Horizon Oil Limited ABN 51 009 799 455
Level 6, 134 William Street, Woolloomooloo NSW Australia 2011
Tel +61 2 9332 5000, Fax +61 2 9332 5050 www.horizonoil.com.au
20 October 2015
The Manager, Company Announcements
ASX Limited
Exchange Centre
20 Bridge Street
Sydney NSW 2000
Dear Sir,
HORIZON OIL LIMITED 2015 ANNUAL REPORT
AND NOTICE OF AGM
In accordance with Listing Rule 4.7, attached are copies of Horizon Oil Limited’s Annual
Report for the year ended 30 June 2015 and the Notice of Annual General Meeting to be
held on Friday 20 November 2015.
The Notice of Annual General Meeting will be sent to all shareholders. A printed copy of
the 2015 Annual Report will be mailed separately to those shareholders who have made
the election to receive it. Copies of these documents can be downloaded from the
Company's website www.horizonoil.com.au.
The Annual General Meeting will also be available on live webcast. To register, please
copy and paste the link below into your browser:
http://webcasting.brrmedia.com/broadcast/561342d9ab3559244a29bd1e
Yours faithfully,
Michael Sheridan
Chief Financial Officer / Company Secretary
For further information please contact:
Mr Michael Sheridan
Telephone:
Facsimile:
Email:
Or visit
(+612) 9332 5000
(+612) 9332 5050
exploration@horizonoil.com.au
www.horizonoil.com.au
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ABN 51 009 799 455
Annual
Report
2015
2015 Highlights
OIL PRODUCTION
from Maari in New Zealand and Block 22/12 in
China continues at solid levels and the reserves
and resources base continue to grow.
CASH GENERATION
is strong and is forecast to continue because of solid
production outlook - current low oil prices are being
mitigated by hedging and lower
operating costs.
FORECAST continuing strong cash
generation, in combination with lower capital
expenditure, reduced administrative cost and
favourable refinancing of the bank debt facility,
have placed the company in a good position to
redeem the convertible bonds when they mature
in mid 2016.
CLEARER line of sight to commercialisation
of gas and condensate resources at Stanley and
Elevala/Ketu fields in Papua New Guinea.
2P + 2C RESERVES
AND CONTINGENT
RESOURCES (mmboe)
101.5mmboe
15
13.9
87.6
101.5
14
13
12
11
EXPLORATION &
DEVELOPMENT
EXPENDITURE (US$m)
$78.0m
15
14
13
12
11
2
1
.
4
9
.
3
4
7
.
1
0
.
1
78.0
95.6
86.8
135.7
32.0
2P
2C
Normalised for partial sale of PNG interests to Osaka Gas
NZ
China
PNG
Other
61.790.691.494.8 PRODUCTION
(mmbbls)
1.31mmbbls
Beibu
Maari
REVENUE
(US$m)
$104.0 m
Beibu
Maari
NET OPERATING INCOME
AFTER OPEX (incl China
Special Levy) EXCLUDING
EXTRAORDINARIES
(US$m)
$81.1mM
15
14
13
12
11
15
14
13
12
11
15
14
13
12
11
0.32
0.99
1.31
Average Sales Price
(including hedging)
US$/bbl
85.59
CONTENTS
0.50
0.44
0.58
1.43
102.10
102.75
116.62
98.78
2015 Highlights
Chairman’s Report
CEO’s Report
33.5
70.5
104.0
Horizon Oil Reserves Report
Board of Directors
138.5
Consolidated Results
48.1
50.4
59.4
81.1
93.6
34.0
41.0
50.1
Activities Review
– Production
– Development
– Exploration/Appraisal
Annual Financial Report
Corporate Governance Statement
Sustainability Report
Shareholder Information
Glossary
Company Directory
01
02
04
09
14
14
15
16
20
22
25
45
54
109
111
113
AREAS OF OPERATION
CHINA
Block 22/12 26.95% / 55%
(Production / Exploration)
NEW ZEALAND
PMP 38160 (Maari/Manaia)
PEP 51313 (Matariki)
10%
21%
PAPUA NEW GUINEA
PDL 10 (Stanley)
PRL 21 (Elevala/Ketu)
PPL 259
PPLs 372 and 373
PPL 430
PRL 4
*Subject to Government approval
30%
27%
35%
90%
50%
33.33%*
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Chairman’s
Report
Fraser Ainsworth am
LAST YEAR WAS A YEAR OF CONTRASTS for Horizon Oil, with a strong
operational and financial performance being largely overshadowed by
adverse stock market sentiment resulting from the lower oil
price environment.
In the board’s view, the Company’s swiftly implemented response to
these lower oil prices, which involved significant changes in our plans
and strategies, has been sound and, pleasingly, has opened up some
opportunities to benefit from these lower prices, particularly by way of
reductions in operating and development costs.
Strong Operational and Financial Performance
The outstanding feature of the Company’s performance
was the solid operating cash flows – despite a 40% fall in
Brent oil prices, from US$100/barrel to US$60/barrel over
the year, cashflow from operating activities was down by
only a modest 9% year on year, from US$65.0 million to
US$58.8 million. This was achieved mainly as a result of
implementation of our hedging policy whereby 74% of
our oil sales were hedged at an average price of over
US$95/barrel.
The board has a long held policy of hedging oil prices
when, opportunistically, it makes sense to do so, as a
means of softening the impact of a downturn in prices
and ensuring that the Company is able to meet its
obligations. The chart opposite illustrates the oil price
hedges that have been in place from the beginning of
calendar year 2014 and which run off in mid calendar year
2016, compared to actual and forecast production over
that period.
Improved Financial Capacity and Flexibility
As foreshadowed in last year’s Annual Report,
the Company has finalised a US$120 million base
tranche revolving cash advance facility, together
with an additional US$50 million “accordion” tranche
to accommodate, if required, working capital and
redemption of the US$80 million, 5.5% convertible bonds
in June 2016. This revolving facility replaces the previous
US$150 million reserves based facility and provides
greater financial flexibility, together with improved
commercial terms.
6,000
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Collars - Jul 2013 (900k bbls @ US$90.00 - $105.13)
Swaps - May/Jun 2012 (442k bbls @ US$98.09)
Swaps - Sep 2014 (450k bbls @ US$95.47)
Swaps - Jul 2013 (360k bbls @ US$103.22)
Swaps - Feb 2014 (390k bbls @ US$102.98)
Actual Production
Forecast Production (includes effect of China cost recovery)
Horizon Oil Annual Report 2015Oil price hedge profile
Chairman’s Report
3
Taking into account the increased flexibility of this new
facility, as well as...
- the Company’s significant cash balances and forecast
(partly hedged) operating cash flows to July 2016;
- reduced capital expenditure – forecast for FY2016 to be
less than half that of the previous year; and
- significantly reduced operating expense – an average
cash cost of US$14.10/barrel in FY2015 and forecast to
be lower again in FY2016,
...barring unforeseen events, the Company expects
to have available the cash to meet redemption of the
convertible bonds in mid 2016. In this regard, we have
already bought back nearly one quarter of the bonds
outstanding for an amount of approximately US$20
million. The savings achieved by doing this, rather than
allowing the bonds to run their full term, are about 8% of
this amount.
Our Responses to Lower Oil Prices
Our responses to this include:-
(a) Significant reductions, re-scoping or re-scheduling
of exploration and development expenditure whilst
ensuring that planning for important development
projects, (particularly China and Papua New Guinea)
continues so that the benefits from expected lower
development costs as a result of lower oil prices are
captured, and
(b) A hard-nosed analysis of our general and
administrative costs was undertaken and steps taken
to reduce these. Our net G&A expense of US$7.6
million for FY2015 is very much at the low end of the
range for companies with a similar level of activities.
Specifically the cash salaries, bonuses and in kind
benefits of our three key executives have been
reduced in FY2015 by 24% (in Australian dollars), from
FY2014 as a result of these executives voluntarily
foregoing the significant cash bonuses that would
otherwise have been payable under the Company’s
Short Term Incentive Plan. In addition, the executives
have agreed to freeze their salaries at 30 June 2015
levels through to July 2016, together with some net
reductions in other benefits.
In the board’s view, management deserve praise for the
prompt and effective response to this changed oil price
environment, as outlined above.
Board Renewal
As part of a board renewal process, I will retire from
the board at the conclusion of the Annual General
Meeting in November this year. It is intended that two
new non-executive directors will be appointed to the
board during the next twelve months to replace myself
and John Humphrey. As part of an orderly transition
process the board intends to appoint John Humphrey as
the replacement Chairman while the new directors are
identified and appointed. It is intended that John
will then retire at the 2016 Annual General Meeting or
soon after.
The order of retirement of John and myself as directors
has been determined having regard to the perceived mix
of skills on the board required by the Company during
the transitional period. Appropriate announcements
will be made in due course when the new directors are
appointed.
Sustainability, Including Safety
The Company is committed to the sustainable
development of its operations.
The Company’s approach towards sustainable
development is based on the four areas that Horizon
Oil regards as the pillars of its sustainable development
strategy. These are:
• Safety and health;
• Security;
• Environment; and
• Community
Paying careful attention to each of the above pillars
is vital if business activities are to succeed (especially
in PNG). Our staff are key to this success and, as
shareholders would expect, we invest in their career
development through training and education, in their
health (and in some cases the care of their family
members) and, above all, in maintaining a safe working
environment for contractors and employees alike.
Over the year, on a base of more than one million hours
worked, the Company achieved a creditable Total
Recordable Injury Frequency rate (“TRIFR”) of 0.9 and
there were no lost time injuries. In August 2015, we
achieved 12 months without any recordable injuries.
The Outlook
In the near term, the outlook for Horizon Oil in terms of
share price is challenging – as is the case for most (if not
all!) others in the upstream oil and gas industry. Clearly,
continuing low oil prices and risk averse stock market
sentiment are the key drivers in this regard.
However, the board encourages existing and potential
shareholders to reflect upon the sound business
fundamentals that characterise Horizon Oil, namely
the combination of high quality, cost competitive cash
generating assets with potential growth assets in
PNG which our plans indicate will unlock substantial,
sustainable shareholder value within the foreseeable
future.
E F Ainsworth am
Chairman
1 October 2015
Horizon Oil Annual Report 2015
4
Chief Executive
Officer’s Report
Brent Emmett
FINANCIAL YEAR 2015 HAS BEEN A CHALLENGING ONE FOR THE
PETROLEUM INDUSTRY with a halving of oil prices causing investors
to severely mark down the share prices of E&P companies, including
that of Horizon Oil. Notwithstanding this, the operational and financial
performance continues to be strong in the current low oil price
environment and the board and management have reacted quickly to
position the Company to weather this environment, even if it is prolonged.
The Chairman’s Report outlines the various steps that have been taken to
achieve this.
Activities Review
Activities for the reporting period are set out in some
detail in the Activities Review section in the following
pages. In addition there are tabulations of Horizon Oil’s
net reserves and contingent resources and also the
Company’s various permit and licence interests.
Operational highlights over the reporting period are as
follows (production, reserves and contingent resources
figures indicated are gross):-
China (Horizon Oil interest 26.95%)
• The WZ 6-12 and WZ 12-8W fields in Block 22/12
produced at an average of 10,103 bopd, in line with
forecast. The production rate at year-end remained at
over 10,000 bopd.
• Two exploration wells drilled in the WZ 12-8 area, the
WZ 12-10-1 and WZ 12-10-2, were discoveries – adding
7.1 mmbo in reserves and contingent resources.
• Planning for development of the WZ 12-8E accumulation
(10.5 mmbo contingent resources) progressed during
the year.
New Zealand (Horizon Oil interest 10%)
• Production from the Maari and Manaia fields averaged
8,675 bopd over the year.
• The Maari Growth Projects drilling program was
completed towards the end of FY2015, lifting production
to about 16,000 bopd in July.
• The Maari joint venture’s workover unit was reinstalled
on the wellhead platform after release of the Ensco 107
drilling rig in June and a workover program initiated to
further enhance production.
• The Whio-1 exploration well in PEP 51313 to the south
of Maari was drilled and was dry. Horizon Oil was fully
carried through the cost of the well.
Operational and Financial Performance
Shareholders are able to review the five year operational
and financial performance metrics on the inside front
cover to this Annual Report. Even with low oil prices
and reduced production resulting from natural decline
in our China fields, revenue and net operating income
(after operating expense) remain strong and the reserves
and contingent resources base continues to grow. We
expect production growth to resume in FY2016 because
of increased production in New Zealand as a result of
the recently completed Maari Growth Projects program
and because of the increased production entitlement
associated with cost recovery under the Petroleum
Contract in China, which will begin during the year.
(Horizon Oil’s entitlement to cost recovery oil at
30 June 2015 was US$98 million). Given this, and making
a reasonable assumption of oil prices over the current
financial year, net operating income is estimated to be
in line with, or exceed, that of the FY2015 figure of
US$81 million.
Horizon Oil Annual Report 2015 Chief Executive
Officer’s Report
Chief Executive Officer’s Report
5
Papua New Guinea (Horizon Oil interest 30% in Stanley field
and 27% in Elevala/Ketu fields)
• The Stanley-3 and Stanley-5 (PDL 10) development
wells were drilled and completed for service, concluding
Stanley development drilling activities.
• The Stanley project tanker Western Queen passed
inspection for use and is currently on sub-charter until
required for the project.
• The surface facilities design for Stanley is being
modified in the light of lower oil prices – the revised
concept is anticipated to be a slimmed down project
with gas sales to industrial users and condensate
recovery commencing from project start-up, rather than
an initial phase of condensate recovery only, as originally
envisaged.
• Good progress was made over the reporting period on
Elevala/Ketu (PRL 21) front-end-engineering-and-design
(FEED) activities and advancing the environmental
approvals and landowner studies required for the
development and pipeline licence grants.
• As for Stanley field, the Elevala/Ketu development
concept is being modified to take account of the low
oil price environment. Lower development costs are
expected and it is likely that the concept will involve
condensate recovery commencing contemporaneously
with first gas sales.
• Horizon Oil, with its strategic alliance partner Osaka Gas,
progressed a feasibility study for a Western Province-
based greenfield mid-scale LNG project, as the base
case for gas commercialisation. Work on several other
gas commercialisation alternatives progressed during
the year.
• The Nama-1 well in PPL 259 (Horizon Oil interest
35%) located 20 km east of Stanley field was drilled,
encountering a large gas column but in poor quality
reservoir sands and was deemed uncommercial, at least
in the vicinity of the well location.
Gas Commercialisation Opportunities in
Papua New Guinea
This is a key subject for Horizon Oil, given the potential for
the PNG liquids-rich gas resources to generate
substantial, long-lived cash flow for shareholders. This
year a number of developments have emerged that give
us increasing confidence regarding the prospects for
commercialisation of the Company’s large gas resources.
It is likely that Stanley gas will be used for power
generation – gas-to-electricity (GTE) – to meet the
requirements of regional mining and domestic users,
displacing diesel or fuel oil that they would otherwise use.
The recent shut-in of the Ok Tedi mine to the north of the
Stanley field because diesel fuel for power generation
was not able to be shipped to the mine as a result of the
low level of the Fly River provides an object lesson on
the need for a GTE solution. Whilst we expect that this
will eventually proceed, the volume of gas required is
relatively small.
The Frieda River copper-gold project, further again to the
north, however is potentially a much larger gas consumer
and, with Ok Tedi, could account for the entire Stanley
gas resource. The prospects for a positive investment
decision on the development of Frieda River increased
quite significantly earlier this year when Guangdong
Rising Assets Management (GRAM) acquired PanAust
Limited, the 80% owner and operator of Frieda River, in
a A$1.2 billion transaction. It is evident from the recent
marked increase in activity by GRAM on Frieda River
that the project is central to their acquisition strategy.
Furthermore the PNG Government continues to voice its
support for the project and has indicated it wishes to take
advantage of its right to participate in it at a 30% interest.
The Stanley joint venture has engaged with GRAM on the
potential for gas sales for power generation.
The commercialisation options for the larger gas resource
at Elevala/Ketu are three-fold. As stated earlier, the
alternative of a mid-scale LNG project supplied by the
aggregation of uncommitted Western Province gas,
including Elevala/Ketu, is one that we can deliver on
and which will be our base case. We are advanced in
evaluating this option.
Horizon Oil Annual Report 2015 6
Chief Executive Officer’s Report
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Assumptions:
- Development of WZ 12-8E field
in the Beibu Gulf with production
commencing 2017
- Development of WZ 12-10-1 and
12-10-2 fields in 2018
- Stanley condensate start up in
PNG with gas sales to Ok Tedi
Mining Limited commencing
2018, with further large scale gas
sales in 2020
- Condensate monetisation and
gas sales in PRL 21 commencing
2020
6
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Maari
Wei 6-12 + 12-8W
Wei 12-8E
Stanley condensate
Elevala/Ketu/Tingu condensate
Stanley Gas
Elevala/Ketu/Tingu gas
Corporate Strategy
With reference to the production forecast shown above,
the fact that the underlying reserves and contingent
resources have been independently audited gives
us considerable confidence in terms of the forecast
contributions from the individual fields, except as to the
timing of initial production, particularly from the PNG
fields. The assumptions on field start-up times are
listed above.
Based on this forecast we can expect production from
New Zealand and China to continue at more-or-less
current levels until calendar year 2020. This means that,
with consensus assumptions of oil prices and barring
any unforeseen events, we can anticipate net operating
income over the next five years or so to be in line with
that of the last two financial years, at around US$80 –
90 million per annum.
This will be utilised initially to reduce the level of
indebtedness in the Company – in the first instance by
redeeming the outstanding convertible bonds and we
are already underway on this process – with remaining
cash flow available for investment in developing the large
inventory of undeveloped reserves and resources held by
the Company.
What has gained attention this year is the increasing
possibility of an expansion train – Train 3 – to the highly
successful ExxonMobil-led PNG LNG project. This
would potentially involve the aggregation of gas from
ExxonMobil and Oil Search’s P’nyang field (located
70 km to the north of PRL 21) with Elevala/Ketu gas.
Another participant in the PNG LNG project, Santos, has
announced that it will acquire an interest in P’nyang.
The PNG Government has mandated that the P’nyang
joint venture reach a final investment decision (FID) on
P’nyang by the end of 2017 and we understand that
the P’nyang joint venture is also required to enter into
commercial discussions with the owners of the nearby
undeveloped gas fields. The option of participating
in a brownfield expansion to an existing project – if
the opportunity arises and if acceptable commercial
terms can be achieved – is an appealing alternative
in terms of reducing financial and engineering risk.
Nevertheless Horizon Oil believes that it is important to
have a viable standalone greenfield alternative for the
commercialisation of Elevala/Ketu in order to be able to
conduct those commercial discussions effectively.
The recently-announced takeover attempt of Oil Search
by Woodside serves to highlight the attractiveness of
the LNG business in PNG in general and the value of an
expansion of the existing PNG LNG project (Train 3)
in particular.
The third commercialisation option will be pipeline gas
supply to regional consumers in PNG or on the West
Papuan side of the border. Our business development
people are actively pursuing opportunities in this
category.
Horizon Oil Annual Report 2015Forecast Calendar Year Net Production from Reserves + Contingent Resources as at 1 October 2015
Chief Executive Officer’s Report
7
Although we and our joint venture partners have been
able to very significantly reduce our development capital
expenditure budget for the next couple of years, this
does not mean that work in this category will come to a
halt. Rather we will continue our development planning
activity in China and PNG so that we will be able, when
we consider the time is right to resume development
construction work, to move quickly into the contracting
phase to take advantage of current capital cost deflation.
We do not budget significant expenditure on exploration
activity over the next few years and when we do spend
on exploration it will be in and around our existing
production and development areas. Nor are we looking
seriously at new business opportunities – if we were
to participate opportunistically in a new venture that
arises because of the current depressed state of the
asset market, that venture would have to fit with our
geographic focus and our conservative appetite for
risk and any required expenditure would have to be
long-dated.
The chart to the right illustrates the composition of
the asset portfolio and further underlines the strong
financial performance of the Company, considering
that the significant operating income over the last two
years was generated from only 11% of the total reserves
and resources base that has been developed. The
remaining 89% reserves and contingent resources are
yet to be developed and these will be the target of the
investment referred to above. It is these reserves and
resources, located primarily in PNG and represented in the
production forecast as coming on stream in calendar year
2017 and beyond, that constitute the substantial value
upside referred to at the conclusion of the Chairman’s
Report.
Total audited reserves and contingent resources
of 101.5 million barrels of equivalent
11% developed / 89% undeveloped - 34% oil / 66% gas
10.7 mmboe
Developed oil
(NZ and China)
11%
5%
5.4 mmboe
Undeveloped oil
(NZ and China)
Portfolio
composition
18%
18.7 mmboe
Undeveloped
liquids (PNG)
66%
66.7 mmboe
Undeveloped
gas (PNG)
We believe that the strategic make-up of the portfolio –
34% oil and 66% gas – and its location in the Asia Pacific
Basin are right for the Company.
The above approach defines our investment priorities –
a focus on debt reduction and measured development
of already discovered reserves and resources.
Horizon Oil Annual Report 2015 8
Chief Executive Officer’s Report
Funding Growth projects
Given the quality and scale of, in particular, the
PNG development projects, shareholders may have
questions about Horizon Oil’s ability to fund its share of
development capital expenditure, notwithstanding the
considerable cash generation anticipated from existing
developed fields in New Zealand and China over the
next five years. It should be noted that Horizon Oil’s
producing fields do not require significant recurring
capital investment to maintain production levels (apart
from infrequent field upgrades, such as in the case
of the recent Maari Growth Projects program) and
this conserves funding for investment in new field
development.
The undeveloped resources in China comprise a
significant volume of about 18 mmbo, but this will
essentially be a brownfield development. Two minimal
platforms and the necessary development wells will be
tied back to an existing processing platform with spare
capacity owned by the Block 22/12 joint venture, from
where stabilised crude oil will be transported to a sales
terminal through the same pipeline currently being
utilised with favourable tariff arrangements. The capital
cost of bringing on these resources is expected to be
relatively modest.
The Stanley field development concept has been scaled
down in the light of lower oil prices and the development
well drilling phase, the largest cost element of the re-
scaled project, is now behind us. Horizon Oil’s share of
the remaining development cost will be substantially
offset by cost reimbursement by the PNG Government
assuming it takes up its 22.5% interest in the project.
Again, the remaining cost to the Company of bringing
Stanley on stream is expected to be modest.
There is no question that the PRL 21 development project
will require considerable capital expenditure. Horizon
Oil’s share of this, allowing for the PNG Government
to back-in to its 22.5% entitlement, will be about 21%.
As for Stanley, the Company’s share of costs will be
partially offset by Government reimbursement of prior
costs. In the case of an LNG development, Horizon Oil
will also be entitled to cash and work carry payments
of US$130 million from Osaka Gas upon FID for the
project. This receivable was a milestone payment as part
of the consideration for the sale of 40% of Horizon Oil’s
position in PNG to Osaka in May, 2013 and was designed
to provide the equity funding component of an LNG
development when we needed it. Furthermore, although
we would intend to participate at our 21% equity level
in the upstream component of the development in any
event, in the case of a mid-scale LNG project we would
be prepared to participate at a lower level downstream
from the field. Our discussions with Osaka Gas anticipate
this possibility. Of course, in the case of the brownfield or
pipeline sales alternatives materialising, there would be
minimal downstream investment required.
At the time of commencing development of Elevala/Ketu,
the additional reserves in China and Stanley field should
be on stream and contributing to cashflow. We will
have the benefit of funding from the PNG Government
and Osaka Gas in the case of an LNG development. We
believe that these funding sources, in combination with
debt if and as required, provide a robust funding solution
for Horizon Oil’s participation in a potentially large
development project.
Conclusion
The 2014/15 year has seen advancement of the long
held overarching strategic objectives of the board
and management to build an Asian focused energy
company, with strong underlying financial and operational
performance and a material near term development
portfolio in a region of strong and growing energy
demand.
The current economic circumstances have required
prompt and decisive near term responses to the
Company’s operations. This has been a necessity
throughout the resources sector generally. That Horizon
Oil has had the capacity to adapt rapidly without drastic
changes to its operating structure is a function of an
inherently flexible operating model which adjusts to the
business demands. The prudential steps of hedging a
considerable volume of the Company’s production to
mid-2016 at the higher price levels prevailing in mid-
2014, further enhanced the Company’s ability to address
the current oil price environment.
While there are clearly challenges for the industry in the
near term, the Company is well positioned in a jurisdiction
where keen interest is being shown by international
energy companies looking for the opportunity to
participate directly or indirectly in PNG’s expanding world
class, low cost LNG sector. Horizon Oil’s position as
operator of the largest uncommitted gas resource in PNG
is the result of a calculated and patient approach taken
by the Company to build such a resource base, which is
positioned to deliver substantial value for shareholders.
B D Emmett
Chief Executive Officer
1 October 2015
Horizon Oil Annual Report 2015
2015 Reserves and
Resources Statement
9
Highlights:
• At 30 June 2015, Horizon Oil’s total proved and probable reserves (2P) and
contingent resources (2C) for oil and condensate were 34.8 mmbbl (2P: 13.9 mmbbl,
2C: 20.9 mmbbl), some 14% higher than at 30 June 2014. The increase of 4.4 mmbl
after net production was primarily attributable to successful development and
appraisal drilling in New Zealand and China.
• The Company’s 2C contingent gas resources are 400 bcf representing a 14 bcf
increase to the June 2014 position. In Papua New Guinea, planning for reconfiguration
of PDL 10 Stanley surface facilities and development of PRL 21 Elevala/Ketu gas and
condensate reserves and resources is ongoing.
• At Maari the Growth Projects Program successfully completed four new wells,
which increased production and allowed undeveloped reserves to be reclassified as
developed reserves.
• In China two exploration wells were successful in adding some 1.9 mmbbl to reserves
and resources (2P and 2C). In addition, contingent resources at WZ 12-8 were
increased as a result of development studies.
Oil and Gas Reserves
At 30 June 2015, the Company’s proved reserves (1P) were 9.7 mmbbl of oil and condensate. 2P reserves were
13.9 mmbbl of oil and condensate, distributed as shown in Table 1.
Table 1
New Zealand
PMP 38160 Maari/Manaia2
China
Block 22/12 WZ 6-12
+ WZ 12-8W3,4
Papua New Guinea
PDL 10 Stanley5
Closing Balance 30 Jun 15
(Economic Interest)
1P Dev
Oil
(mmbbl)
1P Dev
Gas
(bcf)
1P Dev
Condensate
(mmbbl)
1P UnDev
(mmbbl)
1P Total
(mmboe)1
2P Dev
Oil
(mmbbl)
2P Dev
Gas
(bcf)
2P Dev
Condensate
(mmbbl)
2P UnDev
(mmbbl)
2P total
(mmboe)1
2.5
4.7
-
7.2
-
-
-
-
-
-
-
-
-
2.5
4.6
0.2
4.9
5.8
2.3
2.5
2.3
9.7
-
10.4
-
-
-
-
-
-
-
-
-
4.6
0.3
6.1
3.2
3.5
3.2
13.9
1. Estimated in accordance with SPE-PRMS standard; 6 bcf gas equals 1 boe; 1 bbl condensate equals 1 boe
2. Net of production of 27 mmboe gross through 30 June 2015
3. Net of production of 9 mmboe gross through 30 June 2015
4. Reduced to allow for CNOOC participation at 51%
5. Subject to reduction to allow for PNG State Nominee participation at 22.5%
All of the reserves at Maari/Manaia are classifed as developed. The undeveloped 2P reserves of 3.5 mmbbl are
related to the planned WZ 12-10-2 well to be drilled in late 2015, and the Stanley field in PNG, where surface facilities
planning is under way.
Horizon Oil Annual Report 2015
10
2015 Reserves and Resources Statement
Net Reserves1, Contingent Resources1 and Prospective Resources1 as at 30 June 2015
PDL 10
(Stanley liquids)5
3.2 mmbo
PMP 38160
(Maari/Manaia)2
4.6 mmbo
PDL 10
(Stanley gas)5,6
120 bcf
Block 22/12
WZ 12-8E4
2.8 mmbo
PMP 38160
(Maari/Manaia)
1.3 mmbo
Block 22/12
WZ 12-8W4
1.3 mmbo
PDL 10
(Stanley Liquids)5
0.4 mmbo
RESERVES
Proven +
Probable
CONTINGENT
RESOURCES
Proven + Probable
Block 22/12
WZ 6-12 + WZ
12-8W3
6.1 mmbo
PRL 21
(Elevala/Ketu/
Tingu liquids)5
15.1 mmbo
PRL 21
(Elevala/Ketu/
Tingu gas)5,7
280 bcf
Total 13.9 mmbo
Total 87.6 mmboe / including 400 bcf of gas
Reconciliation of Reserves
Table 2
Opening Balance 30 June 2014
(Economic Interest)
WI% adjustment
Production (WI%)
Reserves revision
Economic interest adjustment
Closing Balance 30 Jun 2015
(Economic Interest)
1P Developed and Undeveloped
2P Developed and Undeveloped
Oil
(mmbbl)
Condensate
(mmbbl)
8.0
2.6
-
(1.3)
(0.1)
0.8
7.4
(0.3)
-
-
-
2.3
Gas
(bcf)
Oil
Equivalent
(mmboe)
Oil
(mmbbl)
Condensate
(mmbbl)
Gas
(bcf)
-
-
-
-
-
-
10.6
11.6
3.5
(0.3)
(1.3)
(0.1)
0.8
9.7
-
(1.3)
(0.5)
0.9
10.7
(0.3)
-
-
-
3.2
-
-
-
-
-
-
Oil
Equivalent
(mmboe)
15.1
(0.3)
(1.3)
(0.5)
0.9
13.9
The key changes in 1P and 2P reserves since 30 June 2014 are summarised in Table 2 above:
• Production: Reserves at 30 June 2015 have been adjusted for net production of 1.3 mmbbl (0.32 mmbbl in
Maari/Manaia and 0.99 mmbbl in Block 22/12, China).
• China: Increased 1P economic reserves of 0.1 mmbbl and 2P reserves in Block 22/12 of 0.3 mmbbl net of
production. This increase recognises the effect of cost recovery benefit under the PSC and also results from
two successful exploration wells drilled in 3Q 2014, one of which will be partially developed through the
WZ 12-8W platform in late 2015. The remaining discovered resources are the subject of ongoing development
planning and are held as 2C resources. The Block 22/12 fields were independently audited by RISC in early 2015.
• New Zealand: Downward economic 1P reserves revision of 0.4 mmbl net of production and 2P reserves revision of
0.9 mmbbl in Maari/Manaia resulting from a reconfiguration of the Maari Growth Projects Program. The associated
undeveloped reserves have been reclassified as 2C resources. In addition, further adjustments have been made as
a consequence of Horizon Oil’s evaluation of the geological and production data obtained from the four new wells
integrated with ongoing production information. This recent evaluation will be the subject of independent audit in
due course.
• Papua New Guinea: Downward revision of 0.3 mmbbl at PDL 10 Stanley due to working interest assumptions.
Horizon Oil Annual Report 2015 2015 Reserves and Resources Statement
11
Block 22/128
8 mmbo
PPL 259 (gas)
211 bcf
PROSPECTIVE
RESOURCES
Best Estimate
PPL 259 (liquids)
10 mmbo
PEP 51313
8 mmbo
PRL 21
(liquids)5
4 mmbo
PRL 21
(gas)5
75 bcf
1. Estimated in accordance with SPE-PRMS standard; 6 bcf gas
equals 1 boe; 1 bbl condensate equals 1 boe
2. Net of production of 27 mmboe gross through
30 June 2015
3. Net of production of 9 mmboe gross through 30 June 2015
4. Reduced to allow for CNOOC participation at 51%
5. Subject to reduction to allow for PNG State Nominee
participation at 22.5%
6. Includes 2.6 mmbbl LPG (1 tonne LPG equals 11 bbl)
7. Includes 9.0 mmbbl LPG
8. Subject to confirmation of acreage extension
Total 78 mmboe / including 286 bcf of gas
Contingent and Prospective Resources
At 30 June 2015, the Company’s 2C contingent resources were 20.9 mmbbl of oil and condensate, and 400 bcf of gas;
prospective resources were 30mmbbl of oil and condensate and 286 bcf of gas as summarised in Table 3 below.
Note that the table includes 2P reserves for reference.
Table 3
New Zealand
PMP 38160 Maari/Manaia
PEP 51313
China
Block 22/12 WZ 6-12 + WZ 12-8W 3
Block 22/12 WZ 12-8E
Papua New Guinea
(post Osaka Gas transaction)
PDL 10 Stanley5
PRL 21 Elevala5
PRL 21 Ketu5
PPL 2595
Closing Balance 30 Jun 15
(Economic Interest)
2P1
(mmboe)
4.62
-
6.14
-
3.2
-
-
-
2C1
Resource1
Best Estimate Prospective Unrisked
Oil
(mmbbl)
Gas
(bcf)
Condensate
(mmbbl)
Total
(mmboe)
Liquids
(mmbbl)
Gas
(bcf)
Total
(mmboe)
1.3
-
1.3
2.8
-
-
-
-
-
-
-
-
1206
2027
788
-
-
-
-
-
0.4
11.1
4.0
-
1.3
-
1.3
2.8
20.3
44.8
17.0
-
-
8
-
8
-
4
-
10
30
-
-
-
-
-
75
-
211
286
-
8
-
8
-
17
-
45
78
13.9
5.4
400
15.5
87.6
1. Estimated in accordance with SPE-PRMS standard; 6 bcf gas equals 1 boe; 1 bbl condensate equals 1 boe
2. Net of production of 27 mmboe gross through 30 June 2015
3. Net of production of 9 mmboe gross through 30 June 2015
4. Reduced to allow for CNOOC participation at 51%
5. Subject to reduction to allow for PNG State Nominee participation at 22.5%
6. Includes 2.6 mmbbl LPG (1 tonne LPG equals 11 bbl)
7. Includes 6.5 mmbbl LPG
8. Includes 2.5 mmbbl LPG
Horizon Oil Annual Report 2015
12
2015 Reserves and Resources Statement
Reconcilliation of Contingent Resources and Prospective Resources
The key changes in contingent resources since 30 June 2014 are as per Table 4:
Table 4
Opening Balance 30 June 2014 (Economic Interest)
Reserve revisions (WI%)
WI% adjustment
Economic Interest Adjustment
Closing Balance 30 June 2015 (Economic Interest)
2C boe
(mmboe)
79.7
8.6
(0.4)
(0.3)
87.6
Best Estimate Prospective
Unrisked Resources
(mmboe)
82
(4)
-
-
78
• Papua New Guinea: Increase in PRL 21 of 1.7 mmbbl of condensate and 14 bcf of gas resulting from ongoing
evaluation of geological data and subsurface development plans.
• China: Increase in Block 22/12 12-8E (including the 12-10-1 prospect) of 1.5 mmbbl net working interest;
increased revision in Block 22/12 12-8W (12-10-2 prospect) of 1.5 mmbbl net working interest.
• New Zealand: Increased revision in Maari contingent resources of 1.3 mmbbl.
Initial booking of Contingent Resource
- Beibu Gulf, Block 22/12
A total of 1.6 mmbbl of oil has been booked for the first
time as 2C contingent resource relating to Horizon Oil’s
26.95% net working interest in Block 22/12, China. The
resources were discovered by the WZ 12-10-1 and
WZ 12-10-2 wells drilled in late 2014. It is planned
to partially develop the WZ 12-10-2 well (0.3 mmbbl
2P reserves) by means of an extended reach well
drilled from the WZ 12-8W field in late 2015. This will
effectively appraise the accumulation and lead to further
development of the remaining 2C resources in due
course. It is planned to develop the WZ 12-10-1 resource
as part of the WZ 12-8E development which is currently
in the development planning stage. The resources
assigned to the undeveloped and contingent categories
were independently audited by RISC in early 2015.
Initial Booking of Contingent Resource
- Maari/Manaia, PMP 38160
A total of 1.3 mmbbl of oil has been booked as 2C
contingent resource relating to Horizon Oil’s 10%
economic interest in PMP 38160, hosting the Maari/
Manaia fields offshore New Zealand.
• Manaia Moki: The Manaia-2 well, drilled in late 2013
as an appraisal to the Manaia Field discovery well,
Maui-4, proved the existence of moveable oil in the
Moki formation which has been assessed to have 2C
potential of 8.5 (net 0.85) mmbbl. The accumulation
would be developed through a new platform and
feasibility studies are under way.
• Manaia Mangehewa: 3.6 (net 0.36) mmbbl of 2C
resources have been assessed as available to be
developed by a second production well into the
currently producing Mangahewa reservoir at Manaia.
A second production well planned for inclusion in the
2014/15 Growth Projects Program was not drilled and
the resource, previously classified as undeveloped
reserves, has been reclassified as contingent resources
subject to completion of ongoing development studies.
• Maari Moki M2A: 1.2 (net 0.12) mmbbl of contingent
resource assigned to the M2A reservoir at the Maari
Field. This resource has also been reclassified from
undeveloped reserves to contingent resources subject
to completion of development studies based on revised
mapping.
Horizon Oil Annual Report 2015 2015 Reserves and Resources Statement
13
Permits held
Location
Permit or licence
Principal assets
New Zealand
PMP 38160
Maari and Manaia fields
PEP 51313 (Matariki) Matariki, Whio (formerly Pike), Pukeko prospects
Interest (%)
10.00%
21.00%1
China
PNG
Block 22/12
WZ 6-12, WZ 6-12 South and WZ 12-8 West fields
26.95%
WZ12-8 East field
Stanley field
Elevala/Tingu and Ketu
PDL 10
PRL 21
PPL 259
PPL 372
PPL 373
PPL 430
PRL 4
55.00%2
30.00%3
27.00%3
35.00%
90.00%
90.00%
50.00%
33.33%*
1. Under the terms of the farm in agreement executed in November 2012, in the event of a commercial discovery at the Whio prospect, Horizon Oil’s
interest over the Whio prospect will reduce to 10%. No commerical hydrocarbons were discovered when this was drilled in July 2014.
2. China National Offshore Oil Corporation is entitled to participate at up to a 51.00% equity level in any commercial development within Block 22/12.
No commercial hyrdrocarbons were discovered when this was drilled in July 2014.
3. PNG Govt may appoint a state nominee to acquire up to a 22.5% participating interest in any commercial development within PDL 10 and PRL 21.
*Subject to Government approval.
Governance and 2015 Audit Plan
The governance arrangements for the reporting of
hydrocarbon Reserves and Resources are based on the
following procedure:
The Reserves, Contingent Resources and Prospective
Resources estimates used in this section are supported
by Alan Fernie (General Manager – Exploration and
Development and full time employee of Horizon Oil).
• Periodic assessment of proposed changes and
additions to the Company’s reserves and resource
database, based on technical work conducted
by Horizon Oil staff with contributions from asset
operators, peer review and external experts where
appropriate.
• Regular (normally end of calendar year) audits are
undertaken by independent third party resource
evaluators which are overseen by the General Manager
– Exploration and Development of Horizon Oil, who is a
petroleum reserves and resources evaluator qualified
in accordance with ASX Listing Rule requirements.
Historically, Horizon Oil has engaged RISC Pty Ltd
to conduct independent audits of its reserves and
resources.
• No public reporting of any reserves or resources
estimate is permitted without approval of the
General Manager – Exploration and Development
and the Chief Executive Officer.
• All public reporting of the reserves or resources
estimates is in accordance with the requirements set
out in Chapter 5 of the ASX Listing Rules and Horizon
Oil’s Continuous Disclosure Policy.
• Annual reports are subject to Board approval at the
Audit and Financial Risk Committee.
Depending on the asset, either deterministic or
probabilistic methods have been used to compile
Reserve and Contingent Resource estimates and
the probabilistic method has been used to compile
Prospective Resource estimates. Due to the portfolio
effects of arithmetic summation the aggregate 1P
Reserve may be a very conservative estimate and the
aggregate 3P Reserve may be a very optimistic estimate.
Prospective Resources have not been adjusted for risk,
i.e. chance of success.
Estimates of reserves are reported net of lease fuel. The
reference point used for the purposes of measuring and
assessing the estimated reserves is the sales point.
The reserve and resource estimates used in this report were
compiled by Alan Fernie (General Manager – Exploration
and Development). Mr Fernie (B.Sc), who is a member of the
American Association of Petroleum Geologists, has more
than 39 years relevant experience within the industry. The
reserve and resource estimates are consistent with the
definitions of proved, probable, and possible hydrocarbon
reserves and resources that appear in the ASX Listing Rules.
Alan Fernie is qualified in accordance with the requirements
of ASX Listing Rule 5.42 and consents to the use of the
resource and reserve figures in the form and context in
which they appear in this report.
The 1P, 2P reserves and contingent resource estimates
provided for the China and PNG assets in this report were
audited in early 2015 by independent auditors, RISC.
The estimates provided for Maari/Manaia are based on
recent internal evaluations conducted by Horizon Oil
and assessments provided by the Operator, OMV. These
estimates are yet to be independently audited.
Horizon Oil Annual Report 2015
14
Board of Directors
Fraser Ainsworth am
Chairman
Brent Emmett
Chief Executive Officer
John Humphrey
Director
Andrew Stock
Director
Gerrit de Nys
Director
Consolidated Results
A summary of consolidated results and a comparison with the previous year is set out below:
2015
2014
2013
2012
2011
US$’000
US$’000
US$’000
US$’000
US$’000
Revenue from continuing operations
Cost of sales (includes amortisation)
Gross profit
103,950
(59,970)
43,980
138,450
(92,716)
45,734
48,071
50,390
59,362
(22,685)
(16,935)
(19,622)
25,386
33,455
39,740
Profit from sale of assets
Other income
General and administrative expenses
Exploration and development expenses
Financing costs (includes project facility, convertible
bonds and FPSO finance lease)
Unrealised movement in value of convertible bond
conversion rights
Other expenses
Profit/(loss) before income tax expense
Net tax benefit/(expense)
Profit/(loss) for the financial year from continuing
operations
Loss from discontinued operations (net of tax)
Profit/(loss) for the financial year
Profit/(loss) attributable to members of
Horizon Oil Limited
-
23,830
6,842
(7,569)
(16,222)
(17,360)
234
(8,183)
(10,520)
(18,899)
-
30
(7,038)
(606)
(8,209)
-
72
(8,110)
(303)
(5,974)
22,000
464
(7,232)
(255)
(2,817)
9,063
412
991
4,967
(3,351)
(983)
17,751
(2,581)
30,027
556
(17,197)
18,307
12,830
-
18,307
18,307
-
12,830
12,830
(529)
10,025
(6,551)
3,474
-
3,474
3,474
(418)
23,689
(69)
48,480
(16,042)
(13,544)
7,647
34,936
-
7,647
7,647
-
34,936
34,936
Horizon Oil Annual Report 2015 15
Activities
Review
P.16
P.20
P.22
CHINA
PAPUA NEW GUINEA
PAPUA NEW GUINEA
Block 22/12, Beibu Gulf
(Horizon Oil: 26.95% production /
55% exploration)
PDL 10, Stanley field
(Horizon Oil: 30%)
NEW ZEALAND
PMP 38160, Maari and Manaia fields,
offshore Taranaki Basin
(Horizon Oil: 10%)
PRL 21, Elevala / Ketu fields
(Horizon Oil: 27%)
PPL 259
(Horizon Oil: 35%)
PPLs 372 and 373
(Horizon Oil: 90%)
PPL 430
(Horizon Oil: 50%)
*PRL 4
(Horizon Oil: 33.33%)
*Subject to government approval
NEW ZEALAND
PEP 51313, offshore Taranaki Basin
(Horizon Oil: 21%)
Horizon Oil Annual Report 2015 16
i
w
e
v
e
R
s
e
i
t
i
v
i
t
c
A
Production
China
China > Beibu Gulf
Block 22/12, Beibu Gulf
PERMIT
Block 22/12
6-1-3
WZ 6-9-1
6-1-2
WZ 6-1-1
INTEREST (%)
12’’ pipeline
26.95% production
55% exploration
ORIGINAL
During the year, Horizon Oil’s working interest share of production
from the Beibu Gulf fields was 993,857 barrels of oil. Crude oil
CHINA
sales were US$62.5 million generated from 928,014 barrels, at
an average price exclusive of executed hedging of US$67.34
per barrel. Gross oil production averaged 10,103 bopd, of which
Horizon Oil’s share was 2,723 bopd. All of the 15 production wells
are now being produced with artificial lift by electrical submersible
pumps (ESPs). Cumulative oil production from the combined
fields of 9 mmbo was achieved shortly after 30 June 2015.
WZ 6-12W-1
16” pipeline to weizhou island terminal
WZ 6-12N
(26.95%)
WZ 6-12-1
Block 22/12
AREA A
a
.
l
a
n
i
F
_
4
1
0
2
r
e
b
m
e
v
o
N
_
p
a
m
a
n
h
C
_
N
Z
H
Beibu G ulf
Wushi 1-3W-1
Wushi 1-3-1
WZ 6-12N-1
Block 22/12
Beibu
Gulf
Block 22/12
MAP AREA
i
i
100km
WZ 6-12-A6
WZ 6-9-2
Beibu
Gulf
MAP AREA
WZ 12-1
100km
WZ 12-2-1
WZ 12-7-1
WZ 12-8W
(26.95%)
WZ 12-8-1
WZ 6-12-A7
WZ 6-12S-1
1Sb
WZ 6-12S
(26.95%)
Horizon Oil’s entitlement to cost
WZ 6-12E-1A
recovery oil at 30 June 2015 was
US$98 million. Based on forecast field
production rates, Horizon Oil’s Block
22/12 production entitlement will
increase from 26.95% to over 35% of
production with effect from the fourth
WZ 12-3
WZ 12-8E
quarter of the 2015 calendar year,
(55%)
(55%)
while the cost recovery entitlement is
preferentially recovered.
Original
Development Area
Proposed Platform
WZ 12-3-4
WZ 12-3-2
WZ12-10-1
WZ 12-3-1
WZ 12-3-3
WZ12-10-2
WZ 12-8-3
WZ 12-8-2
Work continued during the year on
the Phase II development plan for
Block 22/12
the WZ 12-8E oil accumulation. The
AREA B
development of the WZ 12-8E field
will constitute the second phase
of an integrated development with
the existing WZ 6-12 and WZ 12-8W
development.
The WZ 12-8E feasibility expert
review by CNOOC was concluded
in May 2015. Preparation of the
Overall Development Plan for the
field is underway, with completion
scheduled in late calendar year 2015/
early calendar year 2016. The audited
5km
gross 2C resources for the field
(including WZ 12-10-1 and WZ 12-3-1)
are 11.1 mmbo.
LEGEND
Development Area
Two successful exploration wells
Oil Discovery
were also drilled within Block 22/12
Oil and Gas Discovery
during the year.
Oil Field
Gas Field
Oil Prospect
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Dry Hole
Fault
NEW VERS - Nov 2014
12’’ pipeline
6-1-2
6-1-3
WZ 6-1-1
Beibu G ulf
16” pipeline to weizhou island terminal
Wushi 1-3W-1
Wushi 1-3-1
WZ 6-9-1
WZ 6-9-2
WZ 12-2-1
WZ 6-12N
(26.95%)
WZ 6-12-1
Block 22/12
AREA A
WZ 6-12N-1
WZ 6-12W-1
1Sb
WZ 6-12S
(26.95%)
WZ 12-1
WZ 6-12-A6
WZ 6-12-A7
WZ 6-12E-1A
WZ 6-12S-1
WZ 12-3
(55%)
WZ 12-8E
(55%)
WZ 12-3-2
WZ 12-3-4
Original
Development Area
Proposed Platform
WZ 12-7-1
WZ 12-8W
(26.95%)
WZ 12-8-1
WZ 12-10-1
WZ 12-10-2
WZ 12-8-3
WZ 12-8-2
WZ 12-3-1
WZ 12-3-3
Block 22/12
AREA B
CHINA
i
a
.
l
a
n
i
F
_
4
1
0
2
r
e
b
m
e
v
o
N
_
p
a
m
a
n
i
h
C
_
N
Z
H
MAP AREA
Block 22/12
5km
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Development Area
Fault
Oil Discovery
Oil and Gas Discovery
Dry Hole
Beibu
Gulf
100km
Horizon Oil Annual Report 2015
Production
Crude oil sales were
US$62.5 million generated
from 928,014 barrels
17
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The first well, WZ 12-10-1, targeted
the T42 and Weizhou formations,
adjacent to the WZ 12-8E field of the
WZ 12-8 Development Area. The well
discovered oil in the Jiaowei (T42)
formation over an interval of 5.5 m,
with high porosity net oil pay of
4.2 m. A sidetrack (WZ 12-10-1Sa)
with a 340 m eastern stepout was
then drilled to evaluate the updip T42
reservoir and confirmed oil in the T42
formation with a thicker net oil pay
of 5.5 m. No oil pay was interpreted
in the deeper Weizhou formation. A
wireline evaluation logging program
was run, confirming the oil pay in the
T42 reservoir.
The second exploration well, the
WZ 12-10-2 well, located 1.6 km
east northeast of the existing
WZ 12-8W facilities and in water
depth of approximately 36 m,
discovered oil in the T42 formation,
with high porosity net oil pay of
approximately 11 m true vertical
thickness. Wireline evaluation logging
programs were run and confirmed
the oil pay in the T42 reservoir with
favourable reservoir porosities, in
the region of 31%, and oil gravity of
approximately 29 deg API. The optimal
integration of both discoveries into the
Beibu Project is under evaluation.
Planning for an approved appraisal/
development well on the WZ 12-10-2
new field discovery progressed during
the year. The well (WZ 12-8W-A6H)
will be drilled in Q4 of calendar year
2015 from the WZ 12-8W platform
to evaluate the south eastern part of
the structure and enable immediate
production. The audited gross 2P
reserves and 2C resources for the
structure are 1.1 mmbo and 5.4 mmbo,
respectively.
Integrated
Development
Concept
CNOOC
Infrastructure
E
E
n
n
E LI N
E LI N
u Isl a
u Isl a
S P I P
S P I P
o
o
eiz h
eiz h
a l
a l
d T e r m i n
d T e r m i n
Block 22/12
Beibu Gulf
WZ 12-1B
A
A
G
G
e t o W
e t o W
eli n
eli n
6 ” P i p
6 ” P i p
1
1
Future CNOOC Fields
WZ 12-1A
Phase I Development
WZ 6-12 WHP
WZ 12-1 PUQB
Existing Production
Future CNOOC Fields
WZ 12-1PAP
WZ 12-8W
WHP
Future
WZ 12-10
WHP
Future
WZ 12-8E WHP
Proposed
Phase II & III Developments
i
a
.
5
1
0
2
y
r
a
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n
a
J
_
C
O
O
N
C
_
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e
m
p
o
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e
D
d
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s
o
p
o
r
P
-
u
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i
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B
-
a
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h
C
_
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Z
H
i
Horizon Oil Annual Report 2015
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Production
New Zealand
Maari and Manaia fields,
offshore Taranaki Basin
PERMIT
INTEREST (%)
PMP 38160
10%
Auckland
MAP AREA
Tasman Sea
Wellington
500km
New Zealand > offshore Taranaki Basin
During the year, Horizon Oil’s working interest share of production
from Maari and Manaia fields was 316,628 barrels of oil. Crude
oil sales were US$21.2 million generated from 286,474 barrels at
an average price exclusive of executed hedging of US$73.95 per
barrel. Gross oil production averaged 8,675 bopd, of which Horizon
Oil’s share was 867 bopd. Cumulative gross oil production from the
fields through 30 June 2015 was in excess of 27 million barrels.
The Maari Growth Projects drilling
program was completed during the
year, incorporating four new wells
which were designed to enhance
production rate and oil recovery
from the Maari and Manaia fields.
The Maari MR8A development well
was completed and production
commenced from this well on
28 November 2014. The Maari MR6A
development well, which involved
the conversion of an existing water
injection well to a new production
well to address the oil reserves in the
deeper Maari Mangahewa formation,
commenced production on 21 March
2015, with initial production of 7,800
bopd. The Maari MR7A and MR10
wells were drilled and completed
in the final quarter of the financial
year and commenced production
respectively on 18 May and 6 July
2015. Following completion of
the Maari Growth Projects drilling
program, gross production increased
to in excess of 16,000 bopd.
Drilling operations involving the Ensco
107 were completed on 29 June 2015.
The rig was successfully floated off the
Maari field location for demobilisation
on 11 July 2015.
The Maari joint venture’s workover
unit (WOU) is being reinstalled on the
wellhead platform in preparation for
carrying out maintenance workovers
and other activities such as adding
perforations, initially on four wells, to
further enhance production.
LEGEND
Oil Field
Gas Field
Prospect
Lead
Gas Pipeline
Basin
Oil Discovery
Oil Shows
Dry Hole
Fault
Horizon Oil
Petroleum Licence
20km
Tasman Sea
Pukeko-1
TUI
Tui-1
MAUI ‘A’
MAUI ‘B’
EAST MAUI
GRABEN
Maari-1
Maari-2
PMP 38160
(10%)
Manaia-2
Maui-4
MAARI
Moki-1
Moki-2a
Whio-1
Te Whatu-1
MANAIA
FRESNE
GRABEN
North
Tasman-1
PUANGA
PUANGA-ITI
Fresne-1
PEP 51313
(21%)
PAUA
MATARIKI
STRAT PLAY
MATARIKI
TAKURUA
Tasman-1
Oaonui
KAPUNI
WAIHAPA
A-NGAERE
NEW ZEALAND
RIMU
KUPE
SOUTH
TARANAKI
GRABEN
Horizon Oil Annual Report 2015
Production
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Cumulative gross
oil production from
the fields through
30 June 2015
was in excess of
27 million barrels
Maari / Manaia schematic cross-section PMP 38160, Offshore New Zealand
SW
Maui-4 Manaia-2
7km
Wellhead
Platform
2km
Maari-1
PLIO-
PLEISTOCENE
MIOCENE
OLIGOCENE
EOCENE
Upper Manganui Fo r m a t
i o n
d sto n e
n
a
A S
M 2
Moki S a n d s
t o n e
n
t i o
F o r m a
Lower Mang a n u i
Ngatoro Gro u p
Mangahewa Formation
Manaia
Structure
F-Sand
equivalent
Maari Structure
F-Sand equivalent
NE
Depth mss
0
100
1000
2000
Horizon Oil Annual Report 2015
Development
PAPUA NEW GUINEA > Stanley Field
Following receipt of the Stanley development licence, the
Stanley-3 and Stanley-5 development wells were drilled and
completed during the year.
The Stanley-5 production well
spudded on 16 June 2014 using
the Parker 226 rig and was drilled
to target total measured depth of
3,405 m. The observed quality and
size of the objective Toro and Kimu
reservoirs were better than had been
predicted, with a combined gross
reservoir column of about 110 m and
net pay of about 96 m. A production
test was carried out over the Toro
and Kimu zones. After a clean-up
period of 24 hours, the Stanley-5 well
flowed at approximately 68 million
cubic feet of gas per day (mmcfd),
with associated condensate, on a
122/64” choke at a wellhead pressure
of 3,233 psi. Log and test data from
the well, together with wellhead
condensate samples obtained,
confirm reservoir and fluid properties
consistent with and exceeding
pre-drill estimates and the nearby
Stanley-2 results.
On completion of the Stanley-5 well,
the rig was skidded to commence
drilling the Stanley-3 injection well,
which spudded on 4 September
2014. The well was drilled to a
measured total depth of 3,501 m and
achieved its objectives of confirming
a gas column in the Toro formation
with a gas-water contact at the base
of the reservoir. The well has been
completed as a gas re-injection well,
as planned.
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Papua New Guinea
PDL 10, Stanley Field
PERMIT
INTEREST (%)
PDL 10
30%
Wewak
MAP AREA
Madang
Proposed
Gas pipeline
Lae
Oil
Pipeline
Gas
Pipeline
Daru Port Moresby
500km
Gulf of
Papua
Nena Mine Pit
Horse_Ivaal Pit
Nena Camp Site
Koki Pit
Frieda River
Project
Ok Tedi Mine
Telefomin
Tabubil Township
Ok Menga
P’NYANG
Fly River
A
U
P
A
P
T
S
E
W
PPL 259a
(35%)
PPL 430
(50%)
Strickland
Aiambak Kavianganga
Fly River
Kopiago
Porgera
Koroba
Hides GTE Plant
Tari
ANGORE
PAPUA
NEW
GUINEA
Madang
PRL 4
(33.33%)
PDL 10
(30%)
STANLEY
PPL 259b
(35%)
Kiunga
Drimdenasuk
TINGU
PRL 21
(27%)
JUHA
KETU
UBUNTU
ELEVALA
HIDES
MORAN
PAPUA NEW GUINEA
Wewak
MAP AREA
Madang
Possible
Gas Pipeline
Oil
Pipeline
Lae
Daru
500km
Gas
Pipeline
Port Moresby
Gulf of
Papua
i
a
.
5
1
0
2
y
r
a
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b
e
F
_
p
a
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l
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o
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e
r
-
G
N
P
_
N
Z
H
LEGEND
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Possible Gas Pipeline
Oil and Gas Discovery
Oil and Gas Shows
Roads/Tracks
Rivers
Horizon Oil
Petroleum Licence
PPL 372a
(90%)
River
PUK PUK
PPL 372b
(90%)
Difficult
DOUGLAS
PPL 373
(90%)
KOKO
KIMU
KUTUBU
Terrain
PPL 373
(90%)
ELK PROJECT
Lae
Kumul Terminal
Gulf of
Papua
Daru Daru Island
100km
LNG Facility
Port Moresby
Horizon Oil Annual Report 2015HIGHLANDSFORELAND
Development
The observed
quality and size of
the objective Toro
and Kimu reservoirs
were better than
had been predicted
21
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Horizon Oil managed the drilling of
the Stanley-5 and -3 development
wells on behalf of the joint
venture. The two production wells
for the Stanley gas-condensate
project (Stanley-2 and -5) are now
completed, ready for production and,
through testing, have demonstrated
the capacity to produce well in
excess of the design capacity of the
Stanley gas plant (140 mmcfd). With
completion of the Stanley-3 well, all
development drilling activities will
have been completed in respect of
the Stanley project.
In light of the material changes in
market conditions in respect of oil
price and costs which commenced
in the fourth quarter of calendar
year 2014, the Stanley joint venture
initiated a value engineering
review process to optimise project
design, execution and timing prior
to entering into material contracts
for fabrication and construction of
the project facilities. Project cost
estimates are being revised, taking
advantage of the cost deflation
prevailing in the current industry
climate. The review process
continued during the first half of the
2015 calendar year. The operator,
Repsol, anticipates finalising the
revised development concept for
joint venture approval in the second
half of the 2015 calendar year.
Horizon Oil anticipates the revised
project configuration will entail a
phasing of the ultimate development
and associated capital costs,
enabling early investment limited to
match the gas demand for power
generation to meet the requirements
of regional mining and industrial
users. The operator, Repsol, advises
the target timing for first production
is prior to the end of 2017.
The Stanley project tanker Western
Queen passed all inspections during
the year which qualifies the vessel
for sub-charter arrangements. The
vessel is currently sub-chartered on
a long-term charter arrangement
which will serve to offset holding
costs until the vessel is required to
transport Stanley condensate.
Horizon Oil Annual Report 2015
22
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Exploration/Appraisal
Papua New Guinea
PRL 21, Elevala / Ketu
discoveries
PERMIT
INTEREST (%)
PRL 21
27%
Wewak
MAP AREA
Proposed
Gas pipeline
Madang
Oil
Pipeline
Lae
Gas
Pipeline
Daru Port Moresby
500km
Gulf of
Papua
PAPUA NEW GUINEA > Elevala / Ketu
Work conducted during the year included additional studies and
FEED activities to refine the project development plan and costs.
The joint venture acquired a further 102 km of new 2D seismic
data, primarily over the Elevala/Tingu area, with two additional lines
over the Ketu area. The survey was completed on time and within
budget. The data was processed and integrated with reprocessed
earlier data sets to provide better definition of the Elevala and Ketu
structures and to facilitate stratigraphic modelling.
Review of the development and
pipeline applications by the PNG
Department of Petroleum and
Energy (DPE), Conservation and
Environment Protection Authority
(CEPA – formerly known as the
Department of Environment and
Conservation), assessment of the
Environmental Impact Statement
and review of the Social Mapping
and Landowner Identification Study
are all well advanced. Meetings
with the Provincial Government
and landowner representatives are
ongoing. The DPE has engaged
the National Petroleum Corporation
of PNG to assist with the review of
surface and subsurface elements
of the development plan. CEPA
conducted a series of community
engagement and feedback forums in
PRL 21 during March 2015.
Ningerum
Tedi
Ok
STANLEY
Siphon-1
Hawenai
PRL 4
(33.33%)
PPL
464
Stanley-3 Nama-1
PDL 10
(30%)
Stanley-1
Stanley-5
Stanley-2
Stanley-4
PPL 259b
(35%)
Kiunga-1X
Drimdenasuk
Kiunga
WEST
PAPUA
Ex PPL 259
Fly River
PPL 259a
(35%)
Proposed
road upgrade
PPL 268
PPL 260
ANGORE
PRL 11
50km
PAPUA NEW GUINEA
Wewak
Possible
Gas Pipeline
Daru
500km
Madang
MAP AREA
Oil Pipeline
Lae
Gas
Pipeline
Port Moresby
Gulf of
Papua
P’NYANG
PPL 269
PAPUA
NEW
PPL 402
GUINEA
JUHA
PPL 437
Ex PPL
259
KETU
PRL 21
(27%)
TINGU
Ketu-1
Ketu-2
Elevala-2
Elevala-1
PRL 28
ELEVALA
Ubuntu-1
UBUNTU
Debepare
PPL 430
(50%)
Tingu-1
PPL 268
PRL02
PDL 1
HIDES
PPL 239
PRL 12
PPL 287
PPL 372a
(90%)
Honinabi
Nomad
PDL 5
MORAN
PPL 219
SE MANANDA
PPL 372b
(90%)
D
i
ffi
c
u
l
t
PAUA
PPL 233
PPL
219
HEDINIA/IAGIFU
PDL 2
KUTUBU
PPL
219
PPL 219
River
PPL 261
PPL 287
T
errain
PUK PUK
PPL 235
DOUGLAS
PPL 288
d
n
a
l
k
c
i
r
t
S
Possible Gas Pipeline
route to Daru
PPL 373
(90%)
KOKO
KIMU
PPL 267
APPL 264
PRL 8
PPL 373
(90%)
APPL 263
LEGEND
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Possible Gas Pipeline
Prospect
Lead
Township
Oil and Gas Discovery
Oil and Gas Shows
Roads/Tracks
Rivers
Seismic Lines
New Seismic Lines
Licence Boundary
Horizon Oil
Petroleum Licence
Horizon Oil Annual Report 2015FORELANDHIGHLANDS
P’NYANG
PPL 269
Hawenai
Difficult
Ningerum
Ok Menga: approx. 70km
Telefomin: approx. 122km
Frieda River: approx. 180km
PDL 10
(30%)
STANLEY
Stanley
Power Plant
Stanley-1
Stanley-5
Stanley-2
Stanley-4
Stanley-3
Stanley
Gas Plant
Rumginae
Drimgas
R iv e r
PRL 21
(27%)
Proposed
Wharf
Kiunga
Drimdenasuk
Konkonda
i
d
e
T
Stanley to
Kiunga Pipeline
Kiunga Condensate Terminal &
Fly River Loading Facility
Ok
F l y
KETU
Ketu-1
TINGU
Tingu-1
Gasuke
Elevala-1
Elevala-2
ELEVALA
Ketu-2
Elevala
Gas Plant
KEY TO WELL SYMBOLS
Oil and Gas Discovery/
Appraisal well
Oil and Gas Shows
Production well
Injection well
Proposed Production well
Proposed Injection well
Well Traces
Proposed
road upgrade
Elevala to
Kiunga Pipeline
KEY TO PRL 21 DEVELOPMENT
Proposed Injection Line
Proposed Production Line
Daru Island: 1005km
Port Moresby: 1255km
23
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PPL 239
PPL 372a
(90%)
Honinabi
Nomad
LEGEND
Gas Field
Roads/Tracks
Rivers
Township
Licence Boundary
Horizon Oil
Development Projects
20km
r
e
Riv
Ubuntu-1
UBUNTU
Approx. 20km
to Nomad
d
n
a
l
k
c
i
r
t
S
Wewak
MAP AREA
(( JPG - MAKE VERSION IN PHOTOSHOP - “Save for Web & Devices - JPG - 3000 pixels wide ” ))
TO CONFIRM !!!!
for the Papua LNG project, which
will utilise the Elk and Antelope gas
accumulations, and confirmed the
timetable for selection of the final
development concept in early 2016.
Santos/Engie’s 2 mtpa Bonaparte
Basin mid-scale LNG proposal and
Woodside’s Grassy Point near shore
LNG development concept.
Proposed
Gas pipeline
Oil
Pipeline
Madang
Lae
Gas
Pipeline
Daru Port Moresby
500km
Gulf of
Papua
In light of the current low oil price
environment, the project selection
duration was extended in order to
ensure that project cost estimates are
in line with current market conditions,
with the ultimate aim of enhancing
the project economics. Internal
value engineering reviews were
also commenced during the year to
optimise the project configuration
and take into account revised market
conditions and cost deflation.
Horizon Oil, in partnership with Osaka
Gas, conducted a pre-feasibility
study for a Western Province-
based greenfield mid-scale LNG
project. The study evaluated several
development options and the
shortlisted options will be further
evaluated through the course of a
feasibility study scheduled to be
completed in late calendar year 2015.
A scheme with a near shore plant at
Daru Island is the leading concept,
which is similar in approach to other
barge mounted near shore LNG
projects/proposals such as Pacific
Rubiales Caribbean FLNG project,
During the year, participants in the
PNG LNG project advised that they
had signed an agreement with the
PNG Government providing for the
award of development and pipeline
licences for the P’nyang field, located
roughly 70 km to the north of Stanley,
Elevala/Tingu and Ketu fields, to
enable expansion of the PNG LNG
project. Under the agreement a final
investment decision for an additional
LNG train is to be taken by the end
of 2017, at the latest. Oil Search
Limited, a key participant in P’nyang,
continued to highlight the potential
for NW Hub gas resources, potentially
including with P’nyang the gas
resources in Stanley, Elevala, Ketu
and Ubuntu fields, to supply the third
PNG LNG expansion train.
Considerable exploration and
appraisal activity will be carried out in
early 2016 immediately to the north
of Horizon Oil’s Western Province gas
fields with the P’nyang participants
planning to drill up to two appraisal
wells and the PPL 269 participants,
including Repsol, Santos and Oil
Search to drill up to two exploration
wells, with total drilling costs likely to
be in the order of US$400-500 million.
Elsewhere in PNG Total, InterOil
and Oil Search recently announced
the selection of the facilities site
Horizon Oil considers that these
recent material developments
have the potential to increase the
likelihood of promising alternative
commercialisation pathways
emerging for its substantial gas
resources in the Western Province
foreland. The possible export pipeline
route connecting P’nyang gas field
to the existing PNG LNG system at
Kutubu offers, in Horizon Oil’s view,
the potential for a gas aggregation
project involving Stanley, Elevala/
Tingu, Ketu, Ubuntu and P’nyang
fields. An alternative possible
pipeline route could connect Horizon
Oil’s gas to the Puk Puk, Douglas,
Koko and Kimu dry gas fields to the
south and thence to the Elk/Antelope
pipeline system, to enable expansion
of the Papua LNG project.
Naturally, the Company intends to
progress planning for a greenfield
LNG project at Daru Island as its
base case. However, the opportunity
to participate in a brownfield LNG
development by way of aggregation
of Horizon Oil’s gas fields with those
of other operators represents a
potentially attractive proposition.
The Company further understands
that such proposals have
considerable PNG governmental
support.
Horizon Oil Annual Report 2015PAPUA NEW GUINEAPPL 430(50%)PRL 4(33.33%)PPL 259b(35%)PPL 259a(35%)FORELANDPRL 28HIGHLANDSPotential Transmission Line
24
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Papua New Guinea / New Zealand
Papua New Guinea
PPL 259
PERMIT
PPL 259
INTEREST (%)
35%
Papua New Guinea
PPLs 372,373 and 430
PERMIT
INTEREST (%)
PPLs 372 and
373
PPL 430
90%
50%
New Zealand
PEP 51313, offshore
Taranaki Basin
PERMIT
INTEREST (%)
PEP 51313
21%
During the year the Nama-1 rig site, located 20 km east of Stanley
field, was completed and the exploration well spudded with the
Parker 226 rig on 4 December 2014.
The well reached a total depth of 3,533 m on 6 January 2015. The well
encountered a total of 77 m of the target Toro and Kimu sandstones
and whilst gas shows were detected the sands were poor quality at this
location. Sidewall cores were acquired to determine the causes of reservoir
deterioration and the implications for reservoir quality across the remainder
of the prospect, which covers a large area (about 60 sq km). Interpretation of
the log and core data is under way to evaluate the remaining potential of the
broader prospect. The Nama-1 well was plugged and abandoned and the rig
released on 19 January 2015.
Demobilisation of the rig and associated services commenced after the
Nama-1 well. The Parker 226 rig had successfully carried out the multi-well
and multi-licence exploration and development drilling programs of various
joint ventures in Western Province, PNG. The demobilisation activities are
complete and within the gross demobilisation budget for the rig and services.
Data on the new acreage is being collated, with the intent of reprocessing
existing seismic ahead of acquiring new seismic data. The acreage will be
explored with the objective of confirming sufficient gas reserves, when added
to the existing PNG reserves base, to underwrite a mid-scale LNG plant on
the coast.
The Whio-1 exploration well was spudded on 23 July 2014. The well failed
to encounter hydrocarbons and was plugged and abandoned on 31 August
2014. The well results are being evaluated to determine whether the lack of
hydrocarbons is a result of lack of structural closure or charge. The costs of
the well were fully carried by OMV New Zealand.
Horizon Oil Annual Report 2015
Horizon Oil Limited
ABN 51 009 799 455
This annual financial report
covers the consolidated financial
statements for the Group, consisting
of Horizon Oil Limited (the
‘Company’) and its subsidiaries.
The annual financial report is
presented in United States dollars.
Horizon Oil Limited is a public
company limited by shares and is
listed on the ASX. It is incorporated
and domiciled in Australia. Its
registered office and principal
place of business is:
Level 6
134 William Street
Woolloomooloo NSW 2011
Annual
Financial
Report
FOR THE FINANCIAL
YEAR ENDED 30 JUNE 2015
The annual financial report was
authorised for issue by the Board of
Directors on 25 August 2015. The Board
of Directors has the power to amend
and reissue the annual financial
report.
26
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Your directors present their report on the consolidated
entity (referred to hereafter as the ‘Group’) consisting of
Horizon Oil Limited (the ‘Company’) and the subsidiaries it
controlled at the end of, or during the financial year ended,
30 June 2015.
DIRECTORS
The following persons were directors of Horizon Oil Limited
during the whole of the financial year and up to the date of
this report:
REVIEW OF OPERATIONS
PRINCIPAL ACTIVITIES
During the financial year, the principal activities of the Group
continued to be directed towards petroleum exploration,
development and production.
A detailed review of the operations of the Group during the
financial year is set out in the Activities Review on pages 15
to 24 of this annual financial report.
E F Ainsworth
B D Emmett
J S Humphrey
G de Nys
A Stock
GROUP FINANCIAL PERFORMANCE
Consolidated Statement of Profit or Loss and Other Comprehensive Income
2015 Profit After Tax Drivers
18.5
4.4
6.8
7.9
6.89.1
37.8
89.1
16.2
n
o
i
l
l
i
m
$
S
U
100.0
80.0
60.0
40.0
20.0
0.0
104.0
17.4
35.1
0.6
18.3
Revenue
Operating Costs
Special Oil
Gain Levy
Other
income
General &
Admin and Other
expenses
Unrealised
movement in
fair value of
CB conversion
rights
EBITDAX
Depreciation &
Amortisation
Exploration
Expenses
EBIT
Finance Costs
Income Tax
expense
Profit after Tax
The Group reported a net profit after income tax of US$18.3
million (2014: net profit US$12.8 million), driven by gross
profit from operations of US$44.0 million (2014: US$45.7
million). Included in the overall result were insurance
recoveries associated with Maari/Manaia equipment repairs
and replacement and other income of US$6.8 million, and an
unrealised gain in the value of convertible bond conversion
rights of US$9.1 million (2014: US$0.4 million). EBITDAX
was US$89.1 million (2014: US$99.5 million), and EBIT was
US$35.1 million (2014: US$48.9 million).
EBITDAX and EBIT are financial measures which are
not prescribed by Australian Accounting Standards
and represent the profit under Australian Accounting
Standards adjusted for interest expense, taxation expense,
depreciation, amortisation, and exploration expenditure.
The directors consider EBITDAX and EBIT to be useful
measures of performance as they are widely used by the oil
and gas industry. EBITDAX and EBIT information have not
been audited. However, they have been extracted from the
audited annual financial report for the financial year ended
30 June 2015.
Basic earnings per share for the financial year were
1.41 cents based on a weighted average number of fully and
partly paid ordinary shares on issue of 1,303,481,265 shares.
Horizon Oil Annual Report 2015
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
27
Sales and Production Growth
The Group recorded a strong performance from its
producing assets, with the net working interest share of oil
production of 1,310,485 barrels (2014: 1,434,534 barrels),
a decrease of 9% compared to the prior financial year,
resulting from natural reservoir decline from the Beibu Gulf
fields which was partially offset by incremental production
from completion of the Maari Growth Project. The Maari
Growth Project was successfully completed on 6 July 2015,
increasing field production to over 16,000 barrels of oil
per day.
Finance Costs
Finance costs of US$17.4 million (2014: US$18.9 million)
comprised amortisation of the convertible bond through
to maturity (inclusive of the 5.5% coupon payable semi-
annually), and interest and finance costs payable on
our loan facility. Finance costs of US$3.0 million were
capitalised during the financial year in relation to the Group’s
development projects. Interest and finance costs decreased
by 8.1% due to decreases in the interest rates payable on
debt facilities, as well as, an increase in capitalised finance
costs of US$1.7 million.
Oil and gas sales revenue of US$104.0 million (2014:
US$138.5 million) was generated from sales volumes of
1,214,488 barrels of oil (2014: 1,356,085 barrels), with an
average realised oil price of US$68.90 per barrel (2014:
US$106.43 per barrel) before hedging, slightly less than
the Brent oil price which averaged US$76.20 per barrel for
2015 (2014: US$109.02 per barrel). The average realised
price inclusive of hedging was US$85.59 per barrel (2014:
US$102.10 per barrel), as 74% of oil sales were hedged at a
weighted average price of US$95.45 per barrel. This led to
the maintenance of strong operating income levels despite
the significant fall in oil prices which occurred during
the year.
Operating costs of US$60.0 million (2014: US$92.7 million)
comprised production costs of US$18.5 million
(US$14.1/boe), amortisation costs of US$37.1 million
(US$28.3/boe), and royalties and Chinese special oil income
levy of US$4.4 million (US$3.4/boe). The significant decrease
in operating costs is attributable to a focused reduction
in production costs resulting from the lower oil price
environment, combined with no Chinese special oil income
levy being incurred in the second half of the year (a factor
of low oil prices).
General and Administrative Expenses
General and administrative expenses of US$7.6 million
(2014: US$8.2 million) comprised net employee benefits
expense of US$3.4 million, corporate office and insurance
expense of US$2.6 million, depreciation of US$0.7 million,
and rental expense of US$0.9 million. The decrease of
8% is predominately due to a decrease in net employee
benefits expense, driven by the voluntary foregoing of
short-term incentive entitlements by key management
personnel, a heavy focus on cost control in the lower oil
price environment and favourable foreign exchange rate
movements.
Exploration and Development Expenses
Exploration and development expenses of US$16.2 million
(2014: US$10.5 million) which was primarily related to the
unsuccessful Nama-1 exploration well in PPL 259, Papua
New Guinea.
Unrealised movement in value of conversion option
on bonds
An unrealised gain of US$9.1 million (2014: US$0.4 million)
was recorded for the revaluation of the conversion option
on the convertible bonds at 30 June 2015 based on an
independent valuation. The unrealised gain reflects the
reduced probability of the bonds being converted to equity
as they approach maturity on 17 June 2016.
Income and Royalty Tax
The net income and royalty tax benefit of US$0.56 million
(2014: US$17.2 million) incurred during the financial year
included a deferred income tax benefit of US$4.86 million
and royalty related tax expense of US$4.3 million. Current
income tax expense has decreased from the prior financial
year due to the fall in oil prices, and deductions for
abandonment payments in China following the registration
of the abandonment plan during the period. Deferred tax
expense decreased during the year due to the recognition of
Australian tax losses which are now expected to be utilised
in the short-term.
Hedging
At 30 June 2015, the Group had 397,500 barrels of crude
oil hedged through a mixture of Brent oil price swaps and
collars at a weighted average price of US$94.77/bbl which
represents approximately 3.0% of its proven and probable
reserves (30 June 2014: 842,500 barrels). During the
financial year, 895,002 barrels of oil price derivatives were
settled, resulting in a cash inflow of US$20.3 million.
Consolidated Statement of Financial Position
During the financial year, total assets increased to
US$523.3 million (2014: US$514.9 million) and total liabilities
decreased to US$267.0 million (2014: US$292.3 million).
As a result, net assets increased to US$256.3 million
(2014: US$222.6 million).
Total assets increased from the prior year, which was
primarily due to increased expenditure on our oil and
gas assets, as well as, increases in our derivative asset
and deferred tax asset positions of US$11.4 million and
US$8.9 million respectively. This was partially offset
by amortisation on our oil and gas assets of
US$37.1 million and a decrease in cash of US$37.6 million.
The increase in expenditure resulted from the Group’s
share of costs associated with the drilling and completion
of one exploration and two development wells in PNG,
two exploration wells in the Beibu Gulf and the successful
completion of the Maari Growth Program.
Horizon Oil Annual Report 2015 28
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
At 30 June 2015, the Group’s net debt position was
US$133.0 million (2014: US$88.5 million), consisting of cash
and cash equivalents assets held of US$61.3 million (2014:
US$98.9 million) offset by borrowings of US$194.4 million
(2014: US$187.4 million).
At financial year end, borrowings consisted of the
US$80 million in convertible bonds issued during June
2011, and US$120 million principal outstanding on the new
Revolving Cash Advance Facility executed and completed
in May 2015.
Consolidated Statement of Cash Flows
2015 Cash Drivers
8.0
8.1
9.2
66.8
46.0
180
160
140
120
100
80
60
40
20
n
o
i
l
l
i
m
$
S
U
98.9
36.9
12.3
61.3
Opening cash and
cash equivalents at
30 June 2014
Net Cash from
Operating Activities
(excl G&A / Other)
G&A / Other
Expenditure
Proceeds from
borrowings
Debt Repayment
Development
Expenditure
Exploration
Expenditure
Prepaid
Abandonment
costs
Cash and cash
equivalents at
30 June 2015
Net cash generated from operating activities was
9.4% lower for the financial year at US$58.8 million
(2014: US$65.0 million) primarily resulting from lower cash
receipts from sales due to the low oil price environment.
Cash and cash equivalents of US$98.9 million from the prior
year, along with cash generated from operating activities,
was used to finance expenditure of US$95.3 million on our
exploration, development and producing assets, including
US$12.3 million on restoration payments for the Beibu Gulf
which are required to be made over the life of the field. The
repayment of US$9.2 million of borrowings during the year
was largely offset by additional borrowings of US$8.1 million
(net of transaction costs) from the new Revolving Cash
Advance Facility, resulting in a net cash outflow of
US$1.1 million from financing activities.
Debt Facilities
On 14 May 2015, the Group finalised and executed a
US$120 million Revolving Cash Advance Facility with
Australia and New Zealand Banking Group (ANZ) as
mandated lead arranger and Westpac Banking Corporation
(Westpac). The facility was used to refinance the existing
Reserves Based Debt Facility which was drawn to
US$110 million. The facility retains key elements of the
previous Reserves Based Debt Facility, however includes the
removal of the forced repayment schedule, additional tenor
to May 2019 and access to a new accordion tranche of up to
US$50 million (subject to debt capacity criteria and lender
approvals). At 30 June 2015, total debt drawn under the
facility was $120 million. Floating interest in respect of the
facility was at LIBOR plus a weighted average margin
of 2.90%.
The Group’s other outstanding debt is the US$80 million
in convertible bonds which were issued on 17 June 2011
with a 5 year term. The bonds were issued with an initial
conversion price of US$0.52, equivalent to A$0.49 based on
exchange rates at the time of pricing, and represented a
conversion premium of 29% to the Company’s last closing
price of A$0.38 on 2 June 2011. The initial conversion price
was subject to adjustment in certain circumstances such
that the conversion price has been reduced to US$0.409
since issue.
No bonds had been converted as at 30 June 2015. On
conversion, the Group may elect to settle the bonds in cash
or ordinary shares in the parent entity. The bonds carry a
coupon of 5.5% per annum, payable semi-annually in arrears
and carry a 7% yield to maturity on 17 June 2016 when they
will be redeemed at 108.80% of their principal amount. The
bonds were listed on the Singapore Securities Exchange on
20 June 2011. Details surrounding the bond redemption
strategy are outlined further below.
Horizon Oil Annual Report 2015
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
29
Group business strategies and prospects for future
financial years
The Company’s exploration, development and production
activities are focused in Southeast Asia. The robust, long-
lived cash flows from the Company’s interests in the Maari/
Manaia fields, offshore New Zealand and Block 22/12,
offshore China, will be applied to fund the Company’s
future capital program. That program is directed to bring
into production the Company’s substantial inventory of
discovered reserves and contingent resources (~100 million
barrels of oil equivalent) in fields in New Zealand, China and
Papua New Guinea.
The Company has a conservative and highly selective
exploration policy with specific focus on plays providing
material scale and upside. The identified prospective
resources in the Company’s inventory (~78 million
barrels of oil equivalent), together with the reserves and
contingent resources provide shareholders with exposure to
commodity price upside, especially oil price and production
growth.
The achievement of these strategic objectives may be
affected by macro-economic and other risks including, but
not limited to, China’s slowing growth, volatile commodity
prices, exchange rates, access to financing and political
risks. The speculative nature of petroleum exploration
and development will also impact the Company’s ability
to achieve these objectives; key risks of which include
production and development risk, exploration and drilling
risks, joint operation’s risk, and geological risk surrounding
resources and reserves.
The Group has various risk management policies and
procedures in place to enable the identification, assessment
and mitigation of risks that may arise. Whilst the Group
can mitigate some of the risks described above, many are
beyond the control of the Group. For further information
in relation to the Company’s risk management framework,
refer to the Corporate Governance Statement.
The Group has a working capital deficit of US$31.8
million at 30 June 2015 resulting from the reclassification
of borrowings associated with the US$80 million, 5.5%
convertible bonds to current liabilities at balance date as
they are due for redemption in June 2016.
Funding for the Group’s strategic growth plans and
redemption of the bonds is to be sourced from a variety
of sources. Surplus revenues from the Group’s operations
in China and New Zealand, combined with debt drawn
from the Group’s US$120 million revolving cash advance
facility provide core funding. In addition, the Revolving
Cash Advance Facility, provided by ANZ and Westpac,
incorporates an additional US$50 million “accordion”
tranche to accommodate, if required, working capital and
redemption of the US$80 million, 5.5% convertible bonds
in June 2016, subject to debt capacity criteria and lender
approvals.
Taking into account:
• the Group’s cash balance of US$61.3 million at 30 June
2015;
• forecast surplus revenue from the Group’s operations in
New Zealand and China;
• materially reduced budgeted/forecast capital expenditure
profile over the coming 12 months;
• deferral of scheduled amortisation under the recently
executed Revolving Cash Advance Facility; and
• to the extent required, the potential for additional debt
capacity under the “accordion” tranche of the Revolving
Cash Advance Facility (maximum additional debt of US$50
million).
The Company expects to have available the necessary
cash reserves to meet redemption obligations under the
Company’s US$80 million, 5.5% convertible bonds maturing
in mid-2016, and to pursue the current strategy. Should
the full amount of the forecast internally generated cash
flow and capital required to pursue the strategy not be
raised, the directors expect that the Group would be able
to adopt a modified strategy and would be able to secure
the necessary financing through one or a combination
of, additional borrowings or asset sales; or deferring
discretionary exploration and development activities.
Outlook
It is expected that the 2016 financial year and beyond will
be characterised by a further increase in production growth
driven in the near term by incremental production from
the Group’s New Zealand operations and underpinned
by the Group’s China operations. Oil production from the
Group’s New Zealand operations is expected to ramp up
following completion of the Maari Growth Projects drilling
program and subsequent workover campaign, whilst
production from the Group’s China operations is expected
to decrease due to natural reservoir decline. Despite the
decline in China production, revenue from China is expected
to be maintained as the Group’s share of production will
increase through cost recovery. Accordingly, assuming oil
prices average a similar level to where they closed in the
2015 financial year, revenue and operating cash flows for
the Group are expected to be maintained in 2016, barring
unforeseen events.
The Group’s short-term focus is on:
• optimising production performance from Maari/Manaia
fields following the Maari Growth Project drilling and
through the subsequent workover campaign;
• expansion of the Beibu Gulf field through appraisal/
development of the WZ 12-10-1 field;
• progressing the Beibu Gulf fields Phase II development
plan for WZ 12-8E;
• progress sales of Stanley and Elevala/Ketu gas to regional
PNG consumers and larger scale gas commercialisation/
export plans; and
• progressing the Elevala/Ketu development planning in
PNG.
Horizon Oil Annual Report 2015 30
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
SIGNIFICANT CHANGES IN THE STATE
OF AFFAIRS
Significant changes in the state of affairs of the Group
during the financial year were as follows:
Termination of proposed merger with Roc Oil
Horizon Oil and Roc Oil announced a proposed merger on
29 April 2014. Horizon Oil’s motive for the merger was to
accelerate the Company’s objective of creating a leading
Asian mid-cap exploration and production company,
combining the complementary production assets of the two
companies, together with Horizon Oil’s strategic PNG growth
assets.
On 4 August 2014, Chinese conglomerate Fosun
International Limited (‘Fosun’) announced a takeover offer
for Roc Oil at a price, applying then current exchange
rates, consistent with Roc Oil’s independent expert’s mid-
point valuation of that company of approximately US$450
million. Based on Roc Oil’s independent expert’s report,
approximately half of the enterprise value of Roc Oil was
attributable to its 19.6% interest in Block 22/12 offshore
China.
As a consequence of Roc Oil’s board recommendation
to shareholders in favour of the Fosun bid, Horizon Oil
terminated the merger on 5 August 2014.
MATTERS SUBSEQUENT TO THE END OF THE
FINANCIAL YEAR
Other than the matters noted above and disclosed in the
review of operations, there has not been any matter or
circumstance which has arisen since 30 June 2015 that has
significantly affected, or may significantly affect:
1. the Group’s operations in future financial years; or
2. the results of those operations in future financial years; or
3. the Group’s state of affairs in future financial years.
ENVIRONMENTAL REGULATION
The Group is subject to significant environmental
regulation in respect of exploration, development and
production activities in all countries in which it operates –
New Zealand, China and Papua New Guinea. Horizon Oil
Limited is committed to undertaking all of its exploration,
development and production activities in an environmentally
responsible manner.
The directors believe the Group has adequate systems
in place for managing its environmental requirements
and is not aware of any breach of those environmental
requirements as they apply to the Group. During the
financial year, one incident occurred which was required to
be reported under environmental legislation in New Zealand,
as follows:
During offtake operations at the Maari/Manaia field, a
transfer hose onboard the FPSO Raroa developed a
leak spilling oil to the deck. The majority of the spill was
recovered on the deck but a small amount (~300 litres)
entered the sea. Regulators were notified and offtake
operations were ceased until the operator had confirmed
that all necessary repairs had been undertaken. The
sheen was monitored closely until it began to break up and
diminish naturally. The locations of potential landfall were
modelled and monitored. No residual environmental impact
is expected from the incident.
REPORTING CURRENCY
The Company’s and Group’s functional and reporting
currency is United States dollars. All references in this
annual financial report to “$” or “dollars” are references to
United States dollars, unless otherwise stated.
Horizon Oil Annual Report 2015 Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
31
INFORMATION ON DIRECTORS
The following persons held office as directors of Horizon Oil Limited at the date of this report:
Non-executive independent director
and Chairman:
Experience and current directorships:
E F Ainsworth am, B.Comm, FAICD
Director for 14 years. Former Managing Director of Sagasco Holdings Limited
and Delhi Petroleum Pty Limited. Chairman of Tarac Australia Limited.
Former directorships during last 3 years: Non-executive director of Envestra Limited.
Special responsibilities:
Chairman of Board; Chairman of Remuneration, Nomination and Disclosure
Committees; member of Audit and Risk Management Committees.
Executive Director and Chief
Executive Officer:
Experience and current directorships:
B D Emmett B.Sc (Hons)
Director for 15 years. 40 years experience in petroleum exploration, E&P
management and investment banking.
Former directorships during last 3 years: None.
Special responsibilities:
Non-executive independent
Director:
Experience and current directorships:
Chief Executive Officer; member of Risk Management and Disclosure
Committees.
Professor J S Humphrey LL.B., SF Fin
Director for 25 years. Executive Dean of the Faculty of Law at Queensland
University of Technology. Director of Downer EDI Limited and Auswide
Bank Ltd (formerly Wide Bay Australia), and a former member of the Australian
Takeovers Panel.
Former directorships during last 3 years: None.
Special responsibilities:
Chairman of Audit Committee; member of Risk Management Committee.
Non-executive
Director:
Experience and current directorships:
G J de Nys B. Tech, FIEAust, FAICD, CPEng (Ret)
Director for 8 years. 44 years experience in civil engineering, construction, oil
field contracting and natural resource investment management. Director of
SOCAM Development Limited and IMC Pan Asia Alliance Group subsidiaries
(a related party of Austral Asia Energy Pty Ltd a substantial shareholder of
Horizon Oil Limited)
Former directorships during last 3 years: Director of Red Sky Energy Limited.
Special responsibilities:
Member of Risk Management and Remuneration and Nomination Committees.
Non-executive independent
Director:
Experience and current directorships:
A Stock B. Eng (Chem) (Hons), FAIE, GAICD
Director for 4 years. Over 36 years of development, operations and
commercial experience in energy industries in Australia and overseas.
Former Director, Executive Projects and Executive General Manager for Major
Development Projects for Origin Energy Limited. Non-executive director of
Geodynamics Limited and Silex Systems Limited; Board Member of Alinta
Holdings, Clean Energy Finance Corporation and a member of the Engineering
Faculty and Energy Advisory Boards at University of Adelaide.
Former directorships during last 3 years: None
Special responsibilities:
Chairman of Risk Management; member of Audit Committee and
Remuneration and Nomination Committees.
COMPANY SECRETARY
Company Secretary and Chief Financial
Officer:
Qualifications and experience:
M Sheridan B.Ec, LL.M., F Fin
Before joining Horizon Oil Limited during 2003, Mr Sheridan held senior finance
and commercial roles in Australian and international oil and gas, mining and
telecommunications companies.
Horizon Oil Annual Report 2015
32
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
DIRECTORS’ INTERESTS IN THE COMPANY’S SECURITIES
As at the date of this Directors’ Report, the directors held the following number of fully and partly paid ordinary shares and
options over unissued ordinary shares in the Company:
Director
Ordinary shares
Unlisted options
E F Ainsworth
B Emmett
J Humphrey
G de Nys
A Stock
Direct
113,500
-
-
-
-
Indirect
3,896,875
Total
4,010,375
18,902,607
18,902,607
5,112,034
5,112,034
912,858
160,000
912,858
160,000
Direct
Indirect
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
B Emmett also held 15,682,624 share appreciation rights as at the date of this Directors’ Report.
MEETINGS OF DIRECTORS
The numbers of meetings of the Company’s Board of Directors (the ‘board’) and of each board committee held during the
financial year, and the numbers of meetings attended by each director were:
Board
Audit Committee Risk Management
Committee
Remuneration
and Nomination
Committee
Disclosure
Committee
Number of
meetings held:
111
Number of meetings attended by:
E F Ainsworth
B D Emmett
J S Humphrey
G de Nys
A Stock
11
11
102
11
11
2
2
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1. Five board meetings were held for non-executive directors only.
2. The chairman acted as proxy for Mr Humphrey at one board meeting during the financial year which Mr Humphrey was unable to attend.
The Company Secretary and Chairman were instructed by Mr Humphrey as to his voting intentions and were fully briefed of his views prior to
the meeting.
CORPORATE GOVERNANCE
In recognising the need for the highest standards of
corporate governance and accountability, the directors
support the principles of good corporate governance. The
Company’s Corporate Governance Statement is set out on
pages 45 to 53 of this annual financial report.
REMUNERATION REPORT
The Remuneration Report forms part of this Directors’
Report. The information provided in the Remuneration
Report has been audited by the external auditor as required
by section 308(3)(c) of the Corporations Act 2001.
The remuneration report is set out under the following main
headings:
A Principles used to determine the nature and amount of
remuneration
B Details of remuneration
C Service agreements
D Share-based compensation – options/share
appreciation rights
A. Principles used to determine the nature
and amount of remuneration
The objective of the Group’s executive reward framework
is to ensure reward for performance is competitive and
appropriate for the results delivered. The framework aligns
executive reward with achievement of strategic objectives
and the creation of value for shareholders, and conforms
with market best practice for delivery of reward. The board
ensures that executive rewards satisfy the following key
criteria for good reward governance practices:
• competitiveness and reasonableness;
• acceptability to shareholders;
• performance linkage / alignment of executive
compensation;
• transparency; and
• capital management.
Horizon Oil Annual Report 2015 Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
33
The board has structured an executive remuneration
framework that is market competitive and complementary
to the reward strategy of the Group. The key elements of
the framework are:
Alignment to shareholders’ interests:
• focuses on sustained growth in shareholder value; and
• attracts and retains high calibre executives capable of
managing the Group’s diverse international operations.
Alignment to program participants’ interests:
• rewards capability and experience;
• reflects competitive reward for contribution to growth in
shareholder wealth;
• provides a clear structure for earning rewards; and
• provides recognition for contribution.
The framework provides a mix of fixed pay and a blend of
short and long-term incentives.
Non-executive directors’ fees
Fees and payments to non-executive directors are set and
paid in Australian Dollars (A$), and reflect the demands
which are made on, and the responsibilities of, the
directors. Non-executive directors’ fees and payments are
reviewed periodically by the Remuneration and Nomination
Committee.
Non-executive directors’ fees are determined within an
aggregate directors’ fee pool limit, which is periodically
recommended for approval by shareholders. Shareholders
approved the current fee pool limit of A$600,000 at the
2009 Annual General Meeting. The Non-executive Directors’
base fee is A$81,555 plus statutory superannuation per
annum and the Chairman’s base fee is A$163,110 plus
statutory superannuation per annum. These fees have not
changed in A$ terms for the last three years. Note that the
remuneration table set out on page 37 shows remuneration
in US$ in line with the Group’s functional currency.
The following table outlines the major features of the plan:
Retirement allowances for directors
There are no retirement allowances in place for directors.
Executive pay
Executive remuneration (which is set and paid in Australian
Dollars (A$) and other terms of employment are reviewed
annually by the Remuneration and Nomination Committee
having regard to relevant comparative information. As
well as a base salary, remuneration packages include
superannuation and termination entitlements and non-
monetary benefits. For periods prior to April 2010,
executives were eligible for long-term incentives (LTI)
through participation in the Company’s Employee Option
Scheme and Employee Performance Incentive Plan. The
grant of options to executive directors under the Employee
Option Scheme and Employee Performance Incentive Plan
has been subject to the approval of shareholders.
Based on advice received from Guerdon Associates, an
independent remuneration consultant, in 2010 the board
put in place a short-term incentive scheme and long-
term incentive arrangements for the Company’s senior
executives. The Company’s Employee Option Scheme
continues to apply to employees other than senior
executives.
Remuneration and other terms of employment for
executives are formalised in service agreements. The
quantum and composition of the executive remuneration
is based on advice received in prior financial years from
Guerdon Associates.
Short-term incentives
If the Group and individuals achieve pre-determined
objectives set in consultation with the board, a short-term
incentive (STI) is available to senior executives during the
annual review. Using pre-determined objectives ensures
variable reward is only available when value has been
created for shareholders.
Objective
To drive performance of annual business plans and objectives, at operational and group level, to
achieve increased shareholder value.
Frequency and timing Participation is annual with performance measured over the twelve months to 30 June.
Entitlements under the plan are determined and paid (in cash) in the first quarter of the new
financial year.
Key Performance
Indicators (KPIs)
KPIs are determined each financial year in consultation with the board. The performance of each
senior executive against these KPIs is reviewed annually in consultation with the board.
A KPI matrix, directly linked to factors critical to the success of the Group’s business plan for the
financial year, is developed for each executive incorporating health, safety and environment,
financial, operational and other KPIs.
STI opportunity
Up to 50% of the senior executive’s fixed remuneration package (base salary plus
superannuation).
Performance
requirements
The executive’s STI payment is calculated with reference to achievement of KPI targets based on
a weighted scorecard approach. Key objectives during the current year included:
• successful refinancing of the Group’s reserves based debt facility;
• improved production performance from Maari/Manaia fields through the Maari Growth
Program;
• progressing the Elevala/Ketu development planning in PRL 21 towards a final investment
decision;
• successful drilling operations on Stanley-3 and Stanley-5 wells in PDL 10; and
• safe drilling operations on Nama-1 well in PPL 259.
Horizon Oil Annual Report 2015 34
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Whilst many of the abovementioned objectives were achieved during the current year, in response to the fall in the
company’s share price and prevailing oil price environment, key management personnel voluntarily elected to forego any
short-term incentive entitlements. The following table shows the STI awards that were paid or payable in respect of the
financial year ended 30 June 2015:
Senior executives
B Emmett
A Fernie
M Sheridan
STI in respect of 2015 financial year
Percentage of maximum STI
payment paid
NIL
NIL
NIL
Percentage of maximum STI
payment forfeited
100%
100%
100%
Long-term incentives
Until April 2010, long-term incentives were provided to
certain employees via the Company’s share option plans.
The revised LTI arrangements approved at the 2010 Annual
General Meeting apply to senior executives and involve the
grant of rights which will vest subject (amongst other things)
to the level of total shareholder return (TSR) achieved in the
vesting period, relative to an appropriate index.
Under the LTI Plan, the board has the discretion, subject
to the ASX Listing Rule requirements, to grant share
appreciation rights (‘SARs’) to executives as long-term
incentives. The board has determined that 50% of senior
executive’s fixed remuneration would be long-term
incentives in the form of SARs, with the number of SARs
granted based on the value of a SAR.
A SAR is a right to receive either or both a cash payment or
shares in the Company, as determined by the board, subject
to the Company satisfying certain conditions, including
performance conditions.
The LTI Plan provides that the amount of the cash payment
or the number of shares in the Company that the participant
receives on exercise of the SAR is based on the value of
the SAR at the time it is exercised (’SAR Value’). The SAR
Value is the excess, if any, of the volume weighted average
price (’VWAP’) of shares in the Company for the ten business
day period up to the date before the date the SAR is
exercised over the VWAP of shares in the Company for the
ten business day period up to the day before the “Effective
Allocation Date” for the SARs. The Effective Allocation Date
for the SARs is the grant date of the SARs or any other day
determined by the board, at the time of the grant. The
Effective Allocation Date would generally be the date the
executive’s entitlement was determined.
If the board determines that the SARs are to be satisfied
in cash, the amount of cash that the participant receives
on the exercise of the SARs is the SAR Value multiplied by
the number of SARs exercised (less any deduction for taxes
that the Company is required to make from the payment).
If the board determines that the SARs are to be satisfied in
shares, the number of shares that the participant receives
on the exercise of the SARs is the SAR Value divided by the
volume weighted average price of shares in the Company
for the ten business day period up to the day before the
day the SARs are exercised. Where the number of shares
calculated is not a whole number, it will be rounded down to
the nearest whole number.
The following table outlines the major features of the plan:
Key terms &
conditions
Eligible persons:
Long Term Incentive Plan
Under the terms of the LTI Plan, the Company may grant SARs to any employee. However, it is
currently intended by the Company to only grant SARs under the LTI Plan to current senior executive
employees including executive directors.
Exercise price:
No price is payable by a participant in the LTI Plan on the exercise of a SAR.
Performance
requirements:
Under the LTI Plan, the number of SARs that vest is generally determined by reference to whether
the Company achieves certain performance conditions.
The number of SARs that vest is determined by reference to the Company’s total shareholder
return (’TSR’) over the relevant period relative to that of the S&P/ASX200 Energy Index (’Index’). The
number of SARs that vest is:
(a) if the Company’s TSR is equal to that of the Index (’Minimum Benchmark’), 50%;
(b) if the Company’s TSR is 14% or more above that of the Index, 100% (’Maximum Benchmark’); and
(c) if the Company’s TSR is more than the Minimum Benchmark but less than the Maximum
Benchmark, a percentage between 50% and 100% based on the Company’s TSR performance
between the Minimum Benchmark and Maximum Benchmark.
The Maximum Benchmark of 14% above the Index return equates to the performance level likely to
exceed the 75th percentile of market returns of companies (weighted by company size) in the Index.
Horizon Oil Annual Report 2015 Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
35
Furthermore, even where these performance conditions are satisfied, the SARs will not vest unless
the Company achieves a TSR of at least 10% over the relevant period.
The performance conditions are tested on the date that is three years after the Effective Grant Date
of the SARs, and are then re-tested every six months after that until the date that is five years after
the Effective Grant Date of the SARs (the final retesting date). The performance conditions are also
tested where certain circumstances occur, such as a takeover bid for the Company.
The Effective Grant Date for the SARs is the date the SARs are granted, or such other date as the
board determines for the SARs.
If the SARs have not, pursuant to these performance conditions, vested by the final retesting date
that is five years after the date the SARs are granted, the SARs will lapse.
If a holder of SARs under the LTI Plan ceases to be employed by a member of the Group, then this
generally does not affect the terms and operation of the SARs. The board does, however, under the
LTI Plan have discretion, to the extent permitted by law, to cause the SARs to lapse or accelerate the
date on which the SARs become exercisable.
Subject to various exclusions, the maximum number of shares that may be issued on the exercise
of SARs granted under the LTI Plan is capped at 5% of the total number of issued shares of the
Company.
A SAR cannot be exercised unless it has vested. Where a SAR vests, a participant may not exercise
the SAR until the first time after the time the SAR vests that the participant is able to deal with shares
in the Company under the Company’s securities trading policy.
Cessation of
employment:
Maximum number
of shares that can
be issued:
Restrictions on
exercise:
Lapse:
SARs are exercised by submitting a notice of exercise to the Company.
SARs will lapse where:
• the SARs have not vested by the final retesting date which is five years after the date of grant (see
above);
• if the SARs have vested by the final retesting date that is five years after the date of grant, the SARs
have not been exercised within three months of the date that the SARs would have first been able
to be exercised if they vested at the final retesting date that is five years after the date of grant;
• This may be more than five years and three months from the date of grant depending on whether
the holder of the SAR is able to deal with shares in the Company under the Company’s securities
trading policy at the date five years after the date of grant;
• the employee ceases to be employed by a member of the Group, and the board determines that
some or all of the SARs lapse (see above);
• the board determines that the employee has committed or it is evident that the employee intends
to commit, any act (whether by commission or omission) which amounts or would amount to fraud
or serious misconduct; or
• the employee provides a notice to the Company that they wish the SARs to lapse.
Shares provided pursuant to the exercise of a SAR will rank equally with the shares in the Company
then on issue. Quotation on the ASX will be sought for all shares issued upon the exercise of SARs.
SARs are not assignable or transferable.
The SARs will not confer on the holder an entitlement to dividends or to participate in bonus issues or
rights issues unless the board determines that the SARs will be satisfied in shares and until the SARs
are exercised and shares are provided to the holder.
The SARs will not confer an entitlement to vote at general meetings of the Company unless the
board determines that the SARs will be satisfied in shares and until the SARs are exercised and
shares are provided to the holder.
The Company will not apply to the ASX for official quotation of the SARs.
In the event of a reorganisation of the capital of the Company, the rights of the SARs holder will be
changed to the extent necessary to comply with the ASX Listing Rules and shall not result in any
additional benefits being conferred on SARs holders which are not conferred on members.
The LTI Plan contains provisions to deal with SARs where there is a take-over or change of control of
the Company. Depending on the nature of the take-over or change of control event, the Company
will either have the discretion or be required (if a change of control) to determine a special retesting
date for the performance requirements discussed above.
For example, the board will have discretion to determine a special retesting date where a takeover
bid is made for the Company or a scheme of arrangement is entered into. In that case, the special
retesting date will be the date determined by the board. Where a statement is lodged with the
ASX that a person has become entitled to acquire more than 50% of the Company, the board will
be required to determine a special retesting date, and the special retesting date will be the day the
statement is lodged with the ASX.
The SARs may vest if the performance requirements discussed above are satisfied in relation to that
special retesting date.
Share ranking and
quotation:
No right to
dividends, bonus or
rights issues:
No voting rights:
Non-quotation:
Capital re-
organisation:
Effect of take-
over or change
of control of
Company, death or
disablement:
Horizon Oil Annual Report 2015 36
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Performance of Horizon Oil Limited
The annual performance objectives and share price hurdle are the means by which management links company
performance and remuneration policy. Having regard to the current stage of the Company’s evolution, linkage of
remuneration policy to share price performance rather than earnings is seen as the most sensible method of incentivising
employees. In response to the decrease in the share price over the last six months, management has elected to forego any
short-term incentive entitlements, refer to table on page 38. The share price performance of the Company for the current
and previous four financial years is displayed in the chart below:
Horizon Oil Limited share price (‘HZN’) versus S&P/ASX200 Energy Index and Brent Crude Oil
$0.50
$0.45
$0.40
$0.35
$0.30
e
c
i
r
P
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
0
1
-
p
e
S
0
1
-
v
o
N
1
1
-
n
a
J
1
1
-
r
a
M
1
1
-
y
a
M
1
1
-
l
u
J
1
1
-
p
e
S
1
1
-
v
o
N
2
1
-
n
a
J
2
1
-
r
a
M
2
1
-
y
a
M
2
1
-
l
u
J
2
1
-
p
e
S
2
1
-
v
o
N
3
1
-
y
a
M
3
1
-
l
u
J
3
1
-
p
e
S
3
1
-
v
o
N
4
1
-
n
a
J
4
1
-
r
a
M
4
1
-
y
a
M
4
1
-
l
u
J
4
1
-
p
e
S
4
1
-
v
o
N
5
1
-
n
a
J
5
1
-
r
a
M
5
1
-
y
a
M
5
1
-
l
u
J
3
1
-
n
a
J
3
1
-
r
a
M
Date
HZN Volume
HZN Share Price
S&P/ASX 200 Energy Index (Rebased)
Brent Crude Oil (Rebased)
40,000,000
35,000,000
30,000,000
25,000,000
e
m
u
o
V
l
20,000,000
15,000,000
10,000,000
5,000,000
-
The table below shows Horizon Oil Limited’s profit before tax for the current and previous four financial years. As
mentioned above, given the current stage of the Company’s evolution, linkage of remuneration policy to earnings is a less
relevant measure of incentivising employees at this stage.
Financial year ended 30 June:
2011
2012
2013
2014
2015
Profit before tax (US$’000)
48,480
23,689
10,025
30,027
17,751
B. Details of remuneration
Amounts of remuneration
Details of the remuneration of the directors and other key management personnel (as defined by AASB 124 ‘Related Party
Disclosures’) of the Company and the Group are set out in the following tables.
The key management personnel of the Company and the Group includes the directors of Horizon Oil Limited as per
page 31, and the following executive officers, who are also the highest paid executives of the Company and Group:
M Sheridan
A Fernie
Chief Financial Officer, Company Secretary, Horizon Oil Limited
General Manager Exploration and Development, Horizon Oil Limited
Horizon Oil Annual Report 2015
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
37
Financial year ended
30 June 2015 and 2014
Short-term benefits
Cash
salary and
fees
Cash
bonus
Non-
Monetary1
Post-
employment
benefits
Super-
annuation2
Total cash
or in-kind
benefit
US$
US$
US$
US$
US$
Long-
term
benefits
Long
service
leave
accrual3
US$
Share-
based
payments
Options/
SARs4
Total5
US$
US$
Name
Directors:
E F Ainsworth
Chairman, Non-
executive Director
B D Emmett
Chief Executive
Officer, Executive
Director
J Humphrey
Non-executive
Director
G de Nys
Non-executive
Director
A Stock
Non-executive
Director
Total Directors’
remuneration
Total Directors’
remuneration (AUD)5
2015
2014
136,720
150,189
-
-
-
-
12,988
13,892
149,708
164,081
-
-
-
-
149,708
164,081
2015
2014
716,640
766,982
-
324,000
119,312
114,899
29,337
22,967
865,289
1,228,848
(29,137)
21,383
398,682 1,234,834
1,668,906
418,675
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
68,360
75,095
51,270
75,095
68,360
75,095
-
-
-
-
-
-
-
-
1,041,350
1,142,456
1,242,354
1,243,580
-
324,000
-
343,949
119,312
114,899
142,342
125,069
517,713
556,329
-
255,420
21,466
25,164
6,494
6,946
23,584
6,946
6,494
6,946
78,897
57,697
94,128
62,806
29,337
22,967
74,854
82,041
74,854
82,041
74,854
82,041
-
-
-
-
-
-
74,854
82,041
74,854
82,041
74,854
82,041
1,239,559
1,639,052
1,478,824
1,775,404
(29,137)
21,383
(37,938)
22,699
398,682 1,609,104
418,675
2,079,110
475,636 1,916,522
2,253,838
455,735
568,516
859,880
10,415
14,855
292,367
307,029
871,298
1,181,764
-
237,600
89,376
92,590
29,337
32,154
634,097
909,486
11,825
12,867
292,367
307,029
938,289
1,229,382
-
493,020
110,842
117,754
58,674
55,121
1,202,613
1,769,366
22,240
27,722
584,734 1,809,587
2,411,146
614,058
-
523,376
132,236
128,177
70,000
60,000
1,434,744
1,912,699
28,958
29,428
697,600 2,161,302
2,610,538
668,411
515,384
547,142
2015
2014
2015
2014
Other key management personnel:
M Sheridan
Chief Financial
Officer, Company
Secretary
A Fernie
General Manager
- Exploration and
Development
Total other key
management
personnel
remuneration
Total other key
management
personnel
remuneration
(AUD)5
2015
2014
2015
2014
1,033,097
1,103,471
1,232,508
1,201,146
1. Non-monetary benefits include the value of car parking, insurances and other expenses inclusive of Fringe Benefits Tax (‘FBT’).
2. Superannuation includes both compulsory superannuation payments and salary sacrifice payments made on election by directors and KMPs.
3. Reflects the movement in the long service accrual between respective reporting dates.
4. Reflects the theoretical value (calculated as at grant date and converted to US dollars at the foreign exchange rate prevailing at the date of grant)
of previously unvested options/SARs which vested during the financial year.
5. Remuneration is paid in Australian dollars and converted to US dollars at the foreign exchange rate prevailing on the date of the transaction.
Horizon Oil Annual Report 2015 38
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
At-Risk Remuneration Summary
The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed
based on the amounts disclosed in the table on page 37.
Name
2015
2014
2015
2014
2015
2014
Fixed remuneration
At Risk – STI
At Risk – LTI
Executive Directors:
B D Emmett
Chief Executive Officer, Executive Director
Other key management personnel:
M Sheridan
Chief Financial Officer, Company Secretary
A Fernie
General Manager - Exploration and Development
68%
55%
0%
20%
32%
25%
66%
52%
69%
56%
0%
0%
22%
34%
26%
19%
31%
25%
The maximum potential remuneration of all key management personnel is split 50% fixed remuneration, 25% at risk –
STI and 25% at risk – LTI. Due to key management personnel voluntarily electing to forego any short-term incentive
entitlements during the current year, the relative proportion of fixed remuneration and at risk – LTI has increased.
C. Service agreements
Remuneration and other terms of employment for the Chief
Executive Officer and other key management personnel
are formalised in service agreements which were renewed
during 2015. Each of these agreements includes the
provision of other benefits such as health insurance, car
parking and participation, where eligible, in the Horizon Oil
Short Term Incentive and Long Term Incentive plans. Other
major provisions of the existing agreements relating to
remuneration are set out below:
B D Emmett, Chief Executive Officer
• Term of agreement – ~2.5 years with expiry on
31 December 2017.
• Payment of termination benefit on early termination by
the employer, other than for gross misconduct, equal to
12 months remuneration.
• Salary levels are subject to annual review.
M Sheridan, Chief Financial Officer, Company Secretary
• Term of agreement – ~3.5 years with expiry on
31 December 2018.
• Payment of termination benefit on early termination by
the employer, other than for gross misconduct, equal to
12 months remuneration.
• Salary levels are subject to annual review.
A Fernie, General Manager - Exploration and
Development
• Term of agreement – ~2.5 years with expiry on
31 December 2017.
• Payment of termination benefit on early termination by the
employer, other than for gross misconduct, equal to
12 months remuneration.
• Salary levels are subject to annual review.
D. Share-based compensation – options/
share appreciation rights
Options and share appreciation rights (‘SARs’) have been
granted to eligible employees under the Horizon Oil Limited
Employee Option Scheme, the Employee Performance
Incentive Plan and the Long Term Incentive Plan. The
issue of securities under the Employee Option Scheme,
the Employee Performance Incentive Plan and the Long
Term Incentive Plan were approved by shareholders for the
purposes of the ASX Listing Rules at the 2010, 2011, 2013
and 2014 Annual General Meetings.
Options/SARs are granted to executive directors in
accordance with the terms of the relevant option scheme
or plan and are approved on a case by case basis by
shareholders at relevant general meetings.
Horizon Oil Annual Report 2015
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
39
The terms and conditions of each grant of options/SARs affecting remuneration in the previous, this or future reporting
periods are as follows:
Grant date
Expiry date
Exercise price
25/09/2009
25/09/2014
A$0.2892
Value per option/SAR
at grant date
A$0.1307
9/10/2009
9/10/2014
A$0.3092
A$0.1344
1/10/2010
5/8/2011
13/8/2012
19/8/2013
01/7/2014
1/10/2015
5/8/2016
13/8/2017
19/08/2018
01/07/2019
A$0.30461,2
A$0.31291,2
A$0.27101,2
A$0.3326
A$0.3729
A$0.1382
A$0.1514
A$0.1025
A$0.1193
A$0.1433
Date exercisable
33.4% after 25/09/2010, 33.3% after
25/09/2011, 33.3% after 25/09/2012
33.4% after 9/10/2010, 33.3% after
09/10/2011, 33.3% after 09/10/2012
100% after 1/10/2013
100% after 5/8/2014
100% after 13/8/2015
100% after 19/8/2016
100% after 01/7/2017
1. No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
2. The exercise price of the options and SARS outstanding at 31 July 2013 were reduced by A$0.006 following the rights issue during the
2014 financial year.
No new options were granted as remuneration to directors or key management personnel during the financial year. In
place of options, SARs were granted to the executive director and key management personnel under the new Long Term
Incentive Plan. Details of SARs provided as remuneration to the executive director and each of the key management
personnel are set out below:
Name
Number of
SARs granted
during the
financial year
Value of SARs
at grant date1
US $
Number of
SARs vested
during the
financial year
Number of
SARs lapsed
during the
financial year
Value at
lapse date2
US $
Directors:
B D Emmett
Other key management personnel:
M Sheridan
A Fernie
3,000,879
405,000
2,200,649
2,200,649
297,000
297,000
-
-
-
-
-
-
-
-
-
1. The value at grant date calculated in accordance with AASB 2 ‘Share-based Payment’ of SARs granted during the financial year as part of
remuneration.
2. The value at lapse date of SARs that were granted as part of remuneration and that lapsed during the financial year because a vesting condition
was not satisfied. The value is determined at the time of lapsing, but assuming the condition was satisfied.
The amounts disclosed for the remuneration of directors
and other key management personnel include the
assessed fair values of options/SARs granted during the
financial year, at the date they were granted. Fair values
have been assessed by an independent expert using a
Monte Carlo simulation. Factors taken into account by this
model include the exercise price, the term of the option/
SAR, the current price and expected price volatility of the
underlying share, the expected dividend yield and the
risk-free interest rate for the term of the option/SAR (refer
below). The value attributable to options/SARs is allocated
to particular periods in accordance with AASB 2 ‘Share-
based Payment’ and also with the guidelines issued by the
Australian Securities and Investments Commission (‘ASIC’)
which require the value of an option/SAR at grant date to
be allocated equally over the period from the grant date to
the vesting date, unless it is probable that the individual will
cease service at an earlier date, in which case the value is
to be spread over the period from grant date to that earlier
date. For options/SARs that vest immediately at grant date,
the value is disclosed as remuneration immediately.
The model inputs for each grant of options/SARs during the
financial year ended 30 June 2015 included:
Grant date
Expiry date
Exercise price
10 Day VWAP of Horizon
Shares at grant date
Expected price volatility
Risk free rate
Expected dividend yield
1 July 2014
1 July 2019
N/A1
A$0.3729
38.55% p.a.
2.99% p.a.
0.00% p.a.
1. No price is payable by a participant in the Long Term Incentive Plan on
the exercise of a SAR.
Horizon Oil Annual Report 2015
40
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Shares issued on the exercise of options/share appreciation rights provided as remuneration
No share appreciation rights or remuneration options were exercised by directors or key management personnel during the
financial year.
Further information on options is set out in Note 33.
Details of remuneration – options/SARs
For each grant of options/SARs in the current or prior financial years which results in an amount being disclosed in the
remuneration report as a share-based payment to directors and other key management personnel for the financial year,
the percentage of the grant that vested in the financial year and the percentage that was forfeited because the person
did not meet the service and/or performance criteria is set out below. The options vest over a three year period provided
the vesting conditions are met. The SARs vest after three years have elapsed provided the vesting conditions are met.
No options/SARs will vest if the conditions are not satisfied, therefore the minimum value of the options/SARs yet to vest
is US$Nil. The maximum value of the options/SARs yet to vest has been determined as the amount of the grant date fair
value of the options/SARs that is yet to be expensed.
Name
B Emmett
M Sheridan
A Fernie
Financial year
granted
Vested
%
Forfeited
%
Options/SARs
2010
2011
2012
2013
2014
2015
2010
2011
2012
2013
2014
2015
2010
2011
2012
2013
2014
2015
-
100
-
-
-
-
-
100
-
-
-
-
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Financial years
in which options/
SARs may vest
-
-
30/06/2015
30/06/2016
30/06/2017
30/06/2018
-
-
30/06/2015
30/06/2016
30/06/2017
30/06/2018
-
-
30/06/2015
30/06/2016
30/06/2017
30/06/2018
Maximum total value
of grant yet to vest1
US$
-
-
-
8,978
127,228
134,877
-
-
-
6,584
93,301
98,910
-
-
-
6,584
93,301
98,910
1. The above values have been converted to dollars at the exchange rate prevailing on the date of the grant of the options/SARs.
EQUITY INTERESTS HELD BY KEY MANAGEMENT PERSONNEL
Key management personnel shareholdings in the Company
The numbers of shares in the Company held during the financial year by each director of Horizon Oil Limited and other key
management personnel of the Group, including their personally-related entities, are set out below:
Received during financial year
on the exercise of options
Balance at start of
financial year
2015
Name
Directors:
Ordinary shares
4,010,375
E F Ainsworth
18,902,607
B D Emmett
5,112,034
J Humphrey
912,858
G de Nys
A Stock
160,000
Other key management personnel of the Group:
Ordinary shares and partly paid ordinary shares
A Fernie
M Sheridan
2,700,000
9,468,201
-
-
-
-
-
-
-
Other changes during
financial year
Balance at end of
financial year
-
-
-
-
-
4,010,375
18,902,607
5,112,034
912,858
160,000
-
(1,500,000)
2,700,000
7,968,201
Horizon Oil Annual Report 2015 Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
41
Key management personnel option holdings in the Company
The numbers of options (both listed and unlisted) in the Company held during the financial year by each director of Horizon
Oil Limited and other key management personnel of the Group, including their personally-related entities, are set out
below:
Listed options:
All unexercised listed options expired on 28 February 2008 and therefore no listed options were on issue during the current
or prior financial year.
Unlisted options:
2015
Name
Balance
at start of
financial year
Granted as
remuneration
during
financial year
Exercised
during
financial year
Lapsed
during
financial year
Balance
at end of
financial year
Unvested
Vested and
exercisable
at end of
financial year
Directors:
Unlisted options
B D Emmett
5,700,000
-
-
(5,700,000)
Other key management personnel of the Group:
Unlisted options
A Fernie
1,500,000
-
-
(1,500,000)
All vested options are exercisable at the end of the financial year.
-
-
-
-
-
-
Details of options provided as remuneration and ordinary shares issued on the exercise of such options, together with
terms and conditions of the options, can be found in section D of the Remuneration Report on pages 38 to 41.
Key management personnel share appreciation right holdings in the Company
The numbers of share appreciation rights (‘SARs’) held during the financial year by each executive director of Horizon Oil
Limited and other key management personnel of the Group, including their personally-related entities, are set out below:
Share appreciation rights:
2015
Name
Balance
at start of
financial year
Granted as
remuneration
during
financial year
Exercised
during
financial year
Lapsed
during
financial year
Balance
at end of
financial year
Unvested
Vested and
exercisable
at end of
financial year
Executive Directors:
Share appreciation rights
B D Emmett
12,681,745
3,000,879
-
Other key management personnel of the Group:
Share appreciation rights
A Fernie
9,299,947
2,200,649
M Sheridan
9,299,947
2,200,649
-
-
-
-
-
15,682,624
2,626,328
13,056,296
11,500,596
1,925,974
9,574,622
11,500,596
1,925,974
9,574,622
Details of SARs provided as remuneration and ordinary shares issued on the exercise of such SARs, together with terms
and conditions of the SARs, can be found in section D of the Remuneration Report on pages 38 to 41.
LOANS TO DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
There were no loans to directors or other key management personnel during the financial year.
OTHER TRANSACTIONS WITH DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
There were no other transactions with Directors and other key management personnel during the financial year.
Horizon Oil Annual Report 2015 42
Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
SHARES UNDER OPTION
Unissued ordinary shares of Horizon Oil Limited under
option at the date of this report are as follows:
Date options
granted
Number
options
16/09/2010
28/05/2012
28/05/2012
17/09/2012
20/02/2013
16/04/2013
350,000
1,000,0002,4
1,666,667
500,000
350,000
350,000
4,216,667
Issue price
of ordinary
shares
A$0.3041,2
A$0.2641,2
A$0.2641,2
A$0.2941,2
A$0.4341,2
A$0.4041,2
Expiry date
16/09/2015
28/08/2015
28/05/2017
17/09/2017
20/02/2018
16/04/2018
1. Subject to restrictions on exercise.
2. General options issued.
3. The exercise price of the options outstanding at 31 July 2013 were
reduced by A$0.006 following the rights issue during the prior year.
4. 1,000,000 options were cancelled during the financial year.
No option holder has any right under the options to
participate in any other share issue of the Company or any
other entity.
DIVIDENDS
No dividend has been paid or declared by the Company to
the shareholders since the end of the prior financial year.
INSURANCE OF OFFICERS
During the financial year, Horizon Oil Limited paid a premium
to insure the directors and secretaries of the Company and
related bodies corporate. The insured liabilities exclude
conduct involving a wilful breach of duty or improper use of
information or position to gain a personal advantage. The
contract prohibits the disclosure of the premium paid.
The officers of the Company covered by the insurance policy
include the directors and secretaries, and other officers who
are directors or secretaries of subsidiaries who are not also
directors or secretaries of Horizon Oil Limited.
The liabilities insured include costs and expenses that may
be incurred in defending civil or criminal proceedings that
may be brought against the officers in their capacity as
officers of the Company or a related body corporate.
NON-AUDIT SERVICES
The Company may decide to employ
PricewaterhouseCoopers on assignments additional to its
statutory audit duties where the external auditor’s expertise
and experience with the Company and/or the Group are
important.
Details of the amounts paid or payable to
PricewaterhouseCoopers for audit and non-audit services
provided during the financial year are set out below.
The Board of Directors has considered the position and,
in accordance with the written advice received from the
Audit Committee, is satisfied that the provision of non-
audit services is compatible with the general standard
of independence for external auditors imposed by the
Corporations Act 2001. The directors are satisfied that the
provision of non-audit services by the external auditor, as
set out below, did not compromise the external auditor
independence requirements of the Corporations Act 2001
for the following reasons:
• all non-audit services have been reviewed by the Audit
Committee to ensure they do not impact the impartiality
and objectivity of the external auditor; and
• none of the services undermine the general principles
relating to auditor independence as set out in Australian
Professional Ethical Standards 110 Code of Ethics for
Professional Accountants, including reviewing or auditing
the auditor’s own work, acting in a management or
a decision-making capacity for the Group, acting as
advocate for the Group or jointly sharing economic risk
and rewards.
Horizon Oil Annual Report 2015 Directors’ Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
43
During the financial year, the following fees were paid or payable for services provided by
the external auditor of the parent entity and its related practices:
1. PwC Australia
Audit and other assurance services
Audit and review of financial reports
Other assurance services
Other services
Total remuneration for audit and other assurance services
Taxation services
Tax compliance1
Total remuneration for taxation services
2. Non-PwC audit firms
Audit and other assurance services
Other services
Total remuneration for audit and other assurance services
Consolidated
2015
US$
2014
US$
178,973
156,589
2,419
337,981
111,717
111,717
18,833
-
18,833
152,876
97,002
18,927
268,805
98,723
98,723
14,012
-
14,012
Total auditors’ remuneration
468,531
381,540
1. Remuneration for taxation services has been recorded on a gross basis, some of these fees were for services provided to PNG operated joint
ventures.
EXTERNAL AUDITOR’S INDEPENDENCE DECLARATION
A copy of the external auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is
set out on page 44.
ROUNDING OF AMOUNTS TO THE NEAREST THOUSAND DOLLARS
The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments
Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been
rounded off in accordance with that Class Order to the nearest thousand dollars or, in certain cases, to the nearest dollar.
EXTERNAL AUDITOR
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of the directors.
E F Ainsworth am
Chairman
B D Emmett
Chief Executive Officer
Sydney
25 August 2015
Horizon Oil Annual Report 2015
44
Auditors’ Independence
Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Horizon Oil Limited for the year ended 30 June 2015, I declare that to
the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Horizon Oil Limited and the entities it controlled during the period.
Peter Buchholz
Partner
PricewaterhouseCoopers
Sydney
25 August 2015
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Horizon Oil Annual Report 2015
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
45
Horizon Oil Limited (the ‘Company’) and the board are committed to achieving and demonstrating the highest standards of
corporate governance. The board continues to review the framework and practices to ensure they meet the interests of
shareholders. The Corporate Governance Statement was approved by the board on 25 August 2015.
A description of the Company’s main corporate governance practices is set out below. All these practices, unless otherwise
stated, were in place for the full financial year. They comply with the ASX Corporate Governance Council’s revised
Corporate Governance Principles and Recommendations 3rd edition, released in March 2014 (“ASX Recommendations”),
except where noted herein.
ASX RECOMMENDATIONS
Principle 1: Lay solid foundations for management and oversight
1.1
COMPLY
PAGE NO
1.2
1.3
1.4
1.5
A listed entity should disclose:
(a) the respective roles and responsibilities of its board and management; and
(b) those matters expressly reserved to the board and those delegated to management.
A listed entity should:
(a) undertake appropriate checks before appointing a person, or putting forward to
security holders a candidate for election, as a director; and
(b) provide security holders with all material information in its possession relevant to a
decision on whether or not to elect or re-elect a director.
A listed entity should have a written agreement with each director and senior executive
setting out the terms of their appointment.
The company secretary of a listed entity should be accountable directly to the board,
through the chair, on all matters to do with the proper functioning of the board.
A listed entity should:
(a) have a diversity policy which includes requirements for the board or a relevant
committee of the board to set measurable objectives for achieving gender diversity and
to assess annually both objectives and the entity’s progress in achieving them;
(b) disclose that policy or summary of it;
(c) disclose as at the end of each reporting period the measurable objectives for achieving
gender diversity set by the board or a relevant committee of the board in accordance
with entity’s diversity policy and its progress towards achieving them, and either:
(1) the respective proportions of men and women on the board, in senior executive
positions and across the whole organisation (including how the entity has defined
“senior executive” for these purposes); or
3
3
3
3
3
3
3
3
3
3
(2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s
most recent “Gender Equality Indicators”, as defined in and published under that Act.
n/a
1.6
A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of the board, its
committees and individual directors; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was
undertaken in the reporting period in accordance with that process.
1.7
A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of its senior
executives; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was
undertaken in the reporting period in accordance with that process.
Principle 2: Structure and the board to add value
2.1
The board of a listed entity should:
(a) have a nomination committee which:
(1) has at least three members, a majority of whom are independent directors; and
(2) is chaired by an independent director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met
throughout the period and the individual attendances of the members at those
meetings; or
3
3
3
3
3
3
3
3
3
(b) if it does not have a nomination committee, disclose that fact and the processes it
employs to address board succession issues and to ensure that the board has the
appropriate balance of skills, knowledge, experience, independence and diversity to
enable it to discharge its duties and responsibilities effectively.
n/a
48
48
48
48
48
48
48
48-49
48-49
49
49
49
49
49
50
50
51
50
51
Horizon Oil Annual Report 2015 46
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
2.2
2.3
2.4
2.5
2.6
A listed entity should have and disclose a board skills matrix setting out the mix of skills
and diversity that the board currently has or is looking to achieve in its membership.
A listed entity should disclose:
(a) the names of the directors considered by the board to be independent directors;
(b) if a director has an interest, position, association or relationship of the type described in
Box 2.3 of the ASX Recommendations (“Factors relevant to assessing the independence
of a director”), but the board is of the opinion that it does not compromise the
independence of the director, the nature of the interest, position, association or
relationship in question and an explanation of why the board is of that opinion; and
(c) the length of service of each director.
A majority of the board of a listed entity should be independent directors.
The chair of the board of a listed entity should be an independent director and, in
particular, should not be the same person as the CEO of the entity.
A listed entity should have a program for inducting new directors and provide appropriate
professional development opportunities for directors to develop and maintain the skills
and knowledge needed to perform their role as directors effectively.
Principle 3: Act ethically and responsibly
3.1
A listed entity should:
(a) have a code of conduct for its directors, senior executives and employees; and
(b) disclose that code or a summary of it.
Principle 4: Safeguard integrity in corporate reporting
4.1
The board of a listed entity should:
(a) have an audit committee which:
(1) has at least three members, all of whom are non-executive directors and a majority
of whom are independent directors; and
(2) is chaired by an independent director, who is not the chair of the board,
and disclose:
(3) the charter of the committee;
(4) the relevant qualifications and experience of the members of the committee; and
(5) in relation to each reporting period, the number of times the committee met
throughout the period and the individual attendances of the members at those
meetings; or
3
3
3
3
3
3
3
3
3
3
3
3
3
3
(b) if it does not have an audit committee, disclose that fact and the processes it employs
n/a
50
50
50
50
50
50
50
51
51
51
51
51
51
51
that independently verify and safeguard the integrity of its corporate reporting,
including the processes for the appointment and removal of the external auditor and
the rotation of the audit engagement partner.
The board of a listed entity should, before it approved the entity’s financial statements
for a financial period, receive from its CEO and CFO a declaration that, in their opinion,
the financial records of the entity have been properly maintained and that the financial
statements comply with the appropriate accounting standards and give a true and fair
view of the financial position and performance of the entity and that the opinion has been
formed on the basis of a sound system of risk management and internal control which is
operating effectively.
A listed entity that has an AGM should ensure that its external auditor attends its AGM and
is available to answer questions from security holders relevant to the audit.
4.2
4.3
Principle 5: Make timely and balanced disclosure
5.1
A listed entity should:
(a) have a written policy for complying with its continuous disclosure obligations under the
Listing Rules; and
(b) disclose that policy or a summary of it.
Principle 6: Respect the rights of security holders
6.1
A listed entity should provide information about itself and its governance to investors via
its website.
A listed entity should design and implement an investor relations program to facilitate
effective two-way communication with investors.
A listed entity should disclose the policies and processes it has in place to facilitate and
encourage participation at meetings of security holders.
A listed entity should give security holders the option to receive communications from, and
send communications to, the entity and its security registry electronically.
6.2
6.3
6.4
3
51
3
51
3
3
3
3
3
3
52
52
52
52
52
52
Horizon Oil Annual Report 2015 Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
47
Principle 7: Recognise and manage risk
7.1
The board of a listed entity should:
(a) have a committee or committees to oversee risk, each of which:
(1) has at least three members, a majority of whom are independent directors; and
(2) is chaired by an independent director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met
throughout the period and the individual attendances of the members at those
meetings; or
3
3
3
3
3
(b) if it does not have a risk committee or committees that satisfy (a) above, disclose
n/a
7.2
7.3
7.4
that fact and the processes it employs for overseeing the entity’s risk management
framework.
The board or a committee of the board should:
(a) review the entity’s risk management framework at least annually to satisfy itself that it
continues to be sound; and
(b) disclose, in relation to each reporting period, whether such a review has taken place.
A listed entity should disclose:
(a) if it has an internal audit function, how the function is structured and what role it
performs; or
(b) if it does not have an internal audit function, that fact and the processes it employs
for evaluating and continually improving the effectiveness of its risk management and
internal control processes.
A listed entity should disclose whether it has any material exposure to economic,
environmental and social sustainability risks and, if it does, how it manages or intends to
manage those risks.
Principle 8: Remunerate fairly and responsibly
8.1
The board of a listed entity should:
(a) have a remuneration committee which:
(1) has at least three members, a majority of whom are independent directors; and
(2) is chaired by an independent director, and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met
through the period and the individual attendances of the members at those
meetings; or
3
3
n/a
3
3
3
3
3
3
3
(b) if it does not have a remuneration committee, disclose that fact and the processes it
n/a
employs for setting the level and composition of remuneration for directors and senior
executives and ensuring that such remuneration is appropriate and not excessive.
8.2
8.3
A listed entity should separately disclose its policies and practices regarding the
remuneration of non-executive directors and the remuneration of executive directors and
other senior executives.
A listed entity which has an equity-based remuneration scheme should:
(a) have a policy on whether participants are permitted to enter into transactions (whether
through the use of derivatives or otherwise) which limit the economic risk of participating
in the scheme; and
(b) disclose that policy or summary of it.
3
3
3
52
52
53
52
52
52
52
53
53
53
53
53
53
53
53
53
53
Horizon Oil Annual Report 2015
48
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR
MANAGEMENT AND OVERSIGHT
The relationship between the board and senior
management is critical to the Company’s long-term success.
The directors are responsible to the shareholders for the
performance of the Company in both the short and longer
term and seek to balance sometimes competing objectives
in the best interests of the Company as a whole. Their
focus is to enhance the interests of shareholders and other
key stakeholders and to ensure the Company is properly
managed.
The responsibilities of the board include:
• providing strategic guidance to the Group including
contributing to the development of and approving the
corporate strategy;
• reviewing and approving business plans, the annual
budget and financial plans including available resources
and major capital expenditure initiatives;
• overseeing and monitoring:
- organisational performance and the achievement of the
Company’s strategic goals and objectives;
- compliance with the Company’s Code of Conduct;
- progress in relation to the Company’s diversity objectives
and compliance with its Diversity Policy; and
- progress of significant corporate projects including any
acquisitions or divestments;
• monitoring financial performance including approval of the
annual and half-year financial reports and liaison with the
Company’s auditors;
• appointment, performance assessment and, if necessary,
removal of the chief executive officer (‘CEO’);
• ratifying the appointment and/or removal and contributing
to the performance assessment for the members of the
senior management team including the chief financial
officer (‘CFO’) and the company secretary;
• ensuring there are effective management processes in
place and approving major corporate initiatives;
• enhancing and protecting the reputation of the Company;
• overseeing the operation of the Company’s system
for compliance and risk management reporting to
shareholders; and
• ensuring appropriate resources are available to senior
management.
Day to day management of the Company’s affairs and
the implementation of the corporate strategy and policy
initiatives are formally delegated by the board to the CEO
and senior executives. These delegations are reviewed on
an annual basis. (Recommendation 1.1)
Appropriate checks are undertaken before appointing or
putting forward for election any director. It is the Company’s
policy to provide all material information relevant to a
security holder’s decision on whether or not to elect or re-
elect a director. (Recommendation 1.2)
The directors and senior executives have a clear
understanding of their roles and responsibilities within the
Company and of the Company’s expectations of them. The
Company has a written agreement with each director and
senior executive setting out the terms of their appointment.
The key terms of these agreements are set out in the
Directors’ Report. (Recommendation 1.3)
The company secretary is regarded by the board as carrying
out an important role in supporting the effectiveness of
the board and its committees. The company secretary is
accountable directly to the board, through the Chair, on
all matters to do with the proper functioning of the board.
(Recommendation 1.4)
Diversity
The Company strongly values diversity and recognises
the benefits it can bring to its ability to achieve its goals.
Accordingly, the Company’s Diversity Policy (available
on the Company’s website at www.horizonoil.com.au)
outlines the Company’s gender diversity objectives. It
includes commitment of the board to establish measurable
objectives for achieving gender diversity and for the board
to assess annually the objectives and the Company’s
progress in achieving them.
As outlined in the Code of Conduct and Diversity Policy,
merit is the basis for employment with the Company and all
employees and applicants for employment are treated and
evaluated according to their job-related skills, qualifications,
abilities and aptitude, regardless of age, disability, ethnicity,
marital or family status, religious or cultural background,
sexual orientation and gender identity. Diversity is
applicable to all levels of the organisation, including senior
executive and board positions, and, subject to the overriding
condition of merit, all appointment processes are to be
conducted in a manner that promotes gender diversity in
accordance with the Code of Conduct and Diversity Policy.
(Recommendation 1.5)
In the past financial year, the Company continued its
commitment to promoting gender and other forms of
diversity by achieving the 2015 measurable objectives
set by the board. The progress during 2015 against the
measurable objectives is summarised below.
Horizon Oil Annual Report 2015
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
49
2015 Measurable Objective
Raise awareness of gender and all types of diversity across
the organisation
Conduct a survey of women in the organisation to identify
career needs and issues and concerns regarding diversity
in the workplace
Identify issues or goals from the survey conducted to
consider as measureable objectives for 2016
The board has established the following measureable
objectives in relation to gender diversity for 2015/2016:
• undertake gender pay equity audit to ensure equity in
remuneration practices;
• increase the representation of women in executive
roles and under-represented roles through appropriate
succession planning and recruitment;
• develop a discrimination, harassment and bullying policy
that will promote diversity and set out the Company’s
commitment to eliminating harassment, bullying and
unlawful discrimination; and
• encourage training and personal development to assist in
furthering career goals.
The proportion of female employees in the Group is
33% (thirteen of thirty-nine). The three senior executive
managers of the Company are male, as are the four non-
executive directors of the Company. Senior executive
managers are defined as being key management
personnel of the Company and the Group. The Company’s
senior executive managers are set out on page 38.
(Recommendation 1.5)
Performance assessment
Every two years the Chairman conducts a formal discussion
with each of the directors individually to discuss their
performance and ideas for improvement of the operation
of the board and board committees. This process was last
performed during 2015. The board reviews the consolidated
views, input, comments and deficiencies arising from the
formal discussions and identifies ways to improve board
and board committee performance and determine the
necessary implementation plans for such improvement
measures. (Recommendation 1.6)
A performance assessment for senior executives took place
in 2015. Performance was assessed having regard to a
variety of key performance indicators. A formal discussion
with each of the senior executives was undertaken during
the financial year to evaluate and discuss their performance.
(Recommendation 1.7)
Progress in 2015
Objective achieved
Raised awareness of gender and all types of diversity by
discussing the Diversity Policy with existing employees and
each new employee as part of their induction training.
Objective achieved
Survey was conducted which helped females identify their
career needs and issues and concerns regarding diversity
in the workplace. The female employees also met and
discussed gender perception within the organisation.
Objective achieved
Survey identified key issues and concerns regarding
discrimination, gender pay equity, training and
representation of women in management roles which have
been considered as measurable objectives for 2016.
PRINCIPLE 2: STRUCTURE THE BOARD
TO ADD VALUE
The board has a primary responsibility to the shareholders
for the welfare of the Company by guiding and monitoring
the business and affairs of the Company. The Company has
formalised and defined the functions reserved for board
accountability and those delegated to management in a
formal Board Charter. The board operates in accordance
with the broad principles set out in the Board Charter.
The Board Charter details the board’s composition and
responsibilities. The Board Charter was in force for the full
financial year.
The Company recognises the importance of the board in
providing a sound base for good corporate governance
in the operations of the Company. The board must at
all times act honestly, fairly and diligently in all respects
in accordance with the laws applicable to the Company.
Furthermore, the board will at all times act in accordance
with all relevant Company policies.
Subject to the prior approval of the Chairman, directors
and board committees have the right, in connection with
the discharge of their duties and responsibilities, to seek
independent professional advice at the Company’s expense.
The Company’s Constitution provides that directors, other
than the CEO, shall not retain office for more than three
years or beyond the third annual general meeting following
election without submitting for re-election by shareholders.
The board has established a number of board committees
to assist in the execution of its duties and to allow detailed
consideration of complex issues. Current committees of the
board are: Remuneration and Nomination, Audit and Risk
Management committees. Copies of the Board Charter and
Charters for each of the board committees are posted in the
Corporate Governance section of the Company’s website at
www.horizonoil.com.au.
Horizon Oil Annual Report 2015 50
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Board composition
The board seeks to ensure that:
• at any point in time, its membership represents an
appropriate balance between directors with experience
and knowledge of the Group and directors with an
external or fresh perspective; and
• the size of the board is conducive to effective discussion
and efficient decision-making.
The board is comprised of four non-executive directors, and
one executive director. The Chairman of the board is an
independent director and the role of Chairman and CEO are
performed by different individuals. (Recommendation 2.5)
Details of the members of the board, their skills, experience,
expertise, qualifications and term of office are set out in
the Directors’ Report (Recommendation 2.2 and 2.3). The
board actively seeks to ensure that the board and its
committees have the right mix of skills, knowledge and
experience necessary to guide and govern the Company
effectively and in accordance with highest standards. The
board considers that collectively the current board has the
range of skills, knowledge and experience necessary to
direct the Company. The directors represent a wide range
of operational and international experience with an in depth
understanding of the industry. The combination of skills
and experience allows for contributions on operational,
financial and management matters. The board considers
that the educational qualifications of the Company’s
directors represent a good mix of science, engineering,
finance, accounting and legal skills which are relevant to the
Company’s business. In addition, the geographic experience
of the board is global, encompassing Australia, Asia Pacific
and the Americas. (Recommendation 2.2)
Directors are encouraged to attend appropriate training and
professional development courses to update and enhance
their skills and knowledge. New directors are inducted into
the Company in accordance with the Company’s Director
Induction Program. (Recommendation 2.6)
The board is actively and regularly involved in risk
management and strategic planning. The board has an
active program of continuous improvement, including
keeping up to date on best practice, fostering a compliance
culture, training and recognition.
Directors’ independence
The board has adopted specific principles in relation
to directors’ independence. These state that when
determining independence, a director must be a non-
executive and the board should consider whether the
director:
• is, or has been, employed in an executive capacity by the
entity or any of its child entities and there has not been
a period of at least three years between ceasing such
employment and serving on the board;
• is, or has within the last three years been, a partner,
director or senior employee of a provider of material
professional services to the entity or any of its child
entities;
• is, or has been within the last three years, in a material
business relationship (e.g. as a supplier or customer)
with the entity or any of its child entities, or an officer
of, or otherwise associated with, someone with such a
relationship;
• is a substantial security holder of the entity or an officer of,
or otherwise associated with, a substantial security holder
of the entity;
• has a material contractual relationship with the entity or its
child entities other than as a director;
• has close family ties with any person who falls within any
of the categories described above; or
• has been a director of the entity for such a period that his
or her independence may have been compromised.
The board annually assesses the independence of
each non-executive director and considers that Messrs
Ainsworth, Humphrey and Stock satisfy the criteria of being
independent of management and free from any business or
other relationship or conflict of interest that could materially
interfere with, or could reasonably be perceived to materially
interfere with, the exercise of their independent judgement.
(Recommendation 2.3)
In determining materiality, the board has regard, among
other things, to the matters detailed in paragraph 6 of the
Board Charter. The board acknowledges that Mr Humphrey
has been a director for twenty five years, however the board
considers that there is no objective or subjective reason to
believe that Mr Humphrey’s period of board service in any
way would interfere with his ability to bring an independent
judgement to bear on issues before the board and to act
in the best interests of the Company and its shareholders.
The board also acknowledges that Mr Ainsworth has been
a director for fourteen years, however the board considers
that there is no objective or subjective reason to believe
that Mr Ainsworth’s period of board service in any way
would interfere with his ability to act in the best interests
of the Company and its shareholders. Accordingly, the
board has assessed Mr Ainsworth and Mr Humphrey to be
independent directors.
The board acknowledges that Mr de Nys is a non-
independent director by virtue of his association with a
substantial shareholder, the IMC Group. The Company
was in full compliance with Recommendation 2.4 (which
recommends that a majority of the board be composed of
independent directors) for the full financial year.
In the event of a tied vote, the casting vote rests with
the Chairman, Mr Ainsworth, who is a non-executive
independent director.
Remuneration and Nomination Committee
The board has established a Remuneration and Nomination
Committee. (Recommendations 2.1)
The Remuneration and Nomination Committee consists of
the following non-executive directors, the majority of whom
are independent, including the Chair:
Independent
E F Ainsworth (Chairman of Committee)
A Stock
Non-independent
G de Nys
Horizon Oil Annual Report 2015 Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
51
The main responsibilities of the Remuneration and
Nomination Committee in respect of the composition of the
board are to:
• assess the skills and competencies required on the board;
• from time to time assess the extent to which the required
skills are represented on the board;
In the period 1 July 2014 to the date of this report, the Audit
Committee was composed of three non-executive directors.
The board considers that the size and composition of the
Audit Committee is appropriate to enable its effective and
efficient operation having regard to the size of the board
and the relevant qualifications of the members of the Audit
Committee.
• establish processes for the review of the performance of
individual directors and the board as a whole;
• establish processes for the identification of suitable
candidates for appointment to the board; and
• recommend the appointment and removal of directors.
Details of attendance at meetings of the committee during
the financial year are detailed in the Directors’ Report.
A copy of the Remuneration and Nomination Committee
Charter is available in the Corporate Governance section of
the Company’s website at www.horizonoil.com.au.
PRINCIPLE 3: ACT ETHICALLY AND
RESPONSIBLY
The Company has a corporate Code of Conduct (‘Code’)
that has been fully endorsed by the board and applies
to all directors and employees. The Code is updated as
necessary to ensure it reflects the highest standards of
behaviour and professionalism and the practices necessary
to maintain confidence in the Company’s integrity.
(Recommendation 3.1)
In summary, the Code requires that at all times all Company
personnel must act with the utmost integrity, objectivity and
in compliance with both the letter and spirit of the law and
Company policies.
The Code and Diversity Policy are discussed with each new
employee as part of their induction training. The directors
are satisfied that the Group and Company have complied
with its policies on ethical standards.
The Code and Diversity Policy are available in the Corporate
Governance section of the Company’s website at
www.horizonoil.com.au.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN
CORPORATE REPORTING
The Company recognises the importance of maintaining
appropriate safeguards and independent oversight of its
financial reporting and has a structure in place to achieve
this. An important part of this structure is the board’s Audit
Committee. (Recommendation 4.1)
The Audit Committee consists of the following non-
executive directors all of whom are independent:
J S Humphrey (Chairman of Committee)
E F Ainsworth
A Stock
The qualifications of Audit Committee members and
their attendance at meetings of the Committee during
the financial year ended 30 June 2015 are detailed in the
Directors’ Report.
The board requires the CEO and CFO to provide a
declaration in accordance with section 295A of the
Corporations Act 2001. The board acknowledges that, in
their opinion, the financial records of the Company have
been properly maintained and that the financial statements
comply with the appropriate accounting standards and
give a true and fair view of the financial position and
performance of the Company. That opinion has been
formed on the basis of a sound system of risk management
and internal control which is, in their view, operating
effectively. (Recommendation 4.2)
The Audit Committee has a formal charter that details
its role and responsibilities, composition, structure and
membership requirements.
A copy of the Audit Committee Charter, including
information on procedures for the selection and
appointment of the external auditor and for the rotation
of external audit engagement partners is available in the
Corporate Governance section of the Company’s website at
www.horizonoil.com.au
External auditor
The external auditor attended all Audit Committee meetings
during the financial year, including holding discussions with
the Audit Committee at each meeting without management
present. The external auditor also attended the annual
general meeting and was available to answer shareholder
questions about the conduct of the external audit and
the preparation and content of the independent auditor’s
report. (Recommendation 4.3)
The Company and Audit Committee policy is to appoint
an external auditor who clearly demonstrates professional
qualities and independence. The performance of the
external auditor is reviewed annually and applications for
tender of external audit services would be requested, if
deemed appropriate, taking into consideration assessment
of performance, existing value and tender costs.
The Company’s policy is to rotate audit engagement
partners at least every five years.
An analysis of fees paid to the external auditors, including
a breakdown of fees for non-audit services, is provided in
Note 30 to the financial statements. It is the policy of the
external auditor to provide an annual declaration of its
independence to the Audit Committee.
Horizon Oil Annual Report 2015 52
Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
PRINCIPLES 5 AND 6: MAKE TIMELY AND
BALANCED DISCLOSURE AND RESPECT THE
RIGHTS OF SHAREHOLDERS
The Company has written policies and procedures on
information disclosure that focus on continuous disclosure
of any information concerning the Company and its
subsidiaries that a reasonable person would expect to
have a material effect on the price of the Company’s
securities. These policies and procedures also include
the arrangements the Company has in place to promote
communication with shareholders and encourage
effective participation at annual general meetings. The
Continuous Disclosure Policy together with all other relevant
corporate governance information is available in the
Corporate Governance section of the Company’s website.
(Recommendation 5.1 and 6.1)
The Disclosure Committee consists of the following
directors, the Chair of which is independent:
E F Ainsworth (Chairman of Committee)
B D Emmett
The Committee’s role includes responsibility for ensuring
compliance with the continuous disclosure requirements of
both the Corporations Act 2001 and the ASX Listing Rules
and overseeing and co-ordinating information disclosure to
the ASX, analysts, brokers, shareholders, the media and the
public.
The Chairman, CEO, Company Secretary and Assistant
Company Secretary have been nominated as persons
responsible for communications with the ASX. This role
includes responsibility for ensuring compliance with the
continuous disclosure requirements in the ASX Listing Rules
and overseeing and co-ordinating information disclosure to
the ASX, analysts, brokers, shareholders, the media and the
public.
All information disclosed to the ASX is posted on the
Company’s website as soon as it is released by the ASX.
When presentations on aspects of the Group’s operations
are made, the material used in the presentation is released
to the ASX. Procedures have also been established for
reviewing whether any price sensitive information has been
inadvertently disclosed, and if so, this information is also
immediately released to the market. The Company seeks
to provide opportunities for shareholders to participate
through electronic means. The website also includes a
feedback mechanism and an option for shareholders to
register their e-mail address for direct e-mail updates of
Company matters. (Recommendations 6.2 and 6.4)
The Company has written policies and procedures which are
used to assist the Company in developing and promoting
its communication with shareholders and encouraging
effective participation at general meetings. The Shareholder
Communications Guidelines Policy is available in the
Corporate Governance section of the Company’s website.
(Recommendation 6.3)
Shareholders are given the opportunity to elect to receive
a copy of the Company’s annual (full or concise) and half-
yearly reports. In addition, the Company seeks to provide
opportunities for shareholders to participate through
electronic means. Current initiatives to facilitate this include
making all Company announcements, media briefings,
details of Company meetings, press releases for the last
three years and financial reports for the last five years
available on the Company’s website. (Recommendation 6.4)
PRINCIPLE 7: RECOGNISE AND MANAGE RISK
The board, through both the Risk Management and
Audit Committees, is responsible for ensuring there are
adequate policies and procedures in place in relation to risk
management, compliance and internal control systems.
In summary, the Company’s Risk Management Policy is
designed to ensure strategic, operational, environmental,
legal, reputational and financial risks are identified,
assessed, effectively and efficiently monitored and managed
to enable achievement of the Group’s business objectives.
Considerable importance is placed on maintaining a strong
internal control environment. There is an organisational
structure with clearly drawn lines of accountability and
delegation of authority.
Adherence to the corporate Code of Conduct (refer to
Principle 3) is required at all times and the board actively
promotes a culture of quality and integrity.
The Company’s Risk Management Policy and procedural
operation of the risk management and compliance system
is overseen by the Risk Management Committee which
consists of all directors and is chaired by an independent
non-executive director:
A Stock (Chairman of Committee)
E F Ainsworth
B D Emmett
J S Humphrey
G de Nys
The key function of the committee is to identify and
prioritise risk arising from business strategies and activities
and ensure that appropriate risk management controls
are implemented and are effective. The committee’s
responsibilities also include the Company’s internal control
environment and ensuring that the Company has an
integrated framework of internal compliance and controls
based on formal procedures and appropriate delegation of
authority and responsibility.
Details of attendance at meetings of the committee during
the financial year are detailed in the Directors’ Report.
(Recommendation 7.1)
The committee ensures that appropriate risk management
controls are implemented and effected by meeting with
senior executives, at least annually, to review and discuss
the material business risks arising from business strategies
and the adequacy of the relevant risk management controls
in place. This review was conducted during 2015. The
Risk Management Committee Chairman (or a delegate)
reports to the board following each meeting of the Risk
Management Committee. In addition, the board also
reviews and considers material business risks and the
adequacy of the risk management controls at each board
meeting. (Recommendation 7.2)
Horizon Oil Annual Report 2015 Corporate Governance Statement
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
53
The Committee’s role is to advise the board on remuneration
and incentive policies and practices generally, and make
specific recommendations on remuneration packages and
other terms of employment for key management personnel.
This includes reviewing and making recommendations to
the board in respect of:
• an executive remuneration and incentive policy;
• the remuneration of the CEO and all senior management
reporting directly to the CEO;
• an executive incentive plan;
• an equity based incentive plan;
• the remuneration of non-executive directors;
• superannuation arrangements;
• accidental death and disability insurance and other
insurance arrangements;
• recruitment, retention, performance measurement and
termination policies and procedures for non-executive
directors, the CEO, the Company Secretary and all senior
management reporting directly to the CEO; and
• the disclosure of remuneration in Horizon Oil Limited’s
public materials including ASX filings and the annual
report.
The Company clearly distinguishes the structure of
non-executive director remuneration from that of
executive remuneration. The Company’s policy in
relation to remuneration for both executive and non-
executive directors is set out in the Remuneration Report.
(Recommendation 8.2)
Retirement benefits for non-executive directors consist
only of statutory superannuation contributions. There is no
separate retirement benefit plan for non-executive directors.
The Company’s Securities Trading Policy prohibits
employees entering into transactions in financial derivatives
(including options) which limit the economic risk of
participating in unvested entitlements under equity based
remuneration schemes. (Recommendation 8.3)
A copy of the Remuneration and Nomination Committee
Charter and the Securities Trading Policy is available in the
Corporate Governance section of the Company’s website at
www.horizonoil.com.au
In accordance with the Risk Management Policy, an
annual review of the policy and charter was undertaken
to ensure that it reflected the current best industry
practice processes. A copy of the Risk Management
Policy is available in the Corporate Governance section
of the Company’s website at www.horizonoil.com.au
(Recommendation 7.1 and 7.2)
While the Company does not utilise a formal internal audit
function, given the relative size of the organisation and
the key roles of the Risk Management Committee and
Audit Committee in evaluating and continually improving
the effectiveness of the Company’s risk management and
internal control processes, the board considers the regular
systematic monitoring of control activities to be sufficient to
manage current and future risks. (Recommendation 7.3)
The Company strongly values economic, environmental and
social sustainability within the areas in which it operates.
In order to mitigate any material exposure to economic,
environmental and social sustainability risks, the Company
undertakes regular monitoring and assessment of both
its operating and non-operating assets to ensure that all
activities are conducted in a manner that is consistent
with the Company’s commitment to safe and sustainable
operations. Current monitoring and assessment has
not indicated any material exposures in the areas of
environmental and social sustainability. The Company has
written policies and procedures which are implemented
to protect the well-being and integrity of all stakeholders
and the social and natural environment in which the
Company’s operations are positioned. These policies and
procedures, which include the Company’s Safety & Health
Policy, Environment Policy, Fitness for Work Policy and
Security Policy, are discussed with each new employee
as part of their induction training. Further details of the
Company’s sustainability performance and key initiatives
are set out in the Sustainability Report on pages 54 to 58.
(Recommendation 7.4)
PRINCIPLE 8: REMUNERATE FAIRLY AND
RESPONSIBLY
The Company has established a Remuneration and
Nomination Committee.
The Remuneration and Nomination Committee consists
of the following directors, the majority of whom are
independent, including the Chair:
E F Ainsworth (Chairman of Committee)
A Stock
G de Nys
Details of attendance at meetings of the Committee during
the financial year are detailed in the Directors’ Report.
(Recommendation 8.1)
Horizon Oil Annual Report 2015 54
Sustainability Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
1. Introduction
The Company is committed to the sustainable development
of its operations. This Sustainability Report is focused upon
those assets for which the Company was the designated
operator. Where the Company is a non-operating joint
venture partner it is assumed that sustainable development
reporting is undertaken on behalf of the joint venture by the
designated operator. The Company is committed to the
audit and assessment of joint venture partners operating
on its behalf to ensure that activities are conducted in
a manner consistent with our expectations around the
sustainable development of our assets.
This report is for the financial year ended 30 June 2015.
In October 2014, the Company completed the Stanley-3 and
Stanley-5 development wells, on behalf of the PDL 10 joint
venture. The drilling rig was transported to the Nama-1
location via a road transport campaign that included heli-
support for key operational items. The Company completed
the drilling of the Nama-1 well on behalf of the PPL 259
joint venture in January 2015. During the period September
to November 2014 the Company also completed the
successful Tana-1 seismic program in PRL 21.
During the reporting period an independent assessment of
the Elevala Project Environmental Impact Statement (‘EIS’)
was undertaken by the PNG Conservation and Environment
Protection Authority (‘CEPA’). The Company expects to
receive the Minister’s Approval in Principle for the EIS early
in the new financial year.
The Company’s sustainable development strategy is
focused on four key pillars. These include:
• Safety & Health;
• Security;
• Environment; and
• Community.
Each pillar is discussed in detail within this Sustainability
Report.
2. Health & Safety
The Company is committed to the maintenance of a
safe and healthy working environment for all personnel,
contractors, vendors and visitors attending Company
operated sites. No fatalities resulted from the conduct of
the Company’s activities in the reporting period.
During the reporting period the Company achieved a Total
Recordable Injury Frequency Rate (‘TRIFR’) of 0.9 and a
Lost Time Injury Frequency Rate (‘LTIFR’) of 0.0. This result
was achieved on a base of greater than 1,000,000 man-
hours and significant contribution of comparatively high
risk activities (such as drilling) undertaken in a challenging
environment. Over the three year period to 30 June 2015,
the Company returned a performance for LTIFR of 0.9 and
TRIFR of 2.8 which is consistent with industry expectations
for comparable activities, such as drilling (LTIFR – 0.84
& TRIFR – 3.05 based on the results of the International
Association of Oil and Gas Producers (‘IOGP’)).
The Company targets an injury rate that outperforms
the average within the industry as reported in the Safety
Performance Indicator Series published annually by the
IOGP. In 2015, the Company outperformed this target. In
June 2015, the Company recorded 12 months lost time
injury (LTI) free.
Year
LTIFR
TRIFR
No. of
Recordable
Injuries
FY13
0.0
0.0
0
FY14
2.8
7.0
5
FY15
0.0
0.9
1
Table 1: Total Recordable Injury Frequency Rate (TRIFR) for Horizon Oil
During the reporting period a single recordable injury was
reported. The injury related to prophylactic administration
of antibiotics during the treatment of a suspected foreign
body in the eye. The improved performance from the prior
year is the result of a concerted leadership effort to stabilise
the operating environment while guiding employees and
contracting parties through a period of relative change and
uncertainty.
During the reporting period the Company embarked upon
the development and implementation of a safety culture
and leadership program designed to develop its leaders of
the future and safeguard the sustainability of its operations.
The program is based on our own operational experience, as
well as, developments in safety leadership within the oil and
gas industry.
A review of the safety performance of the Company
indicates that safety incidents are more prevalent during
unsettled periods that characterise the start of specific
campaigns of work. The safety culture and leadership
program has been designed as an integral component of
pre-project planning activities to directly address this risk
associated with future programs of work. For example,
the Elevala Project will involve the integration of personnel
from different ethnic and cultural backgrounds in a remote,
greenfield environment. Ensuring that all personnel
understand the Company’s safety and health requirements
and their individual responsibilities will be integral to the
successful delivery of this project.
Health Programs
The Company is committed to the health and welfare of
its personnel. During the reporting period, the Company
embarked upon a pilot program focused on individualised
health and fitness for work assessments. This included the
introduction of a vaccination program for local employees
working and living in Papua New Guinea, to immunise
personnel against tetanus, Japanese encephalitis, typhoid,
hepatitis A and B, and cholera.
The Company continues to contribute to the improvement
of community health systems and services. During the
financial year, the Company donated a range of medical
goods to local community-sponsored health and medical
stations. This included community-based health care
services based in the villages of Gasuke, Drimdenasuk,
Iowara, Rumginae and the central township of Kiunga.
Horizon Oil Annual Report 2015
Sustainability Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
55
Reporting Culture
The Company is committed to the development of a culture
in which reporting of occurrences is valued and recognised,
and uses this to continually improve its operations and
activities.
During the reporting period, thirteen Significant Near Miss
occurrences were reported. While no material impact
resulted from these occurrences, each of them was
investigated and remedial actions designed, developed and
implemented. A breakdown of significant incidents reported
is shown in Figure 3. This result is a slight decrease from
the prior year (sixteen incident reports). It should be noted
that this decrease occurred, despite a 44% increase in man-
hours worked to 1,037,205 (2014: 717,816) attributable to
the Stanley and Nama drilling programs which the Company
operated. The majority of incidents related to Safety and
Health, which is consistent with the prior year result.
Significant near miss occurrences
3
3
Safety & Health
Security
Environment
7
Figure 3: Significant Near Miss Occurrences by Sustainable
Development Pillar
3. Security
The Company maintains a Security Policy that sets
standards that detail its expectations for the protection
of its personnel, its assets and the public. The Company
conducts its operations in a manner consistent with the
Voluntary Principles on Security and Human Rights, which
is a multi-stakeholder initiative for the extractive industry
involving governments, companies and non-government
organisations. During the period no breaches of the
Principles were reported.
As detailed in Figure 3, three significant near miss security
occurrences were reported during the year. Investigation
and analysis of these incidents indicated that in each
instance the underlying causes were related to an
opportunistic exposure, which is commonly experienced in
Papua New Guinea.
The Company recognises that the security of its assets
and personnel is dependent upon its standing within the
communities in which it operates. To this end, the Company
remains committed to the engagement and development
of local residents and businesses to develop and deliver a
functional security capability. The Company has worked in
partnership with local businesses, coaching and regularly
assessing their performance and capability, to ensure
that standards are met and upheld. During the reporting
period, the Company transitioned to security contractors
wholly provided by companies registered within the North
Fly Region. The contractors engaged in the provision of
security services at the Company’s facilities are all local
residents.
Figure 1: Representatives of the Drimdenasuk village health clinic and
Horizon Oil team members during the donation of medical supplies
The area within which the Company operates in Papua
New Guinea is one of the least developed areas, with
regards to the provision of health services. The Company
periodically finds itself in a position to provide much needed
assistance to local health service providers. For example,
during a community meeting for the Elevala Project EIS
at Iowara Station, Company employees were notified of a
young woman experiencing a difficult labour, who required
advanced medical care that could not be provided locally.
The opportunity was taken to assist the local health service
via the use of the helicopter to transport the mother-to-be
to Kiunga Airport and then via road transport to the Kiunga
Hospital for further medical attention. The young woman,
Veronica, gave birth to a healthy baby boy on 25 March, at
Kiunga Hospital.
Figure 2: Preparing for transfer to Kiunga Hospital for further treatment
Horizon Oil Annual Report 2015 56
Sustainability Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Figure 4: The Security Team at Lobire Lodge, Kiunga
4. Environment
During the reporting period three significant near miss
occurrences relating to the environment were reported.
None of these had a material or lasting environmental
impact, but rather reflect the Company’s commitment
to proactive reporting and the processes and systems
established to prevent environmental harm.
No instances of exceeding regulatory limits or non-
compliance with environment permit conditions were
identified during the reporting period.
The Company has developed and implemented an extensive
environmental monitoring program that establishes
existing environmental conditions and will be used to
assess the potential impacts of future project activities
on the surrounding environment. The quarterly data
collection has focused on the Elevala River system which
is the primary receiving catchment for activities related
to the development of the Elevala Project. Key findings
from analysis of the collected data are provided to local
communities.
The Company is in the process of expanding its
environmental monitoring program to include river bank
erosion monitoring at selected locations along the Fly River
that may be impacted by future vessel traffic associated
with the Company’s activities.
During the reporting period the Company’s environmental
activities focused on the regulatory environmental approval
process for the Elevala Project, this involved engaging all
levels of government, as well as, community stakeholders,
primarily through the roadshow for the EIS. The Company
organised a number of meetings with CEPA and the Western
Provincial Administration at key population centres within
the Company’s operational area including at:
• Gasuke;
• Iowara;
• Drimdenasuk; and
• Kiunga.
Close to 1,000 people attended these sessions. The main
focus of the presentations was to explain the potential
environmental and social impacts identified in the EIS
and to describe how the Company would manage and
mitigate these impacts. Comments and queries raised were
captured by CEPA and form part of their environmental
assessment documentation on the EIS. As a direct outcome
of the roadshow meetings and based on the common issues
of concern raised by stakeholders, a number of information
sheets are currently being prepared for circulation to local
communities. Overall, the EIS roadshow was a resounding
success and has set the benchmark for project engagement
with communities in the Western Province.
Figure 6: Presentation of the Elevala EIS to the community at the village
of Drimdenasuk
Figure 7: Presentation of the Elevala EIS to the community at the village
of Gasuke
The presentation of the Elevala EIS to stakeholders was
concluded with a presentation to the State Team in Port
Moresby, as a final opportunity for government agencies to
comment on the EIS and to raise any concerns with CEPA
and the Company. No objections to the project have been
lodged. The EIS is currently under review by CEPA, with
the Minister’s Approval in Principle anticipated in the near
future. Subject to approval, the Company looks forward
to working with all project stakeholders during the 2016
financial year on the next stage of the project.
Figure 5: Water quality sampling on the Elevala River
Horizon Oil Annual Report 2015
Sustainability Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
57
Labour distribution by Villages
Debepari
Diabi
Drimdemasuke
Gasuke
Gusiore
Iowara
Kiunga
Pipila
Tegena
Tomotona
Others
Figure 8: The distribution of labour from the villages within the project
area
The strategy proved to be very successful. A peak workforce
of 360 local labourers was sourced from the project area,
zero LTIs were recorded and the program was completed
on time and on budget. The Company’s commitment to
partnering with the local community and integrating them
into our operational activities was a significant contributor to
the success of the program.
From the communities’ perspective and notwithstanding the
relatively short duration of the seismic program, the direct
impact of employment opportunities presented by seismic
programs within the project area are substantial. Overall,
a total of PGK892,056 (approximately US$325,000) was
paid directly into the local community in the form of wages
and boat hire fees. This represents a significant, and very
welcome injection of cash into an area that otherwise sees
little in the way of economic opportunities. In addition, the
Company contributed a further PGK29,469 (approximately
US$11,000) in donations of surplus materials (including water
tanks and medical supplies) to the local community at the
conclusion of the program.
Figure 9: Food and supplies being loaded into boats
5. Community
The Company seeks to conduct its operations in a
manner that is transparent, respectful of the rights of all
stakeholders with whom we interact and that promotes
sustainable social and economic development within our
project area communities.
The Company’s approach to sustainable development seeks
to integrate the local community into our operational activity
at every possible opportunity, with the objective of leaving
a long-term positive social development legacy. The case
study “a participatory approach” included within this report
has been provided in order to demonstrate how this desired
approach translates into practical action.
Case study: a participatory approach
In late 2014, the Company acquired approximately 105 km
of 2D seismic within Petroleum Retention Licence 21
(PRL 21) over a period of approximately 12 weeks. PRL 21
is relatively remote, lying some 60 km to the east of Kiunga
in the Western Province of PNG. The population within
PRL 21 and the surrounding area is approximately 5,000
people, a figure which includes some 3,000 West Papuan
refugees who were settled in the area in the mid 1980s.
Access to the area is difficult and generally restricted to
helicopter, boat or on foot. As a consequence, the level
of basic services in the area is poor and there are limited
opportunities for business or employment. A seismic
program in PNG relies heavily on a large contingent of
semi-skilled and unskilled labour to assist with line clearing,
bridging, drilling and other tasks. The work is hard and hot,
nevertheless, it provides a sound short-term employment
opportunity for the local community.
The Company’s Community Affairs team worked closely
with the seismic contractors to develop and execute a
strategy that focused on maximising the level of community
participation for the duration of the seismic program.
The majority of the labour force was recruited from the
main impacted landowner villages of the PRL 21 area (refer
Figure 8). These villages were Gasuke, Iowara, Drimdenasuk,
Pipila, Tegena, Debepari, Diabi, Tomotona, Kuyu, Korona,
Damaro and Komhnai. Composite work crews (whereby
work crews are made up of men from a number of different
villages and clans) were established. This enabled individual
work crews to remain employed for the duration of the
program and also mitigated the risks of work stoppages
arising as work crews crossed clan land boundaries. In
addition to labour, a total of eight dinghies were sourced
from the local community and contracted for the duration of
the seismic survey to assist with the transport of food, fuel
and manpower between work sites. Additional boats and
crews were utilised during periods of peak demand, such as
the mobilisation and demobilisation phase.
Horizon Oil Annual Report 2015
58
Sustainability Report
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Consistent and transparent stakeholder engagement
remains a fundamental aspect of the Company’s approach
to sustainable development. A number of initiatives have
been established in the last 12 months to ensure the key
principle of free, prior and informed consent are adhered to.
These initiatives include:
1. the establishment of a formal grievance procedure
to ensure that any issues or concerns raised by the
community are recorded and responded to in a diligent
and effective manner;
2. the preparation and distribution of the Company’s
Community News, a monthly publication that is used
to disseminate information relevant to the Company’s
activities within its project areas; and
3. the conduct of regular ‘village patrols’ by the Company’s
Community Affairs (‘CA’) team which are aimed at
ensuring direct contact and interaction with project
area communities at a village level. These patrols, which
often involve an overnight stay, enable CA personnel
to effectively disseminate project information and also
provide community members with an opportunity to
ask questions and voice any concerns with the CA team
directly.
6. Developing and Sustaining HSSE
Capability
The reporting period marked an important milestone in
the development of a sustainable HSSE capability within
the areas the Company operates. In February 2015, the
Company employed three Kiunga residents as HSSE
Officers. Each of the new team members are a product of
the local education system having graduated through the
Kiunga primary and secondary schools, prior to departing
to higher education institutions for the completion of their
tertiary studies. The new team members are currently
working with the HSSE leadership team to develop a
dedicated individual development plan, that is designed to
test and consolidate existing capability, while developing
the skills required for a future in the industry. The Company
does this through a commitment to providing learning
opportunities, industry exposure, ongoing training and
mentoring. The Company increasingly recognises the
potential benefit that exists from developing personnel
from local communities, to become future leaders of the
Company.
Figure 11: Horizon Oil HSSE Officers – Geyam Anas, Lina Kerekere &
Merolyn Urio
7. Conclusion
The Company is committed to the sustainable development
of its operations within the communities and environments
in which it operates. The Company regards this
commitment as an integral component of an ongoing, long-
term engagement with local communities.
The Company builds its activities on a framework
established by corporate policy and assesses its
performance against both internal and industry standards.
Figure 10: Horizon Oil Community & Government Affairs team
member speaking with community members during a village patrol to
Drimdenasuk Village
The Company continues to pursue a number of social
investment programs, with substantial financial and in kind
support provided to two Western Province based charities,
Australian Doctors International (‘ADI’) and Mercy Works.
The work of both organisations is focused primarily on
healthcare and specifically in building partnerships with local
communities to enhance capacity and self reliance in areas
where access to basic health care is limited or non-existent.
The Company is also in consultation with the Fly River
Provincial Administration’s North Fly Development Authority
in order to develop additional health and education focused
social investment programs aligned with the North Fly
District Development Plan. The intention is that aligning
these social investment programs with that of the Fly
River Provincial Government will greatly enhance their
sustainability over the long-term.
Further information on the activities of both
Mercy Works and ADI can be found on their websites,
www.mercyworks.org.au and www.adi.org.au.
Horizon Oil Annual Report 2015
Independent Audit Report to the
members of Horizon Oil Limited
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
59
Independent auditor’s report to the members of Horizon Oil
Limited
Report on the financial report
We have audited the accompanying financial report of Horizon Oil Limited (the company), which
comprises the consolidated statement of financial position as at 30 June 2015, 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 ended on that date, a summary of
significant accounting policies, other explanatory notes and the directors’ declaration for Horizon Oil
Limited (the consolidated entity). The consolidated entity comprises the company and the entities it
controlled at year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Horizon Oil Annual Report 2015
60
Independent Audit Report to the
members of Horizon Oil Limited
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Auditor’s opinion
In our opinion:
(a)
the financial report of Horizon Oil Limited is in accordance with the Corporations Act 2001,
including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2015 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 9 to 20 of the directors’ report for the year
ended 30 June 2015. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
32 to 42
Auditor’s opinion
In our opinion, the remuneration report of Horizon Oil Limited for the year ended 30 June 2015
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Peter Buchholz
Partner
Sydney
25 August 2015
44
Horizon Oil Annual Report 2015
Directors’ Declaration
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
61
In the directors’ opinion:
(a) the financial statements and notes are in accordance with the Corporations Act 2001 including:
(i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for
the financial year ended on that date; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by Section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
E F Ainsworth am
Chairman
B D Emmett
Chief Executive Officer
Sydney
25 August 2015
Horizon Oil Annual Report 2015
62
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Revenue from continuing operations
Cost of sales
Gross profit
Profit from sale of assets
Other income
General and administrative expenses
Exploration and development expenses
Financing costs
Unrealised movement in value of convertible bond conversion rights
Other expenses
Profit before income tax expense
NZ royalty tax expense
Income tax expense
Profit for the financial year
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Total comprehensive income for the financial year
Profit/(loss) attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Profit/(loss) for the period
Total comprehensive income/(loss) attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Total comprehensive income/(loss) for the period
Note
6
7
5
6
7
7
7
6
7
8a
8b
26a
Consolidated
2015
US$’000
103,950
(59,970)
43,980
-
6,842
(7,569)
(16,222)
(17,360)
9,063
(983)
17,751
(4,299)
4,855
18,307
14,394
32,701
18,333
(26)
18,307
32,727
(26)
32,701
2014
US$’000
138,450
(92,716)
45,734
23,830
234
(8,183)
(10,520)
(18,899)
412
(2,581)
30,027
262
(17,459)
12,830
(5,303)
7,527
12,830
-
12,830
7,527
-
7,527
Earnings per share for profit attributable to ordinary equity holders of Horizon
Oil Limited:
US cents
US cents
Basic earnings per ordinary share
Diluted earnings per ordinary share
41a
41b
1.41
1.41
1.00
1.00
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
Horizon Oil Annual Report 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015
63
Current assets
Cash and cash equivalents
Receivables
Inventories
Derivative financial instruments
Current tax receivable
Other assets
Total current assets
Non-current assets
Deferred tax assets
Plant and equipment
Exploration phase expenditure
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Payables
Deferred income
Derivative financial instruments
Current tax payable
Borrowings
Other financial liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Derivative financial instruments
Deferred tax liability
Borrowings
Other financial liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total Equity Attributable to equity holders of the Company
Non-controlling interest
Total equity
Note
Consolidated
2015
US$’000
2014
US$’000
9
10
11
20
12
13
14
15
16
17
18
19
20
21
22
24
20
23
21
22
24
25
26a
26b
61,343
14,580
4,907
11,399
2,091
1,435
95,755
11,165
5,065
96,959
314,395
427,584
523,339
16,781
2,212
-
271
97,104
7,961
3,181
127,510
15
-
29,408
97,286
-
12,803
139,512
267,022
256,317
174,801
19,288
62,254
256,343
(26)
256,317
98,911
15,477
5,281
-
-
1,674
121,343
2,306
5,558
74,658
311,038
393,560
514,903
35,715
-
5,935
1,596
44,165
-
12,497
99,908
54
222
17,106
143,281
17,024
14,742
192,429
292,337
222,566
174,801
3,844
43,921
222,566
-
222,566
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
Horizon Oil Annual Report 2015
64
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Consolidated
Attributable to members of Horizon Oil Limited
Contributed
equity
Reserves
Retained
profits
Total
Non-
controlling
interest
Total
Equity
Note
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Balance as at 1 July 2013
128,038
7,884
31,091
167,013
Profit for financial year
Changes in the fair value of
cash flow hedges
26(b)
26(a)
Total comprehensive
income for the financial
year
-
-
-
-
12,830
(5,303)
-
12,830
(5,303)
(5,303)
12,830
7,527
Transactions with owners
in their capacity as equity
holders:
Ordinary shares issued, net
of transaction costs
Employee share-based
payments expense
25(b)
46,763
-
26(a)
-
1,263
46,763
1,263
-
-
-
46,763
1,263
48,026
Balance as at 30 June 2014
174,801
3,844
43,921
222,566
Balance as at 1 July 2014
174,801
3,844
43,921
222,566
Profit for the financial year
Changes in the fair value of
cash flow hedges
26(b)
26(a)
Total comprehensive
income for the financial
year
Transactions with owners
in their capacity as equity
holders:
Ordinary shares issued, net
of transaction costs
Employee share-based
payments expense
25(b)
26(a)
-
-
-
-
-
-
-
18,333
14,394
-
18,333
14,394
14,394
18,333
32,727
-
1,050
1,050
-
-
-
-
1,050
1,050
-
-
-
-
-
-
-
-
-
(26)
-
(26)
-
-
-
167,013
12,830
(5,303)
7,527
46,763
1,263
48,026
222,566
222,566
18,307
14,394
32,701
-
1,050
1,050
Balance as at 30 June 2015
174,801
19,288
62,254
256,343
(26)
256,317
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Horizon Oil Annual Report 2015 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
65
Note
Consolidated
2015
US$’000
2014
US$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash inflow from operating activities
40
Cash flows from investing activities
Payments for exploration phase expenditure
Payments for oil and gas assets
Payments for China restoration costs
Proceeds from sale of oil and gas assets
Proceeds from sale of exploration phase assets
Reimbursement of oil and gas asset expenditure
Reimbursement of exploration phase expenditure
Payments for plant and equipment
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Payments for transaction costs arising on ordinary shares issued
Proceeds from borrowings (net of transaction costs)
Repayment of borrowings
Net cash (outflow) from financing activities
Net (decrease)/increase 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 held
in foreign currencies
104,088
(33,718)
70,370
146
(8,722)
(2,951)
58,843
(36,934)
(45,847)
(12,310)
-
-
-
-
(191)
(95,282)
-
-
8,076
(9,165)
(1,089)
(37,528)
98,911
(40)
139,336
(55,987)
83,349
234
(11,042)
(7,575)
64,966
(42,422)
(49,654)
-
52,600
1,000
22,627
615
(836)
(16,070)
49,014
(2,251)
-
(15,170)
31,593
80,489
19,028
(606)
Cash and cash equivalents at the end of the financial year
61,343
98,911
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Horizon Oil Annual Report 2015
66
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 1. Summary of Significant Accounting
Policies
A summary of the significant accounting policies adopted
in the preparation of the financial statements are set out
below. These policies have been consistently applied,
unless otherwise stated. The financial statements are for
the consolidated entity consisting of Horizon Oil Limited and
its subsidiaries (the ‘Group’). For the purposes of preparing
the financial statements, the consolidated entity is a for
profit entity.
(ii) AASB Interpretation 21 Levies
It sets out the accounting for an obligation to pay a levy
imposed by a government in accordance with legislation.
The interpretation clarifies that a liability must be recognised
when the obligating event occurs, being the event that
triggers the obligation to pay the levy. The Group has
reviewed the levies it is currently paying and determined
that the accounting for these levies is not affected by the
interpretation.
Early adoption of standards
The nature of the operations and principal activities for the
Group are described in the Directors’ Report.
The Group has elected to apply the following
pronouncement to the financial year beginning 1 July 2013:
a) Statement of compliance
These general purpose financial statements have been
prepared in accordance with Australian Accounting
Standards, other authoritative pronouncements of the
Australian Accounting Standards Board (‘AASB’), Urgent
Issues Group Interpretations and the Corporations Act 2001.
The consolidated financial statements comply with
Australian Accounting Standards as issued by the AASB and
International Financial Reporting Standards (‘IFRS’) as issued
by the International Accounting Standards Board (‘IASB’).
b) Basis of preparation
These financial statements are presented in United States
dollars and have been prepared under the historical cost
convention, as modified by the revaluation of financial
assets and liabilities (including derivative instruments) at fair
value through profit or loss, or other comprehensive income
where hedge accounting is adopted.
The Company is of a kind referred to in ASIC Class Order
98/100 dated 10 July 1998 and in accordance with the Class
Order amounts in the financial statements are rounded off
to the nearest thousand dollars, unless otherwise indicated.
The financial statements have been prepared on a going
concern basis which contemplates the realisation of assets
and settlement of liabilities in the normal course of business
as they become due.
New and amended standards adopted by the Group
The Group has adopted all of the new and revised Australian
Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are
relevant to its operations and effective for the financial year
ended 30 June 2015.
New and revised Australian Accounting Standards and
amendments thereof and Interpretations effective for the
financial year that are relevant to the Group include:
(i) AASB 2013-3 Amendments to AASB 136 Recoverable
Amount Disclosures for Non Financial Assets
This amendment increases the disclosure requirements in
AASB 136 Impairment of Assets. The amendment includes
the requirement to disclose additional information about
recoverable amounts and the fair value measurement when
the recoverable amount of impaired assets is based on fair
value less costs of disposal. This amendment will not affect
any of the amounts recognised in the financial statements.
(i) AASB 9 Financial Instruments, AASB 2009-11 Amendments
to Australian Accounting Standards arising from AASB 9,
and AASB 2010-7 Amendments to Australian Accounting
Standards arising from AASB 9
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and
financial liabilities. In December 2013, the AASB issued
a revised version of AASB 9 incorporating three primary
changes:
1. new hedge accounting requirements including changes to
hedge effectiveness testing, treatment of hedging costs,
risk components that can be hedged and disclosures;
2. entities may elect to apply only the accounting for gains
and losses from own credit risk without applying the other
requirements of AASB 9 at the same time; and
3. the mandatory effective date moved to 1 January 2017.
Given that these changes are focused on simplifying
some of the complexities surrounding hedge accounting,
Horizon Oil Limited has elected to early adopt the
amendments in order to ensure hedge accounting can
continue to be applied and to avoid unnecessary volatility
within the profit and loss.
Critical accounting estimates
The preparation of 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 judgment or complexity, or
areas where assumptions and estimates are significant to
the financial statements are disclosed in Note 3.
Changes in accounting estimates
A review of the Group’s accounting estimates, has affected
items recognised in the financial statements.
(i) Oil & gas assets – amortisation
On 1 January 2015, the Group revised the reserve and
resource estimates for the Maari/Manaia field in New
Zealand and Beibu fields in China. The change in proven
and probable hydrocarbon reserves affects the amortisation
recorded in the financial year and also impacts the
recoverable amount used to assess impairment and the
value of the restoration provision at 30 June 2015. See
critical accounting estimates disclosed in Note 3.
The change in estimate resulted in an increase in the
amortisation charge of $1.1 million for the financial year.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
67
(ii) Oil & gas assets – restoration provision
Legislation in China requires the provision for restoration to
be paid over the remaining life of the field. Payments are to
be made in accordance with a restoration plan lodged with
the relevant governmental authority. During the financial
year, the Group commenced payments to meet this legal
obligation. This resulted in a change at 30 June 2015, to
the timing and amount of outflows used to calculate the
provision for restoration.
This change in estimate resulted in a decrease of
$0.9 million in the provision for restoration which was
applied against the restoration asset.
c) Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of Horizon Oil Limited
(the ‘Company’ or ‘Parent Entity’) as at 30 June 2015 and the
results of all subsidiaries for the financial year then ended.
Horizon Oil Limited and its subsidiaries together are referred
to in these financial statements as the Group.
Subsidiaries are those entities (including special purpose
entities) over which the Group has control. Control exists
when the Company is exposed to, or has the rights to,
variable returns from its involvement and has the ability
to affect those returns through its power over that entity.
There is a general presumption that a majority of voting
rights results in control. The existence and effect of
potential voting rights that are currently exercisable or
convertible are also considered when assessing whether the
Group controls another 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.
The acquisition method of accounting is used to
account for business combinations by the Group (refer
to Note 1(n)). Intercompany transactions, balances and
unrealised gains on transactions between Group companies
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.
Investments in subsidiaries are accounted for at cost in the
individual financial statements of Horizon Oil Limited. These
investments may have subsequently been written down to
their recoverable amount determined by reference to the
net assets of the subsidiaries as at 30 June each financial
year where this is less than cost.
Joint operations
A joint operation is a joint arrangement whereby the
participants that have joint control of the arrangement (i.e.
joint operators) have rights to the assets, and obligations for
the liabilities, relating to the arrangement.
The Group recognises assets, liabilities, revenues and
expenses according to its share in the assets, liabilities,
revenues and expenses of a joint operation or similar as
determined and specified in contractual arrangements
(Joint Operating Agreements). Details of major joint
operation interests and the sum of the Group’s interests in
joint operation assets, liabilities, revenue and expenses are
set out in Note 29.
Where part of a joint operation interest is farmed out in
consideration of the farminee undertaking to incur further
expenditure on behalf of both the farminee and the entity in
the joint operation area of interest, exploration expenditure
incurred and carried forward prior to farm-out continues to
be carried forward without adjustment, unless the terms
of the farm-out are excessive based on the diluted interest
retained. An impairment provision is then made to reduce
exploration expenditure to its estimated recoverable
amount. Any cash received in consideration for farming out
part of a joint operation interest is recognised in the profit
or loss.
d) Crude oil and gas inventory and materials in inventory
Crude oil and gas inventories, produced but not sold, are
valued at the lower of cost and net realisable value. Cost
comprises a relevant proportion of all fixed and variable
production, overhead, restoration and amortisation
expenses and is determined on an average cost basis.
Stocks of materials inventory, consumable stores and spare
parts are carried at the lower of cost and net realisable
value, with cost primarily determined on an average cost
basis.
e) Operating segment reporting
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker, who
is responsible for allocating resources and assessing
performance of the operating segments, has been identified
as the Board of Directors.
f) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the
Group’s subsidiaries are measured using the currency of
the primary economic environment in which the subsidiary
operates (the ‘functional currency’). The consolidated
financial statements are presented in United States dollars,
which is Horizon Oil Limited’s functional and presentation
currency. Horizon Oil Limited has selected US dollars as its
presentation currency for the following reasons:
(a) a significant portion of Horizon Oil Limited’s activity is
denominated in US dollars; and
(b) it is widely understood by Australian and international
investors and analysts.
(ii) Transactions and balances
Foreign currency transactions are translated into the
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 generally recognised in the profit or
loss. They are deferred in equity if they relate to qualifying
cash flow hedges and qualifying net investment hedges or
are attributable to part of the net investment in a foreign
operation.
Horizon Oil Annual Report 2015 68
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
(iii) Group companies
All Group subsidiaries have a functional currency of United
States dollars, as a result, there is no exchange differences
arising from having a different functional currency to the
presentation currency of Horizon Oil Limited.
g) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable to the extent it is probable that
economic benefits will flow to the Group and the revenue
can be reliably measured. Amounts disclosed as revenue
are net of returns, trade allowances and amounts collected
on behalf of third parties. All revenue is stated net of the
amount of GST.
For product sales, revenue is bought to account when the
product is passed from the Group’s physical control under
an enforceable contract, when selling prices are known or
can be reasonably estimated and the products are in a form
that requires no further treatment by the Group.
Interest income is recognised on a time proportion basis
using the effective interest method.
h) Deferred income
A liability is recorded for obligations under petroleum sales
contracts where the risks and rewards of ownership have
not passed to the customer and payment has already been
received.
i) Taxation
(i) Income tax
The income tax expense or revenue for the reporting period
is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction
adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences between the tax bases
of assets and liabilities and their carrying amounts in the
financial statements, and to unused tax losses.
The current income tax charge is calculated on the basis of
the tax laws enacted or substantially enacted at the end of
the reporting period in the countries where the Company’s
subsidiaries operate and generate taxable income. It
establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the financial statements. Deferred income tax is determined
using tax rates (and laws) that have been enacted or
substantially by the end of the reporting period and are
expected to apply when the related deferred income tax
asset is realised or deferred income tax liability is settled.
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.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax
bases of investments in subsidiaries where the parent entity
is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not
reverse in the foreseeable future.
Current and deferred tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
(ii) Government royalties
Government royalties are treated as taxation arrangements
when they are imposed under Government authority and
when the calculation of the amount payable is derived from
a measure of profit that falls within the definition of ‘taxable
profit’ for the purposes of AASB 112 Income Taxes. Current
and deferred tax is then provided on the same basis as
described in (i) above. Royalty arrangements that do not
meet the criteria for treatment as a tax are recognised on an
accruals basis.
j) Leases
Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are
classified as operating leases (Note 38). Payments made
under operating leases (net of any incentives received from
the lessor) are charged to profit or loss on a straight-line
basis over the period of the lease. The Company has no
leases which are classified as finance leases under AASB 117
Leases at 30 June 2015.
k) Impairment of assets
Assets are reviewed for impairment at each reporting date
to determine whether there is any indication of impairment.
If an impairment indicator exists a formal estimate of the
recoverable amount is calculated. An impairment loss is
recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell
and value in use. 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’).
In assessing the recoverable amount, an assets estimated
future cash flows are discounted to their present value
using an after tax discount rate that reflects current market
assessments of the time value of money and the risks
specific to the asset.
Exploration phase expenditure is assessed for impairment in
accordance with Note 1(o).
l) Cash and cash equivalents
For presentation purposes in the statement of cash flows,
cash and cash equivalents includes cash at banks and on
hand (including share of joint operation cash balances),
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, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities
in the consolidated statement of financial position.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
69
m) Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost, less provision
for doubtful debts. Trade receivables are generally due
for settlement within 30 days from the date of recognition.
They are included in current assets, except for those with
maturities greater than one year after the end of the
reporting period which are classified as non-current assets.
Collectability of trade receivables is reviewed on an ongoing
basis. Debts which are known to be uncollectible are written
off. A provision for doubtful receivables is established when
there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of
receivables. The amount of the provision is the difference
between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the original
effective interest rate. The amount of the provision is
recognised in profit or loss.
n) Business combinations
The acquisition method of accounting is used to account
for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration
transferred for the acquisition of a subsidiary comprises the
fair values of the assets transferred, the liabilities incurred,
equity interests issued by the Group, fair value of any
asset or liability resulting from a contingent consideration
arrangement, and fair value of any pre-existing equity
interest in the subsidiary. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are, with limited exceptions, measured initially
at their fair values at the acquisition date. Acquisition
related costs are expensed as incurred.
For purchase combinations which do not constitute
the acquisition of a business, the Group identifies and
recognises the individual identifiable assets acquired and
liabilities assumed. The consideration paid is allocated
to the individual identifiable assets and liabilities on the
basis of their relative fair values at the date of purchase.
Transaction costs associated with the acquisition are
a component of the consideration transferred and are
therefore capitalised.
o) Exploration phase expenditure
Exploration phase expenditure in respect of each area
of interest is accounted for using the successful efforts
method of accounting. The successful efforts method
requires all exploration phase expenditure to be expensed
in the period it is incurred, except the costs of successful
wells, the costs of acquiring interests in new exploration
assets and pre-development costs where there is a high
degree of probability that the development will go ahead,
which are capitalised. Costs directly associated with the
drilling of exploration wells and any associated geophysical
and geological costs are initially capitalised pending
determination of whether potentially economic reserves
of hydrocarbons have been discovered. Areas of interest
are recognised at the cash-generating unit level, being the
smallest grouping of assets generating independent cash
flows which usually is represented by an individual oil or gas
field.
When an oil or gas field has been approved for
development, the capitalised exploration phase expenditure
is reclassified as oil and gas assets in the statement of
financial position. Prior to reclassification, capitalised
exploration phase expenditure is assessed for impairment.
Where an ownership interest in an exploration and
evaluation asset is purchased, any cash consideration paid
net of transaction costs is treated as an asset acquisition.
Alternatively, where an ownership interest is sold, any cash
consideration received net of transaction costs is treated
as a recoupment of costs previously capitalised, with any
excess accounted for as a gain on disposal of non-current
assets.
Impairment of capitalised exploration phase expenditure
Exploration phase expenditure is reviewed for impairment
semi-annually in accordance with the requirements of AASB
6 ‘Exploration for and Evaluation of Mineral Resources’. The
carrying value of capitalised exploration phase expenditure
is assessed for impairment at the asset or cash-generating
unit level (which usually is represented by an exploration
permit or licence) whenever facts and circumstances (as
defined in AASB 6) suggest that the carrying amount of the
asset may exceed its recoverable amount. If any indication
of impairment exists, an estimate of the asset’s recoverable
amount is calculated.
An impairment loss exists when the carrying amount of
an asset or cash-generating unit exceeds its estimated
recoverable amount. The asset or cash-generating unit is
then written-down to its recoverable amount. Impairment
losses are recognised as an expense in profit or loss.
Capitalised exploration phase expenditure that
suffered impairment are tested for possible reversal
of the impairment loss whenever facts or changes in
circumstances indicate that the impairment may have
reversed.
p) Oil and gas assets
(i) Development expenditure
Development expenditure is stated at cost less
any accumulated impairment losses. Development
expenditure incurred by or on behalf of the Group is
accumulated separately for fields in which proven and
probable hydrocarbon reserves have been identified to
the satisfaction of directors. Such expenditure comprises
direct costs and overhead expenditure incurred which can
be directly attributable to the development phase or is
acquired through the acquisition of a permit.
Once a development decision has been taken on an oil or
gas field, the carrying amount of the relevant exploration
and evaluation expenditure in respect of the relevant area
of interest is aggregated with the relevant development
expenditure.
Development expenditure is reclassified as ’production
assets’ at the end of the commissioning phase, when
the oil or gas field is capable of operating in the manner
intended by management (that is, when commercial levels
of production are capable of being achieved).
Development expenditure is tested for impairment in
accordance with the accounting policy set out in Note 1(k).
Horizon Oil Annual Report 2015 70
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
(ii) Production Assets
(iv) Reserves
When further development costs are incurred in respect of
a production asset after the commencement of production,
such expenditure is carried forward as part of the
production asset when it is probable that additional future
economic benefits associated with the expenditure will flow
to the Group. Otherwise such expenditure is classified as
production expense in income statements when incurred.
Production assets are stated at cost less accumulated
amortisation and any accumulated impairment losses.
Once commercial levels of production commence,
amortisation is charged using the unit-of-production
method. The unit-of-production method results in an
amortisation expense proportional to the depletion of
proven and probable hydrocarbon reserves for the field.
Production assets are amortised by area of interest in the
proportion of actual production for the financial period
to the proven and probable hydrocarbon reserves of the
field. The proven and probable hydrocarbon reserves figure
is that estimated at the end of the financial period plus
production during the financial period.
The cost element of the unit-of-production calculation is
the capitalised costs incurred to date for the field together
with the estimated / anticipated future development
costs (stated at current financial period-end unescalated
prices) of obtaining access to all the proven and probable
hydrocarbon reserves included in the unit-of-production
calculation.
Production assets are tested for impairment in accordance
with the accounting policy set out in Note 1(k).
(iii) Restoration provision
The estimated costs of decommissioning and removing
an asset and restoring the site are included in the cost of
the asset as at the date the obligation first arises and to
the extent that it is first recognised as a provision. This
restoration asset is subsequently amortised on a unit-of-
production basis.
The corresponding provision, of an amount equivalent to
the restoration asset created, is reviewed at the end of each
reporting period. The provision is measured at the best
estimate of the present value amount required to settle the
present obligation at the end of the reporting period based
on current legal and other requirements and technology,
discounted where material using market yields at the
balance sheet date on US Treasury bonds with terms to
maturity and currencies that match, as closely as possible,
to the estimated future cash outflows.
Where there is a change in the expected restoration,
rehabilitation or decommissioning costs, an adjustment is
recorded against the carrying value of the provision and any
related restoration asset, and the effects are recognised in
profit or loss on a prospective basis over the remaining life
of the operation.
The unwinding of the effect of discounting on the
restoration provision is included within finance costs in profit
or loss.
Legislation in China requires the provision for restoration
to be paid over the remaining life of the field. As such,
payments relating to restoration provisions of US$3.2 million
are recognised as current, being due within 12 months.
The estimated reserves include those determined on
an annual basis by Mr Alan Fernie, General Manager –
Exploration and Development, Horizon Oil Limited.
Mr Fernie has thirty nine years’ relevant experience within
the sector. The reserve estimates are determined by
Mr Fernie based on assumptions, interpretations, and
assessments. These include assumptions regarding
commodity prices, foreign exchange rates, operating costs
and capital expenditures, and interpretations of geological
and geophysical models to make assessments of the
quantity of hydrocarbons and anticipated recoveries.
q) Investments and other financial assets
Subsidiaries are accounted for in the consolidated financial
statements as set out in Note 1(c).
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted
in an active market. They arise when the Group provides
money, goods or services directly to a debtor with no
intention of selling the receivable. They are included in
current assets, except for those with maturities greater than
12 months after the end of the reporting period which are
classified as non-current assets. Loans and receivables are
included in receivables in the statement of financial position.
r) Plant and equipment
The cost of improvements to or on leasehold property is
depreciated over the unexpired period of the lease or the
estimated useful life of the improvement to the Group,
whichever is shorter.
Depreciation on other assets is calculated using the
straight-line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated
useful lives, as follows:
• Computer equipment
3 – 4 years
• Furniture, fittings and equipment
3 – 10 years
• Leasehold improvement
10 years
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at the end of the reporting
period.
An asset’s carrying amount is written down immediately
to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit
or loss.
s) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year
which are unpaid. Due to their short-term nature they are
not discounted. The amounts are unsecured and are usually
paid within 30 days of recognition. They are included in
current liabilities, except for those with maturities greater
than one year after the end of the reporting period which
are classified as non-current liabilities.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
71
t) Derivatives
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.
The Group designates certain derivatives as either; (1)
hedges of the fair value of recognised assets or liabilities or
a firm commitment (fair value hedge); or (2) hedges of the
cash flows of recognised assets and liabilities and highly
probable forecast transactions (cash flow hedges). The
Group currently does not have any derivatives designated
as fair value hedges.
The Group documents at the inception of the hedging
transaction the relationship between hedging instruments
and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions have been
and will continue to be highly effective in offsetting changes
in fair values or cash flows of hedged items.
The fair values of derivative financial instruments used for
hedging purposes are disclosed in Note 20. Movements in
the hedging reserve in equity are shown in Note 26(a).
(i) Cash flow hedge
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges is recognised in equity in the hedging reserve. The
gain or loss relating to the ineffective portion is recognised
immediately in profit or loss within other income or other
expense.
Amounts accumulated in equity are recycled to profit or loss
in the periods when the hedged item will affect profit or loss
(for instance when the forecast sale that is hedged takes
place). The gain or loss relating to the effective portion
of interest rate swaps hedging variable rate borrowings
is recognised in profit or loss within “finance costs”. The
gain or loss relating to the effective portion of forward
foreign exchange contracts and commodity price contracts
hedging export sales is recognised in profit or loss within
‘sales’. However, when the forecast transaction that is
hedged results in the recognition of a non-financial asset
(for example, inventory) or a non-financial liability, the gains
and losses previously deferred in equity are transferred from
equity and included in the measurement of the initial cost or
carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated,
or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity
at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in profit or loss.
When a forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in equity is
immediately transferred to the profit or loss.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge
accounting. Changes in the fair value of any derivative
instrument that does not qualify for hedge accounting are
recognised immediately in profit or loss and are included in
other income or other expense.
u) Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of
the borrowings using the effective interest method. Fees
paid on the establishment of loan facilities which are not
an incremental cost relating to the actual drawdown of the
facility, are recognised as prepayments and amortised on a
straight line basis over the term of the facility.
The fair value of the liability portion of a convertible bond is
determined using a market interest rate for an equivalent
non-convertible bond. This amount is recorded as a liability
on an amortised cost basis until extinguished on conversion
or maturity of the bonds. The remainder of the proceeds
is allocated to the conversion right. This is recognised
and included in shareholders’ equity when the conversion
right meets the equity definition at inception. Where the
conversion right does not meet the definition of equity,
as for convertible bonds which include a cash settlement
option or conversion price resets, the conversion right
is fair valued at inception and recorded as a financial
liability. The financial liability for the conversion right is
subsequently remeasured at balance date to fair value with
gains and losses recorded in the profit or loss.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the end of the reporting
period.
v) Borrowing costs
Borrowing costs which includes the costs of arranging
and obtaining financing, incurred for the acquisition or
construction of any qualifying asset are capitalised during
the period of time that is required to complete and prepare
the asset for its intended use or sale. Other borrowing
costs are expensed when incurred.
The amount of borrowing costs incurred which were
capitalised during the financial year were interest and
associated costs of US$2,983,000 (2014: US$1,282,000)
and amortised borrowing costs of US$1,924,000 (2014:
US$1,103,000).
w) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and related on-costs expected to be
settled within 12 months of the end of the reporting period
are recognised in other payables in respect of employees’
services up to the end of the reporting period and are
measured at the amounts expected to be paid when the
liabilities are settled. The liabilities are recognised in other
creditors.
Horizon Oil Annual Report 2015 72
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
(ii) Long service leave
The liability for long service leave is recognised as a
provision for employee benefits and measured as the
present value of expected future payments to be made in
respect of services provided by employees up to the end of
the reporting period using the projected unit credit method.
Consideration is given to expected future wage and salary
levels, experience of employee departures and periods of
service. Expected future payments are discounted using
market yields at the end of the reporting period on national
government bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash
outflows.
(iii) Share-based payments
Share-based payment compensation benefits are provided
to employees and consultants via the Horizon Oil Long Term
Incentive Plan, the Horizon Oil Limited Employee Option
Scheme, the Employee Performance Incentive Plan, and the
General Option Plan. Information relating to these schemes
is set out in Note 33.
The fair value of options and share appreciation rights
(‘SARs’) granted under the Horizon Oil Long Term Incentive
Plan, Horizon Oil Limited Employee Option Scheme and
Employee Performance Incentive Plan are recognised
as an employee share-based payments expense with a
corresponding increase in equity. The total amount to be
expensed is determined by reference to the fair value of
the options and SARs granted, which includes any market
performance conditions but excludes the impact of any
service and non-market performance vesting conditions
and the impact of any non-vesting conditions. Non-market
performance vesting conditions are included in assumptions
about the number of options and SARs that are expected to
vest.
The fair value is measured at grant date. The total expense
is recognised over the vesting period, which is the period
over which all of the specified vesting conditions are to
be satisfied. At the end of each reporting period, the
Group revises its estimates of the number of options and
SARs that are expected to vest based on the non-market
performance vesting conditions. It recognises the impact of
the revision to original estimates, if any, in profit or loss, with
a corresponding adjustment to equity.
The fair value at grant date is independently determined
using either a Black-Scholes or Monte Carlo simulation
option pricing model that takes into account the exercise
price, the term of the option or SAR, 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 or SAR.
The Company has elected to retain any amounts originally
recognised in the share-based payments reserve, regardless
of whether the associated options are exercised, cancelled
or lapse unexercised.
x) Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
ordinary shares or options over unissued ordinary shares
are shown in share capital as a deduction, net of related
income tax, from the proceeds. Incremental costs directly
attributable to the issue of new shares or options for the
acquisition of a business are not included in the cost of the
acquisition as part of the purchase consideration but are
expensed.
y) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company, 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.
(ii) 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
shares assumed to have been issued for no consideration
in relation to dilutive potential ordinary shares. Potential
ordinary shares are not considered dilutive where the Group
incurs a loss per share as calculated above.
z) Goods and Services Tax (‘GST’)
Revenues, expenses and assets are recognised net of the
amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is
recognised as part of the cost of 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 taxation authority is
included with other receivables or 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
taxation authority, are presented as operating cash flow.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
73
(ii) AASB 15 ‘Revenue from Contracts with Customers’
AASB 15 ‘Revenue from Contracts with Customers’ (issued
during January 2015) is the new standard for revenue
recognition, replacing AASB 111 ‘Construction Contracts’,
AASB 118 ‘Revenue’ and AASB 1004 ‘Contributions’. It is
applicable for annual reporting periods beginning on or after
1 January 2017, with early adoption permitted. The Group
is yet to assess AASB 15’s full impact. The new standard’s
core principle is that an entity recognises revenue in
accordance with the transfer of promised goods or services
to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those
goods or services. The Group does not intend to adopt the
new standard before its operative date, which means that
it would be first applied in the financial year ending 30 June
2018.
There are no other Australian Accounting Standards that are
not yet effective and that are expected to have a material
impact on the Group in the current or future financial years
and on foreseeable future transactions.
aa) Parent entity financial information
The financial information for the parent entity, Horizon Oil
Limited, disclosed in Note 42 has been prepared on the
same basis as the consolidated financial statements, except
as set out below.
(i) Investments in subsidiaries, associates and joint
venture entities
Investments in subsidiaries, associates and joint venture
entities are accounted for at cost in the financial statements
of Horizon Oil Limited. Dividends received from associates
are recognised in the parent entity’s profit or loss, rather
than being deducted from the carrying amount of these
investments.
(ii) Financial guarantees
Where the parent entity has provided financial guarantees
in relation to loans and payables of subsidiaries for no
compensation, the fair values of these guarantees are
accounted for as contributions and recognised as part of
the cost of the investment.
bb) New Australian Accounting Standards and
interpretations
Certain new accounting standards and interpretations have
been published that are not mandatory for 30 June 2015
reporting periods. The Group’s assessment of the impact of
these new standards and interpretations is set out below:
(i) AASB 2014-3 ‘Amendments to Australian Accounting
Standards – Accounting for Acquisitions of Interests in
Joint Operations’
The AASB has amended AASB 11 ‘Joint Arrangements’. The
amendments require an investor to apply the principles
of business combination accounting when it acquires an
interest in a joint operation that constitutes a ‘business’
as defined in AASB 3 ‘Business Combinations’. The
amendments to AASB 11 will be applied prospectively
for annual periods on or after 1 January 2016. Earlier
application is permitted. The Group has interests in a
number of joint operations. The Group is yet to assess the
full impact of the amendments given it will only apply to
future potential transactions. The Group does not intend
to adopt the new standard before its operative date, which
means that it would be first applied in the financial year
ending 30 June 2017.
Horizon Oil Annual Report 2015 74
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 2. Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and
commodity price risk); credit risk; and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the
Group. The Group uses derivative financial instruments such as oil price swaps to hedge certain risk exposures. Derivatives
are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different
methods to measure the different types of risk to which it is exposed. These methods include sensitivity analysis in the
case of interest rate, foreign exchange and commodity price risks, and aging analysis for credit risk.
Risk management is carried out by the finance function under policies approved by the Board of Directors. The finance
function identifies, evaluates and if necessary hedges financial risks in close co-operation with Group management. The
board provides written principles for overall risk management, as well as written policies covering specific areas, such as
mitigating foreign exchange, interest rate and credit risks, use of derivative financial instruments and investment of excess
liquidity.
The Group has no off-balance sheet financial assets or liabilities as at the end of the reporting period.
The Group holds the following financial instruments:
Financial Assets
Cash and cash equivalents
Receivables
Derivative financial instruments
Current tax receivable
Financial Liabilities
Payables (current)
Current tax payable
Payables (non-current)
Derivative financial instruments (current and non-current)
Borrowings (net of borrowing costs capitalised)
Other financial liabilities
(a) Market risk
(i) Foreign exchange risk
Consolidated
30 June 2015
30 June 2014
US$’000
US$’000
61,343
14,580
11,399
2,091
89,413
16,781
271
15
-
194,390
7,961
219,418
98,911
15,477
-
-
114,388
35,715
1,596
54
6,157
187,446
17,024
247,992
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.
Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities
are denominated in a currency that is not the Group’s functional currency.
The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to
predominately Australian and New Zealand dollars, Chinese Renminbi and Papua New Guinea Kina.
The Group manages foreign exchange risk by monitoring forecast cash flows in currencies other than US dollars and
ensuring that adequate Australian dollar, New Zealand dollar, Chinese Renminbi and Papua New Guinea Kina cash balances
are maintained.
The objective of the Group’s foreign exchange risk management policy is to ensure its financial viability despite potential
periods of unfavourable exchange rates. Regular sensitivity analysis is conducted to evaluate the potential impact of
unfavourable exchange rates on the Group’s future financial position. The results of this evaluation are used to determine
the most appropriate risk mitigation tool to be used. The Group will hedge when it is deemed the most appropriate risk
mitigation tool to be used.
No foreign currency hedging transactions were entered into during the current or prior financial year.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
75
Exposure to foreign exchange risk
The Group’s exposure to foreign exchange risk at the end of each reporting period was as follows:
Group
30 June 2015
30 June 2014
AUD
NZD
PGK
RMB
AUD
NZD
PGK
RMB
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Cash and cash equivalents
4,401
2,600
1,009
80
608
1,658
115
Receivables
Current tax payable
Current payables
Non-current payables
676
-
1,315
15
343
271
176
-
428
-
222
-
-
-
-
-
2,786
-
3,207
42
-
1,186
464
373
-
-
586
-
3
-
-
-
-
For the financial year ended and as at 30 June 2015, if the currencies set out in the table below, strengthened or weakened
against the US dollar by the percentage shown, with all other variables held constant, net result for the financial year would
increase/(decrease) and net assets would increase/ (decrease) by:
Group
Change in currency1
Australian dollar impact
New Zealand dollar impact
Papua New Guinea kina impact
Chinese renminbi impact
Net Result
Net Assets
Net Result
Net Assets
2015
2014
2015
2014
2015
2014
2015
2014
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
+10%
+10%
+10%
+10%
(1,093)
(1,342)
14
69
(1)
116
(164)
(1,496)
270
180
88
6
10
59
51
-
-10%
1,093
(14)
(69)
-10%
1,342
(116)
164
1
1,496
-10%
(270)
(180)
(88)
(6)
-10%
(10)
(59)
(51)
-
1. This has been based on the change in the exchange rate against the US dollar in the financial years ended 30 June 2015 and 30 June 2014. The
sensitivity analysis has been based on the sensitivity rates when reporting foreign exchange risk internally to key management personnel and
represents management’s assessment of the possible change in foreign exchange rates based on historic volatility. In management’s opinion, the
sensitivity analysis is not fully representative of the inherent foreign exchange risk as the end of the reporting period exposure does not necessarily
reflect the exposure during the course of the financial year.
(ii) Commodity price risk
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
change in market commodity prices for crude oil.
The objective of the Group’s commodity price risk management policy is to ensure its financial viability despite potential
periods of unfavourable prices. Regular sensitivity analysis is conducted to evaluate the potential impact of unfavourable
prices on the Group’s future financial position. The results of this evaluation are used to determine the most appropriate
risk mitigation tool to be used. The Group will hedge when it is deemed the most appropriate risk mitigation tool to be
used or where required by its financing arrangements. During the current financial year, oil price hedging was undertaken
as a risk mitigation measure to ensure the Group’s financial position remains sound and that the Group is able to meet its
financial obligations in the event of low oil prices.
As at 30 June 2015, the Group had a US$11,398,881 derivative asset (30 June 2014: US$6,157,000 derivative liability) arising
from 397,500 bbls (30 June 2014: 842,500 bbls) of Brent oil price swaps and collars which represents approximately 3.0%
(30 June 2014: 5.6%) of its proven and probable reserves.
For the financial year ended and as at 30 June 2015, if the crude oil price rose or fell by the percentage shown, with all other
variables held constant, the result for the financial year would increase/(decrease) and net assets would increase/(decrease)
by:
Group
Net Result
Net Assets
Net Result
Net Assets
2015
2014
2015
2014
2015
2014
2015
2014
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Change in crude oil price
Impact
+10%
1,268
+10%
2,634
+10%
1,268
+10%
-10%
-10%
-10%
-10%
2,634
(1,268)
(2,634)
(1,268)
(2,634)
Horizon Oil Annual Report 2015 76
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
(iii) Interest rate risk
Interest rate risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Group has no interest-bearing assets considered to
materially expose the Group’s core income and/or operating
cash flows to changes in market interest rates.
As at 30 June 2015 and 30 June 2014, the Group’s interest
rate risk arises from long term borrowings, issued at variable
rates, exposing the Group to cash flow interest rate risk.
Group policy is to manage material interest rate exposure.
Regular sensitivity analysis is conducted to evaluate the
potential impact of unfavourable interest rate movements
on the Group’s future financial position. The results of this
evaluation are used to determine the most appropriate risk
mitigation tool to be used. During the current and prior
financial year, the Group did not enter into any interest rate
swap contracts.
The Group manages its cash flow interest rate risk by using
floating to fixed interest rate swaps. Such interest rate
swaps have the economic effect of converting borrowings
from floating to fixed rates. Under the interest rate swaps,
the Group agrees with other parties to exchange, at specific
intervals, the difference between fixed contract rates and
floating-rate interest amounts calculated by reference to
the agreed notional principal amounts.
The Group’s exposure to interest rate risk for financial instruments is set out below:
Floating interest
rate
Fixed interest rate maturing in:
Non-interest
bearing
Carrying
amount
1 year or
less
Over 1 to 2
years
Over 2 to 5
years
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
As at 30 June 2015
Financial assets
Cash and cash equivalents
53,953
Receivables
Derivative financial instruments (net)
Current tax receivable
Weighted average interest rate p.a.
Financial liabilities
Trade and other payables
Current tax payable
Borrowings
Weighted average interest rate p.a.
-
-
-
53,953
0.04%
-
-
115,115
115,115
3.70%
-
-
-
-
-
-
-
79,275
79,275
14.81%
Net financial assets/ (liabilities)
(61,162)
(79,275)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,390
14,580
11,399
2,091
35,460
16,796
271
-
17,067
61,343
14,580
11,399
2,091
89,413
16,796
271
194,390
211,457
18,393
(122,044)
Floating interest
rate
Fixed interest rate maturing in:
Non-interest
bearing
Carrying
amount
1 year or
less
Over 1 to 2
years
Over 2 to 5
years
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
As at 30 June 2014
Financial assets
Cash and cash equivalents
92,911
Receivables
Current tax receivable
Weighted average interest rate p.a.
Financial liabilities
Trade and other creditors
Derivative financial instruments (net)
Current tax payable
Borrowings
-
-
92,911
0.02%
-
-
-
115,100
115,100
Weighted average interest rate p.a.
4.07%
Net financial liabilities
(22,189)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72,346
72,346
14.81%
(72,346)
-
-
-
-
-
-
-
-
-
-
-
6,000
15,477
-
98,911
15,477
-
21,477
114,388
35,715
6,157
1,596
-
43,468
35,715
6,157
1,596
187,446
230,914
(21,991)
(116,526)
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
77
As at 30 June 2015, the Group had the following variable rate borrowings outstanding:
Bank loans
Net exposure to cash flow interest rate risk
Weighted
average
interest rate
% p.a.
3.70%
30 June 2015
Balance
US$’000
120,000
120,000
Weighted
average
interest rate
% p.a.
4.07%
30 June 2014
Balance
US$’000
119,165
119,165
At 30 June 2015, if the interest rates had been 1.0% p.a. higher or lower and all other variables held constant, the net result
for the financial year would increase/(decrease) and net assets as at 30 June 2015 would increase/(decrease) by:
Group
Net Result
Net Assets
Net Result
Net Assets
2015
2014
2015
2014
2015
2014
2015
2014
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Change in interest rate p.a.
Impact of Assets
Impact of Liabilities
Impact of Net Assets
+1%
521
849
(328)
+1%
398
900
(502)
+1%
521
849
(328)
+1%
398
900
(502)
-1%
(20)
(849)
829
-1%
(7)
(900)
893
-1%
(20)
(849)
829
-1%
(7)
(900)
893
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk refers to the risk that a counterparty will default on its contractual
obligations resulting in financial loss to the Group. Credit risk arises from cash and cash equivalents, derivative financial
instruments, as well as credit exposures to customers, including outstanding receivables.
It is acknowledged that the Group’s sales of crude oil are currently concentrated with two counterparties. However, the
Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit
history, and that the Group has the ability to sell crude to other parties if desired.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions. Where commercially
practical the Group seeks to limit the amount of credit exposure to any one financial institution.
The maximum exposure to credit risk at the end of each reporting period is the carrying amount of the financial assets as
summarised in this note.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information about counterparty default rates.
Horizon Oil Annual Report 2015 78
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Cash and cash equivalents
Counterparties with external credit rating (Standard & Poors)
AA-
Counterparties without external credit rating
Share of joint operations cash balances
Overseas financial institutions
Cash on hand
Total cash and cash equivalents
Receivables
Counterparties with external credit rating (Standard & Poors)
AAA
AA-
AA
Counterparties without external credit rating
Share of joint operation receivables balances
Joint operations partners
Related parties (partly paid ordinary shares)
Other
Total receivables
Consolidated
2015
US$’000
2014
US$’000
56,571
56,571
4,368
404
-
4,772
61,343
175
12,798
348
13,321
282
209
331
437
1,259
14,580
94,132
94,132
4,683
95
1
4,779
98,911
276
-
-
276
1,955
9,450
1,112
2,684
15,201
15,477
As at 30 June 2015, there were US$291,767 (30 June 2014: US$Nil) financial assets that are past due. Management has
assessed the collectability of these amounts based on the customer relationships and historical payment behaviour and
believe that the amounts are still collectible in full.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
The Group has policies in place to manage liquidity risk by maintaining adequate reserves and by continuously monitoring
forecast and actual cash flows and matching profiles of financial assets and liabilities.
Financing arrangements
The Group had access to the following undrawn borrowing facilities as at the end of each reporting period:
Floating rate:
Expiring within one year
Expiring beyond one year
Consolidated
30 June 2015
30 June 2014
US$’000
US$’000
-
-
30,835
-
The Revolving Cash Advance Facility executed in May 2015 includes the potential for additional debt capacity under an
accordion tranche of up to US$50 million (subject to debt capacity criteria and lender approval).
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
79
Maturities of financial liabilities
An analysis of the Group’s financial liability maturities for the current and prior financial year is set out below:
As at 30 June 2015
Less than 6 months
6 – 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Non-interest
bearing
US$’000
Variable
rate
US$’000
Fixed
rate
Derivatives
(net)
US$’000
US$’000
17,052
-
-
15
-
1,963
19,688
29,427
79,327
-
2,200
89,240
-
-
-
-
-
-
-
-
-
Total contractual cash flows
17,067
130,405
91,440
As at 30 June 2014
Less than 6 months
6 – 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Non-interest
bearing
US$’000
Variable
rate
US$’000
Fixed
rate
Derivatives
(net)
US$’000
US$’000
43,426
-
-
42
-
11,576
36,877
22,013
57,178
-
2,200
2,200
91,440
-
-
3,416
2,519
222
-
-
Total contractual cash flows
43,468
127,644
95,840
6,157
d) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for
disclosure purposes.
AASB 7 ‘Financial Instruments: Disclosures’ requires disclosure of fair value measurements by level of the following fair
value measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices) (level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
The following table presents the Group’s assets and liabilities measured and recognised at fair value as at 30 June 2015
and 30 June 2014:
As at 30 June 2015
Assets
Derivatives used for hedging
Total Assets
Liabilities
Derivatives used for hedging
Financial liabilities at fair value through profit or loss
Conversion rights on convertible bonds
Total liabilities
Level 1
US$’000
-
-
-
-
-
Level 2
US$’000
11,399
11,399
-
-
-
Level 3
US$’000
-
-
-
7,961
7,961
Total
US$’000
11,399
11,399
-
7,961
7,961
Horizon Oil Annual Report 2015 80
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
As at 30 June 2014
Assets
Derivatives used for hedging
Total Assets
Liabilities
Derivatives used for hedging
Financial liabilities at fair value through profit or loss
Conversion rights on convertible bonds
Total liabilities
The fair value of financial instruments traded in active
markets (such as publicly traded derivatives) was based on
quoted market prices at the end of each reporting period.
The quoted market price used for financial assets held by
the Group was the current bid price. These instruments are
included in level 1.
The fair value of financial instruments that are not traded in
an active market (for example, over-the-counter derivatives)
is determined using valuation techniques. These valuation
techniques maximise the use of observable market data
where it is available and rely as little as possible on entity
specific estimate. If all significant inputs required to fair
value an instrument are observable, the instrument is
included in level 2.
If one or more of the significant inputs is not based on
observable market data, the instrument is included in
level 3.
Specific valuation techniques used to value financial
instruments include:
• the fair value of oil price swaps is calculated as the present
value of the estimated future cash flows based on forward
prices at balance sheet date;
• the fair value of interest rate swaps is calculated as the
present value of the estimated future cash flows based on
observable yield curves; and
• other techniques, such as discounted cash flow analysis
and Monte Carlo simulations, are used to determine fair
value for the remaining financial instruments.
The fair value of conversion rights on convertible bonds
is determined based on a simulation-based pricing
methodology using a Monte Carlo simulation. A simulation-
based pricing methodology was applied in order to model
the dynamics of the underlying variables and to account for
the individual specifications of the convertible bonds such
as the inherent path dependency. Monte Carlo simulation
uses random numbers as inputs to iteratively evaluate a
deterministic model. The method involves simulating the
various sources of uncertainty that affect the value of the
relevant instrument and then calculating a representative
value by substituting a range of values – in this case a
lognormal probability distribution – for any factor that has
inherent uncertainty. The results are calculated repeatedly,
each time using a different set of random values from the
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
-
-
-
-
-
-
-
6,157
-
-
-
-
17,024
-
-
6,157
17,024
6,157
17,024
23,181
probability functions. Depending upon the number of
uncertainties and the ranges specified for them, a Monte
Carlo simulation may typically involve thousands or tens
of thousands (for Horizon Oil convertible bonds - 100,000)
of recalculations before it is complete. The result is a
probability distribution of possible outcomes providing
a more comprehensive view of both what could happen
and its likelihood. Market interest rates were applied in
the model with a credit spread of 7.0%, together with a
calculated share price volatility of 58.8% when quoted in
US dollar terms. All other parameters were based on the
specific terms of the convertible bonds issued.
The carrying value of receivables and payables are assumed
to approximate their fair values due to their short-term
nature.
The fair value of other financial liabilities (being financial
guarantees), after factoring in the likelihood that the parent
entity would be required to perform under the guarantees
the fair value of the liability, was not considered material.
The fair value of borrowings for disclosure purposes is not
materially different to their carrying value given the likely
anticipated repayment profile.
The fair value of other classes of financial instruments not
yet covered above were determined to approximate their
carrying value.
(d) Capital risk
The consolidated entity manages its capital to ensure that
entities in the consolidated group will be able to continue as
a going concern while maximising the return to stakeholders
through the optimisation of the debt and equity balances.
Horizon Oil Annual Report 2015 Note 3. Critical accounting estimates and
judgements
Estimates and judgements which are continually evaluated
and are based on historical experience and other factors,
including expectations of future events that may have a
financial impact on the Group and that are believed to be
reasonable under the circumstances.
(a) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The
most significant estimates and assumptions that have a
significant risk of causing a material adjustment to the
carrying amount of assets and liabilities relate to:
(i) Exploration and evaluation assets
The Group’s policy for exploration and evaluation
expenditure is discussed in Note 1(o). The application of this
policy requires management to make certain estimates and
assumptions as to future events and circumstances. These
estimates and assumptions include whether commercially
viable reserves have been found and whether the
capitalised exploration and evaluation expenditure will be
recovered through future exploitation or sale. The carrying
amount of exploration and evaluation assets has been
disclosed in Note 16.
(ii) Reserve estimates
The estimated quantities of proven and probable
hydrocarbons reported by the Group are integral to
the calculation of amortisation expense (depletion),
assessments of impairment of assets, provision for
restoration and the recognition of deferred tax assets
due to changes in expected future cash flows. Reserve
estimates require interpretation of complex and
judgemental geological and geophysical models in order to
make an assessment of the size, shape, depth and quality
of reservoir, and their anticipated recoveries. The economic,
geological and technical factors used to estimate reserves
may change from period to period. Reserve estimates are
prepared in accordance with guidelines prepared by the
Society of Petroleum Engineers.
(iii) Provisions for restoration
The Group estimates the future removal and restoration
costs of petroleum production facilities, wells, pipelines and
related assets at the time of installation of the assets and
reviews these assessments periodically. In most instances
the removal of these assets will occur well into the future.
The estimate of future removal costs therefore requires
management to make judgements around the timing of the
required restoration, rehabilitation and decommissioning,
as well as, the discount rate. The carrying amount of the
provision for restoration is disclosed in Note 24.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
81
(iv) Impairment of oil and gas assets
The Group assesses whether its oil and gas assets
are impaired on a semi-annual basis. This requires
an estimation of the recoverable amount of the cash
generating unit to which each asset belongs. The
recoverable amount of an asset is the higher of its fair value
less cost to sell and value in use. The fair value less cost to
sell is assessed on the basis of the estimated net cash flows
that will be received from the asset’s continued employment
and subsequent disposal. The estimated future cash flows
are based on estimates of hydrocarbon reserves, future
production profiles, commodity prices, operating costs and
future development costs necessary to access the reserves.
The estimated future cash flows are discounted back to
today’s dollars to obtain the value in use amount using an
after-tax discount rate of between 9% and 12% to take into
account risks which have not already been adjusted for in
the cash flows.
(v) Share-based payments
Share-based payment transactions with directors and
employees are measured by reference to the fair value of the
share performance rights or options at the date they were
granted. The fair value is ascertained using an appropriate
pricing model either Black-Scholes or Monte Carlo simulation
depending on the terms and conditions upon which the
share performance rights or options were granted. The
Group also applies assumptions around the likelihood of
the share performance rights or options vesting which will
have an impact on the expense and equity recorded in the
financial year. The number of share performance rights and
options outstanding are disclosed in Note 33.
(vi) Recoverability of deferred tax assets
The recoverability of deferred tax assets is based on the
probability that future taxable amounts will be available to
utilise those temporary differences and losses. The Group
has not recognised deferred tax assets in respect of some
tax losses and temporary tax differences as the future
utilisation of these losses and temporary tax differences is
not considered probable at this point in time. Assessing the
future utilisation of tax losses and temporary tax differences
requires the Group to make significant estimates related
to expectations of future taxable income. Estimates of
future taxable income are based on forecast cash flows
from operations and the application of existing tax laws.
To the extent that future utilisation of these tax losses
and temporary tax differences becomes probable, this
could result in significant changes to deferred tax assets
recognised, which would in turn impact future financial
results. During the current year, tax losses and temporary
tax differences in Australia, New Zealand and PNG have
been recognised as deferred tax assets on the basis that it
is expected the operations will generate sufficient taxable
earnings to fully utilise those losses. In Australia, the
assessment of future taxable income to support utilisation of
tax losses is based on taxable income generated during 2015
and a short-term forecast showing taxable income expected
to be generated in future years. In PNG, the assessment
of future taxable income to support the temporary tax
differences in relation to Allowable Exploration Expenditure
is based on the award of the Stanley PDL in May 2014 and
expectation of future production. In New Zealand, the
assessment of future taxable income to support utilisation
of tax losses is based on the Maari production following the
completion of the Maari Growth Project.
Horizon Oil Annual Report 2015 82
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
(vii) Borrowings
In May 2015, the Group finalised and executed a US$120
million Revolving Cash Advance Facility to refinance the
Group’s existing Reserves Based Debt Facility and was
therefore required to assess whether the refinancing
represented a debt modification or debt extinguishment. In
making this determination, the Group had regard, amongst
other things, to the continuation of the banking relationship
with ANZ as mandated lead arranger, agent and fronting
bank under both facilities, and to the nature of the changes
to the terms of the facility which were assessed through a
quantitative assessment. The Group concluded that there
was a debt modification, and the US$1.9 million of additional
fees incurred were capitalised and are being amortised
through interest expense over the remaining tenor of the
facility.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the reporting period in which the estimate
is revised if the revision affects only that period or in the
period of the revision and future periods if the revision
affects both the current and future reporting period.
(c) Assumptions on funding
The Group has a working capital deficit of
US$31.8 million at 30 June 2015 resulting from the
reclassification of borrowings associated with the
US$80 million, 5.5% convertible bonds to current liabilities at
balance date as they are due for redemption in June 2016.
Funding for the Group’s strategic growth plans and
redemption of the bonds is to be sourced from a variety
of sources. Surplus revenues from the Group’s operations
in China and New Zealand, combined with debt drawn
from the Group’s US$120 million revolving cash advance
facility provide core funding. In addition, the Revolving
Cash Advance Facility, provided by ANZ and Westpac,
incorporates an additional US$50 million “accordion”
tranche to accommodate, if required, working capital and
redemption of the US$80 million, 5.5% convertible bonds
in June 2016, subject to debt capacity criteria and lender
approvals.
Taking into account:
• the Group’s cash balance of US$61.3 million at 30 June
2015;
(b) Critical judgements in applying the Group’s
• forecast surplus revenue from the Group’s operations in
accounting policies
New Zealand and China;
No critical judgements are considered to have a significant
risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial
year were made during the preparation of this report.
• materially reduced budgeted/forecast capital expenditure
profile over the coming 12 months;
• deferral of scheduled amortisation under the recently
executed Revolving Cash Advance Facility; and
• to the extent required, the potential for additional debt
capacity under the “accordion” tranche of the Revolving
Cash Advance Facility (maximum additional debt of
US$50 million).
The Company expects to have available the necessary
cash reserves to meet redemption obligations under the
Company’s US$80 million, 5.5% convertible bonds maturing
in mid-2016, and to pursue the current strategy. Should
the full amount of the forecast internally generated cash
flow and capital required to pursue the strategy not be
raised, the directors expect that the Group would be able
to adopt a modified strategy and would be able to secure
the necessary financing through one or a combination
of, additional borrowings or asset sales; or deferring
discretionary exploration and development activities.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
83
Note 4. Segment information
(a) Description of segments
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker has
been identified as the Board of Directors.
The operating segments identified are broadly based on
the Group’s working interest in each individual oil and gas
permit, arranged by developmental phase. Discrete pre-
tax financial information (including pre-tax operating profit
and capital expenditure on exploration and evaluation
assets and oil and gas assets) for each oil and gas permit
is prepared and provided to the chief operating decision
maker on a regular basis. In certain circumstances,
individual oil and gas permits are aggregated into a single
operating segment where the economic characteristics and
long-term planning and operational considerations of the
individual oil and gas permits are such they are considered
interdependent. The Group has identified five operating
segments:
• New Zealand development – the Group is currently
producing crude oil from the Maari/Manaia fields, located
offshore New Zealand;
• New Zealand exploration – the Group is currently involved
in the exploration and evaluation of hydrocarbons in two
offshore permit areas: PEP 51313; and PMP 38160 Maari/
Manaia;
• China exploration and development – the Group is
currently involved in developing and producing of crude
oil from the Block 22/12 – WZ 6-12 and WZ 12-8W oil field
development and in the exploration and evaluation of
hydrocarbons within Block 22/12;
• PNG exploration and development - the Group is currently
involved in the Stanley condensate/gas development, and
the exploration and evaluation of hydrocarbons in five
onshore permit areas – PRL 21, PPL 259, PPL 372, PPL 373
and PPL 430; and
• ‘All other segments’ include amounts of a corporate nature
not specifically attributable to an operating segment.
(b) Segment information provided to the chief operating decision maker
New Zealand
Development
New Zealand
Exploration
China
Exploration
and
Development
Papua New
Guinea
Exploration
and
Development
All other
segments
Total
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
33,447
15,993
9,023
-
70,503
-
-
103,950
(12)
-
16,129
28,074
(15,556)
(13,399)
443
239
3,155
37,779
2015
Segment revenue:
Revenue from external
customers
Profit (loss) before tax
Depreciation and amortisation
Total segment assets as at
30 June 2015
135,656
5,207
166,170
176,767
39,539
523,339
Additions to non-current assets
other than financial assets and
deferred tax during the financial
year ended:
Exploration phase expenditure:
Development and production
phase expenditure:
Plant and equipment:
Total segment liabilities as at
-
21,295
-
92
-
-
8,179
1,116
26,116
21,025
-
-
34,387
43,436
-
48
143
191
30 June 2015
80,225
238
92,246
5,022
89,291
267,022
Horizon Oil Annual Report 2015 84
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
New Zealand
Development
New Zealand
Exploration
China
Exploration
and
Development
Papua New
Guinea
Exploration
and
Development
All other
segments
Total
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
19,722
(6,341)
3,622
-
(3,949)
-
118,728
34,340
35,775
-
-
138,450
(1,557)
(16,710)
464
173
5,783
40,034
2014
Segment revenue:
Revenue from external customers
Profit (loss) before tax
Depreciation and amortisation
Total segment assets as at
30 June 2014
104,424
5,100
187,414
210,998
6,967
514,903
Additions to non-current assets
other than financial assets and
deferred tax during the financial
year ended:
Exploration phase expenditure:
Development and production
phase expenditure:
Plant and equipment:
Total segment liabilities as at
-
17,412
-
4,765
-
-
5,564
17,179
26,706
25,212
-
-
37,035
59,803
-
159
719
878
30 June 2014
78,016
2,228
102,873
13,754
95,466
292,337
(c) Other segment information
(i) Segment revenue
The Group’s revenue is derived from the sale of crude oil produced in China and New Zealand. The Group sells to external
customers through back-to back sales agreements with the respective joint venture operators.
Segment revenue reconciles to total consolidated revenue as follows:
Total segment revenue
Rental income
Proceeds from insurance claims
Interest income
Profit from sale of assets
Other non-operating income
Total revenue
(ii) Segment profit before tax
Consolidated
2015
US$’000
103,950
-
6,600
146
-
96
2014
US$’000
138,450
5
-
229
23,830
-
110,792
162,514
The chief operating decision maker assesses the performance of operating segments based on a measure of profit
before tax.
Segment profit before tax reconciles to consolidated profit before tax as follows:
Total segment profit before tax
Rental income
Proceeds from insurance claims
Interest income
Profit from sale of assets
Other non-operating income
Unrealised movement in value of convertible bond conversion rights
Net foreign exchange (losses)
Profit before tax
Consolidated
2015
US$’000
3,155
-
6,600
146
-
96
9,063
(1,309)
17,751
2014
US$’000
5,783
5
-
229
23,830
-
412
(232)
30,027
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
85
(iii) Segment assets
(iv) Segment liabilities
The amounts provided to the chief operating decision maker
with respect to total assets are measured in a manner
consistent with that of the financial statements.
The amounts provided to the chief operating decision maker
with respect to total liabilities are measured in a manner
consistent with that of the financial statements.
Reportable segment assets are equal to consolidated total
assets.
Reportable segment liabilities are equal to consolidated
total liabilities.
Note 5. Sale of Assets
Sale of Partial Interest in PNG Assets to Osaka Gas
On 23 May 2013, the Group entered into an asset sale agreement (the ‘Agreement’) to sell 40% of its Papua New Guinea
assets to Osaka Gas Niugini Pty Ltd (‘Osaka Gas’) a subsidiary of Osaka Gas Co. Ltd. of Japan with effect from 1 January
2013. Completion of the Agreement occurred on 12 June 2014 following receipt of all necessary consents, regulatory
approvals and grant of the development licence for the Stanley field. Refer to Note 35 for further details.
The profit on sale recorded at completion is detailed as follows:
Consideration on sale of assets
Deposit on execution of agreement
Remaining consideration received on completion
Reimbursement of costs to effective sale date paid on completion
Reimbursement of costs to effective sale date receivable at completion
Total cash received/receivable at completion
Less:
Reimbursement of costs to effective sale date
Exploration and oil and gas assets disposed
Transaction costs
Profit from sale of assets
1. Refundable deposit received on execution of asset sale agreement in May 2013.
Note 6. Revenue
From continuing operations
Crude oil sales
Net realised gain/(loss) on oil hedging derivatives
Other income
Insurance claim income1
Other operating income
Interest received from unrelated entities
Rental income received from unrelated entities
Gains – Conversion rights on convertible bonds2
Unrealised movement in fair value of convertible bond conversion rights
Consolidated
2015
US$’000
2014
US$’000
-
-
-
-
-
-
-
-
-
-
20,4001
53,600
74,000
23,242
1,205
98,447
(24,447)
(48,523)
(1,647)
23,830
Consolidated
2015
US$’000
2014
US$’000
83,683
20,267
103,950
144,329
(5,879)
138,450
6,600
96
146
-
6,842
9,063
-
-
229
5
234
412
1. Insurance claims for repair costs associated with FPSO mooring and swivel were deemed virtually certain of receipt following acceptance of the
claim by the underwriters and part payment of US$2.1 million has been received up to 30 June 2015. Refer to Note 35 for further details of the
insurance claim.
2. The amount shown is the movement during the financial year of the fair value of the conversion rights relating to the 5.5% convertible bonds issued
on 17 June 2011. The conversion rights can be settled in cash or ordinary shares of the parent entity, at the option of the issuer, and the number
of shares to be issued at conversion is subject to the conversion price which may reset under certain circumstances. Accordingly, the conversion
rights are a derivative financial liability and are marked to market through the profit and loss. Fair value of conversion rights at issuance on 17 June
2011 was US$20,043,000. Refer to Note 22 for further details of the convertible bonds issued.
Horizon Oil Annual Report 2015
86
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 7. Expenses
Cost of sales
Direct production costs
Inventory adjustments1
Amortisation expense
Royalties and other levies2
1. Includes production overlift/underlift and inventory adjustments
2. Includes Chinese special oil income levy
General and administrative expenses
Employee benefits expense (net)
Corporate office expense
Insurance expense
Depreciation expense
Rental expense relating to operating leases
Exploration and development expenses
Exploration and development expenditure written off/expensed
Financing costs
Interest and finance charges
Discount unwinding on provision for restoration
Amortisation of prepaid financing costs
Other expenses
Net foreign exchange losses
Other expenses
1. The Company over accrued for costs associated with the proposed merger with Roc Oil in the prior year.
Consolidated
2015
US$’000
2014
US$’000
19,641
(1,181)
37,096
4,414
59,970
3,383
685
1,950
683
868
7,569
16,222
16,222
15,075
416
1,869
17,360
30,987
75
39,397
22,257
92,716
3,842
703
1,942
637
1,059
8,183
10,520
10,520
14,839
806
3,254
18,899
Consolidated
2015
US$’000
2014
US$’000
1,309
(326)1
983
233
2,348
2,581
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
87
Note 8. Income tax expense
(a) Royalty tax expense (benefit)
Royalty paid/payable in New Zealand – current tax expense
Tax expense (benefit) related to movements in deferred tax balances
Total royalty tax expense (benefit)
(b) Income tax expense
Current tax expense
Tax expense (benefit) related to movements in deferred tax balances
Adjustments for current tax of prior periods
Total income tax expense (benefit)
Income tax expense (benefit) is attributable to:
Profit from continuing operations
Profit from discontinued operations
Aggregate income tax expense (benefit)
Deferred income tax (benefit) expense included in income tax expense comprises:
Decrease (increase) in deferred tax assets
(Decrease) increase in deferred tax liabilities
(c) Numerical reconciliation between profit before tax and tax expense (benefit)
Profit from continuing operations before income tax
Less: Royalty paid/payable
Consolidated
2015
US$’000
2014
US$’000
1,028
3,271
4,299
51
(2,990)
(1,916)
(4,855)
(4,855)
-
(4,855)
(8,859)
5,869
(2,990)
17,751
(1,028)
16,722
599
(861)
(262)
6,722
9,039
1,698
17,459
17,459
-
17,459
5,525
3,514
9,039
30,027
(599)
29,428
Tax at the Australian tax rate of 30% (2014: 30%)
5,017
8,828
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Expenditure not allowed for income tax purposes
Other deductible items
Non-assessable income
Effect of overseas tax rates
Deferred tax asset not brought to account
Previously unrecognised tax losses now recognised to reduce deferred tax expense
Previously unrecognised tax losses now recouped to reduce current tax expense
Adjustments for current tax of prior periods
Income tax expense (benefit)
Royalty tax expense (benefit)
Total tax expense (benefit) recognised in statement of profit or loss
8,429
(8,825)
(2,597)
2,024
(1,668)
3,649
(6,143)
(801)
(1,916)
(4,855)
4,299
(556)
4,122
87
(7,383)
5,654
291
9,816
-
-
1,698
17,459
(262)
17,197
Horizon Oil Annual Report 2015
88
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Consolidated
2015
US$’000
2014
US$’000
(d) Amounts recognised in other comprehensive income
Aggregate deferred tax arising in the reporting period and not recognised in net profit
or loss but directly debited to other comprehensive income.
Deferred tax: Changes in fair value of cash flow hedges
Total tax expense recognised in other comprehensive income
3,162
3,162
-
-
(e) Tax losses
Unused tax losses (and applicable tax rate) for which no deferred tax asset has been
recognised:
Horizon Oil Limited – 30% (2014: 30%)
Horizon Oil (USA) Inc. and other US entities – 34% (2014: 34%)
Horizon Oil (Papua) Limited and other PNG entities – 45% / 30%
(2014: 45% / 30%)
Potential tax benefit at applicable tax rates
-
10,615
-
10,615
3,609
27,648
10,615
7,041
45,304
15,072
The Company has no Australian subsidiaries and therefore it is not subject to the Australian tax consolidation regime.
Note 9. Current assets – Cash and cash equivalents
Cash at bank and on hand
Restricted cash (refer note (a) below)
Petty cash
Consolidated
2015
US$’000
2014
US$’000
41,279
20,064
-
61,343
81,161
17,749
1
98,911
(a) Under the terms of our finance facility (refer to Note 21), certain cash balances are available to the Group after certain conditions of the relevant
facility agreement are satisfied. The restricted cash balance was held on deposit at average floating interest rates of approximately 0.00% pa
(2014: 0.00%).
Note 10. Current assets – Receivables
Other receivables (refer to note (a) below)
Consolidated
2015
US$’000
2014
US$’000
14,580
14,580
15,477
15,477
(a) Of this balance US$331,339 (2014: US$1,355,821) related to amounts receivable from related parties. Refer to Note 32 for further details.
Information about the Company’s exposure to credit and market risks, and collectability of overdue amounts, is included in
Note 2(b).
Note 11. Inventories
Crude oil, at cost
Drilling inventory, at cost
Consolidated
2015
US$’000
2014
US$’000
2,186
2,721
4,907
1,004
4,277
5,281
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
89
Consolidated
2015
US$’000
2014
US$’000
2,091
2,091
-
-
Consolidated
2015
US$’000
2014
US$’000
1,435
1,435
1,674
1,674
Consolidated
2015
US$’000
2014
US$’000
5,135
5,022
1,008
11,165
-
11,165
1,880
-
426
2,306
-
2,306
Total
$US’000
2,306
8,859
11,165
Total
$US’000
12,455
(10,149)
2,306
Tax Losses
US$’000
1,880
3,255
5,135
Tax Losses
US$’000
12,076
(10,196)
1,880
Development
expenditure
US$’000
Provisions and
other
US$’000
-
5,022
5,022
426
582
1,008
Development
expenditure
US$’000
Provisions and
other
US$’000
-
-
-
379
47
426
Note 12. Current tax receivable
Income tax – China
Note 13. Current – Other assets
Prepayments
Note 14. Non-current assets – Deferred tax assets
Recognised deferred tax assets are attributable to:
Tax losses
Development expenditure
Provisions and other
Total deferred tax assets
Set off of deferred tax liabilities pursuant to set off provisions
Net deferred tax assets
2015
Movements
At 1 July 2014
(Charged)/credited -to profit or loss
At 30 June 2015
2014
Movements
At 1 July 2013
(Charged)/credited - to profit or loss
At 30 June 2014
Horizon Oil Annual Report 2015
90
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 15. Non-current assets – Plant and equipment
As at 1 July 2013
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2014
Opening net book amount
Additions
Disposals
Depreciation expense
Closing net book amount
As at 30 June 2014
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2015
Opening net book amount
Additions
Disposals
Depreciation expense
Closing net book amount
As at 30 June 2015
Cost
Accumulated depreciation
Net book amount
Consolidated
Other plant
and equipment
Leasehold
improvements
Total
US$’000
US$’000
US$’000
3,509
(1,272)
2,237
2,237
177
(754)
(347)
1,313
2,749
(1,436)
1,313
6,624
(655)
5,969
5,969
659
(2,094)
(289)
4,245
4,928
(683)
4,245
Consolidated
Other plant
and equipment
Leasehold
improvements
10,133
(1,927)
8,206
8,206
836
(2,848)
(636)
5,558
7,677
(2,119)
5,558
Total
US$’000
US$’000
US$’000
1,313
154
(1)
(414)
1,052
2,846
(1,794)
1,052
4,245
37
-
(269)
4,013
4,965
(952)
4,013
5,558
191
(1)
(683)
5,065
7,811
(2,746)
5,065
Note 16. Non-current assets – Exploration phase expenditure
Exploration phase expenditure
Deferred geological, geophysical, drilling and other exploration and evaluation
expenditure
The reconciliation of exploration phase expenditure carried forward above
is as follows:
Balance at beginning of financial year
Expenditure incurred during financial year
Transferred to development phase
Disposals during the financial year
Expenditure written off during financial year
Balance at end of financial year
Consolidated
2015
US$’000
2014
US$’000
96,959
74,658
74,658
34,387
-
-
(12,086)
96,959
92,538
37,035
(5,733)
(39,949)
(9,233)
74,658
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
91
Note 17. Non-current assets – Oil & gas assets
Development and production phase expenditure
Producing oil and gas property acquisition, deferred geological, seismic and drilling,
production and distribution facilities and other development expenditure
Disposals during the financial year
Less accumulated amortisation
Consolidated
2015
US$’000
2014
US$’000
432,390
424,675
-
(117,995)
314,395
(32,738)
(80,899)
311,038
The reconciliation of development and production phase expenditure carried forward above is as follows:
Balance at 1 July 2013
Expenditure incurred during financial year
Transferred from exploration phase
Transferred from development phase
Transfer to production phase
Amortisation incurred
Disposals during the financial year
Balance at 30 June 2014
Transferred from development phase
Transfer to production phase
Reassessment of rehabilitation asset
Amortisation incurred
Expenditure incurred during financial year
Oil and gas asset expense1
Balance at 30 June 2015
Development
phase
expenditure
US$’000
215,284
28,604
5,733
Consolidated
Production
phase
expenditure
US$’000
102,353
31,199
-
-
156,213
(156,213)
-
-
(39,397)
(32,738)
60,670
(9,125)
-
-
-
21,025
-
72,570
-
250,368
-
9,125
640
(37,096)
22,411
(3,623)
241,825
Total
US$’000
317,637
59,803
5,733
156,213
(156,213)
(39,397)
(32,738)
311,038
(9,125)
9,125
640
(37,096)
43,436
(3,623)
314,395
1. Relates to expenditure on proposed production wells in the Maari field in New Zealand, a decision was made during the financial year not to
proceed with the drilling of these wells.
Note 18. Current liabilities – Payables
Trade creditors
Share of joint operation creditors and accruals
Other creditors
Note 19. Deferred Income
Deferred income
Consolidated
2015
US$’000
2014
US$’000
1,722
10,472
4,587
16,781
7,409
17,745
10,561
35,715
Consolidated
2015
US$’000
2014
US$’000
2,212
2,212
-
-
Horizon Oil Annual Report 2015
92
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 20. Derivative financial instruments
Current:
Derivative asset - Oil price swaps – cash flow hedges
Derivative liability - Oil price swaps – cash flow hedges
Non-current:
Derivative asset - Oil price swaps – cash flow hedges
Derivative liability - Oil price swaps – cash flow hedges
Consolidated
2015
US$’000
2014
US$’000
11,399
-
11,399
-
-
-
-
(5,935)
(5,935)
-
(222)
(222)
Net derivative (liability) asset
11,399
(6,157)
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to oil
price fluctuations in accordance with the Group’s financial risk management policies (refer to Note 2(a)(ii)).
Oil price swap contracts (cash flow hedges)
During the financial year, oil price hedging was undertaken as a risk mitigation measure to ensure the Group’s financial
position remains sound and that the Group is able to meet its financial obligations in the event of low oil prices. As at
30 June 2015, the Group’s oil hedge position was summarised as follows:
Crude oil price swap contracts
Volume (bbls)
Weighted average Brent oil price (net of credit margin) (US$/bbl)
As at 30 June 2014, the Group’s oil hedge position was summarised as follows:
Crude oil price swap contracts
Volume (bbls)
Weighted average Brent oil price (net of credit margin) (US$/bbl)
2016
397,500
94.77
2015
805,000
99.59
2017
-
-
2016
37,500
97.56
Total
397,500
94.77
Total
842,500
99.5
The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the
extent that the hedge is effective, and re-classified into profit or loss when the hedged oil price transaction is recognised.
The ineffective portion is recognised in profit or loss immediately. During the financial year, US$20,267,000 (2014:
US$5,879,000) was transferred to profit or loss.
Note 21. Borrowings
Current:
Bank loans
Convertible Bonds
Non-current:
Bank loans
Convertible Bonds
Total Borrowings
Consolidated
2015
US$’000
2014
US$’000
17,829
79,275
97,104
97,286
-
97,286
194,390
44,165
-
44,165
70,935
72,346
143,281
187,446
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
93
Bank loans – Revolving Cash Advance Facility
Convertible Bonds
On 14 May 2015, the Group finalised and executed a US$120
million Revolving Cash Advance Facility with Australia
and New Zealand Banking Group (ANZ) as mandated lead
arranger and Westpac Banking Corporation (Westpac).
The facility retains key elements of the previous Reserves
Based Debt Facility, with key changes including the removal
of the forced repayment schedule, additional tenor to
May 2019 and access to a new accordion tranche of up to
US$50 million (subject to debt capacity criteria and lender
approvals). Under the facility, the facility limit and thus
future repayments are determined by applying a minimum
loan life coverage ratio to the net present value of estimated
future cash flows from all projects included in the facility.
At 30 June 2015, total debt drawn under the facility was
US$120 million and floating interest in respect of the facility
was at LIBOR plus a weighted average margin of 2.90%.
The facility was secured by a floating charge over the shares
and assets of the borrowers (Horizon Oil International
Limited, Horizon Oil (Papua) Limited, Horizon Oil (Beibu)
Limited and Horizon Oil (Nanhai) LLC which are wholly
owned subsidiaries of Horizon Oil Limited) and other Horizon
Oil Limited subsidiaries, in favour of ANZ Fiduciary Services
Pty Limited as security trustee. Horizon Oil Limited and
other Horizon Oil Limited subsidiaries have guaranteed the
performance of Horizon Oil International Limited, Horizon
Oil (Papua) Limited, Horizon Oil (Beibu) Limited, Horizon Oil
(Nanhai) LLC (which have also given guarantees) in relation
to the loan facility from ANZ and Westpac. In addition, the
shares of the following Horizon Oil Limited subsidiaries have
been mortgaged to ANZ Fiduciary Services Pty Limited:
Horizon Oil International Limited, Horizon Oil (Papua)
Limited, Horizon Oil (Beibu) Limited, Horizon Oil (Nanhai) LLC,
Horizon Oil International Holdings Limited, Ketu Petroleum
Limited, Horizon Oil (PNG Holdings) Limited and Horizon Oil
(China Holdings) Limited. The net book value of the entities
in which shares have been mortgaged is US$129 million.
The Group is subject to covenants which are common for a
facility of this nature.
The parent entity issued 400 5.5% convertible bonds for
US$80 million on 17 June 2011. The bonds were issued
with an initial conversion price of US$0.52, equivalent to
A$0.49 based on exchange rates at the time of pricing,
and represents a conversion premium of 29% to Horizon
Oil Limited’s last closing price of A$0.38 on 2 June 2011.
The initial conversion price was subject to adjustment in
certain circumstances. Where the arithmetical average of
the volume weighted average prices (‘Average VWAP’) for
the 20 consecutive dealing days immediately prior to each
of 17 June 2013, 17 June 2014 and 17 June 2015 (each a
’Reset Date’) converted into US dollars at the prevailing
rate on each such dealing day (each an ‘Average Market
Price’) is less than the conversion price on the Reset Date,
the conversion price will be adjusted on the relevant Reset
Date to the Average Market Price with respect to such
Reset Date. Any adjustment as a result of such provisions
is limited so that the conversion price can be no lower
than 80% of the initial conversion price of US$0.520, that is
US$0.416. The Average VWAP in the relevant period to
17 June 2013 was US$0.374. Accordingly, the conversion
price of the convertible bonds had been adjusted to
US$0.416 with effect from 17 June 2013. The issuance
of ordinary shares in the prior financial year under the
Entitlement Offer resulted in a further adjustment to the
conversion price from US$0.416 to US$0.409.
No bonds had been converted at 30 June 2015. On
conversion the holder may elect to settle the bonds in
cash or ordinary shares in the parent entity. Based on the
adjusted conversion price, the maximum number of shares
that could be issued on conversion is 195,599,022 ordinary
shares in the parent entity. The bonds carry a coupon of
5.5% per annum, payable semi-annually in arrears, and carry
a 7% yield to maturity on 17 June 2016 when they will be
redeemed at 108.80% of their principal amount.
Face value of bonds issued
Less: Other financial liabilities – value of conversion rights (Note 21)
Less: Transaction costs
Finance costs in prior periods1
Finance costs1
Less: Coupon paid in prior periods
Less: Coupon paid during the financial year
Less: Coupon accrued
Non-current liability
2015
US$’000
80,000
(20,043)
(3,362)
56,595
29,120
11,329
(13,200)
(4,400)
(169)
79,275
2014
US$’000
80,000
(20,043)
(3,362)
56,595
18,739
10,381
(8,800)
(4,400)
(169)
72,346
1. Finance costs are calculated by applying the effective interest rate of 14.8% to the liability component. A component of these has been capitalised
in accordance with Note 1(v).
Horizon Oil Annual Report 2015
94
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 22. Current – Other financial liabilities
Conversion rights on convertible bonds
Consolidated
2015
US$’000
2014
US$’000
7,961
7,961
17,024
17,024
The amount shown for other financial liabilities is the fair value of the conversion rights relating to the 5.5% convertible
bonds. The conversion rights can be settled in cash or ordinary shares of the parent entity, at the option of the issuer,
and the number of shares to be issued at conversion is subject to the conversion price which may reset under certain
circumstances. Accordingly, the conversion rights are a derivative financial liability and are marked to market. Fair value
of conversion rights at issuance on 17 June 2011 was US$20,043,000. Refer to Note 21 for further details of the convertible
bonds issued.
Note 23. Non-current liabilities – Deferred tax liabilities
Recognised deferred tax liabilities are attributable to:
Exploration expenditure
Development and production expenditure
Accounting profits royalty
Cash flow hedges
Other
Total deferred tax liabilities
Set off of deferred tax assets pursuant to set off provisions
Net deferred tax liabilities
Consolidated
2015
US$’000
2014
US$’000
1,440
19,695
8,094
3,162
3,632
36,023
(6,615)
29,408
1,414
13,021
4,823
-
1,601
20,859
(3,753)
17,106
2015
Movements
At 1 July 2014
Charged/(credited) credited
- to profit or loss
- to other comprehensive
income
Exploration
expenditure
US$’000
1,414
Development
and production
expenditure
US$’000
Accounting
profits royalty
Cash flow
hedges
Other
Total
US$’000
US$’000
US$’000
US$’000
13,021
4,823
26
-
6,674
-
3,271
-
3,162
-
-
1,601
20,859
2,031
-
12,002
3,162
At 30 June 2015
1,440
19,695
8,094
3,162
3,632
36,023
2014
Movements
At 1 July 2013
Charged/(credited)
- to profit or loss
At 30 June 2014
Exploration
expenditure
US$’000
2,714
(1,300)
1,414
Development
and production
expenditure
US$’000
8,708
4,313
13,021
Note 24. Provisions
Restoration (current)
Restoration (non-current)
Accounting
profits royalty
Cash flow
hedges
Other
Total
US$’000
5,684
(861)
4,823
US$’000
US$’000
$US’000
-
-
-
-
17,106
1,601
1,601
3,753
20,859
Consolidated
2015
US$’000
2014
US$’000
3,181
12,803
15,984
12,497
14,742
27,239
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
95
The reconciliation of the movement in the total of the restoration
provisions is as follows:
Balance at beginning of financial year
Payments made for China restoration1
Additional provision during financial year
Unwinding of discount
Balance at end of financial year
Consolidated
2015
US$’000
27,239
(12,310)
639
416
15,984
2014
US$’000
15,664
-
10,768
807
27,239
1. During the financial year the Group commenced payment towards estimated restoration costs of the Beibu field in China, in accordance with the
restoration plan lodged with the relevant governmental authority.
Consolidated
Consolidated
2015
2014
2015
2014
Number of shares
’000
’000
US$’000
US$’000
1,301,981
1,301,981
1,500
1,500
1,303,481
1,303,481
174,342
459
174,801
174,342
459
174,801
Note 25. Contributed equity
(a) Issued share capital
Ordinary shares
Fully paid
Partly paid to A$0.01
(b) Movements in ordinary share capital
(i) Ordinary shares (fully paid)
Date
30/06/2013
15/08/2013
02/09/2013
03/10/2013
03/10/2013
05/05/2014
16/05/2014
30/06/2014
30/06/2015
Details
Number of shares
Issue price
Balance as at 30 June 2013
Institutional Entitlement Offer
Retail Entitlement Offer
Exercise of employee options
Transfer from partly paid shares
Exercise of general employee options1
Exercise of employee options1
Balance as at 30 June 2014
Balance as at 30 June 2015
1,135,266,515
99,296,446
62,886,971
2,198,000
1,500,000
500,000
333,333
1,301,981,265
1,301,981,265
A$0.33
A$0.33
A$0.26
A$0.26
A$0.29
A$0.26
US$’000
127,187
28,272
17,712
545
392
145
89
174,342
174,342
1. Relates to issue of fully paid ordinary shares on exercise of options issued to consultants and employees. Information relating to Option Schemes
is set out in Note 33.
(ii) Ordinary shares (partly paid to A$0.01):
Date
30/06/2013
03/10/2013
30/06/2014
30/06/2015
Details
Balance as at 30 June 2013
Transfer to fully paid shares
Balance as at 30 June 2014
Balance as at 30 June 2015
Number
Issue price
US$’000
3,000,000
(1,500,000)
1,500,000
1,500,000
A$0.26
851
(392)
459
459
1. Relates to issue of partly paid ordinary shares on exercise of employee options. Information relating to Employee Option Schemes is set out
in Note 33.
(c) Ordinary shares
Fully paid
Fully paid ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of shares held. Voting rights are governed by the Company’s Constitution. In summary, on a show
of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote and upon a poll
each fully paid ordinary share is entitled to one vote.
Horizon Oil Annual Report 2015
96
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Partly paid
Partly paid ordinary shares are issued on exercise of
employee options. The outstanding obligation in relation
to the partly paid ordinary shares is payable either when
called or by the date not exceeding 5 years from the grant
date of the option which gave rise to the partly paid ordinary
share. Partly paid ordinary shares entitle the holder to
participate in dividends and the proceeds on winding up of
the Company in proportion to the number of shares held.
Voting rights are governed by the Company’s Constitution.
In summary, on a show of hands every holder of partly paid
ordinary shares present at a meeting in person or by proxy
is entitled to one vote and upon a poll, is entitled to one vote
to the proportion of the total issue price then paid up.
(d) Unlisted options over unissued ordinary shares
Information related to general options, the Employee Option
Scheme and the Employee Performance Incentive Plan,
including details of options issued, exercised and lapsed
during the financial year and options outstanding at the end
of the financial year is set out in Note 33.
Note 26. Reserves and retained profits
(a) Reserves
Share-based payments reserve
Movements:
Balance at beginning of financial year
Employee share-based payments expense
Balance at end of financial year
Hedge reserve
Movements:
Balance at beginning of financial year
Movement in net market value of hedge contracts
Deferred tax
Balance at end of financial year
Total reserves
(b) Retained profits
Retained profits at beginning of financial year
Net profit for financial year
Retained profits at end of financial year
(c) Nature and purpose of reserves
Share-based payment reserve:
Consolidated
2015
US$’000
2014
US$’000
11,052
10,002
10,002
1,050
11,052
8,739
1,263
10,002
8,236
(6,158)
(6,158)
17,556
(3,162)
8,236
(855)
(5,303)
-
(6,158)
19,288
3,844
43,921
18,333
62,254
31,091
12,830
43,921
The fair value of options and share appreciation rights granted to employees results in an increase in equity upon
recognition of the corresponding employee benefits expense, as described in the accounting policy set out in Note 1(w)(iii).
The fair value of general options granted also results in an increase in equity.
The Company has elected to retain any amounts originally recognised in the share-based payments reserve, regardless of
whether the associated options or share appreciation rights are exercised, cancelled or lapse unexercised.
Hedge reserve:
Changes in the market value of the effective portion of derivatives is reflected directly in equity until such time as the hedge
is ineffective or expires, as described in the accounting policy set out in Note 1(t).
Note 27. New Zealand Imputation Credits
Imputation credits available for subsequent financial years1
Consolidated
2015
US$’000
2014
US$’000
2,857
148
1. The franking credits available for subsequent financial years are only available to New Zealand resident shareholders under the Trans-Tasman
imputation legislation.
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
97
Note 28. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy set out in Note 1(c):
Name of subsidiary
Horizon Oil International Limited
Horizon Oil (New Zealand) Limited
Horizon Oil International Holdings Limited
Horizon Oil (Beibu) Limited
Horizon Oil (China Holdings) Limited
Horizon Oil (PNG Holdings) Limited
Horizon Oil (Papua) Limited
Horizon Oil (USA) Inc.
Ketu Petroleum Limited
Horizon Oil (Nanhai) LLC
Jurassic International Holdings Limited
Country of
incorporation
Percentage of equity holding
and voting interest (all shares
issued are ordinary shares)
Business
activities
carried on in
2015
2014
New Zealand
New Zealand
BVI
BVI
BVI
BVI
Bermuda
USA
BVI
USA
PNG
%
100
100
100
100
100
100
100
100
100
100
90
%
100
100
100
100
100
100
100
100
100
100
90
New Zealand
New Zealand
BVI
China
BVI
BVI
PNG
USA
PNG
China
PNG
Note 29. Interest in joint operations
Companies in the Group were participants in a number of joint operations. The Group has an interest in the assets and
liabilities of these joint operations. The Group’s share of assets and liabilities of the joint operations is included in the
consolidated statement of financial position in accordance with the accounting policy described in Note 1(c) under the
following classifications:
Current assets
Cash and cash equivalents
Receivables
Inventories
Total current assets
Non-current assets
Plant and equipment
Exploration phase expenditure
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Payables
Total current liabilities
Non-current liabilities
Payables
Total non-current liabilities
Total liabilities
Share of net assets employed in joint operations
Contingent liabilities in respect of joint operations are detailed in Note 36.
Consolidated
2015
US$’000
2014
US$’000
4,368
282
4,907
9,557
4,894
86,059
402,667
493,620
503,177
10,472
10,472
-
-
10,472
492,705
4,682
1,955
4,937
11,574
4,514
58,434
409,866
472,814
484,388
32,030
32,030
13
13
32,043
452,345
Exploration and development expenditure commitments in respect of joint operations are detailed in Note 39.
Horizon Oil Annual Report 2015 98
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
The Group had an interest in the following joint operations:
Permit or licence
Principal activities
New Zealand
PMP 38160 (Maari/Manaia)
Oil and gas production, exploration
and development
Interest (%)
30 June 2015
Interest (%)
30 June 2014
10.00%
10.00%
PEP 51313 (Matariki)
Oil and gas exploration
21.00%1
21.00%/10.00%1
China
Block 22/12
PNG
Oil and gas exploration and development
26.95% / 55%2
26.95% / 55%2
PDL 10 (formerly PRL 4)
Oil and gas development
30.00%3
30.00%3,4
PRL 21
PPL 259
PPL 372
PPL 373
PPL 430
Oil and gas exploration and development
27.00%3
27.00%3,4
Oil and gas exploration
35.00%3
35.00%3,4
Oil and gas exploration
90.00%3
90.00%3,4
Oil and gas exploration
90.00%3
90.00%3,4
Oil and gas exploration
50.00%3
50.00%3,4
1. Under the terms of the farm in agreement executed in November 2012, in the event of commercial discovery at the Whio prospect, Horizon Oil
Limited’s interest over the Whio prospect would reduce to 10%. No commercial hydrocarbons were discovered when this well was drilled in July
2014.
2. China National Offshore Oil Corporation is entitled to participate at up to a 51.00% equity level in any commercial development within Block 22/12.
During 2011 CNOOC exercised their right to participate in the development of WZ 6-12 and WZ 12-8W within Block 22/12 at 51.00%.
3. PNG Govt may appoint a state nominee to acquire up to a 22.5% participating interest in any commercial development within the PNG licence areas.
4. Under the terms of the asset sale agreement executed with Osaka Gas on 23 May 2013, Horizon Oil’s interests in PDL 10 (formerly PRL 4), PRL 21
and PPL 259 were reduced by 40% on transaction completion during 2014. Osaka Gas had an option to acquire 40% of Horizon’s interests in PPLs
372, 373 and 430 which lapsed during the year.
Note 30. Remuneration of external auditors
During the financial year, the following fees were paid or payable for services provided
by the external auditor of the parent entity and its related practices:
1. PwC Australia
Audit and other assurance services
Audit and review of financial reports
Other assurance services
Other services
Total remuneration for audit and other assurance services
Taxation services
Tax compliance1
Total remuneration for taxation services
2. Non-PwC audit firms
Audit and other assurance services
Other services
Total remuneration for audit and other assurance services
Consolidated
2015
US$
2014
US$
178,973
156,589
2,419
337,981
111,717
111,717
18,833
-
18,833
152,876
97,002
18,927
268,805
98,723
98,723
14,012
-
14,012
Total auditors’ remuneration
468,531
381,540
1. Remuneration for taxation services has been recorded on a gross basis, some of these fees were for services provided to PNG operated joint
ventures.
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
99
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to its statutory external audit duties
where PricewaterhouseCoopers’ expertise and experience with the Group are important. It is the Group’s policy to seek
competitive tenders for all major consulting projects.
Note 31. Remuneration of key management personnel
See the Remuneration Report within the Directors’ Report for details of directors’ and other key management and their
detailed remuneration.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments (non-cash)
Total key management personnel remuneration
Consolidated
2015
US$
2014
US$
2,304,601
3,295,600
137,571
(6,897)
983,416
3,418,691
112,818
49,104
1,032,733
4,490,255
Detailed remuneration disclosures are provided in sections A-D of the audited Remuneration Report on pages 32 to 42.
Loans to key management personnel
There were no loans to directors or other key management personnel during the current or prior financial year.
Other transactions with key management personnel
There were no other transactions with key management personnel during the current or prior financial year.
Note 32. Related parties
Transactions between related parties are on normal commercial terms and conditions no more favourable than those
available to other parties, unless otherwise stated.
Directors and other key management personnel
There were no related party transactions with Directors and other key management personnel during the current or prior
year other than as disclosed in sections A – D of the Remuneration report and Note 31.
Subsidiaries
Interests in subsidiaries are set out in Note 28.
Details in respect of guarantees provided to subsidiaries are set out in Note 42.
Transactions with related parties
Transactions between Horizon Oil Limited and related parties in the wholly-owned Group during the financial years ended
30 June 2015 and 2014 consisted of:
(a) Contributions to share capital by Horizon Oil Limited;
(b) Loans advanced by Horizon Oil Limited;
(c) Loans repaid to Horizon Oil Limited;
(d) Payments to Horizon Oil Limited under financial guarantee contract arrangements;
(e) Interest payments to Horizon Oil Limited on loans advanced to subsidiaries;
(f) Reimbursement of expenses to Horizon Oil Limited; and
(g) Uncalled share capital.
The reimbursement of expenses to Horizon Oil Limited by subsidiaries is based on costs recharged on a relevant time
allocation of consultants and employees and associated office charges.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
100
The following transactions occurred with related parties:
Superannuation contributions
Superannuation contributions to superannuation funds on behalf of employees
431,893
296,811
Other transactions
Payments to Horizon Oil Limited under financial guarantee contract arrangements from
wholly owned subsidiary
2,223,381
2,724,015
Final call on partly paid and fully paid ordinary shares in Horizon Oil Limited paid by
employees
1,024,482
309,420
2015
US$
2014
US$
Loans to/from related parties
Loans to other related parties (uncalled share capital)
Balance at beginning of the financial year
Loans advanced
Loan repayments received
Interest charged/paid
Balance at end of financial year
Balance at beginning of the financial year
Loans advanced
Loan repayments received
Interest charged
Interest paid
Balance at end of financial year
Terms and conditions
2015
US$
2014
US$
1,355,821
-
(1,024,482)
-
1,112,032
553,209
(309,420)
-
331,339
1,355,821
2015
US$
2014
US$
256,026,759
203,665,890
94,048,568
78,525,337
(132,395,271)
(27,574,601)
10,003,956
3,687,684
(6,625,360)
(2,277,551)
221,058,652
256,026,759
Transactions relating to dividends, calls on partly paid shares and subscriptions for new ordinary shares were on the same
terms and conditions that applied to other shareholders.
All other transactions were made on normal commercial terms and conditions and at market rates, except that there are
no fixed terms for the repayment of loans between the parties, and no interest has been charged or credited to loans with
other related parties. Certain loans to/from subsidiaries are subject to interest, however, the interest is typically suspended
until commercial production commences or a change in the ownership interest of the entity occurs. The average interest
rate on loans attracting interest during the financial year was 6.1% (2014: 6.0%). Outstanding balances are unsecured and
repayable in cash.
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
101
Note 33. Share-based payments
Set out below is a summary of unlisted options and share appreciation rights on issue:
Grant date
Expiry date
Exercise
price
Balance
start of
financial
year
Granted
during
financial
year
Exercised
during
financial
year
Forfeited
during
financial
year
Balance
end of
financial
year
Vested and
exercisable
at end of
financial
year
Number
Number
Number
Number
Number
Number
Consolidated Entity 2015
Share Appreciation Rights issued
27/10/2010
27/10/2015
A$0.304
6,693,828
05/08/2011
05/08/2016
A$0.314
6,478,276
13/08/2012
13/08/2017
A$0.274
9,561,936
19/08/2013
19/08/2018
A$0.334
8,547,599
-
-
-
-
01/07/2014
01/07/2019
A$0.374
-
7,402,177
Total
31,281,639
7,402,177
Weighted average exercise price
A$0.30
A$0.37
Options issued
25/09/2009
25/09/2014
A$0.291
5,175,000
25/09/2009
25/09/2014
A$0.293
350,000
09/10/2009
09/10/2014
A$0.313
2,700,000
11/12/2009
11/12/2014
16/09/2010
16/09/2015
A$0.342
A$0.303
500,000
350,000
10/01/2012
10/04/2015
A$0.212
1,000,000
28/05/2012
28/08/2015
A$0.262
2,000,000
28/05/2012
28/05/2017
A$0.263
1,666,667
17/09/2012
17/09/2017
20/02/2013
20/02/2018
16/04/2013
16/04/2018
A$0.293
A$0.433
A$0.403
Total
Weighted average exercise price
500,000
350,000
350,000
14,941,667
A$0.29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,693,828
-
6,478,276
6,478,276
9,561,936
8,547,599
7,402,177
-
-
-
- 38,683,816
6,478,276
-
A$0.32
A$0.31
(5,175,000)
(350,000)
(2,700,000)
(500,000)
-
-
-
-
-
-
-
-
-
350,000
350,000
(1,000,000)
-
-
(1,000,000)
1,000,000
1,000,000
-
-
-
-
1,666,667
1,666,667
500,000
350,000
350,000
333,334
-
-
(10,725,000)
4,216,667
3,350,001
A$0.29
A$0.30
A$0.27
1. Relates to options issued under the Employee Performance Incentive Plan.
2. Relates to general options issued to third party consultants.
3. Relates to options issued under the Employee Option Scheme.
4. No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
5. The exercise price of the options and SARS outstanding at 31 July 2013 were reduced by A$0.006 following the rights issue during the year.
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
102
Grant date
Expiry date Exercise
price
Balance
start of
financial
year
Granted
during
financial
year
Exercised
during
financial
year
Forfeited
during
financial
year
Balance
end of
financial
year
Vested and
exercisable
at end of
financial
year
Number
Number
Number
Number
Number
Number
Consolidated Entity 2014
Share Appreciation Rights issued
27/10/2010
27/10/2015
A$0.304
6,693,828
05/08/2011
05/08/2016
A$0.314
6,478,276
13/08/2012
13/08/2017
A$0.274
9,561,936
-
-
-
19/08/2013
19/08/2018
A$0.334
-
8,547,599
Total
22,734,040
8,547,599
Weighted average exercise price
A$0.29
A$0.33
-
-
-
-
-
-
Options issued
03/10/2008
03/10/2013
A$0.261
1,848,000
03/10/2008
03/10/2013
A$0.263
350,000
25/09/2009
25/09/2014
A$0.291
5,175,000
25/09/2009
25/09/2014
A$0.293
850,000
09/10/2009
09/10/2014
A$0.313
2,700,000
11/12/2009
11/12/2014
16/09/2010
16/09/2015
A$0.342
A$0.303
500,000
350,000
06/06/2011
30/06/2014
A$0.365
15,000,000
10/01/2012
10/04/2015
A$0.212
1,000,000
28/05/2012
28/08/2015
A$0.262
2,000,000
28/05/2012
28/05/2017
A$0.263
2,000,000
17/09/2012
17/09/2017
20/02/2013
20/02/2018
16/04/2013
16/04/2018
A$0.293
A$0.433
A$0.403
Total
Weighted average exercise price
500,000
350,000
350,000
32,973,000
A$0.32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,693,828
6,478,276
9,561,936
8,547,599
- 31,281,639
A$0.30
-
-
-
-
-
-
-
-
-
5,175,000
5,175,000
350,000
350,000
2,700,000
2,700,000
500,000
350,000
-
500,000
350,000
-
1,000,000
666,667
2,000,000
1,333,334
1,666,667
1,000,001
500,000
350,000
350,000
166,667
-
-
-
-
-
-
-
-
-
-
(15,000,000)
-
-
-
-
-
-
(1,848,000)
(350,000)
-
(500,000)
-
-
-
-
-
-
(333,333)
-
-
-
(3,031,333)
(15,000,000) 14,941,667 12,241,669
A$0.27
A$0.36
A$0.29
A$0.26
1. Relates to options issued under the Employee Performance Incentive Plan.
2. Relates to general options issued to third party consultants.
3. Relates to options issued under the Employee Option Scheme.
4. No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
5. Relates to general options issued to Petsec America Pty Limited as part consideration for the acquisition of Petsec Petroleum LLC (the Petsec
subsidiary which held Petsec’s interest in Block 22/12, offshore China).
6. The exercise price of the options and SARS outstanding at 31 July 2013 were reduced by A$0.006 following the rights issue during the year.
The weighted average remaining contractual life of share options outstanding at the end of the period was 1.51 years
(2014: 0.99 years).
Horizon Oil Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
103
Long Term Incentive Plan
Until April 2010, long-term incentives were provided to
certain employees via the Company’s share option plans.
The revised LTI arrangements approved at the 2010 annual
general meeting apply to senior executives and involve the
grant of share appreciation rights which may vest subject
(amongst other things) to the level of total shareholder
return (‘TSR’) achieved in the vesting period, relative to an
appropriate index.
Under the LTI Plan, the board has the discretion, subject
to the ASX Listing Rule requirements, to grant share
appreciation rights (’SARs’) to executives as long-term
incentives. The board has determined that 25% of senior
executive’s total remuneration would be long-term
incentives in the form of SARs, with the number of SARs
granted based on the value of a SAR.
A SAR is a right to receive either or both a cash payment or
shares in the Company, as determined by the board, subject
to the Company satisfying certain conditions, including
performance conditions.
The LTI Plan provides that the amount of the cash payment
or the number of shares in the Company that the participant
receives on exercise of the SAR is based on the value of
the SAR at the time it is exercised (’SAR Value’). The SAR
Value is the excess, if any, of the volume weighted average
price (’VWAP’) of shares in the Company for the ten business
day period up to the date before the date the SAR is
exercised over the VWAP of shares in the Company for the
ten business day period up to the day before the “Effective
Allocation Date” for the SARs. The Effective Allocation Date
for the SARs is the grant date of the SARs or any other day
determined by the board, at the time of the grant. The
Effective Allocation Date would generally be the date the
executive’s entitlement was determined.
If the board determines that the SARs are to be satisfied
in cash, the amount of cash that the participant receives
on the exercise of the SARs is the SAR Value multiplied by
the number of SARs exercised (less any deduction for taxes
that the Company is required to make from the payment).
If the board determines that the SARs are to be satisfied in
shares, the number of shares that the participant receives
on the exercise of the SARs is the SAR Value divided by the
volume weighted average price of shares in the Company
for the ten business day period up to the day before the
day the SARs are exercised. Where the number of shares
calculated is not a whole number, it will be rounded down to
the nearest whole number.
No price is payable by a participant in the Long Term
Incentive Plan on the exercise of a SAR.
Employee Option Scheme
The issue of securities under the Employee Option Scheme
was approved by shareholders for the purposes of the
ASX Listing Rules at the 2011 Annual General Meeting.
The scheme is open to permanent full time or part time
employees of the Company. Executive directors and the
Company’s senior executives were eligible to participate
until April 2010, when the board resolved to modify the
remuneration arrangements for the Company’s senior
executives.
The maximum number of ordinary shares in respect of
which options may be issued pursuant to the Employee
Option Scheme, together with the number of partly paid
ordinary shares on issue pursuant to any other employee
share scheme of the Company, must not exceed 5% of the
number of ordinary shares in the Company on issue from
time to time.
Each option entitles the employee to subscribe for one
share in the Company and each option expires 5 years
from the date of issue. Options granted are progressively
exercisable in three equal tranches from dates which are 12,
24 and 36 months after grant date. Upon exercise of the
option, only one cent of the exercise price will be payable,
with the balance being paid at the expiration of the period
which is 5 years from the date of the issue of the options.
The exercise price will be the greater of:
(a) the price determined by directors but will not be less
than the weighted average sale price per share of all sale
prices at which fully paid ordinary shares are sold on the
ASX during the period of 5 business days ending on the
business day prior to the date of the directors’ meeting
at which the directors resolved to grant the option; and
(b) 20 cents per option.
The option exercise prices are subject to adjustment in
certain circumstances in line with the ASX Listing Rule
6.22.2.
Options/share appreciation rights issued
7,402,177 share appreciation rights were issued under the
Long Term Incentive Plan. The exercise price of these SARs
is A$0.3729 with performance hurdles to be achieved prior
to exercise. The independently assessed fair value at grant
date of these share appreciation rights was A$0.1433 per
SAR.
The fair value at grant date is independently determined
using a Monte Carlo Simulation method that takes into
account the exercise price, the term of the option/SAR,
the impact of dilution, the share price at grant date and
expected volatility of the underlying share, the expected
dividend yield and the risk free interest rate for the term of
the option/SAR.
The model inputs for the grant of share appreciation rights
during the financial year ended 30 June 2015 included:
Grant date
Expiry date
Exercise price
10 Day VWAP of Horizon Oil shares at
grant date
Expected price volatility
Risk free rate
Expected dividend yield
No options were issued during the year.
1 July 2014
1 July 2019
N/A
A$0.3729
38.55% p.a.
2.99% p.a.
0.00% p.a.
Horizon Oil Annual Report 2015 104
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the financial year as part of employee
benefits expense in profit or loss were as follows:
Share Appreciation Rights issued under:
Long Term Incentive Plan
Options issued under:
Employee Option Scheme
Total employee share-based payments expense
Consolidated
2015
US$’000
2014
US$’000
1,034
1,099
16
1,050
164
1,263
Options/SARs in respect of which expiry dates were
modified during the financial year
Options/SARs exercised and options/SARs issued
subsequent to 30 June 2015
No options/SARs were modified during the financial year.
Options/SARs exercised during the financial year
No options/SARs were exercised during the financial year.
Options/SARs lapsing or cancelled during the financial year
During the financial year, 10,725,000 unlisted general
options lapsed or were cancelled.
No SARs lapsed or were cancelled during the financial year.
On 13 August 2015, 25,088,617 share appreciation rights
were granted under the Long Term Incentive Plan. Of the
25,088,617 SARs granted, 10,171,063 are proposed to be
issued to an executive director and are therefore granted
subject to shareholder approval at the 2015 Annual General
Meeting.
No options have been granted subsequent to financial year
end.
No options or SARs have been exercised subsequent to
financial year end.
Note 34. Employee entitlements
Employee entitlement liabilities are included within:
Current – other creditors (Note 18)
Non-current - other creditors
Consolidated
2015
US$’000
2014
US$’000
667
15
632
42
Number
2015
2014
Employee numbers
Average number of employees during financial year
30
17
Note 35. Contingent asset
(i) On 23 May 2013, the Group advised ASX that it had
entered into an Agreement to sell 40% of its Papua New
Guinea assets to Osaka Gas Niugini Pty Ltd (‘Osaka Gas’)
a subsidiary of Osaka Gas Co. Ltd. of Japan. In addition to
the cash on completion, a further US$130 million in cash
is due upon a project development decision which gives
rise to Osaka Gas achieving equity LNG from its acquired
gas volumes, plus potential production payments where
threshold condensate production is exceeded. Due to
the conditions required for the deferred consideration of
US$130 million, and the potential production payments,
all remaining consideration under the Agreement is
disclosed as a contingent asset as at 30 June 2015.
(ii) On 29 August 2013, the operator of the Maari oilfield,
OMV New Zealand Limited (‘OMV’), advised that
production at the field would be shut in while major
facility repairs and equipment upgrades were undertaken.
This involved the FPSO Raroa being disconnected from
its mooring and towed to nearby Port Nelson to refurbish
and upgrade its process equipment and install a new
swivel. At the same time the opportunity was taken to
repair several of the buoy mooring lines at the field.
The upgrade, maintenance and repair works were
carried out safely, within budget and the field returned to
production on schedule. The Group’s share of the repair
costs was US$8 million. The Group expects to recover
a proportion of these amounts through insurance. As
at 30 June 2015, insurance claims for repair costs of
US$6.6 million associated with the FPSO mooring and
swivel were deemed virtually certain of receipt following
acceptance of the claim by the underwriters and part
payments of US$ 2.1 million received up to 30 June 2015.
The loss of production insurance claim of approximately
US$4 million covering the repair period remains a
contingent asset at 30 June 2015.
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
105
Note 36. Contingent liabilities
The Group had contingent liabilities as at 30 June 2015 and
30 June 2014 that may become payable in respect of:
In accordance with normal oil and gas industry practice,
the Group has entered into joint operations and farm-out
agreements with other parties for the purpose of exploring
and developing its petroleum interests. If a participant
to a joint operation defaults and fails to contribute its
share of joint operation obligations, then the remaining
joint operation participants are jointly and severally liable
to meet the obligations of the defaulting participant. In
this event, the interest in the permit or licence held by the
defaulting participant may be redistributed to the remaining
participants. In the event of a default, a contingent liability
exists in respect of expenditure commitments due to be
met by the Group in respect of defaulting joint operation
participants.
The Group occasionally receives claims arising from its
operations in the normal course of business. In the opinion
of the Directors, all such matters are either covered by
insurance or, if not covered, are without merit or are of such
a nature the amounts involved would not have a material
impact on the results.
No material losses are anticipated in respect of any of the
above contingent liabilities.
Note 37. Events after balance sheet date
Other than the matters disclosed in this report, there has
not been any matter or circumstance which has arisen
since 30 June 2015 that has significantly affected, or may
significantly affect:
• the Group’s operations in future financial years; or
• the results of those operations in future financial years; or
• the Group’s state of affairs in future financial years.
The financial statements were authorised for issue by
the Board of Directors on 25 August 2015. The Board of
Directors has the power to amend and reissue the financial
statements.
Note 38. Commitments for expenditure
(i) Non-cancellable operating leases
The Group leases various office premises in Sydney and PNG
under non-cancellable operating leases expiring within 1 to
5 years. The leases have varying terms, escalation clauses
and renewal rights. On renewal, the terms of the leases are
renegotiated.
Commitments for minimum lease payments in relation to non-cancellable operating
leases, not recognised in the financial statements, are payable as follows:
Within one financial year
Later than one financial year but not later than five financial years
(ii) Finance leases
The Group had no outstanding finance leases as at 30 June 2015 or 30 June 2014.
Consolidated
2015
US$’000
2014
US$’000
277
75
352
1,388
588
1,976
Note 39. Exploration and development commitments
The Group has entered into joint operations for the purpose of exploring, developing and producing from certain petroleum
interests. To maintain existing interests or rights to earn interests in those joint operations the Group will be expected to
make contributions to ongoing exploration and development programs. Since such programs are subject to continual
review by operating committees, upon which the Group is represented, the extent of future contributions in accordance
with these arrangements is subject to continual renegotiation.
Subject to the above mentioned limitations, the directors have prepared the following disclosure of exploration and
development expenditure commitments not recognised in the consolidated financial statements. These are payable as
follows, based on current status and knowledge of estimated quantum and timing of such commitments by segment.
Horizon Oil Annual Report 2015
106
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
2015
New Zealand
Development
New Zealand
Exploration
Within one financial year
Later than one financial year but
not later than 5 financial years
Total
2014
US$’000
6,525
-
6,525
US$’000
280
-
280
New Zealand
Development
New Zealand
Exploration
Within one financial year
Later than one financial year but
not later than 5 financial years
Total
US$’000
20,160
-
20,160
US$’000
391
-
391
China
Exploration &
Development
Papua New
Guinea
Exploration &
Development
Total
US$’000
12,195
-
US$’000
10,550
-
US$’000
29,550
-
12,195
10,550
29,550
China
Exploration &
Development
Papua New
Guinea
Exploration &
Development
Total
US$’000
4,374
-
US$’000
US$’000
56,593
19,656
81,518
19,656
4,374
76,249
101,174
The above commitments may be deferred or modified with the agreement of the host government, by variations to the
terms of individual petroleum interests, or extensions to the terms thereof. Another factor likely to delay timing of these
commitments is the potential lack of availability of suitable drilling rigs in the area of interest.
The commitments may also be reduced by the Group entering into farm-out agreements or working interest trades, both of
which are typical of the normal operating activities of the Group.
In addition to the above commitments, the Group has invested funds in other petroleum exploration interests, but is not
exposed to a contingent liability in respect of these, as it may choose to exit such interests at any time at no cost penalty
other than the loss of the interests.
Note 40. Reconciliation of profit after income tax to net cash flows from operating activities
Profit for financial year
Exploration and development expenditure written off/expensed
Depreciation expense
Movement in employee entitlement liabilities
Non-cash employee share-based payments expense
Amortisation expense
Amortisation of prepaid financing costs
Provision for restoration
Consolidated
2015
US$’000
18,307
16,222
683
114
1,050
37,096
1,775
416
2014
US$’000
12,830
9,233
636
(1)
1,263
39,397
1,741
807
Gain from disposal of oil and gas assets; exploration assets
-
(23,830)
Unrealised movement in value of convertible bond conversion rights
Non-cash convertible bond interest expense
Net unrealised foreign currency losses/(gains)
Change in operating assets and liabilities:
Decrease in trade debtors
(Increase) in other debtors and prepayments
(Increase) in inventory
Increase in deferred tax assets/liabilities
(Decrease) in tax receivable/payable
(Decrease) in trade creditors
Increase in deferred income
(Decrease) in other creditors
Net cash inflow from operating activities
(9,063)
6,257
40
5,012
(8,561)
(1,181)
3,443
(3,416)
(412)
5,309
606
886
1,335
75
8,178
1,444
(11,006)
(13,918)
2,212
(557)
58,843
-
19,387
64,966
Horizon Oil Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
107
Note 41. Earnings per share
(a) Basic earnings per share
From continuing operations attributable to the ordinary equity holders of the Company
From discontinued operation
Total basic earnings per share attributable to the ordinary equity holders of the
Company
(b) Diluted earnings per share
From continuing operations attributable to the ordinary equity holders of the Company
From discontinued operation
Total diluted earnings per share attributable to the ordinary equity holders of the
Company
2015
2014
US cents
US cents
1.41
-
1.41
1.41
-
1.41
1.00
-
1.00
1.00
-
1.00
2015
Number
2014
Number
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
1,303,481,265
1,279,039,421
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
1,304,795,974
1,284,748,334
Reconciliation of earnings used in calculating earnings per share
Profit attributable to the ordinary equity holders of the company used in calculating
earnings per share
Basic earnings per ordinary share:
from continuing operations
from discontinued operations
Diluted earnings per ordinary share:
from continuing operations
from discontinued operations
2015
US$’000
2014
US$’000
18,333
-
18,333
18,333
-
18,333
12,830
-
12,830
12,830
-
12,830
Information concerning the classification of securities
(a) Partly paid ordinary shares
Partly paid ordinary shares carry the rights of fully paid ordinary shares and to that extent they have been recognised as
ordinary share equivalents in the determination of basic earnings per share.
Details regarding the partly paid ordinary shares are set out in Note 25.
(b) Options and share appreciation rights granted as compensation
Options and share appreciation rights granted to employees under the Long Term Incentive Plan, Employee Option Scheme
or Employee Performance Incentive Plan; and general options issued, are included in the calculation of diluted earnings
per share to the extent to which they are dilutive. They have not been included in the determination of basic earnings per
share.
Details regarding the options and share appreciation rights are set out in Note 33.
(c) Convertible bonds
Convertible bonds issued during the financial year are included in the calculation of diluted earnings per share to the extent to
which they are dilutive from their date of issue. They have not been included in the determination of basic earnings per share.
Details regarding the convertible bonds are set out in Notes 21 and 22.
Horizon Oil Annual Report 2015
108
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015
Note 42. Parent Entity financial information
(i) Summary financial information
The individual financial statements for the Parent Entity show the following aggregate amounts:
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Share-based payments reserve
Retained earnings
Total equity
Parent Entity
2015
US$’000
32,007
250,235
282,242
89,024
266
89,290
192,952
174,801
11,052
7,099
192,952
2014
US$’000
5,829
260,157
265,986
5,802
89,664
95,466
170,520
174,801
10,001
(14,282)
170,520
Profit/(loss) for the financial year
21,381
(15,274)
Total comprehensive income/(loss) for the financial year
21,381
(15,274)
(ii) Guarantees entered into by the parent entity
The parent entity has provided guarantees in respect of bank loans and leases of its subsidiaries amounting to
US$120,000,000 (2014: US$119,165,000).
No liability has been recognised for guarantees provided. After factoring in the likelihood that the parent entity would be
required to perform under the guarantees the fair value of the liability was not considered material.
(iii) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2015 or 30 June 2014. For information about
guarantees given by the parent entity, please see above.
(iv) Contractual commitment for the acquisition of property, plant or equipment
As at 30 June 2015, the parent entity had no contractual commitments for the acquisition of property, plant or equipment
(30 June 2014 – US$Nil).
Horizon Oil Annual Report 2015
Shareholder information
109
HORIZON OIL LIMITED AND CONTROLLED ENTITIES SECURITIES EXCHANGE INFORMATION
AS AT 25 SEPTEMBER 2015
DISTRIBUTION OF EQUITY SECURITIES
The distribution of equity security holders ranked according to size at 25 September 2015 was as follows:
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
Total
Class of equity security
Ordinary shares
Shares
482
1,104
1,069
3,005
1,048
6,708
Unlisted
options
-
-
-
-
5
5
Share
appreciation
rights
Convertible
bonds
-
-
-
-
3
3
1
-
-
-
-
1
A total of 1,646 holders held less than a marketable parcel of 5,555 ordinary shares.
TWENTY LARGEST SHAREHOLDERS
The names of the twenty largest shareholders of the Company’s ordinary shares are listed below:
No. of ordinary
shares
% of issued
ordinary shares
RBC Investor Services Australia Nominees Pty Limited
9,644,981
Name
Citicorp Nominees Pty Limited
Austral-Asia Energy Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Carrington Land Pty Ltd
V L H Pty Ltd
1
2
3
4
5
6
7
8
9
Finot Pty Ltd
10 Grizzly Holdings Pty Limited
11 Berne No 132 Nominees Pty Ltd
12 Mr Geoffrey Victor Day & Mrs Anne Margaret Day
13 Mr David Harvey Peek
14 Mr Michael Sheridan
15 Global Mosaic Pty Ltd
16 Citicorp Nominees Pty Limited (Colonial First State Inv A/c)
17 HSBC Custody Nominees (Australia) Limited – (Euroclear Bank SA NV A/C)
18 Mr Ronald Langley & Mrs Rhonda Langley
19 HSBC Custody Nominees (Australia) Limited - GSCO
20 Mr John Scott Humphrey
Total
364,008,789
148,333,916
60,575,545
59,223,697
34,933,462
20,000,000
18,902,607
8,857,143
8,511,941
7,199,919
7,000,000
6,966,552
5,515,948
5,400,073
4,741,468
4,291,392
4,000,000
3,591,028
3,537,053
27.96
11.39
4.65
4.55
2.68
1.54
1.45
0.74
0.68
0.66
0.55
0.54
0.54
0.42
0.41
0.36
0.33
0.31
0.28
0.27
785,235,514
60.31
Horizon Oil Annual Report 2015
110
SHAREHOLDER INFORMATION
HORIZON OIL LIMITED AND CONTROLLED ENTITIES SECURITY
EXCHANGE INFORMATION AS AT 25 SEPTEMBER 2015
ISSUED SECURITIES
Issued securities as at 25 September 2015:
Security
Ordinary fully paid shares1
Ordinary partly paid shares1
Unlisted employee options
Unlisted share appreciation rights2
5.5% Convertible bonds of US$200,000 each3
Number on issue
Number of holders
1,301,981,265
6,708
1,500,000
2,866,667
63,772,4332
400
1
5
3
1
1. The Company’s ordinary fully and partly paid shares are listed on the Australian Securities Exchange.
2. 10,171,063 unlisted share appreciation rights have been issued subject to shareholders’ approval at the 2015 Annual General Meeting.
3. The Company’s 5.5% convertible bonds are listed on the Singapore Securities Exchange, with BT Globenet Nominees Limited the registered holder
of the global certificate for 100% of the bonds.
SUBSTANTIAL HOLDERS
Substantial holders in the Company are set out below:
Ordinary shares
Austral-Asia Energy Pty Limited as trustee for Triplex Global Ventures Limited
Commonwealth Bank of Australia
Tribeca Investment Partners Pty Ltd
Total
VOTING RIGHTS
No. of ordinary
shares
% of issued
ordinary shares
366,762,048
101,312,290
68,387,994
536,462,332
28.17
7.78
5.26
41.21
a) Ordinary shares – fully paid
Voting of members is governed by the Company’s Constitution. In summary, every member present in person or by proxy
attorney or representative shall have one vote on a show of hands and one vote for each share on a poll.
b) Ordinary shares – partly paid
Voting of members is governed by the Company’s Constitution. In summary, every member present in person or by proxy
attorney or representative shall have one vote on a show of hands and upon a poll, is entitled to one vote to the proportion
of the total issue price then paid up.
c) Options (employee/general) - unlisted
No voting rights.
d) Share appreciation rights - unlisted
No voting rights.
e) 5.5% Convertible bonds
One vote for each bond, but limited to matters affecting the rights of such bonds.
Horizon Oil Annual Report 2015 111
Glossary
A-IFRS
Australian equivalents to International Financial Reporting Standards
ASIC
ASX
bbl(s)
bcf
boe
boepd
bopd
CNOOC
DEC
DPE
EBITDAX
ESP
FID
FPSO
GST
JOA
km
LIBOR
LNG
Australian Securities and Investments Commission
Australian Securities Exchange
Blue barrel(s), oil barrel volume is 0.159 cubic metres
Billion cubic feet of natural gas
Barrel of oil equivalent. The factor used to convert gas to oil equivalent is based upon an
approximate energy value of 6,000 cubic feet per barrel and not price equivalence at the time
Barrel of oil equivalent per day
Barrel of oil per day inclusive of NGLs
China National Offshore Oil Corporation
Department of Environment and Conservation (PNG)
Department of Petroleum and Energy (PNG)
Earnings before interest, tax, depreciation, depletion and amortisation, and exploration
expenses
Electrical submersible pump
Final investment decision
Floating production, storage and offloading vessel
Goods and services tax
Joint operating agreement
Kilometres
London inter-bank offered rate
Liquified natural gas
mmbbl/mmbo
Million barrels of oil
mmboe
mmcfb
NDRC
NGL(s)
ODP
PL
PDL
PEP
PMP
PRL
Reserves
Contingent
Resources
Million barrels of oil equivalent
Millions cubic feet barrels
National Development and Reform Commission
Natural gas liquid(s)
Overall Development Plan
Pipeline licence
Petroleum development licence
Petroleum exploration permit
Petroleum mining permit
Petroleum retention licence
Reserves as included in this report refers to both Proven and Probable reserves (2P). Proven
and Probable reserves are reserves that analysis of geological and engineering data suggests
are more likely than not to be recoverable – there is at least a 50% probability that reserves
recovered will exceed Proven and Probable reserves.
The Company’s technically recoverable resources (2C) for its discovered oil and gas fields
are classified as contingent resources. These resources would be expected to be booked in
reserves (Proven and Probable reserves) once commercialisation arrangements have been
finalised.
PSA
PNG
SDA
Production Sharing Agreement
Papua New Guinea
Supplemental Development Agreement
SPE-PRMS
Society of Petroleum Engineers – Petroleum Resources Management System
Sq km
tcf
Square kilometres
Trillion cubic feet of natural gas
USD / $US
United States dollars
WHP
WOU
2D Seismic
3D Seismic
Wellhead platform
Workover unit
Seismic recorded in 2 dimensions
Seismic recorded in 3 dimensions
Horizon Oil Annual Report 2015 112
Notes
Horizon Oil Annual Report 2015 113
Directory
Horizon Oil Limited
ABN 51 009 799 455
Board of Directors
Fraser Ainsworth am (Chairman)
Brent Emmett (Chief Executive Officer)
John Humphrey
Gerrit de Nys
Andrew Stock
Company Secretary
Michael Sheridan
Assistant Company Secretary
Michael Lyon
Australian Registered Office
(Principal place of business)
Level 6, 134 William Street,
Woolloomooloo NSW 2011
Telephone: +(612) 9332 5000
Facsimile: +(612) 9332 5050
E-mail: exploration@horizonoil.com.au
Web site: www.horizonoil.com.au
Domicile and country of
incorporation
Australia
Share Registrar
Convertible Bond Registrar
Solicitors
Auditor
Boardroom Pty Limited
Level 7, 207 Kent Street
SYDNEY NSW 2000
Telephone: +(612) 9290 9600
Deutsche Bank Luxembourg S.A.
2, Boulevard Konrad Adenauer
L-1115, Luxembourg
King & Wood Mallesons
Level 30 Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
PricewaterhouseCoopers
Darling Park Tower 2
201 Sussex Street
SYDNEY NSW 1171
Trustee for convertible bond
holders
DB Trustees (Hong Kong) Limited
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
HONG KONG
Stock Exchanges
Horizon Oil Limited shares are listed on the ASX (ASX code: HZN)
Horizon Oil Limited convertible bonds are listed on the Singapore Securities
Exchange (SGX)
Notice of Annual General Meeting
The Annual General Meeting of Horizon Oil Limited will be held at Level 1, Grand
Ballroom, The Sydney Boulevard Hotel, 90 William Street, Sydney
Time: 10.00am
Date: 20 November 2015
Horizon Oil Annual Report 2015 114
ABN 51 009 799 455
Level 6, 134 William Street
Woolloomooloo NSW 2011 Australia
t +612 9332 5000 f +612 9332 5050
www.horizonoil.com.au
Horizon Oil Annual Report 2015 NOTICE OF 2015
ANNUAL GENERAL MEETING
Horizon Oil Limited ABN 51 009 799 455
The Annual General Meeting (“AGM”) of the members of Horizon Oil Limited
ACN 009 799 455 (the “Company”) will be held at 10.00am (Sydney time) on Friday,
20 November 2015 at Level 1, Grand Ballroom, The Sydney Boulevard Hotel, 90 William
Street, Sydney, New South Wales, 2011 to transact the business set out below.
Members should refer to the accompanying Explanatory Memorandum for further
information concerning the business to be carried out at the AGM.
Business
1. Consideration of reports
To receive and consider the Annual Financial Statements, the Directors’ Report and the
Independent Audit Report of the Company for the year ended 30 June 2015.
Note: There is no requirement for members to vote on this item of business.
2. Remuneration Report
To consider and, if thought appropriate, to pass the following as an ordinary resolution:
“That the Remuneration Report for the year ended 30 June 2015 (set out in the
Directors’ Report) be adopted.”
Note: The vote on this resolution is advisory only and does not bind the Company or the
directors.
Note: A voting exclusion applies to this item – see the Explanatory Memorandum.
3. Re-election of director – Mr John Humphrey
To consider and, if thought appropriate, to pass the following as an ordinary resolution:
“That Mr John Humphrey, a non-executive director retiring in accordance with the
Company’s Constitution, being eligible, is re-elected as a non-executive director of the
Company.”
Further information in relation to this resolution and Mr Humphrey is set out in the
Explanatory Memorandum.
4. Approval of 2015 grant of long term incentives (“LTIs”) to
Mr Brent Emmett, Chief Executive Officer and Managing Director
To consider and, if thought appropriate, to pass the following as an ordinary resolution:
“That approval be given for all purposes for the grant of up to 10,171,063 securities
(including share appreciation rights (“SARs”) and shares which may be issued as a result
of the exercise or vesting of SARs) to the Chief Executive Officer and Managing Director,
Mr Brent Emmett, in accordance with the terms of his employment agreement and as set
out in the accompanying Explanatory Memorandum.”
Further information in relation to this resolution is set out in the Explanatory
Memorandum.
Note: A voting exclusion applies to this item – see the Explanatory Memorandum.
By order of the Board.
Dated: 8 October 2015
.............................................................................
Michael Sheridan
Company Secretary
Eligibility to attend and vote
For the purposes of the meeting and in accordance with regulation 7.11.37 of the
Corporations Regulations 2001 (Cwlth) and ASX Settlement Operating Rule 5.6.1, shares
will be taken to be held by the persons who are registered as members as at 7.00pm
(Sydney time) on Wednesday, 18 November 2015.
Proxies
If you are a member entitled to attend and vote, you are entitled to appoint a proxy to
attend and vote on your behalf. If you are a member entitled to attend and cast two or
more votes, you are entitled to appoint no more than two proxies. Where two proxies are
appointed, you may specify the number or proportion of votes that each may exercise,
failing which, each may exercise half of the votes. A proxy need not be a member of the
Company.
If you want to appoint one proxy, please use the proxy form provided. If you want to
appoint two proxies, please follow the instructions on the reverse of the proxy form.
The Company’s Constitution provides that, on a show of hands, every person present
and qualified to vote shall have one vote. If you appoint one proxy, that proxy may vote
on a show of hands, but if you appoint two proxies, only the proxy first-mentioned in the
instrument appointing the proxy may vote on a show of hands.
If you appoint a proxy who is also a member or is also a proxy for another member, your
directions may not be effective on a show of hands. Your directions will be effective if a
poll is effectively demanded and your proxy votes.
To be effective, the proxy form must be received by Boardroom Pty Limited, by online
submission or at the address or facsimile number below, or by the Company at its
registered office, Level 6, 134 William Street, Woolloomooloo NSW 2011, not later than
10.00am (Sydney time) on Wednesday, 18 November 2015, being 48 hours before the
commencement of the meeting.
If the Chairman of the meeting is your proxy, and you fail to provide a voting
direction in respect of Item 2 or Item 4 or on the proxy form (which you may do by
ticking ‘For’, ‘Against’ or ‘Abstain’ opposite Item 2 or Item 4, as applicable, on the
proxy form), you are expressly authorising the Chairman of the meeting to vote
in favour of Item 2 or Item 4, as applicable, even if that resolution is connected
directly or indirectly with the remuneration of directors or members of the key
management personnel of the Company (“KMP”). Subject to any applicable laws
or voting exclusions, the Chairman of the meeting intends to vote all available
proxies in favour of the resolutions in this Notice of Meeting (including Item 2 and
Item 4).
To vote online:
TO VOTE ONLINE
Step 1: VISIT www.votingonline.com.au/horizonoilagm2015
Step 2: Enter your Postcode OR Country of Residence (if outside Australia)
Step 3: Enter your Voting Access Code:
By mail:
Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001
AUSTRALIA
For delivery:
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
AUSTRALIA
By fax:
Boardroom Pty Limited
+61 2 9290 9655
Admission to meeting
Members who will be attending the meeting and who will not be appointing a proxy are
asked to bring the proxy form to the meeting to help with admission.
Members who do not plan to attend the meeting are encouraged to complete and return
a proxy form for each of their holdings of shares in the Company.
A replacement proxy form may be obtained from the Company’s external share registry:
Boardroom Pty Ltd
Level 12, 225 George Street Sydney NSW 2000
Telephone: +61 2 9290 9600
+61 2 9279 0664
Fax:
enquiries@boardroomlimited.com.au
Email:
EXPLANATORY
MEMORANDUM
Horizon Oil Limited ABN 51 009 799 455
This Explanatory Memorandum contains information about the
resolutions to be considered at the AGM, which are set out in
the accompanying Notice of Meeting, to assist shareholders
to determine how they wish to vote on the resolutions. This
Explanatory Memorandum forms part of the accompanying Notice
of Meeting and should be read together with the Notice
of Meeting.
Items of business
The vote on this item is advisory only and does not bind the
Company or the directors. However, the board will take the
outcome of this vote into consideration when reviewing the
remuneration practices and policies of the Company.
Voting exclusion statement – Item 2
No votes may be cast on this item by or on behalf of members of
the key management personnel of the Company (“KMP”) or their
closely related parties, whether as shareholder or proxy.
1. Consideration of reports
However, a vote may be cast on Item 2:
There is no requirement for members to approve the reports
described in Item 1. In accordance with the Corporations Act 2001
(Cwlth) (“Corporations Act”) and the Company’s usual practice,
the Chairman of the meeting will allow a reasonable opportunity
for shareholders to ask questions or make comments about the
reports and the management of the Company. A reasonable
opportunity will also be given to members, as a whole, to ask the
auditor, or their representative, questions relevant to the conduct
of the audit, the preparation and content of the Independent Audit
Report, the accounting policies adopted by the Company and the
independence of the auditor in relation to the conduct of the audit.
Written questions to the Company’s auditor about:
• the content of the Independent Audit Report; or
• the conduct of the audit of the reports,
must be submitted no later than Friday, 13 November 2015 to:
The Company Secretary
Level 6
134 William Street
Woolloomooloo, NSW 2011
Australia
Facsimile: +61 2 9332 5050
Copies of the questions, if any, to the Company’s auditor will be
available at or before the AGM.
2. Remuneration Report
The Remuneration Report is contained in the ‘Directors’
Report’ of the Company’s 2015 Annual Report. A copy of the
2015 Annual Report is available on the Company’s website
www.horizonoil.com.au.
The Remuneration Report:
• explains the principles used by the board to determine the nature
and amount of remuneration of directors and executives; and
• sets out remuneration details for each director and each named
executive.
In April 2010, the board resolved to modify the remuneration
arrangements for the Company’s senior executives. Based on
advice received from Guerdon Associates, an independent
remuneration consultancy firm, the board put in place a short term
incentive scheme and substituted the existing long term incentive
arrangements for the Company’s senior executives with a revised
long term incentive scheme, the operation of which is discussed in
Item 4 below.
The Chairman of the meeting will give shareholders a reasonable
opportunity to ask questions about or make comments on the
Remuneration Report. The Corporations Act requires the Company
to propose a resolution that the Remuneration Report be adopted.
• by a member of the KMP, or their closely related party, if the vote
is cast as a proxy for a person who is entitled to vote on this
item, and the proxy appointment is in writing and specifies how
the proxy is to vote on Item 2; or
• by the Chairman of the meeting, if the vote is cast as a proxy
appointed in writing that does not specify the way the proxy is
to vote on Item 2, and expressly authorises the Chairman of the
meeting to exercise the proxy even if the resolution is connected
directly or indirectly with the remuneration of a member of the
KMP.
If you appoint the Chairman of the meeting as your proxy, and you
do not direct your proxy how to vote on Item 2, you will be expressly
authorising the Chairman of the meeting to exercise your proxy even
if Item 2 is connected directly or indirectly with the remuneration of a
member of the KMP. The Chairman of the meeting intends to vote all
undirected proxies in favour of Item 2.
3. Re-election of director – Mr John Humphrey
The Company’s Constitution provides that a director (other than
the managing director) will not retain office for a period of more
than three years or beyond the third annual general meeting
of members of the Company following that person’s election
(whichever is greater).
Accordingly, Mr Humphrey is required to retire at the end of the
AGM and seeks re-election in accordance with the requirements of
the Company’s Constitution.
The Chairman, Mr. Fraser Ainsworth has advised that he will retire
from the board at the conclusion of the 2015 AGM, and the board
has appointed Mr. Humphrey as the replacement Chairman.
As part of an orderly transition process, it is intended that
Mr. Humphrey will then retire at the 2016 Annual General Meeting
or soon after with two new non-executive directors to be
appointed to the board during the next twelve months to replace
each of Mr. Ainsworth and Mr. Humphrey.
Mr Humphrey, LL.B., SF Fin has been a director of the Company
since 1990. He is the Executive Dean of the Faculty of Law at
Queensland University of Technology. He is a former partner
of the firm of solicitors, King & Wood Mallesons, specialising in
the area of corporate law; a director of Downer EDI Limited and
Auswide Bank Ltd (formerly Wide Bay Australia); a former member
of the Australian Takeovers Panel and a former Chairman of Villa
World Limited. Mr Humphrey is Chairman of the Company’s Audit
Committee and a member of the Company’s Risk Management
Committee.
The board acknowledges that Mr Humphrey has been a director
for twenty-five years. However, the board considers that there is
no objective or subjective reason to believe that Mr Humphrey’s
period of board service would in any way interfere with his ability to
act in the best interests of the Company and accordingly considers
that Mr Humphrey is an independent director.
The directors (with Mr Humphrey abstaining) recommend that you
vote in favour of Item 3.
EXPLANATORY MEMORANDUM
4. Approval of 2015 grant of long term incentives (“LTIs”) to
Mr Brent Emmett, Chief Executive Officer and Managing
Director
The Company introduced the LTI Plan during 2010 to provide
annual non-cash performance incentives to the Company’s key
employees. Members last approved the LTI Plan for the purposes
of ASX Listing Rule 7.2, exception 9 at the Company’s 2013 annual
general meeting.
On 13 August 2015, the board with Mr Emmett abstaining),
approved the grant of 25,088,617 share appreciation rights
(“SARs”) to the three Key Management Personnel (“KMPs”) under
the LTI Plan.
Of those SARs, 10,171,063 were approved by the board (with Mr
Emmett abstaining) to be granted to Mr Emmett in accordance
with the terms of his employment agreement, subject to the
approval of shareholders. As at the date of this Notice of Meeting,
Mr Emmett’s total fixed remuneration is A$889,968. The amount
of 10,171,063 SARs to be granted to Mr Emmett (subject to the
resolution of this Item 4) was calculated in accordance with the
LTI Plan by dividing 50% of Mr Emmett’s fixed remuneration by the
present day value of the SARs as calculated by an independent
valuer, Dalway Securities, on the effective allocation date for the
SARs (“Effective Allocation Date”) (A$0.04375). The VWAP of
shares in the Company for the 10 business day period up to the
day before the Effective Allocation Date for the purposes of the
2015 SARs award is A$0.0865.
The remaining 14,917,554 SARs were approved to be granted to
employees who are not directors of the Company. The proposed
grant to Mr Emmett is on the terms and conditions as outlined
below.
In the board’s view the proposal to grant these LTIs should be
considered against the background of the three KMPs (including
Mr. Emmett) voluntarily foregoing their entitlements to significant
cash bonuses that would have otherwise been payable to them
under the company’s Short Term Incentive Plan.
Summary of the terms of the LTI Plan
In order to provide annual performance incentives to the
Company’s executives, based on advice received from Guerdon
Associates, an independent remuneration consultant, the
board resolved on 1 April 2010 to establish the LTI Plan to
replace previous LTI arrangements for the Company’s senior
executives. The grant of LTIs in accordance with the Company’s
LTI arrangements to Mr Emmett was last approved by members
at the Company’s 2014 annual general meeting. The LTI
arrangements apply to senior executives and involve the grant of
rights which will vest subject (amongst other things) to the level
of total shareholder return (“TSR”) achieved in the vesting period,
relative to an appropriate index. Under the LTI Plan, the board has
the discretion, subject to ASX Listing Rule requirements, to grant
SARs to executives as LTIs. The board has determined that 50%
of senior executives’ fixed remuneration would be LTIs in the form
of SARs, with the number of SARs granted to be based on the
present day value of a SAR.
A SAR is a right to receive either or both shares in the Company
or a cash payment, as determined by the board, subject to the
Company satisfying certain conditions, including performance
conditions.
The LTI Plan provides that the number of shares in the Company
or the amount of the cash payment that the participant receives
on exercise of the SAR is based on the value of the SAR at the time
it is exercised (“SAR Value”). The SAR Value is the excess, if any,
of the volume weighted average price (“VWAP”) of shares in the
Company for the 10 business day period up to the date before the
date the SAR is exercised over the VWAP of shares in the Company
for the 10 business day period up to the day before the Effective
Allocation Date for the SARs. The Effective Allocation Date for the
SARs is the grant date of the SARs or any other day determined
by the board, at the time of the grant. The Effective Allocation
Date would generally be the date the executive’s entitlement was
determined.
If the board determines that the SARs are to be satisfied in cash,
the amount of cash that the participant receives on the exercise
of the SARs is the SAR Value multiplied by the number of SARs
exercised (less any deduction for taxes that the Company is
required to make from the payment).
If the board determines that the SARs are to be satisfied in shares,
the number of shares that the participant receives on the exercise
of the SARs is the SAR Value divided by the VWAP of shares in
the Company for the 10 business day period up to the day before
the day the SARs are exercised. Where the number of shares
calculated is not a whole number, it will be rounded down to the
nearest whole number.
EXPLANATORY MEMORANDUM
Other key terms and conditions of the SARs that may be granted under the LTI Plan include:
Key terms &
conditions
Eligible persons:
LTI Plan
Under the terms of the LTI Plan, the Company may grant SARs to any employee. However, it is currently intended by the Company to only grant SARs
under the LTI Plan to current senior executive employees including the sole executive director, Brent Emmett.
Exercise price:
No price is payable by a participant in the LTI Plan on the exercise of a SAR.
Performance requirements: Under the LTI Plan, the number of SARs that vest is generally determined by reference to whether the Company achieves certain performance
conditions.
The number of SARs that vest is determined by reference to the Company’s TSR over the relevant period relative to that of the S&P/ASX200 Energy
Index (“Index”). The number of SARs that vest is:
• if the Company’s TSR is equal to that of the Index (“Minimum Benchmark”), 50%;
• if the Company’s TSR is 14% or more above that of the Index, 100% (“Maximum Benchmark”); and
• if the Company’s TSR is more than the Minimum Benchmark but less than the Maximum Benchmark, a percentage between 50% and 100%
based on the Company’s TSR performance between the Minimum Benchmark and Maximum Benchmark.
The Maximum Benchmark of 14% above the Index return equates to the performance level likely to exceed the 75th percentile of market returns of
companies (weighted by company size) in the Index.
Furthermore, even where these performance conditions are satisfied, the SARs will not vest unless the Company achieves a TSR of at least 10% over
the relevant period.
The performance conditions are tested on the date that is three years after the Effective Allocation Date of the SARs, and are then re-tested every six
months after that until the date that is five years after the Effective Allocation Date of the SARs (the final retesting date). The performance conditions
are also tested where certain circumstances occur, such as a takeover bid for the Company.
If the SARs have not, pursuant to these performance conditions, vested by the final retesting date that is five years after the date the SARs are
granted, the SARs will lapse.
Cessation of employment:
If a holder of SARs under the LTI Plan ceases to be employed by a member of the Company’s corporate group, then this generally does not affect the
terms and operation of the SARs. The board does, however, under the LTI Plan have discretion, to the extent permitted by law, to cause the SARs to
lapse or accelerate the date on which the SARs become exercisable.
Maximum number of
shares that can be issued:
Subject to various exclusions, the maximum number of shares that may be issued on the exercise of SARs granted under the LTI Plan is capped at
5% of the total number of issued shares of the Company.
Restrictions on exercise:
A SAR cannot be exercised unless it has vested. Where a SAR vests, a participant may not exercise the SAR until the first time after the time the SAR
vests that the participant is able to deal with shares in the Company under the Company’s securities trading policy.
Lapse:
SARs will lapse where:
SARs are exercised by submitting a notice of exercise to the Company.
• the SARs have not vested by the final retesting date which is five years after the date of grant (see above);
• if the SARs have vested by the final retesting date that is five years after the date of grant, the SARs have not been exercised within three months
of the date that the SARs would have first been able to be exercised if they vested at the final retesting date that is five years after the date of
grant. This may be more than five years and three months from the date of grant depending on whether the holder of the SAR is able to deal with
shares in the Company under the Company’s securities trading policy at the date five years after the date of grant;
• the employee ceases to be employed by the Company (or a member of its corporate group), and the board determines that some or all of the SARs
lapse (see above);
• the board determines that the employee has committed or it is evident that the employee intends to commit, any act (whether by commission or
omission) which amounts or would amount to fraud or serious misconduct; or
• the employee provides a notice to the Company that they wish the SARs to lapse.
Share ranking and quotation:
Shares provided pursuant to the exercise of a SAR will rank equally with the shares in the Company then on issue. Quotation on the ASX will be sought for all
shares issued upon the exercise of SARs. SARs are not assignable or transferable.
No right to dividends, bonus
or rights issues:
The SARs will not confer on the holder an entitlement to dividends or to participate in bonus issues or rights issues unless the board determines that the SARs
will be satisfied in shares and until the SARs are exercised and shares are provided to the holder.
No voting rights:
The SARs will not confer an entitlement to vote at general meetings of the Company unless the board determines that the SARs will be satisfied in shares and
until the SARs are exercised and shares are provided to the holder.
Non-quotation:
The Company will not apply to the ASX for official quotation of the SARs.
Capital re-organisation:
In the event of a reorganisation of the capital of the Company, the rights of the SARs holder will be changed to the extent necessary to comply with the ASX
Listing Rules and shall not result in any additional benefits being conferred on SARs holders which are not conferred on members.
Effect of take-over or change
of control of Company, death
or disablement:
The LTI Plan contains provisions to deal with SARs where there is a takeover or change of control of the Company. Depending on the nature of the takeover or
change of control event, the Company will either have the discretion or be required (if a change of control occurs) to determine a special retesting date for the
performance requirements discussed above.
For example, the board will have discretion to determine a special retesting date where a takeover bid is made for the Company or a scheme of arrangement
is entered into. In that case, the special retesting date will be the date determined by the board. Where a statement is lodged with the ASX that a person has
become entitled to acquire more than 50% of the Company, the board will be required to determine a special retesting date, and the special retesting date will
be the day the statement is lodged with the ASX.
The SARs may vest if the performance requirements discussed above are satisfied in relation to that special retesting date.
EXPLANATORY MEMORANDUM
As at the date of this Notice of Meeting, Mr Emmett’s total fixed remuneration is A$889,968. The amount of 10,171,063 SARs to be
granted to Mr Emmett (subject to the resolution of this Item 4) was calculated in accordance with the LTI Plan by dividing 50% of
Mr Emmett’s fixed remuneration by the present day value of the SARs as calculated by an independent valuer, Dalway Securities, on
the Effective Allocation Date (A$0.04375). The VWAP of shares in the Company for the 10 business day period up to the day before the
Effective Allocation Date for the purposes of the 2015 SARs award is A$0.0865.
Shareholder approval of the grant of securities under the LTI Plan to Mr Emmett is sought for all purposes under the Corporations Act and
the Listing Rules of the ASX, including Listing Rule 10.14.
As required by Listing Rule 10.15, the following information is provided in respect of the grant of SARs under the LTI Plan to an executive
director:
Listing
Rule
10.15.2
Content requirement
Item 4
LTI Plan
The maximum number of Company’s ordinary shares that may be
acquired on exercise of the proposed grant of securities and the formula
for calculating the number of securities to be issued:
The maximum number of shares that may be acquired by Mr Emmett is 10,171,063.
The number of shares that may be acquired by Mr Emmett on exercise of the SARs
proposed to be granted to him, is determined at the time of exercise by reference to the
SAR Value at the time the SAR is exercised and the VWAP of shares in the Company
for the 10 business day period up to the day before the day the SAR is exercised (as
described above).
As an example, contingent on the performance requirements of the SARs being met,
if the VWAP of shares in the Company for the 10 business day period up to the day
before the day the SAR is exercised is:
• A$0.10, Mr Emmett would be entitled to approximately 13.5% of the maximum
number of shares; or
• A$0.20, Mr Emmett would be entitled to approximately 57% of the maximum
number of shares.
Mr Emmett is not required to pay any price in order to acquire SARs under the LTI
Plan. However, the value of what Mr Emmett receives if his SARs become exercisable
is the SAR Value. This is based on the appreciation in the share price of the Company
from the Effective Allocation Date until the date of exercise (see discussion above). The
proposed Effective Allocation Date for Mr Emmett’s SARs is 1 July 2015.
Mr Emmett was granted 3,000,879 SARs following approval at the Company’s 2014
annual general meeting which are exercisable at A$0.3729.
10.15.3
Formula for calculating the price of securities to be acquired under the
scheme:
10.15.4
Names of directors and associates who have received securities under
the scheme since the last approval; number received; and acquisition
price:
10.15.4A
Names of directors and associates entitled to participate in scheme:
Mr Emmett.
10.15.5
10.15.6
Voting exclusion statement:
Terms of any loan in relation to acquisition:
10.15.7
Date on which securities will be issued:
Voting exclusion statement – Item 4
The Company will disregard any votes cast on Item 4 by:
• Mr Brent Emmett; and
• an associate of Mr Emmett.
However, the Company need not disregard a vote if:
• it is cast by a person as proxy for a person who is entitled to vote,
in accordance with the directions on the proxy form; or
• it is cast by the person chairing the meeting as proxy for a person
who is entitled to vote, in accordance with a direction on the
proxy form to vote as the proxy decides.
Included – see below.
There are no loans in relation to the acquisition of SARs or securities issued under the
LTI Plan.
Subject to shareholder approval of the issue of the SARs, within five business days of
the AGM, but in any event no later than 12 months after the date of the AGM.
A vote must not be cast on Item 4 by a member of the KMP, or their
closely related parties, acting as proxy, if their appointment does
not specify the way the proxy is to vote on Item 4. However, this
voting restriction does not apply if the member of the KMP is the
Chairman of the meeting acting as proxy and their appointment
expressly authorises the Chairman of the meeting to exercise the
proxy even if that item is connected directly or indirectly with the
remuneration of a member of the KMP.
If you appoint the Chairman of the meeting as your proxy, and
you do not direct your proxy how to vote on Item 4, you will be
expressly authorising the Chairman of the meeting to exercise
your proxy even if Item 4 is connected directly or indirectly with
the remuneration of a member of the KMP. The Chairman of the
meeting intends to vote undirected proxies in favour of Item 4.
The directors (with Mr Emmett abstaining) recommend that you
vote in favour of Item 4.
Sydney
8 October 2015