) - - Consolidated 2023 $ 2022 $ Loss after income tax attributable to the owners of Empire Energy Group Limited (22,081,916) (6,003,206) Weighted average number of ordinary shares used in calculating basic earnings per share 773,121,148 700,901,005 Weighted average number of ordinary shares used in calculating diluted earnings per share 773,121,148 700,901,005 Number Number Basic earnings per share Diluted earnings per share Cents (2.86) (2.86) Cents (0.86) (0.86) 78,924,528 options (2022: 78,924,528), 12,766,951 Performance Rights (2022: 9,765,402), 2,438,558 Service Rights (2022: 2,438,558) and 4,891,260 Restricted Rights (2022: 3,702,954) have been excluded from the above calculation as their inclusion would be anti-dilutive. 68 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 10. Trade and other receivables Current assets Trade receivables Other receivables GST receivable Consolidated 2023 $ 2022 $ 1,408,726 - 503,494 2,970,945 659,448 2,425,039 1,912,220 6,055,432 Allowance for expected credit losses The Group has recognised a loss of $85,792 (USD$57,000) (2022: $69,095 (USD$48,000)) in profit or loss in respect of the expected credit losses for the year ended 31 December 2023. The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Expected credit loss rate 2023 % Expected credit loss rate 2022 % Carrying amount 2023 $ Carrying amount 2022 $ Allowance for expected credit losses 2023 $ Allowance for expected credit losses 2022 $ 25.00% - - 75.00% - - - 10.40% 1,338,517 958 952 68,299 2,286,963 - 1,234 682,748 34,567 - - 51,225 - - - 69,095 1,408,726 2,970,945 85,792 69,095 Consolidated Current 31 to 60 days overdue 61 to 90 days overdue Over 90 days overdue Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Closing balance Consolidated 2023 US$ 2022 US$ 48,000 9,000 5,300 42,700 57,000 48,000 69 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 11. Other assets Current assets Prepayments Security deposits* Consolidated 2023 $ 2022 $ 791,966 3,772,657 564,022 3,627,587 4,564,623 4,191,609 * Security deposits of $3,755,990 (2022: $3,627,587) are Northern Territory Environment bonds held with the Northern Territory Government. Note 12. Inventories Current assets Parts and supplies Oil Note 13. Derivative financial instruments Current assets Oil and gas price forward contracts Refer to note 27 for further information on fair value measurement. Note 14. Oil and gas properties Non-current assets Oil and gas - Producing Less: Accumulated depletion Oil and gas - Non Producing Consolidated 2023 $ 2022 $ 16,706 22,231 22,499 43,862 38,937 66,361 Consolidated 2023 $ 2022 $ - 96,410 Consolidated 2023 $ 2022 $ 95,504,259 (60,481,115) 35,023,144 93,510,669 (60,112,537) 33,398,132 3,182,943 3,213,480 38,206,087 36,611,612 70 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 14. Oil and gas properties (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 January 2022 Additions Exchange differences Depletion Balance at 31 December 2022 Change in estimate Exchange differences Depletion Oil and gas - Producing $ Oil and gas - Non Producing $ Total $ 31,899,523 19,199 2,125,106 (645,696) 33,398,132 2,882,216 (271,304) (985,900) 3,000,459 - 213,021 - 34,899,982 19,199 2,338,127 (645,696) 3,213,480 - (30,537) - 36,611,612 2,882,216 (301,841) (985,900) Balance at 31 December 2023 35,023,144 3,182,943 38,206,087 At 31 December 2023, 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 3. The pre-tax discount rate that has been applied in assessing oil and gas assets is 12% (2022: 12%). An impairment loss was not required to be recognised as the recoverable amounts were determined to be higher than the carrying amounts (2022: $nil). Note 15. Property, plant and equipment Consolidated 2023 $ 2022 $ 7,310 7,380 329,876 (130,547) 199,329 333,039 (121,373) 211,666 2,104,781 (1,961,165) 143,616 2,297,091 (2,065,512) 231,579 1,024,460 (818,150) 206,310 918,695 (760,546) 158,149 556,565 608,774 Non-current assets Land - at cost Buildings - at cost Less: Accumulated depreciation Equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation 71 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 15. Property, plant and equipment (continued) 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 1 January 2022 Additions Exchange differences Depreciation expense Balance at 31 December 2022 Additions Exchange differences Depreciation expense Land $ Buildings $ Equipment Motor vehicles $ $ Total $ 6,891 - 489 - 7,380 - (70) - 207,763 - 14,481 (10,578) 211,666 - (1,706) (10,631) 229,277 136,955 50,897 (185,550) 231,579 23,884 (17,759) (94,088) 109,482 92,319 2,817 (46,469) 158,149 113,159 173 (65,171) 553,413 229,274 68,684 (242,597) 608,774 137,043 (19,362) (169,890) Balance at 31 December 2023 7,310 199,329 143,616 206,310 556,565 Note 16. Exploration and evaluation assets Non-current assets Capitalised exploration and evaluation assets Consolidated 2023 $ 2022 $ 111,514,901 127,039,687 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Capitalised exploration and evaluation assets $ 90,849,806 51,512,905 (15,323,024) 127,039,687 7,859,924 (350,253) (23,034,457) 111,514,901 Consolidated Balance at 1 January 2022 Additions Government grants and R&D tax incentive Balance at 31 December 2022 Additions Disposals Government grants and R&D tax incentive Balance at 31 December 2023 72 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 17. Right-of-use assets Non-current assets Plant and equipment Less: Accumulated depreciation Motor vehicles Less: Accumulated depreciation Consolidated 2023 $ 2022 $ 948,345 (285,624) 662,721 1,058,386 (738,146) 320,240 948,345 (48,538) 899,807 748,117 (648,318) 99,799 982,961 999,606 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 1 January 2022 Additions Disposals Depreciation expense Balance at 31 December 2022 Additions Disposals Foreign exchange Depreciation expense Balance at 31 December 2023 Right-of-use assets $ 752,993 1,015,903 (569,900) (199,390) 999,606 320,423 - (4,827) (332,241) 982,961 The Company currently leases its Australian corporate headquarters in Sydney under a 4-year operating lease recognised as a right-of-use asset and lease liability, with monthly payments approximately $22,888. The rental agreement has a 3.75% fixed rent review on the anniversary of the commencement date of the lease being 3 November 2022. The Group 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. The Empire Group has the option to acquire the leased assets at the agreed value on the expiry of the leases. The Group leases a photocopier under a 4-year operating agreement which commenced in November 2021. Monthly lease payments are $399. For AASB 16 Lease disclosures refer to: ● ● ● note 7 for depreciation on right-of-use assets; note 21 for lease liabilities; and consolidated statement of cash flows for repayment of lease liabilities. 73 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 18. Intangibles Non-current assets Goodwill - at cost Movements in goodwill relate to foreign currency fluctuations. Note 19. Trade and other payables Current liabilities Trade payables Accruals Other payables Refer to note 26 for further information on financial instruments. Note 20. Borrowings Current liabilities Bank loan - secured Consolidated 2023 $ 2022 $ 99,732 100,689 Consolidated 2023 $ 2022 $ 4,459,808 2,281,919 1,724,564 15,019,070 1,801,855 1,648,895 8,466,291 18,469,820 Consolidated 2023 $ 2022 $ 8,771,474 7,822,908 Classification of borrowings These financial statements 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'. This accounting standard requires the Group to classify liabilities as current if the Group does not have an unconditional right to defer payment for at least 12 months after the reporting date. However, the expected repayment of the borrowings is not for complete repayment within the 12 month period. Credit facility summary Empire Energy USA, LLC maintains a long-term credit facility with Macquarie Bank Limited ('Macquarie'), which matures in September 2024. The credit facility balance on 31 December 2023 was US$4,750,020 (A$6,944,474) (31 December 2022: US$5,300,620 (A$7,822,908)). 74 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 20. Borrowings (continued) US Operations The Group maintains a facility which matures in September 2024, with a bank that is a minority owner in the Group. Interest is charged on the outstanding borrowings at the 30-Day SOFR (5.36% at 31 December 2023) plus 6.61%. At 31 December 2023, the Group's rate option was the 30-day SOFR. Outstanding borrowings under the agreement are secured by the assets of the Group under the terms of the facilities and requires the Group to maintain financial ratios customary for the oil and gas industry. The Group 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 both 2023 and 2022 were approximately US$550,000. The Group was compliant with all financial covenants as of 31 December 2023. The loan has been classified as a current liability as there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. The Directors expect the loan facility will be renewed and do not expect the loan to be repaid in full in the 2024 financial year. The Group has a credit facility with Macquarie Bank Limited. The facility has the following key terms: Principal amount Initial amount US$7.5 million (outstanding loan balance and availability US$4.75 million, undrawn nil) Term 5 years Interest rate 30-Day SOFR (5.36% at 31 December 2023) plus 6.61% Repayment terms Key covenants 100% of Appalachia net operating cashflow subject to minimum amortisation of US$550,000 per annum Proved Developed Producing Reserves PV10 / Net Debt > 1.3x Current Ratio > 1.0x Working capital > 0 75 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 20. Borrowings (continued) Australian Operations The Group established an additional credit facility with Macquarie Bank Limited during the year. The outstanding balance as at 31 December 2023 was $1,827,000. Key terms of this credit facility are set out below: Principal amount $7.25 million comprising: - Facility A (Revolving Credit Facility, $2.25 million, $1.827 million drawn as at 31 December 2023) - Facility B (Performance Bond Facility, $5 million, undrawn as at 31 December 2023) Borrowers Guarantor Security Fees Imperial Oil & Gas Pty Limited Imperial Oil & Gas A Pty Limited Empire Energy Group Limited and Borrowers First ranking security over all present and after-acquired property of each Borrower First ranking security Utilisation Fee: 1.5% of utilisation Commitment Fee: 40% of margin Margin: Facility A (5.5% p.a.), Facility B (10% p.a.) Interest rate Margin plus BBSW Financial covenants - Ratio of current assets to current liabilities of at least 1.00 to 1.00 - Minimum liquidity balance in the Borrowers and Guarantor of at least $5 million (or its equivalent in any other currency or currencies) Maturity date 31 December 2025 Repayment arrangements Facility A: on receipt of relevant annual R&D Tax Incentive payment Facility B: on release of environmental bonds after rehabilitation 76 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 20. Borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank loan - US Operations Bank loan - Australia Operations - Facility A Bank loan - Australia Operations - Facility B Used at the reporting date Bank loan - US Operations Bank loan - Australia Operations - Facility A Bank loan - Australia Operations - Facility B Unused at the reporting date Bank loan - US Operations Bank loan - Australia Operations - Facility A Bank loan - Australia Operations - Facility B Note 21. Lease liabilities Current liabilities Lease liability Non-current liabilities Lease liability Refer to note 26 for maturity analysis of lease liabilities. 2023 US$ Consolidated 2022 US$ 2023 $ 2022 $ 4,750,020 - - 4,750,020 5,300,620 - - 6,944,474 2,250,000 5,000,000 5,300,620 14,194,474 7,822,908 - - 7,822,908 4,750,020 - - 4,750,020 5,300,620 - - 5,300,620 6,944,474 1,827,000 - 8,771,474 7,822,908 - - 7,822,908 - - - - - - - - - 423,000 5,000,000 5,423,000 - - - - Consolidated 2023 $ 2022 $ 604,085 399,195 370,509 608,977 974,594 1,008,172 77 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 22. Provisions Current liabilities Employee benefits Non-current liabilities Lease make good Provision for rehabilitation (Northern Territory) Asset retirement obligations (USA) Consolidated 2023 $ 2022 $ 271,723 252,424 43,940 4,397,865 36,273,475 43,940 4,397,865 32,047,572 40,715,280 36,489,377 40,987,003 36,741,801 Movements in provisions Movements in provision for rehabilitation and asset retirement obligations during the current financial year, are set out below: Consolidated Provision for rehabilitation/ Asset retirement obligations $ Lease make good $ Total $ Carrying amount at the start of the year Change in estimate Accretion expense for the period, included in finance costs Foreign currency translation 43,940 - - - 36,445,437 2,882,216 1,696,857 (353,170) 36,489,377 2,882,216 1,696,857 (353,170) Carrying amount at the end of the year 43,940 40,671,340 40,715,280 Lease make good The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the respective lease terms. Provision for rehabilitation (NT) / Asset retirement obligations (USA) 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. 78 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 23. Contributed equity Consolidated 2023 Shares 2022 Shares 2023 $ 2022 $ Ordinary shares - fully paid 773,121,148 773,121,148 255,945,973 255,945,973 Movements in ordinary share capital Details Date Shares Issue price $ Balance Issue of shares on exercise of options Issue of shares on conversion of restricted rights Issue of shares on raising capital Issue of unissued shares as script for asset acquisition Issue of shares Issue of shares Issue of shares on conversion of restricted rights Share issue transaction costs, net of tax Balance Movements Balance 1 January 2022 18 February 2022 612,074,341 1,200,000 $0.300 220,905,029 360,000 12 April 2022 10 June 2022 679,345 125,000,000 $0.000 $0.220 - 27,500,000 10 June 2022 19 July 2022 9 September 2022 20,105,132 11,363,702 2,363,638 $0.280 $0.220 $0.220 5,629,437 2,500,000 520,000 28 September 2022 334,990 - $0.000 $0.000 - (1,468,493) 31 December 2022 773,121,148 - 255,945,973 - 31 December 2023 773,121,148 255,945,973 Ordinary shares Ordinary shares entitle the holder to participate in any dividends declared and any proceeds attributable to shareholders should the Company be wound up, in proportions that consider both the number of shares held and the extent to which those shares are paid up. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 2022 Annual Report. 79 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 23. Contributed equity (continued) 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. Note 24. Reserves Foreign currency translation reserve Options reserve Fair value reserve Consolidated 2023 $ 2022 $ (323,796) 11,320,327 180,499 (635,277) 10,854,265 180,499 11,177,030 10,399,487 Foreign currency translation reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Options reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. Fair value reserve The fair value reserve comprises the cumulative net change in the fair value of equity investments until the investment is derecognised. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 January 2022 Foreign currency translation Share-based payments Balance at 31 December 2022 Foreign currency translation Share-based payments Foreign currency translation $ Options $ Fair value $ Total $ (514,095) (121,182) - 9,853,748 - 1,000,517 (635,277) 311,481 - 10,854,265 - 466,062 180,499 - - 180,499 - - 9,520,152 (121,182) 1,000,517 10,399,487 311,481 466,062 Balance at 31 December 2023 (323,796) 11,320,327 180,499 11,177,030 80 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 25. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Franking credits There are no franking account credits available as at 31 December 2023 and 31 December 2022. Note 26. Financial instruments Financial risk management objectives 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: Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. The Empire Group’s core operations are located in Australia where the main expenditures are recorded. The Statement of Financial Position can be affected by movement in the A$/US$ exchange rates upon translation of the US operations into the A$ presentation currency. Foreign exchange risk arises from commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. The Empire Group seeks to mitigate the effect of its foreign currency exposure by borrowing in US$ for US operations and maintaining a minimum cash balance in Australia. Excluding presentation translation adjustments, the Empire Group’s exposure to foreign exchange risk at the reporting date is limited to loans and investments between the Parent entity and the US subsidiaries. Equity price 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. 81 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 26. Financial instruments (continued) The Group’s equity risk is considered minimal and as such no sensitivity analysis has been completed. 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 into 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. Interest rate risk The Group's main interest rate risk arises from long-term borrowings. 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 2023 is set out in 'liquidity and interest rate risk management' below. 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 2023. The Empire Group monitors forecasts and actual cash flows and the maturity profiles of financial assets and liabilities to manage its liquidity risk. Credit risk Credit risk is the risk that the other party to the financial instrument will fail to discharge their financial obligation in respect of that instrument resulting in the Empire Group incurring a financial loss. The Empire Group’s exposure to credit risk arises from potential default of the counter party with the maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Empire Group. The Empire Group trades only with recognised, credit worthy third parties. In the US, trade receivables, (balances with oil and gas purchases) have not exposed the Empire Group to any bad debt to date. All derivatives are with the same counterparty. In the US, all of the purchasers that the Empire Group’s operators choose to deal with are oil or gas companies and local utilities. Trade and other receivable balances are monitored on an ongoing basis with the Empire Group’s exposure to bad debts minimal. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. 82 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 26. Financial instruments (continued) The maximum exposure to credit risk at balance date is as follows: Trade and other receivables and derivative financial instruments Security deposits The maximum exposure to credit risk at balance by country is as follows: Australia United States of America Consolidated 2023 $ 2022 $ 1,912,220 3,772,657 6,151,842 3,627,587 5,684,877 9,779,429 Consolidated 2023 $ 2022 $ 4,276,151 1,408,726 6,114,110 3,665,319 5,684,877 9,779,429 Liquidity risk Liquidity risk is the inability to access funds, both anticipated and unforeseen, which may lead to the Empire Group being unable to meet its obligations in an orderly manner as they arise. Empire seeks to maintain sufficient available liquidity (cash and available debt facilitates) at all times. 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. 83 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 26. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Consolidated - 2023 Non-derivatives Non-interest bearing Trade and other payables Interest-bearing - variable Bank loan - US Bank loan - NT Interest-bearing - fixed rate Lease liability Total non-derivatives Derivatives Oil and gas price forward contracts Total derivatives Consolidated - 2022 Non-derivatives Non-interest bearing Trade and other payables Interest-bearing - variable Bank loan Interest-bearing - fixed rate Lease liability Total non-derivatives Derivatives Oil and gas price forward contracts Total derivatives Remaining contractual maturities $ - - - 8,466,291 6,944,474 1,827,000 - - - 370,509 370,509 - 974,594 - 18,212,359 - - - - - - - 8,466,291 11.90% 9.84% 6,944,474 1,827,000 3.87% 604,085 17,841,850 - - - - - - - - - - Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - 18,469,820 8.37% 7,822,908 3.87% 399,195 26,691,923 - (96,410) (96,410) - - - - - - - - - 18,469,820 - 7,822,908 608,977 608,977 - 1,008,172 - 27,300,900 - - - - (96,410) (96,410) The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. 84 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 27. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 2023 Assets Derivative financial instruments Total assets Consolidated - 2022 Assets Derivative financial instruments Total assets Level 1 $ Level 2 $ Level 3 $ Total $ Level 1 $ - - - - - - Level 2 $ Level 3 $ 96,410 96,410 - - - - - - Total $ 96,410 96,410 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Valuation techniques for fair value measurements categorised within level 2 and level 3 Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Note 28. Key management personnel disclosures Directors The following persons were Directors of the Company at any time during the financial year were: Peter Cleary Alexander Underwood Louis Rozman Prof John Warburton Karen Green Paul Espie AO Paul Fudge Jacqui Clarke (appointed on 17 November 2023) (retired on 30 May 2023) (retired on 17 November 2023) (retired on 17 November 2023) The following persons were Key Management Personnel of the Company at any time during the financial year: Robin Polson - Chief Financial Officer 85 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 28. Key management personnel disclosures (continued) Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Other transactions with key management personnel and their related parties Payment for marketing services from Menzies Research Centre Limited (director-related entity of Former Chairman, Paul Espie) Payment for contracting services from Melissa Underwood (Spouse of Managing Director, Alex Underwood) Consolidated 2023 $ 2022 $ 1,214,384 78,951 178,536 959,234 57,035 237,984 1,471,871 1,254,253 Consolidated 2023 $ 2022 $ - 15,000 101,827 - 101,827 15,000 Note 29. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Nexia Sydney Audit Pty Ltd, the auditor of the Company, its network firms and unrelated firms: Audit services - Nexia Sydney Audit Pty Ltd Audit and review of the financial statements Other services - Nexia Sydney Audit Pty Ltd Taxation and other advisory services Audit services - other auditors (US operations) Audit or review of the financial statements Other services - other auditors (US operations) Taxation services Other services - Deloitte Pty Ltd Advisory services 86 Consolidated 2023 $ 2022 $ 185,388 150,724 74,962 54,750 260,350 205,474 126,454 138,891 22,982 37,652 149,436 176,543 303,465 211,308 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 30. Contingent assets There are no contingent assets as at the date of this annual report (31 December 2022: nil). Note 31. Contingent liabilities Empire Energy Group Limited has executed a Deed of Guarantee and indemnity in favour of Macquarie Bank Limited guaranteeing the obligations of each of Empire Energy USA LLC and its subsidiary Empire Energy E&P LLC pursuant to the Macquarie Bank Limited US 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. Empire Energy Group Limited together with its subsidiaries Imperial Oil & Gas Pty Limited and Imperial Oil & Gas A Pty Limited have granted Macquarie Bank Limited security over their assets as guarantors of the Australian credit facility to Macquarie the lender. 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 2023, the Empire Group had $4,397,865 (2022: $4,397,865) environmental contingencies requiring specific disclosure. There have been no other changes in contingent liabilities since the last annual reporting date. Note 32. Commitments 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 Group 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 2023 (2022: nil). Note 33. Related party transactions Empire Energy Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 35. Key management personnel Disclosures relating to key management personnel are set out in note 28 and the remuneration report included in the Directors' report. Transactions with related parties There were no transactions with related parties during the current and previous financial year, other than those identified with key management personnel in note 28. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties 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. 87 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 33. Related party transactions (continued) Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 34. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Contributed equity Foreign currency translation reserve Options reserve Other reserves Fair value reserve Accumulated losses Total equity Parent 2023 $ 2022 $ 7,914,357 5,358,979 7,914,357 5,358,979 Parent 2023 $ 2022 $ 8,251,893 14,892,734 253,594,035 245,562,697 1,432,937 1,094,092 1,894,078 1,794,148 255,945,973 255,945,973 5,656,982 7,849,686 337,482 607,280 (26,628,854) 5,207,973 8,315,748 337,482 607,280 (18,714,499) 251,699,957 243,768,549 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries Refer to note 31 for details on the guarantee the parent entity has in place in relation to the debts of its subsidiaries as at 31 December 2023 and 31 December 2022. Contingent liabilities Refer to note 31 for details on contingent liabilities as at 31 December 2023 and 31 December 2022. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2023 and 31 December 2022. Material accounting policy information The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. may be an indicator of an impairment of the investment. 88 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 35. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name 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 Note 36. Share-based payments Principal place of business / Country of incorporation Ownership interest 2022 2023 % % Australia Australia USA USA USA USA 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Share-based payments are issued to: ● enable the Company to provide variable remuneration including both an at-risk component and an incentive component, that is performance focussed and linked to long-term value creation for shareholders, enable the Company to compete effectively for the calibre of talent required for it to be successful, ensure that Participants have commonly shared goals, and assist Participants to become Shareholders. ● ● ● Options Set out below are summaries of options granted under the plan: 2023 Grant date Expiry date 13/08/2021 31/08/2024 13/08/2021 31/08/2024 09/09/2022 09/09/2024 Exercise price Balance at the start of the year 8,000,000 $0.700 $0.700 1,696,970 $0.350 69,227,558 78,924,528 Granted Exercised Expired/ forfeited/ other Balance at the end of the year - - - - - - - - 8,000,000 - - 1,696,970 - 69,227,558 - 78,924,528 Weighted average exercise price $0.390 $0.000 $0.000 $0.000 $0.390 2022 Grant date Expiry date 18/06/2018 30/12/2022 30/12/2019 30/12/2022 13/08/2021 31/08/2024 13/08/2021 31/08/2024 09/09/2022 09/09/2024 Exercise price Balance at the start of the year Granted Exercised $0.300 $0.600 $0.700 $0.700 $0.350 1,700,000 2,800,000 8,000,000 1,696,970 - - - - - 69,227,558 14,196,970 69,227,558 Expired/ forfeited/ other Balance at the end of the year - - - - - - - (1,700,000) - (2,800,000) 8,000,000 - - 1,696,970 - 69,227,558 (4,500,000) 78,924,528 Weighted average exercise price $0.630 $0.350 $0.000 $0.000 $0.390 All Options are exercisable at the end of the financial year noting trading terms for options held by Company employees and directors are subject to the Company’s Share Trading Policy. 89 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 36. Share-based payments (continued) The weighted average remaining contractual life of options granted during the financial year and outstanding at the end of the financial year was 0.8 years (2022: 1.8 years). The weighted average share price during the financial year was $0.164 (2022: $0.263). Performance Rights 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 Performance Rights exercisable Less than $25.0 million 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. 2020 issue 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. 2021 issue 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. 2022 issue During the 2022 financial year, the Company issued 2,445,183 Performance Rights to the Managing Director and employees under the terms of the Company's Rights Plan and was approved by Shareholders on 30 May 2022. 2023 issue During the 2023 financial year, the Company issued 3,175,353 Performance Rights to the Managing Director and employees under the terms of the Company's Rights Plan and was approved by Shareholders on 30 May 2023. 90 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 36. Share-based payments (continued) During the 2023 financial year, 3,913,960 Performance Rights issued to senior executives in 2020 passed their three year measurement period for vesting calculation. 548,234 of these Performance Rights vested, 173,804 lapsed, while the remaining 3,191,922 remain unvested. Set out below are summaries of Performance Rights (unvested) granted under the plan: 2023 Grant date Expiry date 09/09/2013 07/08/2020 03/08/2021 21/12/2021 17/06/2022 22/12/2022 21/07/2023 01/01/2015 31/12/2035 31/12/2036 31/12/2036 31/12/2037 31/12/2037 31/12/2038 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 250,000 3,913,960 1,015,625 993,774 1,451,409 - - 7,624,768 - - - - - 1,297,209 1,878,144 3,175,353 - - - - - - - - - (722,038) - - - - - 250,000 3,191,922 1,015,625 993,774 1,451,409 1,297,209 1,878,144 (722,038) 10,078,083 Performance Rights granted on 22 December 2022 was issued on 3 February 2023. 2022 Grant date Expiry date 09/09/2013 30/12/2019 07/08/2020 03/08/2021 21/12/2021 17/06/2022 01/01/2015 31/12/2034 31/12/2035 31/12/2036 31/12/2036 31/12/2037 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 250,000 962,811 3,913,960 1,015,625 - - 6,142,396 - - - - 993,774 1,451,409 2,445,183 - - - - - - - - (962,811) - - - - (962,811) 250,000 - 3,913,960 1,015,625 993,774 1,451,409 7,624,768 There are no unvested Performance Rights exercisable at the end of the financial year as they are subject to a 3-year term and vesting hurdles. 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 (2022: 2 years). Set out below are summaries of Performance Rights (vested) granted under the plan: 2023 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 03/08/2021 30/03/2022 27/01/2023 30/06/2034 30/12/2034 31/12/2035 $0.00 $0.00 $0.00 1,300,500 840,134 - - - 548,234 2,140,634 548,234 - - - - - - - - 1,300,500 840,134 548,234 2,688,868 91 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 36. Share-based payments (continued) 2022 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 30/08/2021 30/03/2022 30/06/2034 30/12/2034 $0.00 $0.00 1,300,500 - - 840,134 1,300,500 840,134 - - - - - - 1,300,500 840,134 2,140,634 There are no unvested Performance Rights exercisable at the end of the financial year as they are subject to a 3-year term and vesting hurdles. 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 (2022: 2). For the Performance Rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 22/12/2022 21/07/2023 31/12/2037 31/12/2038 $0.190 $0.150 $0.000 $0.000 95.90% 95.01% - - 3.80% 4.00% $0.033 $0.019 Restricted Rights Set out below are summaries of Restricted Rights granted under the plan: 2023 Grant date Expiry date 07/08/2020 01/06/2021 23/12/2020 02/07/2021 21/12/2021 17/06/2022 17/06/2022 09/09/2022 22/12/2022 21/07/2023 31/12/2035 01/06/2036 23/12/2035 02/07/2036 21/12/2036 17/06/2037 17/06/2037 09/09/2037 22/12/2037 21/07/2038 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 1,019,753 617,979 485,485 94,908 568,778 509,198 275,360 131,493 - - 3,702,954 - - - - - - - - 613,830 604,141 1,217,971 - - - - - - - - - - - - - (29,665) - - - - - - - (29,665) 1,019,753 617,979 455,820 94,908 568,778 509,198 275,360 131,493 613,830 604,141 4,891,260 Restricted Rights granted on 22 December 2022 was issued on 3 February 2023. 92 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 36. Share-based payments (continued) 2022 Grant date Expiry date 07/08/2020 01/06/2021 23/12/2020 02/07/2021 21/12/2021 17/06/2022 17/06/2022 09/09/2022 31/12/2035 01/06/2036 23/12/2035 02/07/2036 21/12/2036 17/06/2037 17/06/2037 09/09/2037 Exercise price Balance at the start of the year $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 1,019,753 617,979 1,499,820 94,908 - - - - 3,232,460 Granted Exercised - - - - 568,778 509,198 275,360 131,493 - - (1,014,335) - - - - - 1,484,829 (1,014,335) Expired/ forfeited/ other Balance at the end of the year - - - - - - - - - 1,019,753 617,979 485,485 94,908 568,778 509,198 275,360 131,493 3,702,954 Restricted Rights are all exercisable at the end of the financial year noting trading terms for Rights held by Company employees and directors are subject to the Company’s Share Trading Policy. 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 (2022: 0.2 years). For the Restricted Rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 22/12/2022 21/07/2023 22/12/2037 21/07/2038 $0.190 $0.150 $0.000 $0.000 95.90% 95.01% - - 3.80% 4.00% $0.190 $0.150 Service Rights Set out below are summaries of Service Rights granted under the plan: 2023 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 14/06/2019 04/08/2020 01/06/2021 30/06/2034 31/12/2035 31/12/2036 $0.00 $0.00 $0.00 1,000,000 838,558 600,000 2022 Grant date Expiry date Exercise price 2,438,558 Balance at the start of the year - - - - - - - - - - - - 1,000,000 838,558 600,000 2,438,558 Granted Exercised Exercised forfeited/ other Balance at the end of the year 14/06/2019 04/08/2020 01/06/2021 30/06/2034 31/12/2035 31/12/2036 $0.00 $0.00 $0.00 1,000,000 838,558 - - - 600,000 1,838,558 600,000 - - - - - - - - 1,000,000 838,558 600,000 2,438,558 93 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 36. Share-based payments (continued) Set out below are the Service Rights exercisable at the end of the financial year: Grant date Expiry date 14/06/2019 04/08/2020 01/06/2021 30/06/2034 31/12/2035 31/12/2036 2023 Number 2022 Number 1,000,000 838,558 600,000 1,000,000 838,558 600,000 2,438,558 2,438,558 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 year (2022: 0 year). Note 37. Cash flow information Reconciliation of loss after income tax to net cash from/(used in) operating activities Loss after income tax expense for the year (22,081,916) (6,003,206) Consolidated 2023 $ 2022 $ Adjustments for: Depreciation, depletion and amortisation Net gain on disposal of exploration and evaluation assets Share-based payments Government grant offset against oil and gas properties Unwinding of the discount Accretion of asset retirement obligation Unrealised loss on forward commodity contracts Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories Increase in prepayments Decrease in trade and other payables Increase in employee benefits Net cash (used in)/from operating activities Non-cash investing and financing activities Additions to the right-of-use assets 94 1,488,031 (53,717) 466,062 23,034,457 - 1,696,857 - 1,087,683 - 1,000,517 15,323,024 36,604 1,564,636 272,099 7,770,799 27,424 (4,000,601) (10,838,783) 19,299 (4,323,168) (21,757) (296,398) (3,578,686) 38,942 (2,472,088) 5,100,290 Consolidated 2023 $ 2022 $ 320,423 920,297 Empire Energy Group Limited Notes to the consolidated financial statements 31 December 2023 Note 37. Cash flow information (continued) Changes in liabilities arising from financing activities Consolidated Balance at 1 January 2022 Net cash used in financing activities Amortisation of deferred finance costs Acquisition of leases Exchange differences Balance at 31 December 2022 Net cash used in financing activities Proceeds from borrowings Repayment of borrowings Acquisition of leases - US leases Exchange differences Bank loan $ Lease liabilities $ 8,027,261 (811,808) 36,604 - 570,851 7,822,908 - 1,827,000 (804,094) - (74,340) 829,267 (223,159) - 920,297 (518,233) 1,008,172 (349,174) - - 320,423 (4,827) Total $ 8,856,528 (1,034,967) 36,604 920,297 52,618 8,831,080 (349,174) 1,827,000 (804,094) 320,423 (79,167) Balance at 31 December 2023 8,771,474 974,594 9,746,068 Note 38. Events after the reporting period On 1 March 2024, Empire issued 276,275 ordinary fully paid shares for the conversion of Vested Performance Rights belonging to former employees under the Empire Energy Group Limited Rights Plan for no consideration. No other matter or circumstance has arisen since 31 December 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 95 Empire Energy Group Limited Directors' declaration 31 December 2023 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 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 31 December 2023 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors ___________________________ Alexander Underwood Managing Director 28 March 2024 Sydney 96 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 2023, 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 material accounting policy information, 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 2023 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. Material uncertainty related to going concern We draw attention to Note 2 in the financial report, which indicates that the Company incurred a operating loss of $22,081,916 during the year ended 31 December 2023 and incurred net operating cash outflows of $2,472,088. As stated in Note 2, these events or conditions, along with other matters as set forth in the note, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 97 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Carrying value of oil and gas assets Refer to note 14 (Oil and Gas properties) Our procedures included, amongst others: At 31 December 2023, the Group has Oil and Gas Assets - Producing assets of $35 million. 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 Oil and Gas - Producing assets 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 16 (Exploration and evaluation assets). At 31 December 2023, the Group has capitalised exploration and evaluation expenditure of $111.5 million. 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. The Group’s accounting policy in respect of exploration and evaluation assets is outlined in note 2. This is a key audit matter because the carrying value of the assets are material to 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; testing a sample of assets to confirm ownership against third party data sources; and assessing the accuracy of management’s forecasting by evaluating the reliability of historical forecasts and reviewing whether current market conditions would impact those forecasts. 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; and 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’, including: - reviewing the minutes of the Group’s board meetings, market announcements, financial forecasts and management assessment; and 98 Key audit matter How our audit addressed the key audit matter the financial statements, and significant judgements have been applied in determining whether an indicator of impairment exists in relation to capitalised expenditure assets in accordance with Australian Accounting Standard AASB 6 – ‘Exploration for and Evaluation of Mineral Resources’. Asset retirement obligations Refer to note 22 (Provisions) At 31 December 2023, the Group has a carrying value of Asset Retirement Obligations (USA) of $36.3 million. 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 process, 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. - discussing with management the Group’s ability and intention to undertake further exploration and evaluation activities. Our procedures included, amongst others: evaluating management’s process of estimating and measuring the provision for asset retirement obligations; evaluating whether the discount rate applied by management to the forecast cash outflows is appropriate and consistent with the requirements of AASB 137 – ‘Provisions, Contingent Liabilities and Contingent Assets’; considering the Group’s estimates of plugging costs per well, including assessment of whether there have been changes in process or costs that would materially impact those estimates; 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 assessing the reliability of management’s estimates used in calculating the obligations. Other information The directors are responsible for the other information. The other information comprises the information in Empire Energy Group Limited’s annual report for the year ended 31 December 2023, 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 99 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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 25 to 43 of the directors’ Report for the year ended 31 December 2023. In our opinion, the Remuneration Report of Empire Energy Group Limited for the year ended 31 December 2023, 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 Brett Hanger Director Dated: 28 March 2024 Sydney 100 Empire Energy Group Limited Shareholder information 31 December 2023 The shareholder information set out below was applicable as at 16 March 2024 (grouped). Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Ordinary shares Number of holders % of total shares issued 198 614 362 1,072 537 2,783 467 0.01 0.24 0.37 5.70 93.68 100.00 - Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares Number held % of total shares issued 140,000,000 63,000,000 32,842,900 32,294,969 31,818,182 26,515,152 26,451,367 18,000,000 17,807,500 16,129,964 9,245,000 8,624,069 8,424,000 8,190,937 7,573,706 7,229,405 6,690,030 6,550,000 5,338,172 6,650,000 479,375,353 18.11 8.15 4.25 4.18 4.12 3.43 3.42 2.33 2.30 2.09 1.20 1.12 1.09 1.06 0.98 0.94 0.87 0.85 0.69 0.86 62.04 Pangaea (NT) Pty Ltd Elphinstone Holdings Pty Ltd Citicorp Nominees Pty Limited Global Energy and Resources Development Limited Sheffield Holdings LP EMG Northern Territory Holding Pty Ltd Macquarie Bank Limited (Metals Mining and AG A/C) All-States Finance Pty Limited Liangrove Media Pty Limited Grosvenor Equities Pty Ltd (No 2 A/C) Cha Qian Robmar Investments Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited BNP Paribas Nominees Pty Ltd (IB AU Noms RetailClient) Invia Custodian Pty Limited (Kuarka A/C) Mr Andrew Forster Netwealth Investments Limited Wrap Services A/C Ms Swati Shukla 101 Empire Energy Group Limited Shareholder information 31 December 2023 Unquoted equity securities as at 16 March 2024 Class of unquoted securities Number on issue Number of holders Unlisted options exercisable at A$0.35 per share expiring 14 June 2024 Unlisted options exercisable at A$0.70 expiring 13 August 2024 Unlisted Performance Rights Unlisted Performance Rights (Vested) Unlisted Service Rights Unlisted Service Rights (Unvested) Unlisted Restricted Rights 69,227,558 9,696,970 5,668,625 2,711,561 2,438,558 1,248,161 5,430,211 362 2 8 6 3 6 11 Substantial holders Substantial holders in the Company are set out below: Pangaea (NT) Pty Limited Elphinstone Group Sheffield Group Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares Number held 140,000,000 64,333,969 40,793,270 % of total shares issued 18.11 8.32 5.28 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. 102
Continue reading text version or see original annual report in PDF format above