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
24 October 2017
The Manager, Company Announcements
Australian Securities Exchange Limited
Exchange Centre
20 Bridge Street
Sydney NSW 2000
HORIZON OIL LIMITED 2017 ANNUAL REPORT
AND NOTICE OF AGM
In accordance with Listing Rule 4.7, attached are Horizon Oil Limited’s Annual Report for the
year ended 30 June 2017 and the Notice of Annual General Meeting to be held on Friday,
24 November 2017.
The Notice of Annual General Meeting will be sent to all shareholders. A printed copy of the
2017 Annual Report will be mailed 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.boardroom.media/broadcast/59ee9642b08d2638bd14f9e9
Yours faithfully,
Kylie Quinlivan
Assistant Company Secretary
For more information please contact:
Horizon Oil Limited
Kylie Quinlivan Assistant Co Secretary
T: +61 2 9332 5000
F: +61 2 9332 5050
E: info@horizonoil.com.au
Level 6, 134 William St
Woolloomooloo NSW 2011
horizonoil.com.au
Media enquiries
Gavan Collery
ResourceComms Pty Ltd
M: +61 419 372 210
E: gavan@resourcecomms.com
Horizon Oil Limited
ABN 51 009 799 455
Annual Report
2017
2017 Highlights
Oil sales
incl. China cost
recovery oil (mmbbls)
Maari
Beibu
Cost recovery gain
Revenue
incl. hedging and China
cost recovery (US$m)
Hedge loss
Hedge gain
Maari
Beibu
Cash operating cost
per barrel sold
(US$m)
Net operating cash
flow after opex
incl. hedging, China cost recovery
and excl. extraordinaries
(US$m)
Exploration and
development expenditure
(US$m)
NZ
China
PNG
Other
2P Reserves + 2C
Contingent Resources
(mmboe)
2P
2C
Total 2C Contingent Resources are calculated after the
acquisition of a 20% economic interest in PRL 40 and divestment
of a 20% economic interest in PRL 28 occuring subsequent to
30 June 2017, subject to customary PNG government approvals.
Refer table 5 on page 9 for further details.
Horizon Oil Annual Report 2017
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
7.9
16
15
14
13
1.42
1.38
1.21
1.36
104.0
138.5
25
81.1
93.6
0.47
68.5
76.0
48.1
11
14
15
18
51.7
52.2
34.0
8.5
24.5
78.0
95.6
135.7
129.2
137.1
116.1
101.5
94.8
91.4
2017 Highlights
Oil sales volumes 3% higher than FY 2016 at 1,421,940 barrels, generating revenue
of US$68.5 million
Average cash operating cost down 21% to US$11 per barrel of oil sold, driven by further
cost savings in response to lower oil prices and a reduction in tariffs applying to Beibu Gulf
production
Net operating cash flow from oil sales after operating expense of US$51.7 million, in line
with FY 2016; forecast to average US$50 - 60 million pa out to calendar 2022
Free cash flow breakeven cost over FY 2017 of US$32 per barrel (incl tax, interest and
all capex)
Net debt reduced to US$108.5 million (from US$131.9 million at 30 June 2016)
Beibu Gulf and Maari fields continuing to produce steadily at combined rate of
approximately 4,000 bopd net to Horizon Oil, with remaining cost recovery production
entitlement in Beibu Gulf equivalent to US$89.6 million
Good progress made on planning for the 1.5 mtpa Western LNG development project
in Papua New Guinea with main project elements now in pre-FEED; acreage position
strengthened and 2C resource materially increased as a result of strategic acquisitions
1
Areas of
Operation
2
Contents
2017 Highlights
Chairman and Chief Executive Officer's Report
Reserves and Resources Snapshot
2017 Reserves and Resources Statement
3
Board of Directors
Consolidated Results
Activities Review
– Production
– Development and predevelopment
China
Block 22/12 26.95%/55%
(Production/Exploration)
1
2
Papua New Guinea
PDL 10 (Stanley)
PRL 21 (Elevala/Tingu/Ketu)
PRL 28 (Ubuntu)
PPL 40 (Puk Puk/Douglas)
PPL 372
PPLs 373/430
PPL 574
3
New Zealand
PMP 38160 (Maari/Manaia)
30%
30.15%
30%1
20%1
95%
100%
80%
10%
– Exploration
Annual Financial Report
Sustainability Report
Shareholder Information
Glossary
Company Directory
1
2
6
7
12
12
13
14
18
20
21
40
93
95
97
1 Calculated after the acquistion of a 20% economic interest in PRL 40 and divestment of a 20% economic interest in PRL 28 occuring
subsequent to 30 June 2017, subject to customary PNG government approvals. Refer to table 5 on page 9 for further details.
Horizon Oil Annual Report 2017
1
1
Horizon Oil Annual Report 2017
Chairman and Chief
Executive Officer’s Report
Dear Shareholders
Highlights
John Humphrey
Chairman
Brent Emmett
Chief Executive Officer
Financial year 2017 saw a return to stability in world oil
prices, although at levels considerably below those before
prices collapsed from over US$100 per barrel in mid-
2014. With this fall came significant deflation in capital,
operating and service costs, which enabled Horizon Oil to
produce very profitably at a Brent oil price which averaged
US$51 per barrel over the reporting period.
Although we plan on the basis of oil prices continuing at
US$50 – 60 per barrel, we expect that, over time, they
will strengthen. It has to be said that the businesses of a
significant number of oil producers and service companies
are only marginally profitable at current oil prices, in addition
to which there has been a dramatic reduction in expenditure
on development of new oil production since 2014. Our view
is that eventually these factors will lead to the tightening of
oil supply and higher prices.
Against this backdrop, Horizon Oil is in a stable financial
position, with our producing fields generating consistent
cash flows with low cash operating costs, enabling net debt
to be reduced at a steady rate. The Company’s balance
sheet was strengthened in the first half of financial year
2017 when convertible bonds in the amount of US$58.8
million, issued to fund an increased interest in development
of the Beibu Gulf fields in China, were redeemed and
replaced by a US$50 million subordinated, non-amortising
loan from the Company’s largest shareholder, IMC
Investments Limited (IMC). Voluntary repayment of the
loan, which involved the issue of 300 million options over
shares in Horizon Oil to IMC, has already begun and further
pre-payment is envisaged.
Financial and operational highlights for the reporting period
are set out on the previous page. These underline the solid
performance of the producing fields and the disciplined
control exercised over operating, administrative and capital
expenditures, which are together reflected in the low free
cash flow breakeven over the year of US$32 per barrel.
Much of the margin of almost US$20 per barrel was applied
towards reduction of net debt.
Most importantly, excellent progress was made on
advancing Horizon Oil’s high potential growth asset in Papua
New Guinea, with the acreage ownership strengthened
and balanced, and the exciting Western LNG development
project now in pre-FEED (front end engineering and design).
Five year performance
The 2017 financial and operational results are perhaps best
seen in the context of the five year performance bar charts
on the inside front cover of this Annual Report. Oil sales,
revenue and net operating cash flow remain steady post the
fall in oil prices part way through financial year 2015. During
this period, Horizon Oil’s oil price hedging program served
to soften the effect of falling prices. We will continue the
hedging policy, as well as purchasing loss-of-production
insurance, as a means of reducing risk.
We expect net operating cash flow from oil sales –
US$51.7 million in 2017 – to continue at an average of
US$50 – 60 million per annum out to about 2022. Cash
operating cost has been successfully managed down to
a low US$11 per barrel.
Exploration and development capital expenditure of US$8.5
million in 2017 should remain of that order until we enter
the FEED process for Western LNG. Of course, capital
expenditure is dramatically reduced from the levels incurred
in 2014 and 2015 while the Papua New Guinea appraisal
drilling program was being completed.
The final chart highlights the 21% boost to 2C resources
that resulted largely from the Company acquiring – at
minimal cost – additional interests in discovered resources in
Papua New Guinea as certain companies withdrew from the
jurisdiction.
2
Horizon Oil Annual Report 2017 Chairman and Chief Executive Officer’s Report (cont’d.)
Free cash flow breakeven and debt reduction
Activities review and outlook for financial year 2018
The chart below shows the make-up of the free cash flow
breakeven of US$32 per barrel, which compares favourably
with that of Horizon Oil’s peers. Management will continue
its focus on cost reduction and management of exploration
and development expenditure to maintain free cash flow
breakeven at this level through financial year 2018. The low
breakeven price provides capacity for debt repayment and
serves to maintain liquidity, should the oil price fall.
The Activities Review in the pages that follow describes
the performance of the producing assets and the work
performed on them during the reporting period. It also
outlines the good progress that has been made in advancing
planning for the Company’s substantial 1.5 mtpa Western
LNG development project in Papua New Guinea.
l
b
b
/
$
S
U
60
50
40
30
20
10
0
Current oil price: ~US$54/bbl
Free cash flow breakeven: ~US$32/bbl
Opex
Corporate
tax
Interest
Full Capex
FCF
breakeven
Surplus
cash
Horizon Oil’s proven, developed and producing Beibu Gulf
and Maari fields comfortably provide support for the current
level of borrowings, and the stable cash flows are more than
adequate to service the debt. However, it is clear that some
investors would like to see further reduction in indebtedness
and the chart below demonstrates how we are tackling that.
We expect the current, steady trajectory of debt reduction
to continue.
200
120
Forecast
n
o
i
l
l
i
m
$
S
U
150
100
50
0
-50
120
120
120
120
120
120
120
120
80
59
50
45
Net debt
Net debt*
31
31
31
31
31
Dec
2015
Jun
2016
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Convertible Bonds
Senior debt facility limit
Subordinated facility
Option exercise proceeds
* Note: Forecast net debt factoring in proceeds from exercise of
options attached to the subordinated facility (US$14 million)
China – Block 22/12 Beibu Gulf
(Horizon Oil interest 26.95%)
Production from the Beibu Gulf fields continued strongly,
averaging 8,150 bopd gross over the period, of which
Horizon Oil’s share was 3,020 bopd, including cost recovery
under the Petroleum Contract. The Company’s remaining
entitlement to cost recovery oil at 30 June 2017 was
US$89.6 million, the unrecovered balance of which escalates
at 9% per annum.
Preparation of the Overall Development Plan for the WZ
12-8E and associated fields progressed well, and we hope
to reach a Final Investment Decision later this year. The plan
is to develop these fields in stages, utilising a leased mobile
production platform, connected by flexible flow-lines to
existing facilities at the WZ 12-8W field.
Because of the add-on nature of the development and the
use of leased equipment, Horizon Oil’s share of capital
expenditure will be modest and phased. As shown in
the graph on the following page, it is the combination
of production from the existing Beibu Gulf fields, future
production from the WZ 12-8E development and the cost
recovery production entitlement that drives the Company’s
cash generation through 2022.
The production profile will be further supported by a
workover program involving six wells in the existing
producing fields, which is currently underway with the
Haiyang 943 drilling rig. After the workovers are completed,
two infill wells will be drilled on the WZ 12-8W field to
further enhance production.
3
Horizon Oil Annual Report 2017
Chairman and Chief Executive Officer’s Report (cont’d.)
4,500
4,000
3,500
3,000
d
p
o
b
2,500
2,000
1,500
1,000
500
0
Jun-15
Actual
Forecast
Cost recovery production entitlement
Existing fields
WZ 12-8E field
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Working int production (existing fields)
Working int production (WZ 12-8E)
Cost recovery production entitlement
New Zealand – Maari and Manaia fields
(Horizon Oil interest 10%)
Production from Maari and Manaia fields averaged 8,300
bopd gross (830 bopd net to Horizon Oil) over financial year
2017, impacted by a six- week shutdown in November
2016 for field maintenance and repairs. These repairs – to
the water injection system and to the wellhead platform
substructure – are now complete and the Company has
filed insurance claims to recover a good part of the costs
incurred.
A production improvement program for the coming year is
underway. This involves workovers, re-perforations, water
injection enhancement and installation of surface pumps to
reduce well back pressure.
Papua New Guinea
(Horizon Oil interest 30% in Stanley field, 30.15 % in Elevala/Ketu
fields, 30% in Ubuntu field, 20% in Puk Puk/Douglas fields and 80 –
100% in surrounding exploration licences)
During the year, Horizon Oil, as operator of two of the
four licences that will comprise the Western Province gas
aggregation scheme, progressed planning for the proposed
Western LNG project. The development concept has now
been defined, with the emphasis being on selection of a
simple scheme with lowest technical and execution risk,
maximum use of standard, proven technology and high
system reliability. Pre-FEED studies of the key elements of
the project – upstream gas processing, export pipelines and
the liquefaction facility – are now underway with selected
contractors who are well qualified and possess a good
level of PNG experience. The results of these studies,
which importantly will include Class IV (-15%/+25%) cost
estimates, are expected by the end of calendar year 2017.
The next step will be to progress to FEED.
4
Horizon Oil Annual Report 2017 Horizon Oil successfully concluded a series of transactions
during the year, which ensure that it is strategically
positioned in each of the appraised gas fields that will
comprise the proposed Western LNG gas aggregation
project. These included acquisition of a 50% interest in,
and operatorship of, PRL 28 (Ubuntu field), acquisition of an
additional 3.15% interest in PRL 21 (Elevala/Ketu fields) and
exchange of a 20% interest in PRL 28 for a 20% interest in
PRL 40 (Puk Puk/Douglas gas fields).
As a result, the Company is now represented in all four
fields that will supply the Western LNG project and has a
material 28% interest in the total resource. Importantly, the
Company has operatorship of the core, liquids-rich Elevala/
Ketu and adjacent Ubuntu fields.
Sustainability
We invite shareholders to review details of the Company’s
policy and results for the reporting period in the areas of
health and safety, security, the environment and community,
which are contained in the Sustainability Report later in this
Annual Report.
Horizon Oil continues to support a number of social
investment programs in Papua New Guinea. In particular,
substantial financial and in-kind support is provided to
two non-government organisations active in the Western
Province, namely Australian Doctors International (ADI) and
Mercy Works. Both organisations are focused on improving
healthcare services in the North Fly region of Western
Province, where they seek to build partnerships with local
communities to enhance capacity and self reliance in areas
where access to basic health care is limited or non-existent.
With Horizon Oil’s support, ADI deployed two volunteer
doctors and a nurse educator during the reporting period.
These volunteers, along with local support staff from
Catholic Health Services, conducted a number of remote
area medical patrols, treating over 2,800 patients and
delivered over 120 hours of case based and group training to
rural community health workers.
This year there were again no serious injuries in any of the
operations in which Horizon Oil is involved. The Company
recorded Lost Time Injury Frequency Rates (LTIFR) and Total
Recordable Injury Frequency Rates (TRIFR) of 0.0 and 0.0.
Year
LTIFR
TRIFR
No. of Recordable Injuries
FY15
0
0.9
1
FY16
FY17
0
0
0
0
0
0
Chairman and Chief Executive Officer’s Report (cont’d.)
Strategy
The Board’s strategy for Horizon Oil remains clear.
The first element of this is to strive to maintain steady
production from our producing fields in China and New
Zealand. This will be achieved with continuing well
workovers, optimisation of production systems – for
example, water injection in Maari field – and infill drilling.
Staged development of the WZ 12-8E and associated oil
accumulations in China is important to achieving this goal.
Hand in hand with maintaining production levels will be
the continuing focus on controlling operating costs. In
combination, these efforts should deliver a stable cash flow
to the Company over the next five years or so.
The second element of the strategy is to advance
commercialisation of Horizon Oil’s material position in the
large-scale Western LNG project in Papua New Guinea. Of
course, the liquids component of the resource (condensate
and LPG) is valuable, but this is essentially a gas asset.
The Board believes that the transition of the Company from
an oil to gas producer is the right one, as gas increasingly
dominates energy consumption in Asia, leading to a
forecast tightening of the LNG market from the mid 2020s.
With a well balanced portfolio of high margin oil production
in China and New Zealand, a dominant interest in a material
condensate-rich gas resource in Papua New Guinea
targeted for development as a mid-scale LNG project and
a sustainable balance sheet, the Company’s Board and
management have a high level of confidence that Horizon
Oil is optimally positioned to take advantage of improving
oil prices and the strengthening demand in Asia for LNG.
As investor confidence returns to the oil and gas sector, we
expect these factors will play a significant part in attracting
greater interest in Horizon Oil and its assets.
John Humphrey
Chairman
Brent Emmett
Chief Executive Officer
29 September 2017
5
Horizon Oil Annual Report 2017
Reserves and Resources Snapshot
Net Reserves, Contingent Resources
and Prospective Resources
Note: Reserves and Resources are graphically represented in mmboe; where 1 bbl liquid equals 1 boe and 6 mcf raw gas equals 1 boe.
RESERVES
Proven + Probable
Total: 7.9 mmbbl
CONTINGENT
RESOURCES
Proven + Probable
Total : 28.8 mmbbl
+ 603 bcf
PROSPECTIVE
RESOURCES
Best Estimate (unrisked)
Total : 91 mmbbl
+ 1,300 bcf
Block 22/12 WZ6-12 + WZ12-8W (liquids) 5.8 mmbbl
PRL 21 (Elevala-Ketu-Tingu) (gas) 351 bcf
PMP 38160 (Maari/Manaia) (liquids) 2.1 mmbbl
PDL 10 (Stanley) (gas) 125 bcf
Other (gas) 855 bcf
PRL 574 (gas) 356 bcf
PRL 28 (Ubuntu) (iquids) 0.5 mmbbl1
PRL 574 (liquids) 18 mmbbl
PRL 40 (Puk Puk-Douglas) (liquids) 0.2 mmbbl1
PRL 21 (gas) 89 bcf
PRL 21 (Elevala-Ketu-Tingu) (liquids) 14.6 mmbbl
PRL 21 (liquids) 4 mmbbl
PDL 10 (Stanley) (liquids) 3.4 mmbbl
Block 22/12 (liquids) 53 mmbbl
Block 22/12 WZ12-8E (liquids) 3.0 mmbbl
Other (liquids) 16 mmbbl
Block 22/12 WZ6-12 + WZ12-8W (liquids) 0.2 mmbbl
PMP 38160 (Manaia development) (liquids) 5.0 mmbbl
PMP 38160 (Maari + Manaia) (liquids) 1.9 mmbbl
PRL 28 (Ubuntu) (gas) 13 bcf1
PRL 40 (Puk Puk-Douglas) (gas) 114 bcf1
1
1
2
Areas of
Operation
China
Block 22/12 26.95%/55%
(Production/Exploration)
Papua New Guinea
PDL 10 (Stanley)
PRL 21 (Elevala/Tingu/Ketu)
PRL 28 (Ubuntu)
PPL 40 (Puk Puk/Douglas)
PPL 372
PPLs 373/430
PPL 574
30%
30.15%
30%1
20%1
95%
100%
80%
10%
2
3
New Zealand
PMP 38160 (Maari/Manaia)
1 Calculated after the acquistion of a 20% economic
interest in PRL 40 and divestment of a 20% economic
interest in PRL 28 occuring subsequent to 30 June
2017, subject to customary PNG government approvals.
Refer to table 5 on page 9 for further details.
3
6
Horizon Oil Annual Report 2017
Other (gas) 855 bcf
PRL 574 (gas) 356 bcf
PRL 574 (liquids) 18 mmbbl
PRL 21 (gas) 89 bcf
PRL 21 (liquids) 4 mmbbl
Block 22/12 (liquids) 53 mmbbl
Other (liquids) 16 mmbbl
2017 Reserves and Resources Statement
Highlights:
>> As at 30 June 2017, Horizon Oil’s net Proved plus Probable Reserves (2P) of oil were 7.9 mmbbls (China: 5.8 mmbbls;
New Zealand: 2.1 mmbbls). This follows a strong year of production in both China and New Zealand averaging
3,030 bopd (net working interest)/3,850 bopd (economic interest including cost recovery in China) net to Horizon Oil.
Workovers and proposed infill wells in China and ongoing production optimisation in both China and New Zealand are
expected to continue to maintain oil rates and support ultimate recovery.
>> Horizon Oil’s net Contingent Resources (2C) of oil and condensate were 28.9 mmbbls (PNG: 18.8 mmbbls; New
Zealand: 6.9 mmbbls; China: 3.2 mmbbls), which is an increase of 4.5 mmbbls from 30 June 2016, with most of
the increase associated with an updated reservoir assessment and improved development plan for the nearby
undeveloped Manaia Moki field in New Zealand.
>> The Company’s net Contingent Resources (2C) of gas in PNG remained at 497 bcf.
Oil and Gas Reserves
At 30 June 2017, the Company’s Proved plus Probable Reserves (2P) of oil were 7.9 mmbbl, distributed as shown in Table 1.
Table 1: Horizon Oil net economic interest Proved (1P) and Proved plus Probable Reserves (2P) at 30 June 2017
Proved and Proved plus Probable Reserves
1P
Developed
Liquids1
mmbbl
1P
Underdeveloped
Liquids1
mmbbl
China
Block 22/12 WZ6-12 + WZ12-8W2
New Zealand
PMP 38160 Maari + Manaia3
Closing Balance 30 June 2017
4.0
0.7
4.7
0.1
0.2
0.3
1P
Total
Gas
bcf
-
-
-
1P
Total
Liquids1
mmbbl
2P
Developed
Liquids1
mmbbl
2P
Underdeveloped
Liquids1
mmbbl
2P
Total
Gas
bscf
2P
Total
Liquids1
mmbbl
4.1
5.5
0.9
5.0
1.9
7.4
0.3
0.2
0.5
-
-
-
5.8
2.1
7.9
1 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
2 Net of production of 15.3 mmbbl gross through 30 June 2017
3 Net of production of 34.6 mmbbl gross through 30 June 2017
Reserves are classified as either Developed or Undeveloped. Undeveloped Reserves in China comprise two infill wells due
to be drilled in late 2017, and Undeveloped Reserves in New Zealand are associated with a flowing bottom-hole pressure
(FBHP) reduction project due to be completed in early 2018.
Reconciliation of Reserves
The key changes to the Company’s Proved Reserves (1P) and Proved plus Probable Reserves (2P) since 30 June 2016 are
summarised in Table 2 below:
Table 2: Reconciliation of Horizon Oil Proved Reserves (1P) and Proved plus Probable Reserves (2P) from 30 June 2016 to 30 June 2017
Proved and Proved plus Probable Total Reserves
Opening Balance 30 June 2016 (economic interest)
Production (economic interest)
Reserves revision
Economic interest adjustment
Closing Balance 30 June 2017 (economic interest)
1P
Total Liquids1
mmbbl
1P
Total Gas
bcf
2P
Total Liquids1
mmbbl
2P
Total Gas
bcf
5.8
(1.1)
0.4
(0.1)
5.0
-
-
-
-
-
9.0
(1.1)
0.3
(0.3)
7.9
-
-
-
-
-
1 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
Horizon Oil Annual Report 2017
7
7
2017 Reserves and Resources Statement (cont’d.)
>> Production: Proved (1P) and Proved plus Probable Reserves (2P) at 30 June 2017 reflect strong net production in
the year to 30 June 2017 of 1.1 mmbbl averaging 3,030 bopd (net working interest)/3,850 bopd (economic interest
including cost recovery in China) net to Horizon Oil. (0.3 mmbbl in New Zealand and 0.8 mmbbl in China).
>> New Zealand: The only material change to Proved (1P) and Proved plus Probable Reserves (2P) in New Zealand during
the past financial year results from strong net production of 0.3 mmbbl.
>> China: The only material change to Proved (1P) and Proved plus Probable Reserves (2P) in China during the past
financial year results from strong net production of 0.8 mmbbl.
Contingent Resources
At 30 June 2017, the Company’s net Contingent Resources (2C) were 28.9 mmbbl of oil and condensate (liquids),
and 497 bcf of gas, as summarised in Table 3 below.
Table 3: Horizon Oil net economic interest Contingent Resources (2C) at 30 June 2017
2C Contingent Resources
China
Block 22/12 WZ6-12 + WZ12-8W
Block 22/12 WZ12-8E5
New Zealand
PMP 38160 Maari + Manaia
PMP 38160 Manaia development
Papua New Guinea
PDL10 Stanley6
PRL 21 Elevala-Ketu-Tingu6
PRL 28 Ubuntu6
2C
Total
Liquids1
mmbbl
0.2
3.0
3.2
1.9
5.0
6.9
3.4
14.6
0.9
18.8
2C
Raw
Gas
bcf
-
-
-
-
-
-
125
351
22
497
2C
Sales
Gas2,3,4
PJ
-
-
-
-
-
-
106
330
21
456
Closing Balance 30 June 2017
28.9
497
456
1 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
2 PDL 10 Stanley Project sales gas assumes an average fuel, flare and shrinkage of 11%; 1 GJ equals 0.957 mscf of gas
3 PRL 21 Elevala-Ketu Project sales gas assumes an average fuel, flare and shrinkage of 15%; 1 GJ equals 1.103 mscf of gas
4 PRL 28 Ubuntu Project sales gas assumes an average fuel, flare and shrinkage of 15%; 1 GJ equals 1.103 mscf of gas
5 Reduced to allow for CNOOC participation at 51%
6 Subject to reduction to allow for PNG State Nominee participation at 22.5%
8
Horizon Oil Annual Report 2017
2017 Reserves and Resources Statement (cont’d.)
Reconciliation of Contingent Resources
The key changes in Contingent Resources since 30 June 2016 are summarised in Table 4.
Table 4: Reconciliation of Horizon Oil Proved plus Probable Contingent Resources (2C) from 30 June 2016 to 30 June 2017
2C Contingent Resources
Opening Balance 30 June 2016 (economic interest)
Production
Resources revision
Economic interest adjustment
Closing Balance 30 June 2017 (economic interest)
2C
Total
Liquids1
mmbbl
24.3
-
4.5
-
28.9
2C
Total
Raw Gas
bcf
497
-
-
-
2C
Total
Sales Gas
PJ
456
-
-
-
497
456
1 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
>> Papua New Guinea: No material change in Contingent Resources (2C).
>> China: No material change in Contingent Resources (2C).
>> New Zealand: Net increase of 4.0 mmbbl Contingent Resources (2C) of oil and condensate, materially resulting from
the Operator (OMV’s) upward revision to oil-in-place and an associated upgraded development plan for the Manaia
Moki development.
Events subsequent to 30 June 2017 - Pending revision in Contingent Resources
Subject to and on PNG government approval of the acquisition of a 20% economic interest in PRL 40 and divestment of a
20% interest in PRL 281 an increase to net Contingent Resources (2C) will be realised, as summarised in Table 5 below.
1 See Horizon Oil’s market announcement of the transaction dated 18 July 2017
Table 5: Pending Revision in Contingent Resources
2C Contingent Resources
Before government approval
Working
interest
%
2C
Condensate
bcf
2C
Raw Gas
bcf
After government approval
Working
interest
%
2C
Condensate
bcf
2C
Raw Gas
bcf
Papua New Guinea
PRL 28 Ubuntu
PRL 40 Puk Puk-Douglas
Total
50%
0%
0.9
0
0.9
22
0
22
30%
20%
0.5
0.2
0.7
13
114
127
Horizon Oil Annual Report 2017
9
2017 Reserves and Resources Statement (cont’d.)
Prospective Resources
At 30 June 2017, the Company’s net Best Estimate Prospective Resources were 91 mmbbl of oil and condensate
(‘Liquids’), and 1,300 bcf of gas, as summarised in Table 6 below.
Table 6: Horizon Oil net economic interest Best Estimate Prospective Resources at 30 June 2017
Unrisked Best Estimate Prospective Resources
Best Estimate1
Liquids2
mmbbl
Best Estimate1
Raw Gas3
bcf
China
Block 22/124
Papua New Guinea
PRL 215
PRL 285
PRL 405
PPL 3725
PPL 3735
PPL 4305
PPL 5745,6
Closing Balance 30 June 2017
1 Best Estimate Prospective Resources are unrisked
2 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
3 Raw gas assumes no adjustments for fuel, flare and shrinkage
4 Subject to reduction to allow for CNOOC participation at 51%
5 Subject to reduction to allow for PNG State Nominee participation at 22.5%
6 PPL 574 covers substantially the same licence area as former licence PPL 259
Reconciliation of Prospective Resources
The key changes in Prospective Resources since 30 June 2016 are summarised in Table 7.
Table 7: Reconciliation of Horizon Oil net Best Estimate Prospective Resources from 30 June 2016 to 30 June 2017
Best Estimate Prospective Resources
53
4
2
-
3
2
9
18
91
-
89
54
-
64
548
189
356
1,300
Opening Balance 30 Jun 2016 (economic interest)
Resources revision
Economic interest adjustment
Closing Balance 30 Jun 2017 (economic interest)
1 Estimated in accordance with SPE-PRMS guidelines; liquids total equals oil plus condensate where 1 bbl condensate equals 1 bbl oil
Best Total
Liquids1
mmbbl
75
16
-
91
Best Total
Raw Gas
bcf
885
415
-
1,300
10
Horizon Oil Annual Report 2017
2017 Reserves and Resources Statement (cont’d.)
>> Papua New Guinea: Upward revision of 16 mmbbl of condensate attributable to the inclusion 2
mmbbl condensate from PRL 28, and 14 mmbbl from increases in working interest in PRL 21 (up 0.3
mmbbl), PPL 372 (up 0.1mmbbl), PPL 430 (up 4 mmbbl) and PPL 574 (up 10 mmbbl). Similarly there
is an upward revision of 415 bcf attributable to the inclusion of 54 bcf from PRL 28, and 362 bcf from
increases in working interest in PRL 21 (up 10 bcf), PPL 372 (up 3 bcf), PPL 373 (up 54 bcf), PPL 430
(up 95 bcf) and PPL 574 (up 200 bcf).
>> China: No material change in Prospective Resources associated with China.
>> New Zealand: No Prospective Resources associated with New Zealand at this time.
The estimated quantities of petroleum that may be potentially recovered by application of a future development project(s)
relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development.
Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially
moveable hydrocarbons.
Notes
Capitalised terms used in this statement in connection with the petroleum resources estimates have the meaning given to
those terms in the Petroleum Resources Management System.
Some totals in the tables may not add due to rounding.
Depending on the asset, either deterministic or probabilistic methods have been used to calculate the petroleum resources
estimates in this statement. The petroleum resources have been aggregated by arithmetic summation by category.
Estimates of petroleum resources are reported net of lease fuel. The reference point used for the purposes of measuring
and assessing the estimated reserves is the sales point (at the plant gate).
The petroleum resources estimates in this statement were compiled by Alan Fernie (General Manager – Exploration and
Development). Mr Fernie (B.Sc) is a full time employee of Horizon Oil. He is a member of the American Association of
Petroleum Geologists and has more than 40 year’s relevant experience within the industry. Alan Fernie is qualified in
accordance with the requirements of ASX Listing Rule 5.42 and consents to the use of the petroleum resources figures in
the form and context in which they appear in this statement.
Horizon Oil Annual Report 2017
11
Board of Directors
John Humphrey
Chairman
Brent Emmett
Chief Executive Officer
Gerrit de Nys
Director
Andrew Stock
Director
Sandra Birkensleigh
Director
Gregory Bittar
Director
Consolidated Results
Revenue from continuing operations
Cost of sales (includes amortisation)
Gross profit
Profit from sale of assets
Other income
General and administrative expenses
Exploration and development expenses
Impairment of non-current assets
Financing costs (includes project facility, convertible bonds and
FPSO finance lease)
Unrealised movement in value of convertible bond conversion
rights
Gain on buyback of convertible bonds during the period
Other expenses
Profit/(loss) before income tax expense
Net tax (expense)/benefit
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
12
Horizon Oil Annual Report 2017
2017
US$’000
2016
US$’000
2015
US$’000
2014
US$’000
2013
US$’000
68,534
(43,768)
24,766
-
15
(6,440)
(1,250)
75,952
103,950
138,450
48,071
(60,179)
(59,970)
(92,716)
(22,685)
15,773
43,980
45,734
25,386
-
3,638
(8,094)
(1,852)
-
23,830
6,842
(7,569)
234
(8,183)
(16,222)
(10,520)
-
30
(7,038)
(606)
-
(147,515)
-
-
-
(13,081)
(17,264)
(17,360)
(18,899)
(8,209)
530
5,322
9,063
412
991
-
(386)
4,154
1,193
(927)
(149,726)
(983)
17,751
(2,581)
30,027
-
-
-
(4,490)
5,201
556
(17,197)
(336)
(144,525)
18,307
12,830
-
(336)
(336)
-
-
(144,525)
(144,525)
18,307
18,307
-
12,830
12,830
(529)
10,025
(6,551)
3,474
-
3,474
3,474
Activities Review
2017
Production
China
P.14
Development & Predevelopment
P.18
Horizon Oil Interest
Horizon Oil Interest
Western LNG project
Block 22/12 Beibu Gulf
PDL 10 Stanley Field
Production
Exploration
New Zealand
PMP 38160 Maari and Manaia fields,
offshore Taranaki Basin
Production
Exploration
26.95%
PRL 21 Elevala/Tingu and Ketu fields (operator)
55%
PRL 28 Ubuntu field (operator)
PRL 40 Puk Puk/Douglas
Horizon Oil Interest
Exploration
Western Province, PNG
30%
30.15%
30%1
20%1
P.20
10%
10%
PPL 372 (operator)
PPL 373 (operator)
PPL 430 (operator)
PPL 574 (formerly PPL 259) (operator)
Horizon Oil Interest
95%
100%
100%
80%
1 Percentage participating interests are calculated after the acquistion of a 20%
economic interest in PRL 40 and divestment of a 20% economic interest in
PRL 28 occuring subsequent to 30 June 2017, subject to customary PNG
government approvals. Refer to table 5 on page 9 for further details.
Horizon Oil Annual Report 2017
13
Production
China
China Block 22/12,
Beibu Gulf
Horizon Oil Interest
Production
Exploration
26.95%
55%
Horizon Oil has a 26.95% working interest in the four producing fields of WZ 6-12N, WZ 6-12S,
WZ 12-8W and WZ 12-10-2 in Block 22/12, Beibu Gulf, People’s Republic of China. The producing
fields are operated by a subsidiary of Horizon Oil’s major partner, China National Offshore
Oil Company Limited (CNOOC). In addition to the producing fields, Horizon Oil holds a 55%
working interest in the exploration prospects and undeveloped fields in Block 22/12, including
the undeveloped WZ 12-8E oil accumulation.
MAP AREA
Block 22/12
Beibu
Gulf
100km
100km
Cumulative gross production from the Block 22/12 fields from first oil to 30 June 2017 was
15.3 million barrels, approximately 45% of total ultimate reserves.
Gross annual production from Block 22/12 was 2,976,065 barrels, exceeding budget by 15%.
Horizon Oil’s sales for the year, including the preferential cost recovery oil entitlement, were
1,102,793 barrels, achieving an average price of US$47.00/bbl (before hedging) and resulting
in revenue of US$51.8 million. With cash operating costs per barrel sold of US$7.54, the
producing fields generated high margin net operating cashflow of US$43.5 million.
At 30 June 2017, Horizon Oil’s remaining cost recovery entitlement was US$89.6 million, the
unrecovered balance of which escalates at 9% pa. Preferential cost recovery results from
CNOOC now having recovered its development expenses, allowing Horizon Oil and the other
non-operators priority recovery of unrecouped exploration and development capital costs, from
the cost oil tranche of production.
NEW VERS - Oct 2016
6-1-3
6-1-2
WZ 6-1-1
Beibu G ulf
12’’ pipeline
16” pipeline to weizhou island terminal
Wushi 1-3W-1
Wushi 1-3-1
WZ 6-9-1
WZ 6-9-2
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
5km
LEGEND
Producing Oil Field
Discovered Oil Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Proposed Gas Pipeline
Horizontal Oil producer
Development Area
Fault
Oil Discovery
Oil and Gas Discovery
Dry Hole
WZ 12-7-2
WZ 12-7-1
WZ 12-8-1
WZ 12-8W
14
P
i
p
e
l
i
n
e
t
o
W
Z
1
2
-
1
P
U
Q
B
WZ 12-3
WZ 12-3-1
WZ 12-3-2
WZ 12-10-1
WZ 12-10-1Sa
WZ 12-10-1
WZ 12-10-2
WZ 12-8W-A6P
WZ 12-10-2
WZ 12-8W WHP
WZ 12-8W-A1P
WZ 12-3-4
Proposed
WZ 12-8E WHP
WZ 12-8-3
WZ 12-8-2
WZ 12-8E
WZ 12-3-3
Block 22/12
AREA B
WZ 12-3
WZ 12-3-4
WZ 12-3-2
WZ 12-3-1
CHINA
MAP AREA
Block 22/12
i
a
.
6
1
0
2
t
p
R
n
A
_
6
1
0
2
t
s
u
g
u
A
_
p
a
m
a
n
i
h
C
_
N
Z
H
Beibu
Gulf
100km
WZ 12-10-2
WZ 12-10-2
WZ 12-7-2
WZ 12-7-1
WZ 12-8W
WZ 12-8-1
WZ 12-10-1
WZ 12-10-1Sa
WZ 12-10-1
WZ 12-8W-A6P
WZ 12-8-3
WZ 12-8-2
Proposed
WZ 12-8E WHP
WZ 12-3-3
WZ 12-8W WHP
WZ 12-8W-A1P
LEGEND
Producing Oil Field
Discovered Oil Field
Oil Pipeline
Development Area
Oil & Gas Discovery
Oil Discovery
Dry Well
Horizontal Oil producer
WZ 12-8E
3km
Block 22/12
AREA B
Horizon Oil Annual Report 2017Beibu Gulf
Activities Review
Shortly after year end, the joint venture commenced
an infill drilling and workover program, involving the
drilling of two new development wells, perforation
of additional oil zones and pump replacement. The
work is expected to be completed in Q4 of calendar
year 2017 and is forecast to significantly improve
near term production.
The development planning and approvals for the WZ
12-8E project progressed well during the year. The
development of the 11.1 mmbo gross recoverable
resource (Horizon Oil net working interest share at
26.95%, following CNOOC back-in) is planned as
a phased development with the initial three wells
being drilled from a leased platform, to be tied
back to the existing Block 22/12 infrastructure. The
investment phasing and use of leased infrastructure
is appropriate and prudent in the current oil price
environment. Project approvals for the WZ 12-
8E development advanced as anticipated, with
the completion of CNOOC Research Institute’s
review of the Overall Development Plan and the
project environmental impact report now finalised.
CNOOC’s schedule anticipates the final investment
decision for the project in Q4 of calendar year 2017
and first oil in early calendar year 2019.
WITH CASH OPERATING COSTS PER BARREL
SOLD OF US$7.54, THE PRODUCING FIELDS
GENERATED HIGH MARGIN NET OPERATING
CASHFLOW OF US$43.5 MILLION.
Integrated Development Concept
CNOOC Infrastructure
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
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
Phase I Development
Future CNOOC Fields
WZ 12-1A
Existing Production
Future CNOOC Fields
WZ 12-1PAP
WZ 6-12 WHP
WZ 12-1 PUQB
WZ 12-8W
WHP
Future
WZ 12-8E WHP
Proposed
Phase II Development
Horizon Oil Annual Report 2017
15
15
Horizon Oil Annual Report 2017 Production
New Zealand
New Zealand PMP 38160,
Maari and Manaia fields,
offshore Taranaki Basin
Horizon Oil Interest
Production
Exploration
10%
10%
Gross production from the Maari and Manaia fields over the year was 3,043,037 bbls.
Horizon Oil’s net working interest share was 304,304 barrels, with 2017 sales of
319,147 bbls at an average realised price of US$50.63/bbl (excluding hedging),
resulting in revenue of US$16.2 million.
Auckland
MAP AREA
Tasman Sea
Wellington
Cumulative gross production from the Maari and Manaia fields
from first oil to 30 June 2017 is 34.6 million barrels.
Production at Maari/Manaia was temporarily suspended from
late November 2016 until early January 2017 to complete
scheduled repairs and maintenance of the water injection riser
and also implement integrity measures to further protect the
field flowlines. Concurrent with these scheduled operations,
temporary repairs were undertaken to the wellhead platform
structure and subsequently permanent repairs were completed.
500km
Reconfiguration works of certain wellhead pipework in
preparation for the installation of production enhancing
multiphase pumps were carried out in the first half of financial
year 2018. The installation of the multiphase pumps and a
workover of the Manaia MN-1 well are forecast to materially
increase the field production rate.
TUI
MAUI
PMP 38160
(10%)
MAARI
Oaonui
KAPUNI
WAIHAPA
A-NGAERE
Tasman Sea
RIMU
KUPE
MANAIA
20km
Auckland
MAP AREA
Wellington
500km
LEGEND
Oil Producer
Oil Discovery
Dry Hole
Fault
Oil Field
Gas Field
Horizon Oil
Petroleum Licence
2km
MAARI
Maari-1
Moki-1
Maari-2
Moki-2a
Whio-1
PMP 38160
(10%)
MANAIA
Manaia-2
Maui-4
16
LEGEND
Oil Producer
Oil Discovery
Fault
Oil Field
Gas Field
Lead
Horizon Oil
Petroleum Licence
Horizon Oil Annual Report 2017 Activities Review
THE INSTALLATION OF THE MULTIPHASE PUMPS AND A WORKOVER
OF THE MANAIA MN-1 WELL ARE FORECAST TO MATERIALLY
INCREASE THE FIELD PRODUCTION RATE.
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 2017
17
17
Horizon Oil Annual Report 2017
Development and predevelopment
Western LNG project
Western LNG
project
Horizon Oil Interest
PDL 10, Stanley
Field
PRL 21, Elevala/
Tingu and Ketu
fields (operator)
PRL 28, Ubuntu
field (operator)
PRL 40, Puk Puk/
Douglas
30%
30.15%
30%1
20%1
During the year, the Company and its joint venture partners progressed feasibility studies for
the proposed 1.5 mtpa Western LNG gas aggregation project. The foundation gas volumes
will be provided by the appraised condensate rich gas fields of Elevala/Tingu and Ketu (PRL
21), Stanley (PDL 10) and Ubuntu (PRL 28), with the Puk Puk/Douglas (PRL 40) lean gas fields
providing later life gas volumes and a potential hub for other regional gas discoveries such
as Kimu (PRL 8). Western LNG will involve development of the appraised Western Province
gas resources via pipeline to a gas liquefaction facility located near Daru Island and export
of LNG and condensate from Daru, with gas and LPG made available for domestic consumers
at appropriate points on the pipeline.
Wewak
MAP AREA
Madang
Lae
Oil
Pipeline
Daru
Port Moresby
Gulf of
Papua
500km
In the coming year, the Company will continue to progress planning, design and engineering
work for the three key elements of Western LNG – the upstream processing facilities, the
gas and condensate export pipelines to Daru Island and the near-shore modular liquefaction
facility.
In addition to the foregoing activities, Horizon Oil engaged with the PNG national oil company,
Kumul Petroleum Holdings Limited (Kumul), to provide input on planning for Kumul’s initiative
of an open access pipeline that would facilitate the commercialisation of several undeveloped
gas accumulations in Western Province, to be called the Western Pipeline.
1 Percentage participating interests
are calculated after the acquistion
of a 20% economic interest in
PRL 40 and divestment of a 20%
economic interest in PRL 28
occuring subsequent to 30 June
2017, subject to customary PNG
government approvals. Refer to
table 5 on page 9 for further details.
In the latter part of the year, Horizon Oil executed a series of transactions strengthening the
Company’s strategic position in the appraised gas fields composing the proposed 1.5 mtpa
Western LNG gas aggregation project. Horizon Oil increased its interest in Elevala/Ketu
(PRL 21) by 3.15% on the acquisition of Mitsubishi’s interest, acquired 50% of the Ubuntu
field (PRL 28) and then traded 20% of its Ubuntu interest for a 20% interest in the Puk Puk/
Douglas fields (PRL 40), acquired from Kumul. The Company now owns material interests in
all fields that will comprise the gas aggregation scheme and operates the core PRL 21 fields.
The recent regional consolidation of ownership of gas-condensate resources also saw the
entry of Kumul as a significant working interest holder in the region, indicating strong PNG
Government support for the commercialisation of Western Province gas fields.
18
Horizon Oil Annual Report 2017 Activities Review
WESTERN LNG WILL INVOLVE DEVELOPMENT OF THE
APPRAISED WESTERN PROVINCE GAS RESOURCES
VIA PIPELINE TO A GAS LIQUEFACTION FACILITY
LOCATED NEAR DARU ISLAND.
S
e
pik
r
e
R i v
er
v
i
R
Nena Camp Site
Nena Mine Pit
Horse_Ivaal Pit
a
Fried
Koki Pit
Ok Tedi
Mine
Telefomin
Tabubil Township
Ok Menga
Gas conditioning
plant
P’NYANG/
P’NYANG SOUTH
Kopiago
STANLEY
PDL 10
(30%)
Kiunga
Drimdemasuk
Fly River
TINGU
PPL 574
(80%)
PPL 430
(100%)
JUHA NORTH/
JUHA
PRL 28
(30%)
UBUNTU
PRL 21
(30.15%)
KETU
ELEVALA
PPL 372
(95%)
MURUK
DISCOVERY
Porgera
Koroba
Hides GTE Plant
Tari
ANGORE
HIDES
MANANDA/
SE MANANDA
AGOGO
MORAN
KUTUBU
PPL 372
(95%)
HEDINIA
SE HEDINIA
PRL 40
(20%)
River
PUK PUK
Difficult
WEIMANG
NW
KOKO
PPL 373
(100%)
A
U
P
A
P
T
S
E
W
Aiambak
Kavianganga
Strickla n d
DOUGLAS
LANGIA
KOKO
KIMU
MANTA
PPL 373
(100%)
Fly River
i
a
.
7
1
0
2
r
e
b
m
e
t
p
e
S
_
R
A
_
p
a
m
l
i
a
n
o
g
e
r
-
G
N
P
_
N
Z
H
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Proposed Gas Pipeline
Roads/Tracks
Rivers
Township/Village
Horizon Oil
Petroleum Licences*
PAPUA
NEW
GUINEA
Madang
GOBE
SE GOBE
IEHI
Terrain
BARIKEWA
COBRA
TRICERATOPS
Lae
KURU
Kopi Shore Base
Kopi Scraper Station
ELK - ANTELOPE
URAMU
Kumul
Terminal
PASCA
HAGANA
FLINDERS
Daru Island
Proposed
Liquefaction
Facility
PANDORA
Gulf of
Papua
LNG Facility
100km
Port Moresby
ANNUAL REPORT 2017
Horizon Oil Annual Report 2017
19
19
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Proposed Gas Pipeline
Roads/Tracks
Rivers
Township/Village
Horizon Oil
Petroleum Licences*
i
a
.
d
e
p
p
o
r
c
-
7
1
0
2
r
e
b
m
e
t
p
e
S
_
R
A
_
p
a
m
l
a
n
o
i
g
e
r
-
G
N
P
_
N
Z
H
Ok Tedi
Mine
Telefomin
Tabubil Township
Ok Menga
Gas conditioning
plant
P’NYANG/
P’NYANG SOUTH
Kopiago
JUHA NORTH/
JUHA
STANLEY
PDL 10
(30%)
PRL 21
(30.15%)
TINGU
KETU
PRL 28
(30%)
UBUNTU
Kiunga
Drimdemasuk
ELEVALA
PPL 372
(95%)
PPL 574
(80%)
PPL 430
(100%)
River
PRL 40
(20%)
PUK PUK
MURUK
DISCOVERY
Koroba
Hides
GTE Plant
Porgera
PAPUA
NEW
GUINEA
Tari
ANGORE
HIDES
MANANDA/
SE MANANDA
AGOGO
MORAN
KUTUBU
PPL 372
(95%)
HEDINIA
Difficult
SE HEDINIA
GOBE
Fly River
A
U
P
A
P
T
S
E
W
WEIMANG
NW KOKO
PPL 373
(100%)
DOUGLAS
LANGIA
MANTA
KOKO
KIMU
PPL 373
(100%)
SE GOBE
COBRA
Terrain
IEHI
BARIKEWA
Kopi
Scraper
Station
KURU
Kopi
Shore Base
Aiambak
Kavianganga
F
l
y
Strickland
River
50km
Pipelines to Daru Island
Liquefaction Facility
Gulf of
Papua
URAMU
Kumul
Terminal
Horizon Oil Annual Report 2017WESTERN (FLY) PROVINCEWESTERN (FLY) PROVINCEPUK PUKHIGHLANDSFORELANDHIGHLANDSFORELAND
S
e
pik
er
v
i
R
a
Fried
Koki Pit
Nena Mine Pit
Horse_Ivaal Pit
Nena Camp Site
Ok Tedi
Mine
Exploration
Telefomin
Tabubil Township
Ok Menga
Gas conditioning
plant
P’NYANG/
P’NYANG SOUTH
Kopiago
r
e
R i v
Porgera
i
a
.
7
1
0
2
r
e
b
m
e
t
p
e
S
_
R
A
_
p
a
m
l
a
n
o
i
g
e
r
-
G
N
P
_
N
Z
H
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Proposed Gas Pipeline
Roads/Tracks
Rivers
Township/Village
Horizon Oil
Petroleum Licences*
Madang
Activities Review
PAPUA
NEW
GUINEA
MURUK
DISCOVERY
JUHA NORTH/
JUHA
PRL 28
(30%)
UBUNTU
Koroba
Hides GTE Plant
Western Province, PNG
MANANDA/
SE MANANDA
Tari
ANGORE
PPL 372
(95%)
HIDES
PRL 21
(30.15%)
KETU
ELEVALA
MORAN
AGOGO
KUTUBU
Lae
PRL 40
(20%)
River
PUK PUK
WEIMANG
DOUGLAS
95%
LANGIA
Strickla n d
100%
100%
80%
Fly River
TRICERATOPS
HEDINIA
PPL 372
(95%)
SE HEDINIA
MANTA
IEHI
KIMU
GOBE
KOKO
COBRA
SE GOBE
PPL 373
(100%)
PPL 373
(100%)
NW
KOKO
Difficult
Horizon Oil operates and holds working
interests in the exploration licences containing
Terrain
the prospective acreage surrounding its gas-
KURU
BARIKEWA
Kopi Shore Base
condensate fields noted above. The largely
Kopi Scraper Station
underexplored acreage provides the potential for
expansion gas volumes for Western LNG.
URAMU
Kumul
Terminal
The Company increased its working interests in the
exploration licences during the year as a result of
the acquisition of Transform Exploration’s interests
in PPLs 430 and 574.
PASCA
ELK - ANTELOPE
HAGANA
FLINDERS
STANLEY
PDL 10
(30%)
Kiunga
Drimdemasuk
Fly River
TINGU
PPL 574
(80%)
PPL 430
Western Province,
(100%)
PNG
Horizon Oil Interest
PPL 372 (operator)
Aiambak
A
U
P
A
P
PPL 373 (operator)
Kavianganga
PPL 430 (operator)
T
S
PPL 574 (formerly
E
W
PPL 259) (operator)
Wewak
MAP AREA
Madang
Lae
Oil
Pipeline
Daru
Port Moresby
Gulf of
Papua
500km
Daru Island
Key activities for the year in the licence areas
included extensive seismic data analysis and
reinterpretation, together with further development
of the substantial prospects and leads inventory.
This activity has increased the Company’s level of
confidence in several prospects, in particular, the
‘Elevala-Extension’ prospect in PPL 574.
Proposed
Liquefaction
Facility
Gulf of
Papua
PANDORA
LNG Facility
100km
Port Moresby
ANNUAL REPORT 2017
Ok Tedi
Mine
Telefomin
Tabubil Township
Ok Menga
Gas conditioning
plant
P’NYANG/
P’NYANG SOUTH
Kopiago
JUHA NORTH/
JUHA
STANLEY
PDL 10
(30%)
PRL 21
(30.15%)
TINGU
KETU
PRL 28
(30%)
UBUNTU
Kiunga
Drimdemasuk
ELEVALA
PPL 372
(95%)
PPL 574
(80%)
PPL 430
(100%)
River
PRL 40
(20%)
PUK PUK
Porgera
MURUK
DISCOVERY
Koroba
Hides
GTE Plant
PAPUA
NEW
GUINEA
Tari
ANGORE
HIDES
MANANDA/
SE MANANDA
AGOGO
MORAN
KUTUBU
PPL 372
(95%)
HEDINIA
Difficult
SE HEDINIA
GOBE
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed Oil Pipeline
Gas Pipeline
Proposed Gas Pipeline
Roads/Tracks
Rivers
Township/Village
Horizon Oil
Petroleum Licences*
i
a
.
d
e
p
p
o
r
c
-
7
1
0
2
r
e
b
m
e
t
p
e
S
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R
A
_
p
a
m
l
i
a
n
o
g
e
r
-
G
N
P
_
N
Z
H
SE GOBE
COBRA
WEIMANG
NW KOKO
PPL 373
(100%)
Fly River
A
U
P
A
P
T
S
E
W
DOUGLAS
LANGIA
MANTA
Aiambak
Kavianganga
F
l
y
Strickland
River
KOKO
KIMU
PPL 373
(100%)
Terrain
IEHI
BARIKEWA
Kopi
Scraper
Station
KURU
Kopi
Shore Base
Gulf of
Papua
URAMU
Kumul
Terminal
50km
Pipelines to Daru Island
Liquefaction Facility
20
Horizon Oil Annual Report 2017WESTERN (FLY) PROVINCEWESTERN (FLY) PROVINCEPUK PUKHIGHLANDSFORELANDHIGHLANDSFORELAND
Horizon Oil Limited
ABN 51 009 799 455
Annual Financial
Report
For the financial year ended 30 June 2017
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
The annual financial report was authorised for issue by
the Board of Directors on 29 August 2017. The Board of
Directors has the power to amend and reissue the annual
financial report.
All references to reserves and contingent resources within
the financial report are drawn from the Horizon Oil 2017
Reserves and Resources Statement dated 29 August 2017.
Horizon Oil Annual Report 2017
21
21
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
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 2017.
DIRECTORS
The following persons were directors of Horizon Oil Limited during the whole, or for part where noted, of the financial year and up to the
date of this report:
J Humphrey
B Emmett
G de Nys
A Stock
S Birkensleigh
G Bittar was appointed as a non-executive director on 6 March 2017 and continues in office at the date of this report. B Lorenzon was
appointed as his alternate on this date.
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 13 to 20 of this
annual financial report.
Group financial performance
Consolidated statement of profit or loss and other comprehensive income
2017 Profit after tax drivers
80
70
60
50
40
30
20
10
0
-10
68.5
17.5
5.8
45.2
26.7
1.3
17.2
13.0
4.2
Revenue
Operating
costs
G&A and
Other
EBITDAX
Dep. and
Amort.
Exploration
EBIT
Interest
PBT
4.5
Tax
(0.3)
NPAT
n
o
i
l
l
i
m
$
S
U
22
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
The Group reported a net loss after tax of US$0.3 million for the
year compared with a loss of US$144.5 million in the prior year.
The full year result includes a gross profit of US$24.8 million (2016:
US$15.8 million) from Block 22/12 and Maari operations offset by
general and administrative expenses of US$5.2 million, financing
costs of US$13.1 million, an insurance expense of US$1.2 million
and exploration and development expenses of US$1.3 million.
EBITDAX was US$45.2 million (2016: US$54.0 million), and EBIT
was US$17.2 million (2016: loss of US$132.5 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 (including non-cash impairments). 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 reports for the financial
years ended 30 June 2017 and 30 June 2016.
Basic earnings per share for the financial year were a loss of 0.03
cents based on a weighted average number of fully and partly paid
ordinary shares on issue of 1,303,481,265 shares.
Sales and production growth
The Group’s producing assets continued to perform well, with sales
volumes of 1,421,940 barrels of oil resulting in a 3% increase on the
prior year (2016: 1,376,069 barrels), with the Group’s net working
interest share of oil production for the year of 1,106,353 barrels of
crude oil (2016: 1,354,982 barrels). Sales volumes were driven by
the preferential recovery of historic exploration costs under the cost
recovery mechanism of the Petroleum Contract in Block 22/12 with
an economic interest share of approximately 37% attributable to the
Group for the financial year (net working interest share of 26.95%).
The cost recovery volumes are driven by the continued recovery
in oil prices and a material reduction in operating expenditure
following the achievement of the gross production milestone of
13.9 million barrels of oil in January 2017 which reduced the oil
pipeline transportation tariff payable to China National Offshore Oil
Corporation from US$4.75 per barrel to US$0.50 per barrel. The
Maari field has produced strongly during the year notwithstanding
the precautionary shut-in of the Maari field from 24 November 2016
through to 12 January 2017 owing to the identification of a fatigue
crack in one of the well head platform struts and the performance
of water injection flowline repairs scheduled for the same period.
Crude oil sales revenue pre-hedging of US$68.0 million (2016:
US$56.5 million) was generated during the financial year resulting
from a net realised oil price of US$47.81 per barrel (2016:
US$41.03). Throughout the period 46% of sales were hedged
(2016: 29%) with hedging revenue of US$0.5 million (2016:
US$19.5 million) realised on 660,300 barrels hedged at an weighted
average price of US$52.05 (2016: 397,500 barrels at US$95.48).
Operating costs of US$43.8 million (2016: US$60.2 million) were
27% lower than the prior year driven by the significantly reduced
operating costs per barrel in China, coupled with lower cash
operating costs and non-cash amortisation charge as a result of the
decreased production levels.
General and administrative expenses
A 22% reduction in general and administrative costs was
achieved during the period as the Group continues to focus on the
maintenance of a lower cost structure in response to the current
oil price environment with costs of US$5.2 million (2016: US$6.7
million) in the period. This expense comprised net employee
benefits expense of US$3.5 million (including non-cash share based
payment expense of US$0.9 million), corporate office expense of
US$0.9 million, depreciation of US$0.4 million, and rental expense
of US$0.4 million.
Insurance expense
Insurance expense of US$1.2 million (2016: US$1.4 million)
in the period reflected reduced premiums associated with
less development and drilling activity in the current oil price
environment.
Exploration and development expenses
Exploration and development expenses of US$1.3 million (2016:
US$1.9 million) was primarily related to the Group’s exploration
licences in Papua New Guinea.
Finance costs
The Group’s borrowing costs of US$13.1 million (2016: US$17.3
million) are 24% lower than the prior year predominately due to the
reduced debt levels following the refinancing of the US$58.8 million
convertible bonds with a US$50 million subordinated secured
non-amortising debt facility drawn down on 19 September 2016,
coupled with continued debt reduction through the repayment of
principal amounts outstanding from surplus cash flows.
Gains recorded on convertible bonds
An unrealised gain of US$0.5 million (2016: US$5.3 million) was
recorded for the revaluation to zero of the conversion option on
the convertible bonds following their redemption on the extended
redemption date of 19 September 2016.
Income and royalty tax
The net income and royalty tax expense of US$4.5 million (2016:
US$5.2 million) incurred during the financial year included a
deferred income tax expense of US$4.3 million and royalty related
tax expense of US$0.5 million. The net income tax expense was
predominately driven by utilisation of carried forward tax losses
during the year.
Hedging
At 30 June 2017, the Group had 393,750 barrels of crude oil
hedged through Brent oil price swaps (30 June 2016: no barrels)
at a weighted average price of US$54.37. During the financial
year, 660,300 barrels of oil price derivatives were settled, securing
revenue of US$34.4 million.
Horizon Oil Annual Report 2017
23
Directors’ Report
For the financial year ended 30 June 2017
Consolidated Statement of Financial Position
At 30 June 2017, total assets were US$271.7 million (2016:
US$286.7 million) and total liabilities were US$165.0 million
(2016: US$182.1 million), resulting in an increase in net assets to
US$106.7 million (2016: US$104.5 million).
The decrease in total assets is primarily due to the non-cash
amortisation of the producing assets at Maari and Beibu Gulf on a
unit of production basis. The decrease in total liabilities reflects the
refinancing of the US$58.8 million convertible bonds outstanding
at 30 June 2016 with a US$50 million subordinated non-amortising
secured loan coupled with further debt reductions during the period
through the use of free cash flow.
At 30 June 2017 the Group had net current assets of US$3.2
million (2016: net current liabilities of US$60.4 million) reflecting
the improved maturity profile of the debt following the refinancing
activities during the year and increased cash reserves available after
meeting the operating, capital and financing commitments of the
Group.
At 30 June 2017, the Group’s net debt position, based on nominal
amounts drawn down, was reduced by 18% on the prior year to
US$108.5 million (2016: US$131.9 million), comprising of cash
and cash equivalents held of US$24.5 million (2016: US$16.1
million) offset by borrowings of US$133 million (2016: US$147.9
million). At financial year end, borrowings consisted US$88.0
million principal outstanding on the Revolving Cash Advance Facility
executed with senior lenders in May 2015 and US$45.0 million
principal outstanding on the subordinated secured non-amortising
loan.
Consolidated Statement of Cash Flows
2017 Cash Drivers
120
100
n
o
i
l
l
i
m
$
S
U
45.5
64.9
5.2
80
60
40
20
40.8
16.1
4.7
2.7
0.4
24.5
Opening cash and
cash equivalents
at 1 July 2016
Net cash from
operating
activities (excl
G&A / other)
G&A / other
expenditure
(excluding depn)
Proceeds
from
borrowings
Debt
repayment
Development
expenditure
Exploration
expenditure
Prepaid
abandonment
costs
Cash and cash
equivalents at
30 June 2017
Net cash generated from operating activities was 19% lower for
the financial year at US$35.6 million (2016: US$44.2 million) due
to the prior year including approximately US$20 million of hedge
receipts and insurance proceeds. This was partially offset in the
current year through a 27% reduction in cash operating costs and
higher prevailing oil prices (pre-hedging). The Group continued to
reduce capital expenditure in the low oil price environment with
expenditure of US$7.7 million (2016: US$30.1 million) a 74%
decrease on the prior year. The free cash available after operating
and investing activities enabled further debt reduction with a net
outflow of US$19.5 million from financing activities for the period.
Debt Facilities
Revolving Cash Advance Facility
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) and Westpac Banking Corporation
(Westpac). The facility was used to refinance the previous
Reserves Based Debt Facility. Unless refinanced, or repaid in
advance, the facility matures in May 2019. 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.
Estimated future cash flows are dependent on, amongst other
things, the lenders’ views on forecast oil prices, reserve estimates,
operating and capital cost estimates and forecast interest and
exchange rates.
24
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
At 30 June 2017, total debt drawn under the facility was US$88.0
million with undrawn debt capacity available of approximately
US$8.8 million. Floating interest in respect of the facility was at
LIBOR plus a weighted average margin of 2.90%.
Redemption of convertible bonds and drawdown of
subordinated loan facility
On 15 September 2016 the Group achieved financial close and
drawdown of a US$50 million subordinated secured non-amortising
loan. Shareholders approved the loan, which involved the issue
of 300 million options over unissued shares in the Company, at a
general meeting on 6 September 2016.
Proceeds of the facility were applied to redeem the remaining
US$58.8 million convertible bonds prior to their maturity.
This refinancing, in conjunction with the reduction of the drawn debt
levels of the Group’s senior debt facility in 2016, sees the Group’s
gross debt levels reduced by over US$100 million since April 2014,
as well as extending the maturity profile of the Group’s debt given
the unconditional right of the Group to defer any repayments of the
subordinated debt for three years from drawdown.
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 in fields
in New Zealand, China and Papua New Guinea.
The Company has a conservative and selective exploration policy
with specific focus on plays providing material scale and upside.
The identified prospective resources in the Company’s inventory,
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 rate of 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 operations 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.
Outlook
It is expected that the 2018 financial year and beyond will be
underpinned by continued strong production from the Group’s China
and New Zealand operations. Oil production from the Group’s
China and New Zealand operations are expected to be maintained
around 2017 levels with natural reservoir decline offset by planned
well interventions in Beibu and Maari and additional in-fill drilling
in Beibu. Horizon Oil’s production entitlement from China is also
expected to remain elevated at ~35%, well above Horizon Oil’s net
working interest, due to preferential cost recovery. Accordingly,
assuming oil prices average a similar level to where they closed in
the 2017 financial year, revenue (before hedging) for the Group is
expected to remain at 2017 levels, barring unforeseen events.
The Group’s short-term focus is on:
>> Progressing the Beibu Gulf fields Phase II development for
WZ 12-8E;
>> Optimising production performance from the Beibu and Maari/
Manaia fields through continued workover campaign and
additional in-fill drilling in Beibu; and
>> Progressing the 1.5 mtpa Western LNG development with
a focus on planning the three key elements including the
upstream processing facilities, the gas and condensate export
pipelines to Daru Island and the modular liquefaction facility to
be located near Daru Island.
Significant changes in the state of affairs
Other than the matters noted above and disclosed in the review of
operations, there have not been any other significant changes in the
state of affairs of the Group during the financial year.
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 2017 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 – China, New Zealand, 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.
Reporting currency
The Company’s and the 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.
25
Horizon Oil Annual Report 2017 Directors’ Report
Information on Directors
For the financial year ended 30 June 2017
The following persons held office as directors of Horizon Oil Limited at the date of this report:
Non-executive independent Director and Chairman:
Professor J Humphrey LL.B., SF Fin
Experience and current directorships:
Former directorships during last 3 years:
Special responsibilities:
Director for 27 years. Executive Dean of the Faculty of Law at Queensland University
of Technology. Chairman of Auswide Bank Ltd, a director of Lynas Corporation Ltd,
Spotless Group Holdings Limited, and a former member of the Australian Takeovers
Panel.
Non-executive director of Downer EDI Limited.
Chairman of Board; Chairman of Remuneration, Nomination and Disclosure
Committees; Member of Audit Committee; member of Risk Management
Committee.
Executive Director and Chief Executive Officer:
B Emmett B.Sc (Hons)
Experience and current directorships:
Director for 17 years. Over 40 years’ experience in petroleum exploration, E&P
management and investment banking.
Former directorships during last 3 years:
None.
Special responsibilities:
Non-executive Director:
Experience and current directorships:
Former directorships during last 3 years:
Special responsibilities:
Non-executive independent Director:
Experience and current directorships:
Former directorships during last 3 years:
Special responsibilities:
Non-executive independent Director:
Experience and current directorships:
Chief Executive Officer; member of Risk Management and Disclosure Committees.
G de Nys B. Tech, FIEAust, FAICD, CPEng (Ret)
Director for 10 years. Over 44 years’ experience in civil engineering, construction,
oil field contracting and natural resource investment management. Non-executive
director of IMC Pan Asia Alliance Group subsidiaries (a related party of Austral Asia
Energy Pty Ltd a substantial shareholder of Horizon Oil Limited).
Non-executive director of SOCAM Development Limited
Member of Risk Management and Remuneration and Nomination Committees.
A Stock B. Eng (Chem) (Hons), FAIE, GAICD
Director for 6 years. Over 40 years of development, operations and commercial
experience in energy industries in Australia and overseas. He is Chair, Melbourne
University Energy Institute Advisory Board, and Chair, Institute of Mineral and Energy
Resources Advisory Board at University of Adelaide. 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 and Clean Energy Finance Corporation.
Chairman of Risk Management; member of Audit Committee and Remuneration and
Nomination Committees.
S Birkensleigh B. Comm, CA, GAICD
Director for 2 years. Extensive experience in financial services and risk management,
compliance and corporate governance. 24 years at PricewaterhouseCoopers (PwC)
where she was formerly a Global Lead for Governance Risk & Compliance; a National
Lead Partner Risk and Controls Solutions and a Service Team Leader for Performance
Improvement. Non-executive director of Auswide Bank Limited, MLC Limited, 7-11
Holdings and its subsidiaries, National Disability Insurance Agency and the Sunshine
Coast Children’s Therapy Centre, an independent member of the Audit Committee of
the Reserve Bank of Australia, a member of the Council of University of the Sunshine
Coast and Chair of its Audit and Risk Committee and Chair of the Audit and Risk
committee of the Public Trustee of Queensland.
Former directorships during last 3 years:
Plum Financial Services Limited
Special responsibilities:
Non-executive Director:
Chairman of Audit Committee; Member of Risk Management and Remuneration and
Nomination Committees.
G Bittar BEc., LL.B., (Hons) M.Sc., (LBS)
Experience and current directorships:
Mr Bittar has been appointed as non-executive director on 6 March 2017.
Mr Bittar has extensive experience in public and private markets mergers and
acquisitions, capital markets and strategic advisory assignments across a range of
sectors including general industrials, metals and mining, mining services and energy.
He is currently Chairman of Millenium Minerals Limited and Trek Minerals Limited and
a non-executive director of ECM Limited.
Former directorships during last 3 years:
Special responsibilities:
None.
None.
26
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
Alternate Non-executive Director:
Experience and current directorships:
B Lorenzon B.E., MBA., CFA
Mr Bruno Lorenzon has been appointed as Mr Greg Bittar’s alternate on 15 March
2017.
Mr Lorenzon is Head, Group Corporate Finance for the IMC Group and has more than
15 years’ experience in investments, strategy and corporate finance in the resources
sector both in Australia and overseas. He has worked for the IMC Group for the past
nine years and previously worked for Vale in Brazil and Rio Tinto in Australia in roles
encompassing strategic planning, M&A and business development. Mr Lorenzon has
a Bachelor of Civil Engineering, MBA and is a CFA chartholder. Mr Lorenzon is also an
alternate director representing the IMC Group on the Board of Millennium Minerals
Ltd.
Former directorships during last 3 years:
None.
Company Secretary
Company Secretary and Chief Financial Officer:
M Sheridan B.Ec, LL.M., F Fin
Qualifications and experience:
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.
Directors’ Interests in the Company’s Securities
As at the date of this Directors’ Report, the directors held the following number of fully paid ordinary shares over unissued ordinary shares
in the Company:
Director
B Emmett
J Humphrey
G de Nys
A Stock
S Birkensleigh
G Bittar
B Lorenzon (as alternate)
Ordinary shares
Direct
Indirect
Total
-
-
-
-
-
-
-
20,002,607
20,002,607
5,112,034
2,203,639
320,000
5,112,034
2,203,639
320,000
-
-
-
-
-
-
B Emmett also held 33,254,707 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:
Number of meetings attended by:
J Humphrey
B Emmett
G de Nys
A Stock
S Birkensleigh
G Bittar3
B Lorenzon (as alternate for G Bittar)
91
9
9
9
9
9
2
2
2
2
2
1
1
1
1
1
1
2
2
2
2
2
1
1
1
1 Four board meetings were held for non-executive directors only, three immediately prior to full Board meetings and one after a full Board meeting.
2 Two non-executive directors meetings were held via teleconference.
3 Incoming and outgoing directors attended all meetings they were eligible to attend.
27
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
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 remuneration framework for Executives comprises a mix of
fixed pay and ‘at risk’ 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 five years. Note that the
remuneration table set out on pages 32 to 33 shows remuneration
in US$ in line with the Group’s functional currency.
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.
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 incentive (STI)
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.
Corporate Governance
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
22 August 2017.
The Company’s Corporate Governance Statement for the year
ended 30 June 2017 may be accessed from the Company’s
website at www.horizonoil.com.au. A description of the Company’s
main corporate governance practices is set out in the Corporate
Governance Statement. All these practices, unless otherwise
stated, were in place for the full financial year and comply with the
ASX Corporate Governance Council’s revised Corporate Governance
Principles and Recommendations 3rd edition, released in March
2014.
Remuneration Report
The Remuneration Report forms part of this Directors’ Report. 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 sets out:
A Principles used to determine the nature and amount of
remuneration
B Details of remuneration
C Service agreements
D Share-based compensation – Share Appreciation Rights (SARs)
A. Principles used to determine the nature and
amount of remuneration
The objective of the Group’s remuneration framework for Key
Management Personnel (other than non-executive directors)
(Executives) is to provide reward for performance that is
competitive and appropriate for the results delivered. The
framework aligns reward with achievement of strategic objectives
and the creation of value for shareholders, and conforms to market
best practice for delivery of reward.
The board has structured a remuneration framework for Executives
that is market competitive, aligned with shareholders’ interests and
incentivises its Executives. The key elements of the framework
are:
Good reward governance principles:
>> competitiveness and reasonableness;
>> acceptability to shareholders;
>> performance linkage / alignment of executive compensation;
>> transparency; and
>> capital management.
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.
28
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
The following table outlines the major features of the plan:
Objective
Frequency and timing
Key Performance
Indicators (KPIs)
STI opportunity
Performance requirements
To drive performance of annual business plans and objectives, at operational and group level, to achieve
increased shareholder value.
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.
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.
Up to 50% of the senior executive’s fixed remuneration package (base salary plus superannuation).
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:
>> achievement of no LTIs (lost time injuries) across Horizon Oil’s operated joint ventures;
>> achievement of budgeted production and operating costs across the Block 22/12 and Maari/Manaia
fields;
>> successful refinancing of the Group’s 2011 convertible bonds;
>> expansion of Group’s PNG resource base and execution of Western Foreland PNG gas consolidation
strategy; and
>> progression of Western LNG development planning.
Whilst many of the abovementioned objectives were achieved during the current year, the decision regarding short-term incentive
entitlements has been deferred. The following table shows the STI awards that were paid or payable as at the date of this report in
respect of the financial year ended 30 June 2017:
Senior executives
B Emmett
A Fernie
M Sheridan
STI in respect of 2017 financial year
Percentage of maximum STI payment paid
Percentage of maximum STI payment forfeited
NIL
NIL
NIL
N/A
N/A
N/A
Long-term incentive (LTI)
The LTI arrangements applying to senior executives and involve
the grant of rights which will vest subject (amongst other things)
to both the absolute and relative total shareholder returns (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.
29
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
The following table outlines the major features of the plan:
Key terms & conditions
Long Term Incentive Plan
Eligible persons:
Exercise price:
SAR value
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.
No amount is payable to the Company by a participant in the LTI Plan on the exercise of a SAR.
V minus G:
where
V equals 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; and
G equals 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.
Satisfaction of exercise of SARs in
cash or by issue of shares
Subject to ASX Listing Rules, Horizon Oil may satisfy the exercise of SARs by a participant by payment
in cash, issue of Horizon Oil shares or a combination, at the board’s discretion.
Cash payment on exercise of SARs is calculated by multiplying the number of SARs exercised by the
SAR Value (less applicable taxes).
The number of Horizon Oil shares that may be issued in satisfaction of exercise of SARs is calculated as
follows:
>> the aggregate SAR Value is calculated by multiplying the number of SARs exercised by the SAR
Value; and
>> the aggregate SAR value is divided by the 10 day VWAP of Horizon Oil shares ending on the
exercise date, rounded down to the nearest whole share.
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.
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.
SARs are exercised by submitting a notice of exercise to the Company.
Cessation of employment:
Maximum number of shares that can be
issued:
Restrictions on exercise:
30
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
Lapse:
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.
Share ranking and quotation:
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:
Non-quotation:
Capital re-organisation:
Effect of take-over or change of control of
Company, death or disablement:
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.
Performance of Horizon Oil Limited
The board aligns Executive interests with
shareholders’ interests through its remuneration
framework by having 50% of Executive
remuneration ‘at risk’ through STIs and LTIs, linking
STI key performance indicators to overall company
performance or consolidated measures and linking
the vesting of LTIs to the relative performance of
the Horizon Oil share price to the performance of
S&P/ASX200 Energy Index.
Horizon Oil share price performance 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
HZN Share Price
Brent crude oil - Rebased
ASX 200 Energy Index - Rebased
0.4
0.3
0.2
0.1
)
$
A
(
e
c
i
r
P
e
r
a
h
S
0.0
Jan 2014
Jan 2015
Jan 2016
Jan 2017
31
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
Horizon Oil Limited’s profit/(loss) before tax for the current and previous four financial years is set out below.
Financial year ended 30 June:
2013
2014
2015
2016
2017
Profit/(loss) before tax (US$’000)
EBITDAX (US$’000)
10,025
27,719
30,027
99,481
17,751
89,117
(149,726)
53,995
4,154
45,171
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 pages 26 and 27, and
the following executive officers, who are also the highest paid executives of the Company and Group (KMP):
M Sheridan
Chief Financial Officer, Company Secretary, Horizon Oil Limited
A Fernie
General Manager Exploration and Development, Horizon Oil Limited
Financial year ended 30 June 2017 and 2016
Short-term benefits
Post-
employment
benefits
Cash salary
and fees
US$
Cash bonus
US$
Non-
Monetary1
US$
Super-
annuation2
US$
Long-term
benefits
Share-based
payments
Long service
leave
accrual3
US$
Options/
SARs4
US$
Total5
US$
Total cash
or in-kind
benefit
US$
Name
Directors:
J Humphrey
Chairman6
B Emmett
Chief Executive Officer,
Executive Director
G de Nys
Non-executive Director
A Stock
Non-executive Director
S Birkensleigh
Non-executive Director
G Bittar
Non-executive Director
E F Ainsworth
Chairman6
B Lorenzon
Alternate Non-executive
Director for G Bittar
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
123,068
95,419
645,106
622,713
61,535
44,550
61,535
59,400
61,535
24,369
20,117
-
-
59,400
-
-
Total directors’ remuneration
2017
2016
972,896
905,851
Total directors’ remuneration
(AUD) 5
2017
2016
1,289,429
1,243,707
32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,692
134,760
9,065
104,484
-
-
-
-
134,760
104,484
120,309
26,408
791,823
115,612
25,492
763,817
12,673
22,388
345,472 1,149,968
385,576 1,171,781
-
-
-
-
-
-
-
-
-
-
-
-
5,846
20,493
67,381
65,043
5,846
5,643
67,381
65,043
5,846
2,315
67,381
26,684
1,911
22,028
-
-
-
-
5,643
65,043
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
67,381
65,043
67,381
65,043
67,381
26,684
22,028
-
-
65,043
-
-
120,309
57,549
1,150,754
12,673
345,472 1,508,899
115,612
68,651
1,090,114
22,388
385,576 1,498,078
159,452
76,272
1,525,153
16,796
457,872 1,999,821
158,732
94,256
1,496,695
30,148
519,224 2,046,067
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
Financial year ended 30 June 2017 and 2016
Short-term benefits
Post-
employment
benefits
Cash salary
and fees
US$
Cash bonus
US$
Non-
Monetary1
US$
Super-
annuation2
US$
Long-term
benefits
Share-based
payments
Long service
leave
accrual3
US$
Options/
SARs4
US$
Total5
US$
Total cash
or in-kind
benefit
US$
Other key management
personnel:
M Sheridan
Chief Financial Officer, Company
Secretary
2017
2016
466,021
449,858
A Fernie
General Manager - Exploration
and Development
2017
2016
466,021
449,858
Total other key management
personnel remuneration
2017
2016
932,042
899,716
Total other key management
personnel remuneration (AUD)5
2017
2016
1,235,285
1,235,285
-
-
-
-
-
-
-
-
30,225
23,403
26,408
522,654
9,155
275,820
807,629
25,492
498,753
17,766
282,756
799,275
102,593
26,408
595,022
9,155
275,820
879,997
91,502
25,492
566,852
17,481
282,756
867,089
132,818
52,816
1,117,676
18,310
551,640 1,687,626
114,905
50,984
1,065,605
35,247
565,512 1,666,364
176,031
70,000
1,481,316
24,267
731,117
2,236,700
157,762
70,000
1,463,047
47,464
761,529 2,272,040
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.
6 E F Ainsworth resigned as Chairman, and from the Board, on 20 November 2015 and J Humphrey was appointed Chairman on that date.
7 There has been no change in underlying AUD remuneration entitlements for executives since 2014.
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 pages 32 and 33.
Name
Executive Directors:
B Emmett
Chief Executive Officer, Executive Director
Other key management personnel:
M Sheridan
Chief Financial Officer, Company Secretary
A Fernie
General Manager - Exploration and Development
Fixed remuneration
2017
2016
At risk – STI
At risk – LTI
2017
2016
2017
2016
66%
67%
0%
0%
34%
33%
65%
65%
65%
67%
0%
0%
0%
0%
35%
35%
35%
33%
The maximum potential remuneration of all KMP (other than non-executive directors) is split 50% fixed remuneration, 25% at risk – STI
and 25% at risk – LTI.
33
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
C. Service agreements
Remuneration and other terms of employment for all KMP including
the Chief Executive Officer are formalised in service agreements.
For KMP (other than non-executive directors), these agreements
includes the provision of other non-monetary benefits such as
health insurance, car parking and participation in the STI and LTI
plans. Other key provisions of the existing agreements relating to
remuneration are set out below:
B Emmett, Chief Executive Officer
>> Term of agreement – 2 year period expiring 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 – 2.5 year period expiring 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 year period expiring 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. Security-based compensation – Share Appreciation Rights (SARs)
Presently, Horizon Oil issues SARs to KMP (other than non-executive directors) under the LTI plan as a proportion of ‘at risk’ remuneration
that Horizon Oil may satisfy on exercise of the SARs by issue of shares.
Below is a summary of SARs presently on issue affecting remuneration for KMP (other than non-executive directors) in the previous,
current or future reporting periods:-
Grant date
19/08/2013
01/07/2014
01/07/2015
01/07/2016
01/07/2016
Expiry date
19/08/2018
01/07/2019
01/07/2020
01/07/2021
01/07/2021
Exercise price3
Nil
Nil
Nil
Nil
Nil
Strike price1
A$0.3326
A$0.3729
A$0.0865
A$0.0483
A$0.0930
Value per SAR at grant date2
A$0.1193
A$0.1433
A$0.0438
A$0.0263
A$0.0193
Date exercisable
100% after 19/08/20164
100% after 01/07/20174
100% after 01/07/20184
100% after 21/10/20194
100% after 21/10/20194
1 The ‘strike price’ for SARs is the 10 day volume weighted average price for Horizon Oil at grant date.
2 The value per SAR at grant date is determined by an independent expert using a Monte Carlo simulation.
3 No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
4 SARs will become exercisable subject to meeting vesting or performance conditions. See summary on page 34.
SARs on issue to Brent Emmett, Horizon Oil’s Managing Director, were approved by shareholders for the purposes of the ASX Listing
Rules at the 2016, 2015, 2014 and 2013 Annual General Meetings.
Details of SARs provided as remuneration to the KMP (other than non-executive directors) in this financial year are set out below:
Name
Directors:
B Emmett
Other key management personnel:
M Sheridan
A Fernie
Number of SARs
granted during the
financial year
Value of SARs at
grant date1
US$
Number of SARs
vested during the
financial year
Number of SARs
lapsed during the
financial year
Value at
lapse date2
US$
16,617,522
238,424
12,186,198
12,186,198
242,327
242,327
-
-
-
2,626,328
1,925,974
1,925,974
-
-
-
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 KMP include the assessed fair values of 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 ‘strike price’, the term of the SAR, the current price and expected price volatility of
the underlying Horizon Oil shares, the expected dividend yield and the risk-free interest rate for the term of the SAR (refer below). The
value attributable to 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 a SAR at grant date to be allocated
equally over the period from the grant date to the end of the vesting period, unless it is probable that the individual will cease service at an
earlier date and the board will determine that such persons SARs lapse, in which case the value is to be spread over the period from grant
date to that earlier date.
34
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
The model inputs for each grant of SARs during the financial year ended 30 June 2017 included:
Grant date
Expiry date
Exercise price
‘Strike price’, being the 10 day VWAP of Horizon Shares at grant date
Expected price volatility
Risk free rate
Expected dividend yield
1 No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
Shares issued on the exercise of Share Appreciation Rights provided as remuneration
No SARs were exercised by KMP during the financial year.
1 July 2016
1 July 2021
Nil1
A$0.0483
65.30% p.a.
1.65% p.a.
0.00% p.a.
Details of remuneration – SARs
For each grant of SARs currently on issue to KMP in the current or prior financial years which results in an amount being disclosed in the
remuneration report as a share-based payment to KMP for the financial year, the percentage of the grant that vested in the financial year
and the percentage that was forfeited because the person did not meet the vesting or performance conditions is set out below.
The SARs vest after three years have elapsed subject to the vesting or performance conditions being met. No SARs will vest if the vesting
or performance conditions are not satisfied, therefore the minimum value of SARs yet to vest is US$Nil. The maximum value of the SARs
yet to vest has been determined as the amount of the grant date fair value of the SARs that is yet to be expensed.
Name
B Emmett
M Sheridan
A Fernie
Financial
year
granted
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Options/SARs
Vested
%
Forfeited
%
Financial years in
which options/SARs
may vest
Maximum total value of
grant yet to vest1
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30/06/2016
30/06/2017
30/06/2018
30/06/2019
30/06/2020
30/06/2016
30/06/2017
30/06/2018
30/06/2019
30/06/2020
30/06/2016
30/06/2017
30/06/2018
30/06/2019
30/06/2020
-
-
-
113,812
159,022
-
-
-
83,462
161,625
-
-
-
83,462
161,625
1 The above values have been converted to dollars at the exchange rate prevailing on the date of the grant of the SARs.
35
Horizon Oil Annual Report 2017 Directors’ Report
For the financial year ended 30 June 2017
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:
Balance at start of financial year
Received during financial year on
the exercise of options
Other changes during financial
year
Balance at end of financial year
2017
Name
Directors:
Ordinary shares
B Emmett
J Humphrey
G de Nys
A Stock
S Birkensleigh
G Bittar
B Lorenzon (as alternate)
18,902,607
5,112,034
912,858
160,000
-
-
-
Other key management personnel of the Group:
Ordinary shares and partly paid ordinary shares
M Sheridan
A Fernie
7,968,201
2,700,000
-
-
-
-
-
-
-
-
-
1,100,000
-
1,290,781
160,000
-
-
-
-
-
20,002,607
5,112,034
2,203,639
320,000
-
-
-
7,968,201
2,700,000
Key management personnel option holdings in the Company
No listed or unlisted options in the Company were held during the current or prior financial year by directors and other key management
personnel of the Group, including their personally-related entities.
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:
2017
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
Vested and
exercisable at end
of financial year
Unvested1
Executive Directors:
Share appreciation rights
B Emmett
23,139,973
16,617,522
Other key management personnel of the Group:
Share appreciation rights
A Fernie
16,969,316
12,186,198
M Sheridan
16,969,316
12,186,198
-
-
-
1 Subsequent to year end 9,561,936 SARS lapsed on 13 August 2017.
(2,626,328)
37,131,167
(1,925,974)
27,229,540
(1,925,974)
27,229,540
-
-
-
37,131,167
27,229,540
27,229,540
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 starting on page 28.
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.
36
Horizon Oil Annual Report 2017 Directors’ Report
Shares under option
For the financial year ended 30 June 2017
Unissued ordinary shares of Horizon Oil Limited under option at the date of this report are as follows:
Date options granted
20/02/2013
16/04/2013
02/11/2015
15/09/2016
Number options
Issue price of ordinary shares
350,000
350,000
1,500,000
300,000,000
302,200,000
A$0.4341,2,3
A$0.4041,2,3
A$0.2001,2
A$0.0614
Expiry date
20/02/2018
16/04/2018
02/11/2020
15/09/2021
1 Subject to restrictions on exercise.
2 Options issued under the Employee Option Scheme.
3 The exercise price of the options outstanding at 31 July 2013 was reduced by A$0.006 following the rights issue during the prior year.
4 General options issued to IMC on drawdown of the subordinated secured debt facility during the 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.
37
Horizon Oil Annual Report 2017
Directors’ Report
For the financial year ended 30 June 2017
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
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
Total remuneration for audit and other assurance services
Consolidated
2017
US$
2016
US$
195,542
45,034
240,576
13,255
13,255
11,681
11,681
144,082
15,114
159,196
24,555
24,555
11,187
11,187
Total auditors’ remuneration
265,512
194,938
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 39.
Rounding of amounts to the nearest thousand dollars
The amounts contained in this report, and in the financial report, have been rounded under the option available to the Group under ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Group is an entity of the kind to which the Class Order
applies, and accordingly 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.
J Humphrey
Chairman
B Emmett
Chief Executive Officer
Sydney
29 August 2017
38
Horizon Oil Annual Report 2017
Auditors’ Independence Declaration
For the financial year ended 30 June 2017
Auditor’s Independence Declaration
As lead auditor for the audit of Horizon Oil Limited for the year ended 30 June 2017, 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
29 August 2017
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
39
24
Horizon Oil Annual Report 2017 Sustainability Report
For the financial year ended 30 June 2017
Horizon Oil is committed to the sustainable development of its operations. This Sustainable Development Report
is focused upon those assets for which Horizon Oil was the designated operator. Where Horizon Oil 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. Horizon Oil 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 ending
30 June 2017.
Figure 1: Sampling receiving environments
Figure 2: Maintaining safe sites
Horizon Oil’s philosophy towards sustainable development
remains based upon the foundations of its corporate policy. This
includes the four areas that Horizon Oil regards as the pillars of its
sustainable development strategy. These include:
>> Safety & Health;
>> Security;
>> Environment; and
>> Community.
Each pillar is discussed in greater detail within this Sustainable
Development Report.
(i) Safety & Health
Horizon Oil is committed to the maintenance of a safe and healthy
working environment for all personnel including our sub-contractors,
attending vendors and visitors. No fatalities or recordable injuries
resulted from the conduct of Horizon Oil’s activities in the reporting
period.
During the reporting period Horizon Oil achieved a Total Recordable
Injury Frequency Rate (TRIFR) and a Lost Time Injury Frequency
Rate (LTIFR) of 0.0. Horizon Oil targets an injury rate that
outperforms the average within the overall industry as reported
in the Safety Performance Indicator Series published annually by
OGP. In 2017 Horizon Oil outperformed this target. In August of
2017 Horizon Oil achieved 3 years free of recordable injuries. The
current injury-free performance period represents the longest period
recordable injury free of any time in Horizon Oil’s operational history.
Year
LTIFR
TRIFR
No. of Recordable
Injuries
FY15
0.0
0.9
1
FY16
0.0
0.0
0
FY17
0.0
0.0
0
Table 1 – Total Recordable Injury Frequency Rate (TRIFR) for Horizon Oil
40
Horizon Oil Annual Report 2017
Sustainability Report
For the financial year ended 30 June 2017
The 2017 reporting period was characterised by an ongoing
reduction in the nature and scale of in-field activities conducted by
the organisation as reported in the 2016 Sustainable Development
Report. Total exposure hours during the 2017 reporting period were
< 5% of those experienced during previous reporting periods in its
operational history.
Health Programs
Horizon Oil is committed to the health and welfare of its workforce.
During 2017 Horizon Oil maintained and extended its periodic
health assessment program. This included an extension of targeted
vaccination program for employees locally sourced, working and
living in both high-risk and low-risk environments. Employee health
continues to be tracked via periodic medical examination and
supported by the provision of a full range of vaccinations to combat
key identified health risks. This includes preventative vaccination
against common disease such as cholera, typhoid, Japanese
encephalitis, polio, tetanus, influenza and hepatitis.
Horizon Oil continues to contribute to the development of capability
within community health systems and services. During 2017,
Horizon Oil worked closely with local service providers to help them
develop the skills and systems required for the delivery of pre-
employment and periodic health assessments at levels appropriate
for Horizon Oil’s current and future requirements. This was then
implemented as a component of a health extension exercise in
which locally sourced casual employees in remotely located villages
were provided with baseline health assessment as a component of
their engagement.
During the reporting period Horizon Oil’s Port Moresby and Sydney
based personnel conducted first aid training as part of the ongoing
HSSE skills development program. This complements the First Aid
Training initiative undertaken in Kiunga during the previous reporting
period. The course was designed to provide remote area first
response capability reflective of the remote locations and, at times,
limited medical response capability that may be available. As the
vast majority of our employees in Papua New Guinea are locally-
sourced and residentially-based these skills are transferred directly
back into the communities.
(ii) Security
Horizon Oil maintains a Security Policy that sets standards that
detail its expectations for the protection of its personnel, its assets
and the public. Horizon Oil conducts its operations in a manner
consistent with the Voluntary Principles on Security and Human
Rights. During the period no breaches of the Principles were
reported.
The organisation remains committed to responding proactively to
developing circumstances that may impact the personal security of
its people.
Horizon Oil maintains stable working relationships with public
service security providers based in Kiunga including the Royal
Papua New Guinea Constabulary (RPNGC). These relationships
are effectively maintained through a shared understanding of the
scope of each organisations activities and a clear delineation of their
respective roles. Horizon Oil does not directly engage the services
of the RPNGC in activities to be conducted on its behalf.
(iii) Environment
During the reporting period Horizon Oil continued to develop and
refine the environmental baseline within its operational areas in
support of the Environment Permit (EP) issued by the CEPA for the
Elevala Development Project.
Horizon Oil also undertook a permit review and rationalisation
activity in partnership with CEPA to streamline the governance and
reporting process. This is expected to deliver a 75% reduction
in the number of permits required to effectively manage its
operational activities while delivering a more cohesive structure for
the delivery of our environmental obligations.
Horizon Oil complied with all regulatory limits and environmental
permit conditions during the reporting period.
In 2017 the scope of the existing environmental monitoring program
was expanded to include sites of proposed future development
activity while simultaneously rationalising the program to reduce
sample numbers where effective spatial and temporal data-sets
have already been collected. Ongoing baseline monitoring involves
quarterly monitoring of an established network allowing assessment
and recording of the presence and impact of any potential seasonal
variations. Analysis of the samples and monitoring results indicates
a healthy and dynamic riverine system with no evidence of impact
from historical oil and gas activities in the area.
Figure 3: The team on an environmental monitoring run on the Fly River near Kiunga
41
Horizon Oil Annual Report 2017 Sustainability Report
For the financial year ended 30 June 2017
A baseline riverbank erosion monitoring program for the impacted
project area was implemented during the reporting period in
response to community engagement and remains ongoing. This
work has allowed the development of an understanding of riverbank
conditions and behaviour prior to project implementation. The
results reflect a highly active and mobile riverbank environment in
the riverine ecosystem.
Figure 4: Measuring riverbank erosion
(iv) Community
Horizon Oil 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. Horizon Oil
recognises that strong relationships with host communities are
essential in maintaining both a sustainable business and our social
licence to operate.
Engagement with project area communities remained ongoing
notwithstanding the continued reduction in the scale of Horizon
Oil’s field operations in FY17. Horizon Oil’s program of regular
‘village patrols’ and publication of a quarterly newsletter, Komuniti
Nius were supplemented during the reporting period by the roll
out of a number of small scale community investment programs
(CIPs). These programs are designed to be participatory, with
the community contributing time and resources of their own
to supplement those provided by Horizon Oil. Following the
2015/2016 El Nino event and the associated severe dry weather
experienced by the region, CIP activity during FY17 included the
establishment of a combined 20,000 litres of rain water storage
and enhanced rainwater catchment systems at Drimdemasuk and
Gasuke villages. Improved access to fresh water supply reduces
reliance on local river water for drinking and cooking, minimising
exposure to water borne disease. In keeping with Horizon Oil’s
philosophy, this project was implemented with material levels of
assistance from the Drimdemasuk and Gasuke village communities.
A vocational training program was delivered under Horizon Oil’s CIP
to the Gusiore village community in association with the Kiunga
Vocational Training Centre. The training program aimed to enhance
basic life skills and provide opportunities for the participants to
develop sustainable income generating activities and increased self
sufficiency. The training program involved the donation of seven
hand sewing machines, associated sewing equipment and provision
of an accredited trainer and training materials. Twenty participants
successfully completed the ten day course and were awarded
Certificate of Attainment by the Kiunga Vocational Training Centre.
Figure 6: Vocational training participants at Gusiore
Figure 5: Simple but effective measurement techniques
In the reporting period a comprehensive, periodic assessment
of all sites of historic operations was undertaken. This included
assessment of environmental stability, water, soils and sediment
quality at each site along with assessment of the broader receiving
environments. These results were integrated into the ongoing
environmental monitoring network and baseline and indicate that
no discernible or material environmental impact has resulted from
the conduct of these historic operations. As a component of these
activities Horizon Oil implemented the first phase of rehabilitation
and site stabilisation trials to assess various site remediation
methods. Site-based assessment of proposed remediation
methods is critical to their success in remote locations and an
environment which experiences, including incident rainfall in excess
of 5 metres per annum. Horizon Oil expects to implement a more
comprehensive program of site rehabilitation trials in the coming
reporting period in support of future planned operational and
development activities.
42
Horizon Oil Annual Report 2017 Sustainability Report
For the financial year ended 30 June 2017
Figure 7: Enhanced water supply and catchment at Gasuke
Horizon Oil continues to support a number of social investment
programs in Papua New Guinea. In particular, substantial
financial and in kind support is provided to two non-government
organisations active in the Western Province, namely Australian
Doctors International (ADI) and Mercy Works. Both organisations
are focused on improving healthcare services in the North Fly region
of the Western Province, where they seek to build partnerships
with local communities to enhance capacity and self reliance in
areas where access to basic health care is limited or non-existent.
With Horizon Oil’s support, ADI deployed 2 volunteer doctors and
a nurse educator in FY17. These volunteers and along with local
support staff from Catholic Health Services conducted a number
of remote area medical patrols, treating over 2,800 patients and
delivered over 120 hours of case based and group training to rural
community health workers.
Figure 8: An ADI volunteer doctor on a rural medical patrol
Conclusion
Horizon Oil is committed to the sustainable development of its
operations within the communities and environments that host our
activities. The organisation regards this commitment as an integral
component of an ongoing, long-term engagement with its host
communities.
Horizon Oil builds its activities on a framework established by
corporate policy and assesses its performance against both internal
and industry standards.
The 2017 Annual Report marks the fourth submission of Horizon
Oil’s Sustainability Report as an ongoing component of its corporate
reporting.
The organisation remains open to feedback from its stakeholders
regarding the content and structure of sustainable development
reporting.
43
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
Independent auditor’s report
To the shareholders of Horizon Oil Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Horizon Oil Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2017 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2017
the consolidated statement of profit or loss and other comprehensive income for the financial
year then ended
the consolidated statement of changes in equity for the financial year then ended
the consolidated statement of cash flows for the financial year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
30
44
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
•
•
Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
and Risk Committee:
•
•
•
Adequacy of funding
Impairment of oil and gas
assets
Assessment of Reserves
and Resources
These are further described in
the Key audit matters section of
our report.
•
•
•
•
For the purpose of our audit
we used overall Group
materiality of $0.9 million,
which represents
approximately 2% of the
Group’s EBITDA after
adjusting for non-recurring
items.
• We applied this threshold,
together with qualitative
considerations, to determine
the scope of our audit and the
nature, timing and extent of
our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
• We chose Group EBITDA
because, in our view, it is the
benchmark against which the
performance of the Group is
most commonly measured as a
proxy for free cash flow from
operations.
Our audit focused on where
the directors made subjective
judgements; for example,
significant accounting
estimates involving
assumptions over the
assessment of the adequacy of
future funding and the
impairment of assets.
Our audit focused on the joint
venture oil producing
operations in New Zealand and
China, the joint venture gas
exploration and development
assets in PNG and the Group’s
head office in Sydney.
The Group use an independent
expert to perform an
assessment of the Reserves
and Resources on an annual
basis. Our scope included
assessing the work of the
independent expert and their
report on economic Reserves
and Resources.
31
45
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
• We selected 2% based on our
professional judgement, noting
it is within the range of
commonly acceptable
thresholds.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Funding requirements to support
monetisation of PNG exploration assets
Refer to note 19
We performed the following procedures, amongst
others:
The Group holds exploration assets in Papua New
Guinea (PNG) and is reliant on receiving sufficient
funding from operations, shareholders or other sources
to finance ongoing exploration and development
activities.
We tested the repayment of the US$58.8 million in
convertible bonds following approval by shareholders
of the finance agreement entered into with IMC
Investments Limited.
On 15 September 2016 the Group refinanced US$58.8
million convertible bonds payable with free cash and a
5 year non amortising subordinated debt facility of
US$50 million from IMC Investments Limited, a major
shareholder of the Company.
We read the subordinated debt facility agreement for
the US$50 million subordinated debt and the amended
terms of the revolving cash advance facility which is
based on the level of economic oil reserves available to
the Group.
The Group prepared a detailed cash flow forecast to
assess the surplus cash available in conjunction with
the undrawn debt capacity. The forecasts were flexed
for a range of oil price assumptions and development
expenditure.
The funding requirements of the Group were a key
audit matter due to inherent uncertainties associated
with net cash flows from joint venture oil producing
operations in China and New Zealand and the level of
funding required to monetise the joint venture
exploration assets in PNG.
We tested the Group’s cash flow forecasts which
included the net cash inflows from the China and New
Zealand Joint Ventures and the development
expenditure planned to monetise the PNG exploration
and development assets. We evaluated the key
assumptions in the forecasts as follows:
• We compared the cash flow forecasts to a report on
the required operating and capital expenditure over
the production forecast prepared by the Group’s
independent expert.
• We compared the Group’s forecast oil prices to
forward oil price curve and broker forecast beyond
12 months, assisted by our PwC valuation experts.
• We also flexed the cash flow forecasts for changes
to the oil price assumptions and reviewed the
impact on the cash flow forecast.
46
32
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
Key audit matter
How our audit addressed the key audit matter
Impairment of oil and gas assets
Refer to note 15 & 16
The Group recognised an impairment charge of
US$147.5 million in 2016, primarily associated with the
exploration and development assets in PNG and the
interest in production assets in New Zealand. The
Group performed an impairment assessment in 2016 in
which they considered the Statement of Reserves and
Resources (see below), the low oil price environment
and the valuation performed by the Group’s
independent expert in relation to the refinancing
negotiated with IMC Investments Limited.
The Group prepared an updated impairment
assessment at 30 June 2017. The impairment
assessment was modelled on a Fair Value less Cost of
Disposal (FVLCD) basis.
This was a key audit matter due to the downward
pressure on global oil prices in recent years, the
significance of the value of these assets, the level of
judgement required to assess impairment and the risks
associated with monetizing the gas exploration and
development assets in PNG.
Reserves and Resources
Refer to Statement of Reserves and Resources
The Group used an internal expert to prepare base
information for the annual Statement of Reserves and
Resources. This information was provided to the
Group’s independent expert who determined a
production profile along with an assessment of the
required operational and capital expenditure. This
information formed the basis of the cash flow forecast
and impairment assessment referred to above.
The Statement of Reserves and Resources was a key
audit matter due to its importance to the cash flow
models, the impairment assessment and due to the
sensitivity of these models to changes in the base
information.
• We compared the cash flow forecast to the debt
facility amortization schedule as provided by the
lenders.
We performed the following procedures, amongst
others:
We read the impairment assessment prepared by the
Group. Assisted by PwC valuation experts, we assessed
the reasonableness of the key assumptions within the
discounted cash flow model, including:
• The discount rate applied against the assets in New
Zealand, China and PNG.
• The project risks associated with the monetization
of the PNG exploration assets.
• The oil prices compared to PwC research on oil
prices over the relevant period.
We performed a sensitivity analysis over the cash flows
derived from the funding assessment as a proxy for fair
value.
We also compared the underlying value drivers in the
Group’s impairment assessment to the underlying
value drivers identified by the Group’s independent
expert in their most recent reserves and resources
report for China and New Zealand.
We read the Statement of Reserves and Resource
prepared by the Group’s internal expert.
We performed the following procedures:
• We compared the findings of the Group’s internal
expert with the Group’s independent expert.
• We compared the reported production profile and
operating and capital expenditure provided by the
independent expert to the cash flow forecast and
impairment assessment model prepared by the
Group.
We compared the reported production profile to the six
monthly review of the funding provided by the lenders
under the revolving cash advance facility.
33
47
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
Other information
The directors are responsible for the other information. The other information comprises the Reserves
and Resource Statement, Activities Review, Director's report, and Sustainability Report included in the
Group’s annual report for the year ended 30 June 2017 but does not include the financial report and
our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_files/ar1.pdf. This description forms part of our auditor's report.
48
34
Horizon Oil Annual Report 2017 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2017
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 28 to 36 of the directors’ report for the year
ended 30 June 2017.
In our opinion, the remuneration report of Horizon Oil Limited for the year ended 30 June 2017
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
Matters relating to the electronic presentation of the audited financial
report
This auditor’s report relates to the financial report of Horizon Oil Limited for the year ended 30 June
2017 included on Horizon Oil Limited's web site. The directors of the Company are responsible for the
integrity of Horizon Oil Limited's web site. We have not been engaged to report on the integrity of this
web site. The auditor’s report refers only to the financial report named above. It does not provide an
opinion on any other information which may have been hyperlinked to/from the financial report. If
users of this report are concerned with the inherent risks arising from electronic data communications
they are advised to refer to the hard copy of the audited financial report to confirm the information
included in the audited financial report presented on this web site.
PricewaterhouseCoopers
Peter Buchholz
Partner
Sydney
29 August 2017
35
49
Horizon Oil Annual Report 2017 Directors’ Declaration
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 2017 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; and
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.
J Humphrey
Chairman
B Emmett
Chief Executive Officer
Sydney
29 August 2017
50
Horizon Oil Annual Report 2017
Consolidated statement of profit or loss and other comprehensive income
For the financial year ended 30 June 2017
Revenue
Cost of sales
Gross profit
Other income
General and administrative expenses
Insurance expense
Exploration and development expenses
Impairment of non-current assets
Financing costs
Unrealised movement in value of convertible bond conversion rights
Gain on buyback of convertible bonds during the financial year
Other expenses
Profit/(loss) before income tax
NZ royalty tax expense
Income tax (expense)/ benefit
Loss 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/(loss) for the financial year
Loss attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Loss for the financial year
Total comprehensive income/(loss) attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Total comprehensive income/(loss) for the financial year
Earnings per share for loss attributable to ordinary equity holders of Horizon Oil Limited:
Basic earnings per ordinary share
Diluted earnings per ordinary share
Note
4
5
4
5
5
5
5, 25
5
4
4
5
6a
6b
24a
Consolidated
2017
US$’000
68,534
(43,768)
24,766
15
(5,200)
(1,240)
(1,250)
-
(13,081)
530
-
(386)
4,154
(512)
(3,978)
(336)
2016
US$’000
75,952
(60,179)
15,773
3,638
(6,666)
(1,428)
(1,852)
(147,515)
(17,264)
5,322
1,193
(927)
(149,726)
(988)
6,189
(144,525)
1,612
1,276
(8,237)
(152,762)
(336)
(144,471)
-
(54)
(336)
(144,525)
1,196
(152,708)
80
(54)
1,276
(152,762)
42a
42b
US cents
(0.03)
(0.03)
US cents
(11.08)
(11.08)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying
notes.
51
Horizon Oil Annual Report 2017
Consolidated statement of financial position
As at 30 June 2017
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax receivable
Derivative financial instruments
Other assets
Total current assets
Non-current assets
Deferred tax assets
Plant and equipment
Exploration phase expenditure
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Payables
Current tax payable
Borrowings
Other financial liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Deferred tax liabilities
Other financial liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Consolidated
2017
US$’000
2016
US$’000
Note
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
17
22
20
19
21
23
24a
24b
24,529
6,376
1,497
47
2,191
1,000
35,640
4,122
903
51,940
179,098
236,063
271,703
9,950
354
22,132
-
-
16,079
9,932
1,792
650
-
1,655
30,108
6,453
1,886
53,613
194,612
256,564
286,672
12,501
125
76,937
530
428
32,436
90,521
28
17,705
2,531
102,666
9,611
132,541
164,977
106,726
174,801
14,558
(82,633)
106,726
-
22
15,924
-
67,428
8,243
91,617
182,138
104,534
174,801
12,030
(82,217)
104,614
(80)
106,726
104,534
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
52
Horizon Oil Annual Report 2017
Consolidated statement of changes in equity
For the financial year ended 30 June 2017
Consolidated
Attributable to members of Horizon Oil Limited
Contributed
equity
Reserves
Retained
profits /
(accumulated
losses)
Total
Non-
controlling
interest
Total
Equity
Note
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Balance as at 1 July 2015
174,801
19,288
62,254
256,343
(26)
256,317
Loss for financial year
Changes in the fair value of cash flow
hedges
Total comprehensive loss for the
financial year
24(b)
24(a)
Transactions with owners in their
capacity as equity holders:
Employee share-based payments
expense
24(a)
-
-
-
-
-
-
(144,471)
(144,471)
(8,237)
-
(8,237)
(54)
-
(144,525)
(8,237)
(8,237)
(144,471)
(152,708)
(54)
(152,762)
979
979
-
-
979
979
-
-
979
979
Balance as at 30 June 2016
174,801
12,030
(82,217)
104,614
(80)
104,534
Balance as at 1 July 2016
174,801
12,030
(82,217)
104,614
(80)
104,534
-
-
-
-
-
(336)
(80)
(336)
-
(336)
(80)
80
-
1,612
-
1,612
-
1,612
-
1,612
(416)
1,196
80
1,276
Loss for the financial year
24(b)
De-recognition of non-controlling
interests
Changes in the fair value of cash flow
hedges
24(a)
Total comprehensive income for
the financial year
Transactions with owners in their
capacity as equity holders:
Employee share-based payments
expense
24(a)
-
-
916
916
-
-
916
916
Balance as at 30 June 2017
174,801
14,558
(82,633)
106,726
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
916
916
106,726
53
Horizon Oil Annual Report 2017
Consolidated statement of cash flows
For the financial year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes (paid)/refunded
Net cash inflow from operating activities
Cash flows from investing activities
Payments for exploration phase expenditure
Payments for oil and gas assets
Prepayments into China restoration fund
Payments for plant and equipment
Payments for acquisition of exploration assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings (net of transaction costs)
Repayment of borrowings
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents held in foreign currencies
Cash and cash equivalents at the end of the financial year
Note
Consolidated
2017
US$’000
2016
US$’000
71,294
(26,149)
45,145
15
(9,413)
(114)
35,633
(2,682)
(4,483)
(376)
(2)
(198)
76,254
(23,180)
53,074
25
(9,806)
910
44,203
(8,627)
(17,487)
(3,774)
(220)
-
(7,741)
(30,108)
45,483
(64,943)
(19,460)
8,432
16,079
18
24,529
-
(58,303)
(58,303)
(44,208)
61,343
(1,056)
16,079
41
28
19a
19a
7
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
54
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
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.
The nature of the operations and principal activities for the Group are
described in the Directors’ Report.
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 Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191 and accordingly
amounts in the financial statements are rounded off to the nearest
thousand dollars, unless otherwise indicated.
The general purpose financial statements for the year ended 30
June 2017 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. At the date of
this report, the directors are of the opinion that no asset is likely to be
realised for amounts less than the amount at which it is recorded in
the financial report as at 30 June 2017. Accordingly, no adjustments
have been made to the financial report relating to the recoverability
and classification of the asset carrying amounts or the amounts and
classification of liabilities that might be necessary should the Group
not continue as a going concern.
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 2017.
None of the new and revised standards and interpretations were
deemed to have a material impact on the results of the Group.
Early adoption of standards
The Group elected to apply the following pronouncement from the
financial year beginning on 1 July 2013:
(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, with a final version issued in December 2014, 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 2018.
Given that these changes are focused on simplifying some of the
complexities surrounding hedge accounting, Horizon Oil Limited
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 2.
Changes in accounting estimates
A review of the Group’s accounting estimates has affected items
recognised in the financial statements.
(i) Oil & gas assets – restoration provision
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 21.
During the period, the Group revised the future cost estimates from
which the provision for restoration of the PNG and New Zealand
assets are derived, taking into consideration enhanced experience and
reduction in uncertainty surrounding future obligations. The resultant
effect is an increase in the restoration provision of US$1,235,000.
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 2017 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.
55
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 1. Summary of Significant Accounting Policies (cont’d.)
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 30.
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.
(iii) Group companies
All Group subsidiaries have a functional currency of United States
dollars and, 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.
56
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 1. Summary of Significant Accounting Policies (cont’d.)
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 enacted 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.
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.
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.
(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 39). 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 2017.
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 asset’s 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
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 assumed, 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.
57
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 1. Summary of Significant Accounting Policies (cont’d.)
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
is 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).
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.
(iv) Reserves
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 more than forty
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).
(ii) Production assets
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.
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.
Production assets are stated at cost less accumulated amortisation
and any accumulated impairment losses.
r) Plant and equipment
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.
58
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
>> Furniture, fittings and equipment
>> Leasehold improvement
3 – 4 years
3 – 10 years
10 years
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of the reporting period.
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 1. Summary of Significant Accounting Policies (cont’d.)
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.
(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 expenses.
s) Trade and other payables
u) Borrowings
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.
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 11. Movements in the hedging
reserve in equity are shown in Note 24(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 expenses.
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.
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 rate 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 (netted against the loan balance) 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.
There were US$Nil borrowing costs (2016: US$Nil) capitalised
during the current financial year and the amount of borrowing
costs amortised to the income statement were US$860,000 (2016:
US$1,204,000).
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 payables.
(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.
59
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 1. Summary of Significant Accounting Policies (cont’d.)
(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, and the
General Option Plan. Information relating to these schemes is set out
in Note 34.
The fair value of options and share appreciation rights (‘SARs’) granted
under the Horizon Oil Long Term Incentive Plan and Horizon Oil
Limited Employee Option Scheme 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 considered dilutive only when their conversion to ordinary
shares would decrease earnings per share, or increase loss per share,
from continuing operations.
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.
aa) Parent entity financial information
The financial information for the parent entity, Horizon Oil Limited,
disclosed in Note 43, 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 2017 reporting periods.
The Group’s assessment of the impact of these new standards and
interpretations is set out below:
(i) 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 2018, 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.
(ii) AASB 16 ‘Leases’
AASB 16 ‘Leases’ (issued during January 2016) is the new standard
for lease accounting which eliminates the classification of leases as
either ‘operating’ or ‘finance’ and requires a lessee to recognise on
statements of financial positions assets and liabilities for leases with
terms of more than 12 months unless the underlying asset is of low
value. 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 2019.
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.
60
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 2. Critical accounting estimates and judgements
This section considers 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 15.
(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 21.
During the period, the Group revised the future cost estimates from
which the provision for restoration of the PNG and New Zealand
assets are derived, taking into consideration enhanced experience and
reduction in uncertainty surrounding future obligations. The resultant
effect is an increase in the restoration provision of US$1,235,000.
(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 10% and 11% 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 34.
(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 have been recognised as
deferred tax assets on the basis that it is expected the operations will
generate sufficient taxable profits to fully utilise those losses.
(b) Critical judgements in applying the Group’s accounting policies
No critical judgements 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.
61
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 3. 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 that they are considered
interdependent. The Group has identified four operating segments (five for 2016 – management no longer consider New Zealand
Exploration to be a separate operating segment as the joint venture participants of the New Zealand exploration permit, PEP 51313, have
withdrawn from the permit during the period):
>> New Zealand exploration and development – the Group is currently involved in developing and producing crude oil from the Maari/
Manaia oil field development, and the exploration and evaluation of hydrocarbons within the permit;
>> China exploration and development – the Group is currently involved in developing and producing 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 six onshore permit areas – PRL 21, PRL 28, PPL 574, 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
2017
Segment revenue:
Revenue from external customers
Profit/(loss) before tax
Depreciation and amortisation
Total segment assets as at 30 June 2017
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:
China
Exploration and
Development
New Zealand
Exploration and
Development
Papua New Guinea
Exploration and
Development
All other
segments
Total
US$’000
US$’000
US$’000
US$’000
US$’000
52,180
15,220
(17,031)
128,183
1,679
(27)
-
16,354
(5,210)
(9,270)
52,695
56
1,924
-
(2,955)
(159)
71,186
1,832
2,996
-
5,161
-
-
(3,385)
(226)
19,639
68,534
3,670
(26,686)
271,703
-
-
2
3,567
4,893
2
3,689
164,977
Total segment liabilities as at 30 June 2017
111,385
44,743
China
Exploration and
Development
New Zealand
Development
New Zealand
Exploration
Papua New Guinea
Exploration and
Development
All other
segments
Total
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
35,486
40,466
(3,455)
(22,631)
(29,132)
(13,769)
-
-
-
75,952
(5,306)
(107,558)
(14,229)
(159,680)
-
56
(432)
(258)
37,090
62,706
15,205
286,672
2016
Segment revenue:
Revenue from external customers
Loss before tax
Depreciation and amortisation
Total segment assets as at 30 June 2016
143,644
65,061
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:
2,614
8,575
-
3,147
-
-
155
-
-
6,547
3,247
-
-
9,316
14,969
-
220
220
Total segment liabilities as at 30 June 2016
71,258
47,921
56
1,011
61,892
182,138
62
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 3. Segment information (cont’d.)
(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,
including through sales agreements with the respective joint venture operators.
Segment revenue reconciles to total consolidated revenue as follows:
Total segment revenue
Proceeds from insurance claims
Interest income
Total revenue
Consolidated
2017
US$’000
68,534
-
15
68,549
2016
US$’000
75,952
3,613
25
79,590
(ii) Segment profit before tax
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/(loss) before tax
Proceeds from insurance claims
Interest income
Unrealised movement in value of convertible bond conversion rights
Realised gain on purchase of bonds
Net foreign exchange losses
Profit/(loss) before tax
Consolidated
2017
US$’000
3,670
-
15
530
-
(61)
4,154
2016
US$’000
(159,680)
3,613
25
5,322
1,193
(199)
(149,726)
(iii) Segment assets
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.
Reportable segment assets are equal to consolidated total assets.
(iv) Segment liabilities
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 liabilities are equal to consolidated total liabilities.
Note 4. Revenue
From continuing operations
Crude oil sales
Net realised gain on oil hedging derivatives
Other income
Insurance claim income
Interest received from unrelated entities
Gains – Conversion rights on convertible bonds
Unrealised movement in fair value of convertible bond conversion rights1
Gain on buyback of convertible bonds
Consolidated
2017
US$’000
2016
US$’000
67,988
546
68,534
-
15
15
530
-
530
56,455
19,497
75,952
3,613
25
3,638
5,322
1,193
6,515
1 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 could 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 was subject to the conversion price which may have reset under certain circumstances. Accordingly, the conversion rights were a derivative financial
liability and were marked to market through profit or loss. Fair value of conversion rights at issuance on 17 June 2011 was US$20,043,000. The bonds were
redeemed during the period, prior to extended redemption date of 19 September 2016. Refer to Note 19(d) for further details of the convertible bonds issued.
63
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 5. Expenses
Cost of sales
Direct production costs
Inventory adjustments1
Amortisation expense
Royalties and other levies
General and administrative expenses
Employee benefits expense (net)
Employee share options expense
Corporate office expense
Depreciation expense
Rental expense relating to operating leases
Insurance expense
Insurance expense (including loss of production income insurance)
Exploration and development expenses
Exploration and development expenditure written off/expensed
Impairment of non-current assets
Impairment of non-current assets2
Financing costs
Interest and finance charges
Discount unwinding on provision for restoration
Unrealised movement in fair value of derivative financial instrument3
Amortisation of prepaid financing costs
Other expenses
Net foreign exchange losses
Other expenses
Consolidated
2017
US$’000
16,262
612
26,301
593
43,768
2,594
916
926
385
379
5,200
1,240
1,240
1,250
1,250
2016
US$’000
22,858
817
36,400
104
60,179
3,474
979
1,160
690
363
6,666
1,428
1,428
1,852
1,852
-
-
147,515
147,515
11,925
133
(1,400)
2,423
13,081
323
63
386
15,189
258
-
1,817
17,264
199
728
927
1 Includes production overlift/underlift and inventory adjustments.
2 Refer to Note 25 for further discussion surrounding the prior year impairment charge.
3 The amount shown reflects an unrealised gain of $1,400,000 relating to the marked to market revaluation of the derivative financial liability arising from the share
options issued in respect of the subordinated secured facility. Refer to Notes 19(c) and 20 for further details of the component parts recognised in relation to this
financing transaction.
64
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 6. Income tax expense
(a) Royalty tax expense/(benefit)
Royalty paid/payable in New Zealand – current tax expense
Tax benefit related to movements in deferred tax balances
Total royalty tax expense
(b) Income tax expense/(benefit)
Current tax expense
Tax expense/(benefit) related to movements in deferred tax balances
Adjustments for current tax of prior periods
Total income tax expense/(benefit)
Deferred income tax expense/(benefit) included in income tax expense comprises:
Decrease in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Total deferred income tax expense/(benefit)
(c) Numerical reconciliation between profit before tax and tax expense/(benefit)
Profit/(loss) from continuing operations before income tax
Less: Royalty paid/payable
Consolidated
2017
US$’000
816
(304)
512
-
3,837
141
3,978
2,331
1,506
3,837
4,154
(816)
3,338
2016
US$’000
1,078
(90)
988
-
(5,520)
(669)
(6,189)
6,953
(12,473)
(5,520)
(149,726)
(1,078)
(150,804)
Tax at the Australian tax rate of 30% (2016: 30%)
1,001
(45,241)
Tax effect of amounts which are not deductible / (taxable) in calculating taxable income:
Expenditure not allowed for income tax purposes
Other deductible items
Non-assessable income
Effect of overseas tax rates
Deferred tax asset not brought to account
Adjustments for current tax of prior periods
Income tax expense/(benefit)
Royalty tax expense
Total tax expense/(benefit) recognised in statement of profit or loss
(d) Amounts recognised in other comprehensive income
Aggregate deferred tax arising in the reporting period and not recognised in net profit or loss but directly
debited to other comprehensive income.
Deferred tax: Changes in fair value of cash flow hedges
Total tax expense/(benefit) recognised in other comprehensive income
(e) Tax losses
Unused tax losses (and applicable tax rate) for which no deferred tax asset has been recognised:
Horizon Oil International Limited – 28% (2016: 28%)
Horizon Oil (New Zealand) Limited – 28% (2016: 28%)
Potential tax benefit at applicable tax rates
1,160
(1,814)
(28)
319
(215)
3,733
141
3,978
512
4,490
1,357
(5,255)
(78)
(49,217)
1,596
42,101
(669)
(6,189)
988
(5,201)
579
579
(3,162)
(3,162)
4,995
3,764
8,759
2,453
-
-
-
-
The Company has no Australian subsidiaries and therefore it is not subject to the Australian tax consolidation regime.
65
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 7. Cash and cash equivalents
Cash at bank and on hand
Restricted cash1
Consolidated
2017
US$’000
19,368
5,161
24,529
2016
US$’000
9,615
6,464
16,079
1 Under the terms of Horizon Oil’s Revolving Cash Advance Facility (refer to Note 19(b)), certain cash balances are available to the Group after certain conditions of
the relevant facility agreement are satisfied. No restricted cash was held on deposit during the year (2016: $Nil).
Note 8. Receivables
Trade and other receivables1
Consolidated
2017
US$’000
6,376
6,376
2016
US$’000
9,932
9,932
1 Of this balance US$Nil (2016: US$Nil) related to amounts receivable from related parties. Refer to Note 33 for further details.
Information about the Company’s exposure to credit and market risks, and collectability of overdue amounts, is included in Note 26(b).
Note 9. Inventories
Crude oil, at cost
Drilling and workover spares inventory, at cost
Note 10. Current tax receivable
Income tax – China
Note 11. Derivative financial instruments
Current:
Derivative asset - Oil price swaps – cash flow hedges
Consolidated
2017
US$’000
758
739
1,497
2016
US$’000
1,370
422
1,792
Consolidated
2017
US$’000
47
47
2016
US$’000
650
650
Consolidated
2017
US$’000
2,191
2,191
2016
US$’000
-
-
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 26(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 2017, the Group has 393,750
barrels of crude oil hedged.
The gain or loss arising from re-measurement of 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, a gain of US$546,000 (2016: gain of US$19,497,000) was
transferred to profit or loss.
Note 12. Other assets
Prepayments
Note 13. Deferred tax assets
Recognised deferred tax assets are attributable to:
Tax losses
Provisions and other
Total deferred tax assets
Set off of deferred tax liabilities pursuant to set off provisions
Net deferred tax assets
66
Consolidated
2017
US$’000
1,000
1,000
2016
US$’000
1,655
1,655
Consolidated
2017
US$’000
3,410
712
4,122
-
4,122
2016
US$’000
5,118
1,335
6,453
-
6,453
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 13. Deferred tax assets (cont’d.)
2017
Movements
At 1 July 2016
(Charged)/credited - to profit or loss
At 30 June 2017
2016
Movements
At 1 July 2015
(Charged)/credited - to profit or loss
At 30 June 2016
Note 14. Plant and equipment
As at 1 July 2015
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2016
Opening net book amount
Additions
Disposals
Impairment losses
Depreciation expense
Closing net book amount
As at 30 June 2016
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2017
Opening net book amount
Additions
Disposals
Depreciation expense
Closing net book amount
As at 30 June 2017
Cost
Accumulated depreciation
Net book amount
Tax Losses
US$’000
Provisions and other
$US’000
5,118
(1,708)
3,410
1,335
(623)
712
Tax Losses Development expenditure
$US’000
US$’000
Provisions and other
$US’000
5,135
(17)
5,118
5,022
(5,022)
-
1,008
327
1,335
Other plant and
equipment
US$’000
Consolidated
Leasehold
improvements
US$’000
2,846
(1,794)
1,052
1,052
220
(322)
-
(418)
532
2,157
(1,625)
532
4,965
(952)
4,013
4,013
-
(980)
(1,407)
(272)
1,354
1,863
(509)
1,354
Consolidated
Other plant and
equipment
US$’000
Leasehold
improvements
US$’000
532
2
-
(263)
271
2,159
(1,888)
271
1,354
-
(600)
(122)
632
1,263
(631)
632
Total
$US’000
6,453
(2,331)
4,122
Total
$US’000
11,165
(4,712)
6,453
Total
US$’000
7,811
(2,746)
5,065
5,065
220
(1,302)
(1,407)
(690)
1,886
4,020
(2,134)
1,886
Total
US$’000
1,886
2
(600)
(385)
903
3,422
(2,519)
903
67
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 15. Exploration phase expenditure
Exploration phase expenditure
Consolidated
2017
US$’000
2016
US$’000
Deferred geological, geophysical, drilling and other exploration and evaluation expenditure
51,940
53,613
The reconciliation of exploration phase expenditure carried forward above is as follows:
Balance at beginning of financial year
Expenditure incurred during financial year
Transferred to development phase
Reassessment of rehabilitation asset
Expenditure written off during financial year
Impairment losses
Balance at end of financial year
Note 16. Oil & gas assets
Development and production phase expenditure
Producing oil and gas property acquisition, deferred geological, seismic and drilling, production and
distribution facilities and other development expenditure
Impairment losses
Less accumulated amortisation
The reconciliation of development and production phase expenditure carried forward above is follows:
53,613
3,567
(6,049)
1,390
(581)
-
51,940
96,959
9,317
(3,486)
-
(1,110)
(48,067)
53,613
Consolidated
2017
US$’000
2016
US$’000
457,835
447,048
(98,041)
(180,696)
179,098
(98,041)
(154,395)
194,612
Balance at 1 July 2015
Transferred from exploration phase
Transfer to production phase
Reassessment of rehabilitation asset
Amortisation incurred
Expenditure incurred during financial year
Impairment losses
Balance at 30 June 2016
Transferred from exploration phase
Transfer to production phase
Reassessment of rehabilitation asset
Amortisation incurred
Expenditure incurred during financial year
Balance at 30 June 2017
Note 17. Payables
Current liabilities:
Trade creditors
Share of joint operation creditors and accruals
Other creditors
Non-current liabilities:
Other creditors
68
Development phase
expenditure
US$’000
Consolidated
Production phase
expenditure
US$’000
72,570
3,486
(3,486)
-
-
3,247
(60,460)
15,357
6,049
(6,049)
2,053
-
2,996
20,406
241,825
-
3,486
(3,797)
(36,400)
11,722
(37,581)
179,255
-
6,049
(2,208)
(26,301)
1,897
158,692
Total
US$’000
314,395
3,486
-
(3,797)
(36,400)
14,969
(98,041)
194,612
6,049
-
(155)
(26,301)
4,893
179,098
Consolidated
2017
US$’000
468
5,769
3,713
9,950
28
28
2016
US$’000
2,102
7,232
3,167
12,501
22
22
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 18. Current tax payable
Current tax payable – New Zealand
Note 19. Borrowings
Current:
Bank loans (b)
Convertible bonds (d)
Non-current:
Bank loans (b)
Subordinated debt (c)
Total Borrowings
Consolidated
2017
US$’000
354
354
2016
US$’000
125
125
Consolidated
2017
US$’000
22,132
-
22,132
63,534
39,132
102,666
124,798
2016
US$’000
18,137
58,800
76,937
67,428
-
67,428
144,365
a) Reconciliation of borrowings arising from financing activities:
Revolving Cash Advance Facility (current)
Revolving Cash Advance Facility (non-current)
Convertible Bonds
Subordinated debt
Total liabilities from financing activities
Cashflows
Non-cash changes
Opening
1 July 2016
US$’000
18,137
67,428
58,800
-
144,365
Drawdown1
Repayments
US$’000
-
-
-
45,483
45,483
US$’000
(1,143)
-
(58,800)
(5,000)
(64,943)
Amortisation of
transaction costs
US$’000
Changes in fair
value
US$’000
Closing
30 June 2017
US$’000
-
1,244
-
1,179
2,423
5,138
(5,138)
-
(2,530)
(2,530)
22,132
63,534
-
39,132
124,798
1 Funds drawn down are shown net of associated transaction costs incurred during the period.
b) Bank loans – Revolving Cash Advance Facility
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) and Westpac Banking Corporation
(Westpac). The facility was used to refinance the previous
Reserves Based Debt Facility. Unless refinanced, or repaid in
advance, the facility matures in May 2019. 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.
Estimated future cash flows are dependent on, amongst other
things, the lenders’ views on forecast oil prices, reserve estimates,
operating and capital cost estimates and forecast interest and
exchange rates.
At 30 June 2017, total debt drawn under the facility was US$88.0
million with undrawn debt capacity available of approximately
US$8.8 million. 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 and Horizon Oil (Beibu) Limited 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 and Horizon
Oil (Beibu) Limited (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 International Holdings Limited, Ketu Petroleum Limited,
Horizon Oil (PNG Holdings) Limited and Horizon Oil (China Holdings)
Limited. The Group is subject to covenants which are common for
a facility of this nature.
c) Subordinated secured debt facility
On 15 September 2016, the Group reached financial close on a
US$50 million subordinated secured non-amortising loan with its
major shareholder, IMC Investments Limited (IMC). The proceeds
from the drawdown of the facility were used to redeem the
outstanding US$58.8 million in convertible bonds which matured
during the period. Shareholders approved the loan, which involved
the issue of 300 million options over unissued shares in the parent
entity, at a general meeting on 6 September 2016. This loan was
secured by a second ranking charge over the shares and assets
of the borrowers included in the Revolving Cash Advance Facility
(senior facility) above. ANZ Fiduciary Services Pty Limited acts as
security trustee for both the senior facility and this subordinated
facility. Floating interest in respect of the facility was at LIBOR
plus a margin of 9.0%. The facility has a term of 5 years, and is
callable after 3 years at the election of the lender. If the loan is
called prior to maturity, the company may require the optionholder
to mandatorily exercise its options if the share price is equal to or
greater than the exercise price. The proceeds from the exercise of
the options may be set off against the outstanding facility balance.
69
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 19. Borrowings (cont’d.)
During the year the Group voluntarily prepaid and cancelled US$5 million of the outstanding facility resulting in total remaining debt drawn
at 30 June 2017 of US$45 million, with no undrawn debt capacity available. The following is a reconciliation of the movement of the
carrying value of the subordinated debt facility for the year ended 30 June 2017:
Face value of debt drawn down
Less: Other financial liabilities – value of share options1
Less: Transaction costs
Initial fair value
Finance costs2
Less: Principal repaid during the financial year3
Add back: loss recognised on principal repayment3
Less: Interest paid
Less: Interest accrued4
Non-current liability at amortised cost
2017
US$’000
50,000
(3,931)
(4,483)
41,586
5,784
(5,000)
682
(3,118)
(802)
39,132
1 Fair value of the debt on initial recognition is net of the fair value of the derivative financial liability component (refer to Note 20).
2 Finance costs are calculated by applying the effective interest rate of 17.3% to the liability component.
3 On 31 May 2017 the Group completed a voluntary prepayment of US$5 million of the principal outstanding on the subordinated secured debt facility. A loss of
US$682,000 was recorded to profit or loss reflecting the difference between the carrying value and the nominal amount paid.
4 Interest accrued at 30 June 2017 is included within the ‘other creditors’ balance per Note 17.
d) Convertible bonds
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 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 was reduced to US$0.409 since issue. The bonds were listed on the Singapore Securities Exchange on
20 June 2011.
During the prior financial year the parent entity purchased in the open market, by private contract, US$21.2 million of the US$80 million
5.5% convertible bonds and surrendered the purchased bonds for cancellation in accordance with the bond trust deed.
Completion of the refinancing arrangements during the current period through the subordinated loan facility enabled redemption of the
remaining US$58.8 million convertible bonds prior to the due date of 19th September 2016.
Face value of bonds issued
Less: Other financial liabilities – value of conversion rights
Less: Transaction costs
Finance costs in prior periods1
Finance costs1
Less:
Convertible bond buybacks
Coupon paid in prior periods
Coupon paid during the financial year
Coupon accrued
Principal repaid during the financial year
Premium paid in prior periods
Premium paid during the financial year
Non-current liability
1 Finance costs are calculated by applying the effective interest rate of 14.8% to the liability component.
2017
US$’000
80,000
(20,043)
(3,362)
56,595
50,028
1,277
(21,589)
(20,834)
(1,503)
-
(58,800)
(5,174)
-
-
2016
US$’000
80,000
(20,043)
(3,362)
56,595
40,449
9,579
(21,589)
(17,600)
(3,234)
(226)
-
-
(5,174)
58,800
70
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 20. Other financial liabilities
Current
Conversion rights on convertible bonds
Non-current
Fair value of share options
Total other financial liabilities
Consolidated
2017
US$’000
2016
US$’000
-
530
2,531
2,531
-
530
The amount shown for other financial liabilities is the fair value of the derivative financial liability arising from the 300 million share options
issued as part of the subordinated debt facility discussed in Note 19(c). The options are exercisable at A$0.061 per share and as the
functional currency of the Group is United States dollars, which will result in a variable amount of cash being received on exercise of the
options, the share options are accounted for as a derivative financial liability at fair value on a recurring basis and are marked to market at
each balance date, with any gains/losses arising recognised through profit or loss.
The following is a reconciliation of the fair value of the share options:
Balance at beginning of financial year
Initial recognition during the period (see Note 19(c))1
Unrealised (gain)/loss on revaluation during the period
Balance at end of financial year
2017
US$’000
-
3,931
(1,400)
2,531
1 The weighted average fair value of the options at measurement date was A$0.018. Refer to Note 26(d) for details of the valuation techniques used to derive this
fair value.
Note 21. Provisions
Restoration (current)
Restoration (non-current)
The reconciliation of the movement in the total of the restoration provisions is as follows:
Balance at beginning of financial year
Prepayments made into China restoration fund
Additional provision during financial year
Unwinding of discount
Balance at end of financial year
Note 22. Deferred tax liabilities
Recognised deferred tax liabilities are attributable to:
Development and production expenditure
Accounting profits royalty
Cash flow hedges
Other
Total deferred tax liabilities
Set off of deferred tax assets pursuant to set off provisions
Net deferred tax liabilities
Consolidated
2017
US$’000
-
9,611
9,611
2016
US$’000
428
8,243
8,671
Consolidated
2017
US$’000
8,671
(428)
1,235
133
9,611
2016
US$’000
15,984
(3,774)
(3,797)
258
8,671
Consolidated
2017
US$’000
13,488
7,700
579
2,592
24,359
(6,654)
17,705
2016
US$’000
14,940
8,004
-
1,118
24,062
(8,138)
15,924
71
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 22. Deferred tax liabilities (cont’d.)
2017
Movements
At 1 July 2016
Charged/(credited)
- to profit or loss
- to other comprehensive income
At 30 June 2017
2016
Movements
At 1 July 2015
Charged/(credited)
-to profit or loss
-to other comprehensive income
At 30 June 2016
Note 23. Contributed equity
(a) Issued share capital
Ordinary shares
Fully paid
Partly paid to A$0.01
Development
and production
expenditure
$US’000
Accounting
profits royalty
Cash flow
hedges
Other
Total
$US’000
US$,000
US$’000
$US’000
14,940
(1,452)
-
13,488
8,004
(304)
-
7,700
-
-
579
579
1,118
1,474
-
2,592
24,062
(282)
579
24,359
Exploration
expenditure
US$’000
Development
and production
expenditure
$US’000
Accounting
profits royalty
Cash flow
hedges
Other
Total
$US’000
US$,000
US$’000
$US’000
1,440
19,695
8,094
3,162
3,632
36,023
(1,440)
(4,755)
-
-
-
14,940
(90)
-
8,004
-
(3,162)
-
(2,514)
-
1,118
(8,799)
(3,162)
24,062
Consolidated
2017
2016
Consolidated
2017
2016
Number of shares
’000
’000
US$’000
US$’000
1,301,981
1,301,981
174,342
174,342
1,500
1,500
459
459
1,303,481
1,303,481
174,801
174,801
(b) Movements in ordinary share capital
(i) Ordinary shares (fully paid)
Date
30/06/2016
30/06/2017
Details
Balance as at 30 June 2016
Balance as at 30 June 2017
(ii) Ordinary shares (partly paid to A$0.01):
Date
30/06/2016
30/06/2017
Details
Balance as at 30 June 2016
Balance as at 30 June 2017
Number of shares
1,301,981,265
1,301,981,265
Number
1,500,000
1,500,000
US$’000
174,342
174,342
US$’000
459
459
72
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 23. Contributed equity (cont’d.)
(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.
Partly paid
Partly paid ordinary shares are issued on exercise of employee options. The partly paid shares currently on issue are held by the Company
following forfeiture by their original holder. 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 and the Employee Option Scheme, 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 34.
Note 24. 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) Accumulated (losses)/retained profits
Accumulated (losses)/retained profits at beginning of financial year
Net loss for financial year
De-recognition of non-controlling interest
Accumulated losses at end of financial year
(c) Nature and purpose of reserves
Consolidated
2017
US$’000
2016
US$’000
12,030
916
12,946
11,051
979
12,030
-
2,191
(579)
1,612
8,237
(11,399)
3,162
-
14,558
12,030
(82,217)
(336)
(80)
62,254
(144,471)
-
(82,633)
(82,217)
Share-based payment reserve:
The fair value of options and share appreciation rights granted to employees results in an increase in equity upon recognition of the
corresponding employee benefits expense, as described in the accounting policy set out in Note 1(w)(iii). The fair value of general options
granted also results in an increase in equity unless accounting standards require the options to be treated otherwise.
The Company has elected to retain any amounts originally recognised in the share-based payments reserve, regardless of whether the
associated options or share appreciation rights are exercised, cancelled or lapse unexercised.
Hedge reserve:
Changes in the market value of the effective portion of derivatives is reflected directly in equity until such time as the hedge is ineffective
or expires, as described in the accounting policy set out in Note 1(t).
73
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 25. Impairment of non-current assets
At 30 June 2017, the Group reassessed the carrying amounts of its
non-current assets for indicators of impairment in accordance with
the Group’s accounting policy.
No indicators of impairment were deemed to exist at 30 June
2017 and therefore impairment write-downs of US$Nil (2016:
US$147,515,000) were expensed to profit or loss.
The impairment charges noted in the prior year primarily resulted
from the lower oil price environment, the reserves and resources
update conducted during the period and consideration of the
valuation performed by the Independent Expert in relation to the
proposed subordinated debt facility.
Estimates of recoverable amount are based on an asset’s value-
in-use or fair value less costs to sell (level 3 value hierarchy), using
a discounted cash flow method, and are most sensitive to key
assumptions, namely:
For oil and gas assets, the estimated future cash flows for the
value-in-use calculation are based on estimates, the most significant
of which are 2P hydrocarbon reserves, future production profiles,
commodity prices, operating costs and any future development
costs necessary to produce the reserves. Under a fair value less
costs to sell calculation, future cash flows are based on estimates
of 2P hydrocarbon reserves in addition to other relevant factors
such as value attributable to additional resource and exploration
opportunities beyond 2P reserves based on production plans.
Estimates of future commodity prices are based on the Group’s
best estimate of future market prices with reference to external
market analysts’ forecasts, current and historical spot prices and
forward curves. Future commodity prices are reviewed at least
annually.
Forecasts of the foreign exchange rate for foreign currencies,
where relevant, are estimated with reference to observable external
market data and forward values, including analysis of broker and
consensus estimates.
The discount rates applied to the future forecast cash flows are
based on the Group’s post-tax weighted average cost of capital,
adjusted for risks where appropriate, including the risk profile of the
countries in which the asset operates.
For capitalised exploration phase expenditure, in conjunction with
consideration of the key assumptions detailed above, a further
assessment is performed at each balance date, to determine
whether any of the following indicators of impairment exists:
(i) tenure over the licence area has expired during the period or
will expire in the near future, and is not expected to be renewed; or
(ii) substantive expenditure on further exploration for and
evaluation of mineral resources in the specific area is not
budgeted or planned; or
(iii) exploration for and evaluation of resources in the specific area
have not led to the discovery of commercially viable quantities
of resources, and the Group has decided to discontinue
activities in the specific area; or
(iv) sufficient data exists to indicate that although a development
is likely to proceed, the carrying amount of the exploration
and evaluation asset is unlikely to be recovered in full from
successful development or from sale.
Recoverable amounts and resulting impairment write-downs recognised during the prior year ended 30 June 2016 are presented in the
table below.
Area of interest/CGU
Exploration phase expenditure
Segment
PEP 51313 (Matariki)
New Zealand Exploration
PPL 259
PRL 21
PPL 430
PPL 372
PPL 373
Papua New Guinea Exploration and Development
Papua New Guinea Exploration and Development
Papua New Guinea Exploration and Development
Papua New Guinea Exploration and Development
Papua New Guinea Exploration and Development
Impairment of exploration phase expenditure
Oil and gas assets
PMP 38160 (Maari/Manaia)
New Zealand Development
PDL 10 (Stanley)
Papua New Guinea Exploration and Development
Impairment of oil and gas assets
Plant and equipment
Leasehold improvements
Papua New Guinea Exploration and Development
Impairment of plant and equipment
Total impairment of non-current assets
Impairment write-down
2016
Recoverable amount1
2016
-
-
44,643
-
-
-
57,056
15,357
1,354
(4,187)
(20,551)
(21,860)
(316)
(708)
(445)
(48,067)
(37,581)
(60,460)
(98,041)
(1,407)
(1,407)
(147,515)
1 Recoverable amounts represent the carrying value of assets before deducting the carrying value of restoration liabilities ($6,853,000) and deferred royalty tax
balances ($8,004,000) at 30 June 2016.
The post-tax discount rates that have been applied to the above non-current assets range between 10% and 11%.
For plant and equipment, an assessment is performed at each balance date to determine if an asset’s carrying amount is greater than its
estimated recoverable amount. This assessment considers, amongst other things, whether the asset is still in use and the value that
would likely be recovered from sale.
74
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. 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 at 30 June 2017 and 30 June 2016:
Financial assets
Cash and cash equivalents
Receivables
Derivative financial instruments
Current tax receivable
Financial liabilities
Payables (current)
Current tax payable
Payables (non-current)
Borrowings (net of borrowing costs capitalised)
Other financial liabilities
(a) Market risk
Consolidated
30 June 2017
30 June 2016
US$’000
US$’000
24,529
6,376
2,191
47
33,143
9,950
354
28
124,798
2,531
137,661
16,079
9,932
-
650
26,661
12,501
125
22
144,365
530
157,543
(i) Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates.
Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are denominated
in a currency that is not the Group’s functional currency.
The Group operates internationally and is exposed to foreign exchange risk arising predominately from Australian and New Zealand dollars,
Chinese Renminbi, Papua New Guinea Kina and Singapore dollar.
The Group manages foreign exchange risk by monitoring forecast cash flows in currencies other than US dollars and ensuring that
adequate Australian dollar, New Zealand dollar, Chinese Renminbi, Papua New Guinea Kina and Singapore dollar cash balances are
maintained.
The objective of the Group’s foreign exchange risk management policy is to ensure its financial viability despite potential periods of
unfavourable exchange rates. Regular sensitivity analysis is conducted to evaluate the potential impact of unfavourable exchange rates on
the Group’s future financial position. The results of this evaluation are used to determine the most appropriate risk mitigation tool to be
used. The Group will hedge when it is deemed the most appropriate risk mitigation tool to be used.
No foreign currency hedging transactions were entered into during the current or prior financial year.
Exposure to foreign exchange risk
The Group’s exposure to foreign exchange risk at the end of each reporting period was as follows:
Group
AUD
NZD
30 June 2017
PGK
RMB
SGD
AUD
30 June 2016
PGK
NZD
RMB
SGD
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Cash and cash
equivalents
Receivables
Current tax payable
Current payables
Non-current payables
330
95
-
1,269
28
137
107
351
175
-
25
238
5
-
185
-
-
-
369
-
-
-
3
5
-
358
145
-
1,764
22
380
203
125
923
-
37
27
-
169
-
3
-
-
-
-
16
-
-
-
-
75
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
For the financial year ended and as at 30 June 2017, if the currencies set out in the table below had strengthened or weakened against the
US dollar by the percentage shown, with all other variables held constant, net result for the financial year would increase/(decrease) and
net assets would increase/(decrease) by:
Group
Net Result
2016
US$’000
2017
US$’000
Net Assets
2016
US$’000
2017
US$’000
Net Result
2016
US$’000
2017
US$’000
Net Assets
2016
US$’000
2017
US$’000
Change in currency1
Australian dollar impact
New Zealand dollar impact
Papua New Guinea kina impact
Chinese Renminbi impact
Singapore dollar impact
+10%
(566)
(440)
(61)
(11)
-
+10%
+10%
+10%
(763)
(966)
(56)
(71)
-
(61)
(20)
(11)
(9)
-
(92)
(33)
(8)
-
-
-10%
566
440
61
11
-
-10%
763
966
56
71
-
-10%
-10%
61
20
11
9
-
92
33
8
-
-
1 This has been based on the change in the exchange rate against the US dollar in the financial years ended 30 June 2017 and 30 June 2016. 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 2017, the Group had derivative assets of US$2,191,000 (30 June 2016: Nil derivative assets/liabilities) as there were 393,750
bbls hedged at this date (30 June 2016: Nil bbls).
For the financial year ended and as at 30 June 2017, if the crude oil price rose or fell by the percentage shown, with all other variables held
constant, the result for the financial year would increase/(decrease) and net assets would increase/(decrease) by:
Group
Change in crude oil price
Impact
Net Result
Net Assets
Net Result
Net Assets
2017
US$’000
+10%
2,585
2016
US$’000
+10%
2,312
2017
US$’000
+10%
2,585
2016
US$’000
+10%
2,312
2017
US$’000
-10%
(2,585)
2016
US$’000
-10%
(2,312)
2017
US$’000
-10%
(2,585)
2016
US$’000
-10%
(2,312)
(iii) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
The Group has no interest-bearing assets considered to materially expose the Group’s core income and/or operating cash flows to changes
in market interest rates.
As at 30 June 2017 and 30 June 2016, the Group’s interest rate risk arises from long term borrowings, issued at variable rates, exposing
the Group to cash flow interest rate risk. Group policy is to manage material interest rate exposure. Regular sensitivity analysis is
conducted to evaluate the potential impact of unfavourable interest rate movements on the Group’s future financial position. The results
of this evaluation are used to determine the most appropriate risk mitigation tool to be used. During the current and prior financial year, the
Group did not enter into any interest rate swap contracts.
The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest rate swaps have the
economic effect of converting borrowings from floating to fixed rates. Under the interest rate swaps, the Group agrees with other parties
to exchange, at specific intervals, the difference between fixed contract rates and floating-rate interest amounts calculated by reference to
the agreed notional principal amounts.
76
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
The Group’s exposure to interest rate risk for financial instruments is set out below:
Floating
interest rate
US$’000
Fixed interest rate maturing in:
1 year or
less
US$’000
Over 1 to
2 years
US$’000
Over 2 to
5 years
US$’000
Non-interest
bearing
Carrying
amount
US$’000
US$’000
As at 30 June 2017
Financial assets
Cash and cash equivalents
14,813
Receivables
Derivative financial instruments
Current tax receivable
Weighted average interest rate p.a.
Financial liabilities
Trade and other payables
Current tax payable
Borrowings
Weighted average interest rate p.a.
Net financial assets/(liabilities)
-
-
-
14,813
0.16%
-
-
124,798
124,798
5.94%
(109,985)
Floating
interest rate
US$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Fixed interest rate maturing in:
1 year or
less
US$’000
Over 1 to
2 years
US$’000
Over 2 to
5 years
US$’000
As at 30 June 2016
Financial assets
Cash and cash equivalents
13,514
Receivables
Derivative financial instruments
Current tax receivable
Weighted average interest rate p.a.
Financial liabilities
Trade and other payables
Current tax payable
Borrowings
Weighted average interest rate p.a.
-
-
-
13,514
0.10%
-
85,565
85,565
3.45%
-
-
-
-
-
-
58,800
58,800
10%
Net financial assets/(liabilities)
(72,051)
(58,800)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,716
6,376
2,191
47
18,330
9,950
354
-
10,304
24,529
6,376
2,191
47
33,143
9,950
354
124,798
135,102
8,026
(101,959)
Non-interest
bearing
Carrying
amount
US$’000
US$’000
2,565
9,932
-
650
13,147
12,523
125
-
12,648
16,079
9,932
-
650
26,661
12,523
125
144,365
157,013
499
(130,352)
As at 30 June 2017 and 30 June 2016, the Group had the following variable rate borrowings outstanding:
External loans
Net exposure to cash flow interest rate risk
Weighted average
interest rate
% p.a.
5.94%
30 June 2017
Balance
US$’000
132,998
132,998
Weighted average
interest rate
% p.a.
3.45%
30 June 2016
Balance
US$’000
89,141
89,141
77
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
At 30 June 2017, if the interest rates had been 1.0% p.a. higher or lower and all other variables held constant, the net result for the
financial year would increase/(decrease) and net assets as at 30 June 2017 would increase/(decrease) by:
Group
Change in interest rate p.a.
Impact of assets
Impact of liabilities
Impact of net assets
(b) Credit risk
2017
US$’000
+1%
99
795
(696)
Net Result
2016
US$’000
+1%
240
742
(502)
2017
US$’000
+1%
99
795
(696)
Net Assets
2016
US$’000
+1%
240
742
(502)
2017
US$’000
-1%
(15)
(795)
780
Net Result
2016
US$’000
-1%
(24)
(742)
718
2017
US$’000
-1%
(15)
(795)
780
Net Assets
2016
US$’000
-1%
(24)
(742)
718
Credit risk is managed on a Group basis. Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the Group. Credit risk arises from cash and cash equivalents, derivative financial instruments, as well as credit
exposures to customers, including outstanding receivables.
It is acknowledged that the Group’s sales of crude oil are currently concentrated with two counterparties. However, the Group has policies
in place to ensure that sales of products and services are made to customers with an appropriate credit history, and that the Group has the
ability to sell crude to other parties if desired.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions. Where commercially practical the
Group seeks to limit the amount of credit exposure to any one financial institution.
The maximum exposure to credit risk at the end of each reporting period is the carrying amount of the financial assets as summarised in
this note.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if
available) or to historical information about counterparty default rates.
Cash and cash equivalents
Counterparties with external credit rating (Standard & Poors)
AA-
Counterparties without external credit rating
Share of joint operations cash balances
Overseas financial institutions
Total cash and cash equivalents
Receivables
Counterparties with external credit rating (Standard & Poors/Fitch)
AAA
AA
AA-
A+
A-
Counterparties without external credit rating
Share of joint operation receivables balances
Joint operations partners
Other
Total receivables
Consolidated
2017
US$’000
2016
US$’000
22,329
22,329
2,175
25
2,200
24,529
19
107
513
3,844
1,827
6,310
65
1
-
66
13,508
13,508
2,508
63
2,571
16,079
69
213
4,255
4,381
309
9,227
400
264
41
705
6,376
9,932
As at 30 June 2017, there were no financial assets that are past due (30 June 2016: US$38,750). Management has assessed the
collectability of these amounts based on the customer relationships and historical payment behaviour and believe that the amounts are still
collectible in full.
78
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
The Group has policies in place to manage liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and
actual cash flows and matching profiles of financial assets and liabilities.
Financing arrangements
The Group had access to the following undrawn borrowing facilities as at the end of each reporting period:
Floating rate:
Expiring within one year
Expiring beyond one year
Maturities of financial liabilities
An analysis of the Group’s financial liability maturities for the current and prior financial year is set out below:
Consolidated
30 June 2017
US$’000
30 June 2016
US$’000
8,832
-
8,758
-
As at 30 June 2017
Less than 6 months
6 – 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total contractual cash flows
As at 30 June 2016
Less than 6 months
6 – 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total contractual cash flows
Non-interest bearing
US$’000
Variable rate1
US$’000
Fixed rate
US$’000
10,304
-
-
28
-
11,145
19,203
32,529
87,761
-
10,332
150,638
Non-interest bearing
US$’000
Variable rate1
US$’000
12,626
-
-
22
-
12,648
6,195
15,822
25,360
44,721
-
92,098
-
-
-
-
-
-
Fixed rate
US$’000
60,314
-
-
-
-
60,314
1 Includes principal repayments and future interest payments.
d) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
AASB 7 ‘Financial Instruments: Disclosures’ requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices) (level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
79
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
(i) Fair value measurements
The following table presents the Group’s assets and liabilities measured and recognised at fair value as at 30 June 2017 and 30 June 2016:
Level 2
US$’000
Level 3
US$’000
As at 30 June 2017
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Financial liabilities at fair value through profit or loss:
Options over unissued shares
Total liabilities
As at 30 June 2016
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Financial liabilities at fair value through profit or loss:
Conversion rights on convertible bonds
Total liabilities
Level 1
US$’000
2,191
2,191
-
-
-
-
-
-
-
-
Level 1
US$’000
Level 2
US$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
2,531
2,531
Level 3
US$’000
-
-
-
530
530
Total
US$’000
2,191
2,191
-
2,531
2,531
Total
US$’000
-
-
-
530
530
There were no transfers between levels 1, 2 or 3 for recurring fair
value measurements during the year.
Specific valuation techniques used to value financial instruments
include:
The Group’s policy is to recognise transfers into and transfers out of
fair value hierarchy levels as at the end of the reporting period.
The Group did not measure any financial assets or financial liabilities
at fair value on a non-recurring basis as at 30 June 2017.
(ii) Valuation techniques used to derive fair values
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.
>> 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.
All of the resulting fair value estimates are included in level 2 unless
otherwise stated.
For the financial liabilities, the best evidence of fair value is current
prices in an active market for similar financial liabilities. Where such
information is not available the directors consider information from a
variety of sources including:
>> discounted cash flow projections based on reliable estimates of
future cash flows; and
>> Monte Carlo simulations.
All resulting fair value estimates for properties are included in
level 3.
80
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 26. Financial risk management (cont’d.)
(iii) Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the year ended 30 June 2017 for recurring fair value measurements:
Opening balance at 1 July 2016
Additions during the period
Gains recognised in profit or loss
Closing balance at 30 June 2017
a) Valuation inputs and relationships to fair value
Options over
unissued shares
US$’000
Conversion rights on
convertible bonds
US$’000
-
3,931
(1,400)
2,531
530
-
(530)
-
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
measurements.
Description
Fair value at 30 June 2017
$’000
Unobservable inputs
Range of inputs (probability-
weighted average)
Relationship of unobservable
inputs to fair value
Options over unissued
shares
2,531
Share price volatility
44.2%
All other inputs being
equal, an increase/
decrease in share
volatility results in an
increase/decrease in the
fair value of the liability
b) Valuation processes
The Group engages external, independent and qualified valuers to
determine the fair value of the share options for financial reporting
purposes at key reporting dates (half and full year end). The fair
value of the share options 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 share options. 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 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 share
options - 500,000) 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.
A calculated share price volatility of 44.2% as applied in the model.
All other parameters were based on the specific terms of the
options issued.
Note 27. New Zealand Imputation Credits
Imputation credits available for subsequent financial years1
(iv) Other fair value measurements
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, 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 non-current liability associated with the
subordinated debt was initially measured at fair value on drawdown
during the period and subsequently measured at amortised cost.
Refer to Note 19 for further details.
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.
Consolidated
2017
US$’000
2,775
2016
US$’000
2,857
1 The franking credits available for subsequent financial years are only available to New Zealand resident shareholders under the Trans-Tasman imputation
legislation.
81
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 28. Acquisition of subsidiary
(a) Summary of acquisition
On 26 December 2016 Horizon Oil PNG Holdings Limited, a wholly-owned subsidiary of Horizon Oil Limited, entered into a sale and
purchase agreement with Transform PNG Pte Limited to acquire 100% of its wholly-owned subsidiary Eaglewood Energy (BVI) Limited.
The transaction completed on 18 January 2017 and resulted in Horizon Oil Limited acquiring additional licence interests in Western
Province, Papua New Guinea as the acquiree holds a 50%1 interest in the Ubuntu gas condensate field adjacent to PRL 21, a 45% interest
in PPL 574 and a 50% interest in PPL 430. The transaction increased Horizon Oil Limited’s share in PPL 574 to 80% and PPL 430 to
100%.
Details of the purchase consideration and the net assets acquired are as follows:
Purchase consideration – cash paid
The identifiable assets and liabilities recognised as a result of the acquisition are as follows:
Exploration phase expenditure
Cash
Receivables2
Payables
Net identifiable assets acquired
2017
US$’000
460
2017
US$’000
721
262
2
(525)
460
The acquired business contributed $Nil revenues and a net loss of US$71,000 to the Group from the period 18 January 2017 to 30 June
2017. If the acquisition had occurred on 1 July 2016 consolidated revenue and loss after tax for the year would have been US$68,534,000
and US$578,000 respectively.
(b) Purchase consideration – cash outflow
Outflow of cash to acquire the subsidiary
Cash acquired
Net cash outflow - Investing activities
2017
US$’000
460
(262)
198
In addition to the abovementioned identifiable assets and liabilities, the Group assumed oil and gas exploration commitments in PNG
associated with the acquired licences. Refer to Note 39 for further detail in relation to the Group’s capital commitments.
Acquisition related costs of US$40,000 are recognised in general and administrative expenses in profit or loss and in operating cashflows in
the statement of cash flows.
1 The acquiree’s share in PRL 28 has increased from 40% to 50% following the decision of Diamond Gas Niguini B.V. (a wholly-owned subsidiary of Mitsubishi
Corporation) to relinquish its interest in the permit. This transfer of an additional 10% achieved PNG government approval post acquisition date but prior to
30 June 2017.
2 The Group acquired trade receivables of US$2,000. All receivables acquired are expected to be collectable.
82
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 29. 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
Country of incorporation
Percentage of equity holding and voting interest
(all shares issued are ordinary shares)
Business activities
carried on in
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
Eaglewood Energy (BVI) Limited
Jurassic International Holdings Limited
Note 30. Interest in joint operations
New Zealand
New Zealand
BVI
BVI
BVI
BVI
Bermuda
USA
BVI
BVI
PNG
2017
%
100
100
100
100
100
100
100
100
100
100
-
2016
%
100
100
100
100
100
100
100
100
100
-
90
New Zealand
New Zealand
BVI
China
BVI
BVI
PNG
USA
PNG
PNG
PNG
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 current 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), and the carrying values of Group’s share of exploration,
development and production phase expenditure is recorded in accordance with the accounting policies set out in Note 1(o) & (p), under the
following classifications:
Consolidated
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 37.
Exploration and development expenditure commitments in respect of joint operations are detailed in Note 40.
2017
US$’000
2,175
64
1,497
3,736
536
51,940
179,098
231,574
235,310
5,769
5,769
-
-
5,769
229,541
2016
US$’000
2,509
400
1,792
4,701
1,136
53,613
194,612
249,361
254,061
7,232
7,232
-
-
7,232
246,829
83
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 30. Interest in joint operations (Cont’d.)
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
PEP 51313 (Matariki)
Oil and gas exploration
Interest (%)
30 June 2017
Interest (%)
30 June 2016
10.00%
-1
10.00%
21.00%
China
Block 22/12
PNG
PDL 10
PRL 21
PRL 28
Oil and gas exploration and development
26.95% / 55%2
26.95% / 55%2
Oil and gas development
Oil and gas exploration and development
30.00%3
30.15%3,4
30.00%3
27.00%3
Oil and gas exploration and development
50.00%3,5
-
PPL 259/5746
Oil and gas exploration
PPL 430
PPL 372
PPL 373
Oil and gas exploration
Oil and gas exploration
Oil and gas exploration
80.00%3 ,7
35.00%3
100.00%3,7
50.00%3
95.00%3,8
90.00%3,8
100.00%3,8
90.00%3,8
1 During the financial year ended 30 June 2017 the Group and its joint venture partners withdrew from the PEP 51313 permit in New Zealand. The joint venture was
subsequently wound up.
2 China National Offshore Oil Corporation (‘CNOOC’) is entitled to participate at up to a 51% equity level in any commercial development within Block 22/12. During
2011 CNOOC exercised its right to participate in the development of WZ 6-12 and WZ 12-8W within Block 22/12 at 51%.
3 PNG government may appoint a state nominee to acquire up to a 22.5% participating interest in any commercial development within the PNG licence areas.
4 During the financial year ended 30 June 2017 the Group acquired an additional 3.15% interest in PRL 21 (Elevala/Tingu and Ketu fields) as a result of joint venture
partner Diamond Gas Niguini B.V. ( a wholly-owned subsidiary of Mitsubishi Corporation) relinquishing its interest in the permit.
5 During the financial year ended 30 June 2017 the Group acquired a 50% interest in the PRL 28 (Ubuntu condensate and gas field) through the 100% acquisition
of Eaglewood Energy (BVI) Limited. Subsequent to year end, the Group exchanged a 20% interest in PRL 28 for a 20% interest in PRL 40 (Puk Puk and Douglas
gas fields) in a trade with Kumul Petroleum Holdings, PNG’s national oil company. Completion of this transaction is conditional on customary PNG Government
approvals.
6 During the financial year ended 30 June 2017 a new licence, PPL 574, was awarded over substantially the old licence area of former licence PPL 259 with a term
of up to six years.
7 During the financial year ended 30 June 2017 the Group increased its net working interest shares of PPL 574 and PPL 430 by 45% and 50% respectively through
the 100% acquisition of Eaglewood Energy (BVI) Limited.
8 On 22 January 2016, the Group entered into a farm-out agreement whereby 95% undivided participating interest in PPL 372 and 100% undivided participating
interest in PPL 373 would be transferred to Ketu Petroleum Limited. At 30 June 2016 the Group was still awaiting PNG government approval for the proposed
transaction. The necessary approvals were received during the financial year ended 30 June 2017.
Note 31. 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
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
Total remuneration for audit and other assurance services
Total auditors’ remuneration
Consolidated
2017
US$
2016
US$
195,542
45,034
240,576
13,255
13,255
144,082
15,114
159,196
24,555
24,555
11,681
11,681
11,187
11,187
265,512
194,938
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.
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.
84
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 32. 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
Detailed remuneration disclosures are provided in sections A-D of the audited Remuneration Report.
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.
2017
US$
2016
US$
2,158,065
2,036,084
110,365
30,983
897,111
119,635
57,635
951,088
3,196,524
3,164,442
Note 33. 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.
Subsidiaries
Interests in subsidiaries are set out in Note 29. Details in respect of
guarantees provided to subsidiaries are set out in Note 43 (ii).
Financing
On 15 September 2016, the Group reached financial close on a
US$50 million subordinated secured non-amortising loan with its
major shareholder, IMC Investments Limited (IMC). Shareholders
approved the loan, which involved the issue of 300 million options
over shares in the Company, at a general meeting on 6 September
2016. During the year the Group voluntarily prepaid and cancelled
US$5 million of the outstanding facility. Refer to Notes 19(c) and 20
for further details.
Directors and other key management personnel
There were no related party transactions with directors and other
key management personnel during the current or prior year other
than as disclosed in sections A – D of the Remuneration report and
Note 32.
Transactions with related parties
Transactions between Horizon Oil Limited and related parties in the
wholly-owned Group during the financial years ended 30 June 2017
and 30 June 2016 consisted of:
(a) Contributions to share capital by Horizon Oil Limited;
(b) Loans advanced by Horizon Oil Limited;
(c) Loans repaid to Horizon Oil Limited;
(d) Payments to Horizon Oil Limited under financial guarantee
contract arrangements;
(e) Interest payments to Horizon Oil Limited on loans advanced to
subsidiaries;
(f) Dividends paid to Horizon Oil Limited; and
(g) Reimbursement of expenses to Horizon Oil Limited.
The reimbursement of expenses to Horizon Oil Limited by
subsidiaries is based on costs recharged on a relevant time
allocation of consultants and employees and associated office
charges.
The following transactions occurred with related parties:
Superannuation contributions
Superannuation contributions to superannuation funds on behalf of employees
405,321
379,097
Other transactions
Payments to Horizon Oil Limited under financial guarantee contract arrangements from wholly owned
subsidiary
2,590,136
2,237,826
Final call on partly paid and fully paid ordinary shares in Horizon Oil Limited paid by employees
-
331,339
2017
US$
2016
US$
85
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 33. Related parties (cont’d.)
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/cancelled
Balance at end of financial year
Balance at beginning of the financial year
Loans advanced
Loan repayments received
Interest charged
Interest paid
Debt capitalised as equity
Dividends received
Balance at end of financial year
2017
US$
-
-
-
-
2016
US$
331,339
-
(331,339)
-
207,348,013
221,058,652
19,178,094
57,551,744
(74,636,997)
(57,793,364)
4,122,964
9,060,434
(2,628,602)
(6,696,547)
(10,000,000)
(24,832,906)
13,144,000
9,000,000
156,527,472
207,348,013
Terms and conditions
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. 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 6.7% (2016: 6.2%). Outstanding balances are unsecured and repayable in cash.
Note 34. 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
Lapsed/cancelled
during financial
year
Balance end of
financial year
Number
Number
Number
Number
Number
Vested and
exercisable at
end of financial
year
Number
Consolidated Entity 2017
Share Appreciation Rights issued
05/08/2011
05/11/2016
A$0.312
6,478,276
13/08/2012
13/08/2017
A$0.272,6
9,561,936
19/08/2013
19/08/2018
01/07/2014
01/07/2019
A$0.332
A$0.372
8,547,599
7,402,177
01/07/2015
01/07/2020
A$0.092
25,088,617
-
-
-
-
-
01/07/2016
01/07/2021
01/07/2016
01/07/2021
A$0.092
A$0.052
-
-
16,617,522
24,372,395
Total
Weighted average exercise price
57,078,605
40,989,917
A$0.22
A$0.07
Options issued
28/05/2012
28/05/2017
17/09/2012
17/09/2017
20/02/2013
20/02/2018
16/04/2013
16/04/2018
02/11/2015
02/11/2020
15/09/2016
15/09/2021
Total
Weighted average exercise price
A$0.261
A$0.291
A$0.431
A$0.401
A$0.201
A$0.065
1,666,667
500,000
350,000
350,000
1,500,000
-
-
-
-
-
-
300,000,000
4,366,667 300,000,000
A$0.27
A$0.06
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,478,276)
-
-
-
-
-
-
-
9,561,936
8,547,599
7,402,177
25,088,617
16,617,522
24,372,395
(6,478,276)
91,590,246
A$0.31
A$0.14
(1,666,667)
(500,000)3
-
-
-
-
-
-
350,000
350,000
1,500,000
300,000,000
(2,166,667) 302,200,000
A$0.27
A$0.06
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Relates to options issued under the Employee Option Scheme.
2 No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
3 The Group cancelled 500,000 employee options during financial year 2017.
4 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.
5 Relates to general options issued in connection with the subordinated secured debt facility. Refer to Notes 19(c) and 20 for further details.
6 On 13 August 2017 9,561,936 SARS lapsed.
86
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 34. Share-based payments (cont’d.)
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
Number
Number
Number
Number
Number
Vested and
exercisable at
end of financial
year
Number
Consolidated Entity 2016
Share Appreciation Rights issued
27/10/2010
27/10/2015
05/08/2011
05/11/2016
13/08/2012
13/08/2017
19/08/2013
19/08/2018
01/07/2014
01/07/2019
01/07/2015
01/07/2020
Total
Weighted average exercise price
Options issued
16/09/2010
16/09/2015
28/05/2012
28/08/2015
28/05/2012
28/05/2017
17/09/2012
17/09/2017
20/02/2013
20/02/2018
16/04/2013
16/04/2018
02/11/2015
02/11/2020
Total
Weighted average exercise price
A$0.303
A$0.313
A$0.273
A$0.333
A$0.373
A$0.093
A$0.302
A$0.261
A$0.262
A$0.292
A$0.432
A$0.402
A$0.202
6,693,828
6,478,276
9,561,936
8,547,599
7,402,177
-
-
-
-
-
-
25,088,617
38,683,816
25,088,617
A$0.32
A$0.09
350,000
1,000,000
1,666,667
500,000
350,000
350,000
-
-
-
-
-
-
-
1,500,000
4,216,667
1,500,000
A$0.30
A$0.20
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,693,828)
-
-
-
-
-
-
-
6,478,276
6,478,276
9,561,936
8,547,599
7,402,177
25,088,617
-
-
-
(6,693,828)
57,078,605
6,478,276
A$0.30
A$0.22
A$0.31
(350,000)
(1,000,000)
-
-
-
-
-
-
-
-
-
1,666,667
1,666,667
500,000
350,000
350,000
1,500,000
500,000
-
-
-
(1,350,000)
4,366,667
2,166,667
A$0.27
A$0.27
A$0.27
1 Relates to general options issued to third party consultants.
2 Relates to options issued under the Employee Option Scheme.
3 No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
4 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 2.48 years (2016: 2.24
years).
Long Term Incentive Plan
The 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 2014 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.
87
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 34. Share-based payments (cont’d.)
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 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, 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. Refer to Note 26(b) for further details of the valuation
techniques and option pricing models associated with these
instruments.
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.
General options issued
On 15 September 2016 the Group issued 300 million general
options over unissued shares in Horizon Oil Limited in connection
with the drawdown of the subordinated secured non-amortising
loan during the period. The carrying value of the associated
derivative liability at 30 June 2017 was $2,531,000 (2016: $Nil).
Refer to Note 20 for further details, including details of unrealised
gains/losses resulting from revaluations through profit or loss
recorded during the year. This liability is measured at fair value
on a recurring basis and the options are not subject to any vesting
conditions.
The general terms associated with the options included:
>> Each option entitles the optionholder to subscribe for one share
in Horizon Oil Limited;
>> The options expire 5 years from date of grant;
>> Options are settled by the issue of shares in Horizon Oil Limited;
and
>> Options are unlisted.
The options were issued in connection with the subordinated
secured debt facility drawn down during the financial year, and
if exercised, in certain circumstances may be offset against the
principal and interest outstanding on this facility at the election of
the lender.
The lender has a right to call the loan after three years. If the lender
exercises the call option prior to final maturity, Horizon Oil can in
certain circumstances require mandatory exercise of the share
options to satisfy part of its early repayment obligation.
The model inputs for the measurement of the fair value of the
general options on grant date during the financial year ended 30
June 2017 included:
Grant date
Expiry date
Exercise price
Horizon Oil share price at grant date
Expected price volatility
Risk free rate
Expected dividend yield
15 September 2016
15 September 2021
A$0.061
A$0.043
56.30% p.a.
1.79% p.a.
0.00% p.a.
Share appreciation rights issued
40,989,917 share appreciation rights were issued under the Long
Term Incentive Plan. The weighted average exercise price of these
SARs is A$0.0664 with performance hurdles to be achieved prior to
exercise. The independently assessed weighted average fair value
at grant date of these share appreciation rights was A$0.0238 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 2017 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
1 July 2016
1 July 2021
N/A
A$0.0483
65.30% p.a.
1.65% p.a.
0.00% p.a.
No options were issued under the Employee Option Scheme during
the year.
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the financial year as part of employee benefits expense
in profit or loss were as follows:
Share Appreciation Rights issued under:
Long Term Incentive Plan
Options issued under:
Employee Option Scheme
Total employee share-based payments expense
88
Consolidated
2017
US$’000
2016
US$’000
897
951
19
916
28
979
Horizon Oil Annual Report 2017 Notes to the financial statements
For the financial year ended 30 June 2017
Note 34. Share-based payments (cont’d.)
Options/SARs in respect of which expiry dates were
modified during the financial year
No options/SARs were modified during the financial year.
Options/SARs exercised during the financial year
No options/SARs were exercised during the financial year.
Options/SARs lapsing or cancelled during the financial
year
During the financial year 2,166,667 unlisted general options lapsed
or were cancelled.
During the financial year 6,478,276 SARs lapsed or were cancelled.
Note 35. Employee entitlements
Employee entitlement liabilities are included within:
Current – other creditors (Note 17)
Non-current - other creditors
Employee numbers
Average number of employees during financial year
Options/SARs exercised and options/SARs issued
subsequent to 30 June 2017
No options or SARS have been granted subsequent to financial year
end.
Options/SARs lapsed subsequent to 30 June 2017
On 13 August 2017 9,561,936 SARS lapsed.
No options or SARs have been exercised subsequent to financial
year end.
Consolidated
2017
US$’000
2016
US$’000
791
28
Number
2017
34
771
22
2016
39
Note 36. Contingent asset
Note 37. Contingent liabilities
(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 2017. In the event that Osaka Gas does not
participate in a project, under the terms of the Agreement, they are
obliged to return their licence interests to Horizon Oil.
(ii) The Maari joint venture carried out an upgrade of the FPSO
Raroa’s mooring system and repairs to the water injection flow line,
production and test riser, and Maari wellhead platform during the
2016 and 2017 financial years. The works were carried out safely,
within budget and the Group anticipates that a significant portion of
these works will be recovered from insurance. The Group’s share of
the repair costs was approximately US$6.5 million.
The Group had contingent liabilities as at 30 June 2017 and 30 June
2016 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 38. 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 2017
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 29 August 2017. The Board of Directors has the
power to amend and reissue the financial statements.
89
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 39. Commitments for expenditure
(i) Non-cancellable operating leases
The Group leases an office premises in Sydney under a non-cancellable operating leases expiring within 1 to 5 years.
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 2017 or 30 June 2016.
Consolidated
2017
US$’000
2016
US$’000
456
476
932
407
788
1,195
Note 40. Exploration and development commitments
The Group has entered into joint operations for the purpose of exploring, developing and producing from certain petroleum interests. To
maintain existing interests or rights to earn interests in those joint operations the Group will be expected to make contributions to ongoing
exploration and development programs. Since such programs are subject to continual review by operating committees, upon which the
Group is represented, the extent of future contributions in accordance with these arrangements is subject to continual renegotiation.
Subject to the above mentioned limitations, the directors have prepared the following disclosure of exploration and development
expenditure commitments not recognised in the consolidated financial statements. These are payable as follows, based on current status
and knowledge of estimated quantum and timing of such commitments by segment.
2017
Within one financial year
Later than one financial year but not later than 5 financial
years
After 5 financial years
New Zealand
Development
China Exploration &
Development
US$’000
2,269
-
-
US$’000
5,551
-
-
Total
2016
Within one financial year
Later than one financial year but not
later than 5 financial years
After 5 financial years
Total
2,269
5,551
New Zealand
Development
New Zealand
Exploration
China Exploration &
Development
US$’000
5,183
-
-
5,183
US$’000
16
-
-
16
US$’000
836
-
-
836
Papua New Guinea
Exploration &
Development
US$’000
5,748
6,350
2,443
14,541
Papua New Guinea
Exploration &
Development
US$’000
5,036
6,084
6,006
17,126
Total
US$’000
13,568
6,350
2,443
22,361
Total
US$’000
11,071
6,084
6,006
23,161
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.
90
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 41. Reconciliation of profit after income tax to net cash flows
from operating activities
Loss for financial year
Exploration and development expenditure written off/expensed
Impairment expense
Depreciation expense
Disposal of fixed assets
Movement in employee entitlement liabilities
Non-cash employee share-based payments expense
Amortisation expense
Amortisation of prepaid financing costs
Provision for restoration
Unrealised movement in value of convertible bond conversion rights
Realised gain on purchase of bonds
Unrealised fair value movements associated with subordinated debt
Unrealised movement in in fair value of other financial liabilities
Non-cash convertible bond interest expense
Net unrealised foreign currency (gains)/ losses
Change in operating assets and liabilities:
Decrease/(increase) in trade debtors
Decrease in other debtors and prepayments
Decrease in inventory
Increase/(Decrease) in net deferred tax liabilities
Decrease in tax receivable/payable
(Decrease)/increase in trade creditors
(Decrease)/increase in deferred income
(Decrease)/increase in other creditors
Net cash inflow from operating activities
Consolidated
2017
US$’000
(336)
1,250
-
385
-
26
916
26,301
2,423
133
(530)
-
1,750
(1,400)
-
(18)
2,761
335
313
3,533
832
(1,635)
-
(1,406)
35,633
2016
US$’000
(144,525)
1,110
147,515
690
127
112
979
36,400
1,817
258
(5,322)
(1,193)
-
-
5,600
1,056
(317)
8,245
817
(8,772)
1,294
381
(2,212)
143
44,203
Note 42. Earnings per share
(a) Basic earnings per share attributable to the ordinary equity holders of the Company
Consolidated
2017
US cents
(0.03)
2016
US cents
(11.08)
(b) Diluted earnings per share attributable to the ordinary equity holders of the Company
(0.03)
(11.08)
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
1,303,481,265
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in
calculating diluted earnings per share
1,303,481,265
1,303,481,265
2017
Number
2016
Number
Reconciliation of earnings used in calculating earnings per share
Loss attributable to the ordinary equity holders of the company used in calculating basic and diluted
earnings per share
2017
US$’000
2016
US$’000
(336)
(144,471)
91
Horizon Oil Annual Report 2017
Notes to the financial statements
For the financial year ended 30 June 2017
Note 42. Earnings per share (cont’d.)
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. All partly paid shares on issue are held by the Company.
Details regarding the partly paid ordinary shares are set out in Note 23.
(b) Options and share appreciation rights granted as compensation
Options and share appreciation rights (SARS) granted to employees under the Long Term Incentive Plan or Employee Option Scheme
and general options issued (including the 300 million options issued in connection with the drawdown of the subordinated secured
non-amortising loan facility during the period), are included in the calculation of diluted earnings per share to the extent to which they
are dilutive. The SARS are considered to be contingently issuable shares and are treated as outstanding and included in the calculation
of diluted earnings per share if the relevant performance hurdles have been met. Options and SARS 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 34.
Note 43. 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
(Loss)/profit for the financial year
Total comprehensive (loss)/profit for the financial year
Parent Entity
2017
US$’000
14,847
114,333
129,180
1,127
2,558
3,685
125,495
174,801
12,946
(62,252)
125,495
2016
US$’000
7,860
256,687
264,547
61,618
274
61,892
202,655
174,801
12,030
15,824
202,655
(78,076)
8,725
(78,076)
8,725
(ii) Guarantees entered into by the parent entity
The parent entity has provided guarantees in respect of bank loans, leases and environmental compliance obligations of its subsidiaries
amounting to US$134,998,000 (2016: US$89,141,000).
No liability has been recognised for guarantees provided. After factoring in the likelihood that the parent entity would be required to
perform under the guarantees the fair value of the liability was not considered material.
(iii) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2017 or 30 June 2016. For information about guarantees given by the
parent entity, please see above.
(iv) Contractual commitment for the acquisition of property, plant or equipment
As at 30 June 2017, the parent entity had no contractual commitments for the acquisition of property, plant or equipment
(30 June 2016 – US$Nil).
92
Horizon Oil Annual Report 2017 Horizon Oil Limited and Controlled Entities
Securities Exchange Information as at 21 September 2017
DISTRIBUTION OF EQUITY SECURITIES
The distribution of equity security holders ranked according to size at 21 September 2017 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
Shares
507
936
847
2,355
978
5,623
Ordinary shares
Share appreciation rights
Unlisted options
-
-
-
-
5
5
-
-
-
-
3
3
A total of 2,656 holders held less than a marketable parcel of 12,500 ordinary shares.
TWENTY LARGEST SHAREHOLDERS
The names of the twenty largest shareholders of the Company’s ordinary shares are listed below:
Name
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Mr Brent Emmett
Carrington Land Pty Ltd
Mr Geoffrey Victor Day & Mrs Anne Margaret Day
Mr David Harvey Peek
Mr John Gustav Svendsen
Finot Pty Ltd
1
2
3
4
5
6
7
8
9
10 Grizzley Holdings Pty Limited
11 Mr Michael Sheridan
12 Mr John Bernard Porteous
13
Berne No 132 Nominees Pty Ltd
14 Miss Eun Joo Lee
15 Mr Christian James Haustead
16 Mr Douglas Thomas Nicholas
17
Floteck Consultants Limited
18 Hydra Energy Services Pty Ltd
19 Mr John Scott Humphrey
20 Mr Damian Mario Cifonelli
Total
No. of
ordinary shares
536,296,424
64,278,122
43,556,293
20,002,607
20,000,000
19,000,000
11,315,933
11,109,000
8,857,143
8,511,941
7,968,201
7,558,716
7,207,794
7,000,000
6,200,000
5,400,073
5,250,000
5,151,770
5,112,034
5,099,805
% of issued
ordinary shares
41.19
4.94
3.35
1.54
1.54
1.46
0.87
0.85
0.68
0.65
0.61
0.58
0.55
0.54
0.48
0.41
0.40
0.40
0.39
0.39
804,875,856
61.82
93
Horizon Oil Annual Report 2017
ISSUED SECURITIES
Issued securities as at 21 September 2017:
SECURITY
Ordinary fully paid shares1
Ordinary partly paid shares1
Unlisted general options
Unlisted employee options
Unlisted share appreciation rights
Shareholder Information (cont’d.)
Number on issue
Number of holders
1,301,981,265
5,622
1,500,000
300,000,0002
1,700,000
137,720,0243
1
1
4
3
1 The Company’s ordinary fully and partly paid shares are listed on the Australian Securities Exchange.
2 The Company issued 300 Million warrants over unissued shares in the Company in accordance with the terms of the subordinated debt facility with IMC investments
Limited signed on 15 September 2016.
3 22,577,706 unlisted share appreciation rights have been issued subject to shareholders’ approval at the 2017 Annual General Meeting.
SUBSTANTIAL HOLDERS
Substantial holders in the Company are set out below:
Ordinary shares
IMC Investments Ltd (an associate of Austral-Asia Energy Pty Ltd)
Commonwealth Bank of Australia
Spheria Asset Management Pty Limited
Total
VOTING RIGHTS
a) Ordinary shares – fully paid
No. of ordinary shares
% of issued ordinary
shares
393,981,792
101,312,290
65,114,243
560,408,325
30.26
7.78
5.00
43.04
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.
94
Horizon Oil Annual Report 2017
Australian equivalents to International Financial Reporting Standards
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
mtpa
NDRC
NGL(s)
ODP
PL
PDL
PEP
PMP
PRL
Reserves
Conservation and Environment Protection Authority PNG (formerly
Department of Environment and Conservation (DEC)
Department of Petroleum and Energy (PNG)
Earnings before interest, tax, depreciation, depletion and amortisation,
and exploration expenses
Contingent
Resources
Millions tonnes per annum
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.
Glossary
A-IFRS
ASIC
ASX
bbl(s)
bcf
boe
boepd
bopd
CNOOC
CEPA
DPE
EBITDAX
ESP
FID
FPSO
FEED
GST
JOA
km
LIBOR
LNG
mmbbl
mmbo
mmboe
Electrical submersible pump
Final investment decision
Floating production, storage and offloading vessel
Front end engineering and design
Goods and services tax
Joint operating agreement
Kilometres
London inter-bank offered rate
Liquified natural gas
Million barrels
Million barrels of oil
Million barrels of oil equivalent: where 1 bbl liquid equals 1 boe and
6 mcf raw gas equals 1 boe.
PSA
PNG
SDA
Sq km
USD / $US
WHP
WOU
WLNG
2D Seismic
3D Seismic
Production Sharing Agreement
Papua New Guinea
Supplemental Development Agreement
Square kilometres
United States dollars
Wellhead platform
Workover unit
The “Western LNG” gas aggregation development project
Seismic recorded in 2 dimensions
Seismic recorded in 3 dimensions
95
Horizon Oil Annual Report 2017 Notes
96
Horizon Oil Annual Report 2017
Company Directory
Horizon Oil Limited ABN 51 009 799 455
Board of Directors
John Humphrey (Chairman)
Brent Emmett (Chief Executive Officer)
Gerrit de Nys
Andrew Stock
Sandra Birkensleigh
Gregory Bittar (Alternate: Bruno Lorenzon)
Company Secretary
Assistant Company Secretary Kylie Quinlivan
Michael Sheridan
Australian Registered Office
(principal place of business)
Domicile and Country of
Incorporation
Share Registrar
Solicitors
Level 6, 134 William Street,
Sydney NSW 2011
Telephone: +(612) 9332 5000
Telephone: +(612) 9332 5050
E-mail: exploration@horizonoil.com.au
Web site: www.horizonoil.com.au
Australia
Boardroom Pty Limited
Level 7, 207 Kent Street
SYDNEY NSW 2000
Telephone: +(612) 9290 9600
King & Wood Mallesons
Level 30 Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
Auditor
PwC
One International Towers Sydney
Watermans Quay, Barrangaroo
SYDNEY NSW 2000
Stock Exchanges
Notice of Annual General
Meeting
Horizon Oil Limited shares are listed on the ASX (ASX code: HZN)
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: 24 November 2017
Horizon Oil Annual Report 2017
97
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
98
Horizon Oil Annual Report 2017 NOTICE OF 2017
ANNUAL GENERAL MEETING
Horizon Oil Limited ABN 51 009 799 455
The Annual General Meeting (“AGM”) of the members of Horizon Oil Limited ABN 51
009 799 455 (the “Company”) will be held at 10.00am (Sydney time) on Friday, 24
November 2017 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 2017.
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 2017 (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. Election of director – Mr Greg Bittar
To consider and, if thought appropriate, to pass the following as an ordinary resolution:
“That Mr Greg Bittar, a non-executive director appointed as an addition to the existing
directors, being eligible, is elected as a non-executive director of the Company.”
Further information in relation to this resolution and Mr Bittar is set out in the Explanatory
Memorandum.
4. Approval of 2017 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 under the Corporations Act and the Listing Rules
of the ASX, including Listing Rule 10.14, for the grant of up to 22,577,706 securities
(including share appreciation rights (“SARs”) and ordinary shares which may be issued
as a result of the exercise of SARs) to Mr Brent Emmett, Chief Executive Officer and
Managing Director, in accordance with the terms of his employment agreement and as
set out in the accompanying Explanatory Memorandum.”
Eligibility to attend and vote
For the purposes of the meeting and in accordance with regulation 7.11.37 of the
Corporations Regulations 2001 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, 22 November 2017.
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 required 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, 22 November 2017, 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 KMP of
the Company. Subject to any applicable laws or voting exclusions, the Chairman
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:
Further information in relation to this resolution is set out in the Explanatory Memorandum.
TO VOTE ONLINE
Note: A voting exclusion applies to this item – see the Explanatory Memorandum.
By order of the Board.
Dated: 11 October 2017
.............................................................................
Michael Sheridan
Company Secretary
Step 1: VISIT www.votingonline.com.au/horizonoilagm2017
Step 2: Enter your Postcode OR Country of Residence (if outside Australia)
Step 3: Enter your Voting Access as shown on your Proxy Form
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 Limited
Level 12, 225 George Street Sydney NSW 2000
Telephone: +61 2 9290 9600 or 1300 737 760
Fax:
Email:
+61 2 9290 9655
enquiries@boardroomlimited.com.au
EXPLANATORY MEMORANDUM
Horizon Oil Limited ABN 51 009 799 455
This Explanatory Memorandum contains information about the resolutions to be
considered at the 2017 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
1. Consideration of reports
There is no requirement for members to approve the reports described in Item 1. In
accordance with the Corporations Act 2001 (“Corporations Act”) and the Company’s
usual practice, the Chairman 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 auditor’s 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:
3. Election of director – Mr Greg Bittar
Mr Bittar was appointed to the board as a director with effect from 6 March 2017.
Mr Bittar was nominated for appointment as a director by IMC Resources Investments
Pte Ltd under the terms of the Company’s subordinated secured debt facility and,
accordingly, is considered not to be an independent director.
Mr Bittar has extensive experience in public and private markets mergers and
acquisitions, capital markets and strategic advisory assignments across a range of
sectors including general industrials, metals and mining, mining services and energy.
Mr Bittar has a Bachelor Economics and Bachelor of Laws (University of Sydney)
and Masters in Finance (London Business School), and has over 15 years investment
banking and resource sector experience in Australia and overseas.
He is currently Chairman of Millennium Minerals Limited and Trek Metals Limited
and a non-executive director of ECM Limited. Mr Bittar has worked for Bankers Trust,
Baring Brothers Burrows and Morgan Stanley.
The directors (with Mr Bittar abstaining) recommend that you vote in favour of this
ordinary resolution.
> the content of the Independent Auditor Report; or
4. Approval of 2017 grant of long term incentives (“LTIs”) to Mr Brent Emmett,
> the conduct of the audit of the Annual Financial Statement, must be submitted
Chief Executive Officer and Managing Director
no later than Friday, 17 November 2017 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 2017 AGM.
2. Remuneration Report
The Remuneration Report is contained in the ‘Directors’ Report’ of the Company’s
2017 Annual Report. A copy of the 2017 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.
The Chairman 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.
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.
However, a vote may be cast on Item 2 if the vote is not cast on behalf of a member of
the KMP or their closely related parties and either the vote is cast:
• 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 intends to vote all
undirected proxies in favour of Item 2.
On 11 September 2017, the board (with Mr Emmett abstaining) approved the grant of
55,691,714 share appreciation rights (“SARs”) to senior executives under the Long-
term Incentive Plan, first introduced by the Company in 2010 (LTI Plan).
Of those, 22,577,706 SARs were approved by the board (with Mr Emmett abstaining)
to be granted to Mr Emmett, 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 22,577,706 SARs to be granted to Mr Emmett (subject to the shareholders
approving the resolution in this Item 4) was calculated by dividing 50% of Mr Emmett’s
fixed remuneration by the present day value of the SARs (A$0.019709) on the effective
allocation date (1 July 2017) (“Effective Allocation Date”), as calculated by an
independent valuer, Dalway Securities. 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 2017 SARs award is A$0.0453 (represented as “G” in the formula for SAR Value
set out in the table below).
The remaining 33,114,008 SARs were approved to be granted to senior executives who
are not directors of the Company.
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. The proposed grant of securities to Mr Emmett is on the
terms and conditions of the LTI Plan, as outlined below.
Summary of the terms of the LTI Plan
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 long term incentives. The board has determined that 50% of senior
executives’ fixed remuneration would be long term incentives 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 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. 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.
For the purposes of the 2017 SARs granted under the LTI Plan, the Effective Allocation
Date is 1 July 2017.
EXPLANATORY MEMORANDUM
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 calculated by multiplying
the number of SARs exercised by the SAR Value (less applicable taxes) (see SAR Value
as set out in the table below).
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 aggregate SAR
Value divided by the VWAP of shares in the Company for the ten business day period
up to the day before the day the SARs are exercised, rounded down to the nearest
whole number.
The following table outlines the major features of the plan:
Key terms & conditions
Long Term Incentive Plan
Eligible persons:
Exercise price:
SAR Value:
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.
No amount is payable by a participant in the LTI Plan on the exercise of a SAR.
V minus G:
where
V equals 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; and
G equals 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.
Satisfaction of exercise of SARs
in cash or by issue of shares
Subject to ASX Listing Rules, Horizon Oil may satisfy the exercise of SARs by a participant by payment in cash, issue of Horizon Oil shares
or a combination, at the board’s discretion.
Cash payment on exercise of SARs is calculated by multiplying the number of SARs exercised by the SAR Value (less applicable taxes).
The number of Horizon Oil shares that may be issued in satisfaction of exercise of SARs is calculated as follows:
• the aggregate SAR Value is calculated by multiplying the number of SARs exercised by the SAR Value; and
• the aggregate SAR value is divided by the 10 day VWAP of Horizon Oil shares ending on the exercise date, rounded down to the nearest
whole share.
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:
• 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 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.
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 absolute 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.
SARs are exercised by submitting a notice of exercise to the Company.
EXPLANATORY MEMORANDUM
Lapse:
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 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.
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
Content requirement
10.15.2
The maximum number of securities that may
be acquired by the director, including the
formula (if one is used) for calculating the
number of securities to be issued.
Item 4
LTI Plan
In the case of SARs:
The maximum number of SARs granted to Mr Emmett is 22,577,706 SARs, calculated on the basis of
50% of Mr Emmett’s fixed remuneration divided by the present day value of a SAR (A$0.019709) on the
Effective Allocation Date (1 July 2017), as calculated by an independent valuer, Dalway Securities.
In the case of satisfaction of exercise of SARs by issue of ordinary shares (at the board’s discretion):
The maximum number of ordinary shares that may be issued to Mr Emmett to satisfy exercise of SARs is
22,577,706 ordinary shares applying the following formula.
The number of Horizon Oil shares that may be issued in satisfaction of exercise of SARs is calculated as
follows:
• the aggregate SAR Value is calculated by multiplying the number of SARs exercised by the SAR Value;
and
• the aggregate SAR Value is divided by the 10 day VWAP of Horizon Oil shares ending on the exercise
date, rounded down to the nearest whole share.
Where “SAR Value“ is calculated as follows:
V minus G
where
V equals 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; and
G equals 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.
For the 2017 SARs, “G” is A$0.0453.
EXPLANATORY MEMORANDUM
10.15.3
10.15.4
10.15.4A
10.15.5
10.15.6
10.15.7
The price or the formula for calculating the
price, for each security to be acquired under
the scheme.
Mr Emmett is not required to pay any price in order to acquire SARs under the LTI Plan. Each 2017 SAR
has a present day value on the Effective Allocation Date (1 July 2017) of A$0.019709, as calculated by an
independent valuer, Dalway Securities.
Names of directors and their associates who
have received securities under the scheme
since the last approval; number received;
and acquisition price for each security.
Mr Emmett was issued 16,617,522 SARs following shareholder approval at the 2016 AGM. Mr Emmett
was not required to pay any price in order to acquire SARs under the LTI Plan. Each SAR issued to Mr
Emmett in 2016 had a value at the time of issue of A$0.0193, as calculated by an independent valuer,
Dalway Securities.
Names of directors and associates entitled
to participate in scheme.
Mr Emmett.
Voting exclusion statement.
See voting exclusion statement set out below.
Terms of any loan in relation to acquisition.
There are no loans in relation to the acquisition of SARs or ordinary shares issued under the LTI Plan.
Date on which securities will be issued.
Subject to shareholder approval of the issue of the SARs, within five business days of the 2017 AGM, but
in any event no later than 12 months after the date of the 2017 AGM.
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.
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 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
11 October 2017
All Correspondence to:
By Mail Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001 Australia
+61 2 9290 9655
By Fax:
Online: www.boardroomlimited.com.au
By Phone: (within Australia) 1300 737 760
(outside Australia) +61 2 9290 9600
YOUR VOTE IS IMPORTANT
For your vote to be effective it must be recorded before 10:00am (Sydney time) on Wednesday 22 November 2017
TO VOTE ONLINE
BY SMARTPHONE
STEP 1: VISIT www.votingonline.com.au/horizonoilagm2017
STEP 2: Enter your Postcode OR Country of Residence (if outside Australia)
STEP 3: Enter your Voting Access Code (VAC):
PLEASE NOTE: For security reasons it is important you keep the above information confidential.
Scan QR Code using smartphone
QR Reader App
TO VOTE BY COMPLETING THE PROXY FORM
STEP 1 APPOINTMENT OF PROXY
Indicate who you want to appoint as your Proxy.
If you wish to appoint the Chair of the Meeting as your proxy, mark the box. If you wish to
appoint someone other than the Chair of the Meeting as your proxy please write the full
name of that individual or body corporate. If you leave this section blank, or your named
proxy does not attend the meeting, the Chair of the Meeting will be your proxy. A proxy
need not be a security holder of the company. Do not write the name of the issuer
company or the registered securityholder in the space.
Appointment of a Second Proxy
You are entitled to appoint up to two proxies to attend the meeting and vote. If you wish to
appoint a second proxy, an additional Proxy Form may be obtained by contacting the
company’s securities registry or you may copy this form.
To appoint a second proxy you must:
(a) complete two Proxy Forms. On each Proxy Form state the percentage of your voting
rights or the number of securities applicable to that form. If the appointments do not
specify the percentage or number of votes that each proxy may exercise, each proxy may
exercise half your votes. Fractions of votes will be disregarded; and
(b) return both forms together in the same envelope.
STEP 2 VOTING DIRECTIONS TO YOUR PROXY
To direct your proxy how to vote, mark one of the boxes opposite each item of business.
All your securities will be voted in accordance with such a direction unless you indicate
only a portion of securities are to be voted on any item by inserting the percentage or
number that you wish to vote in the appropriate box or boxes. If you do not mark any of
the boxes on a given item, your proxy may vote as he or she chooses (subject to any
applicable voting restrictions). If you mark more than one box on an item for all your
securities your vote on that item will be invalid.
Proxy which is a Body Corporate
Where a body corporate is appointed as your proxy, the representative of that body
corporate attending the meeting must have provided an “Appointment of Corporate
Representative” prior to admission. An Appointment of Corporate Representative form can
be obtained from the company’s securities registry.
STEP 3 SIGN THE FORM
The form must be signed as follows:
Individual: This form is to be signed by the securityholder.
Joint Holding: where the holding is in more than one name, all the securityholders should
sign.
Power of Attorney: to sign under a Power of Attorney, you must have already lodged it
with the registry. Alternatively, attach a certified photocopy of the Power of Attorney to this
form when you return it.
Companies: this form must be signed by a Director jointly with either another Director or a
Company Secretary. Where the company has a Sole Director who is also the Sole
Company Secretary, this form should be signed by that person. Please indicate the office
held by signing in the appropriate place.
STEP 4 LODGEMENT
Proxy forms (and any Power of Attorney under which it is signed) must be received no later
than 48 hours before the commencement of the meeting, therefore by 10:00am (Sydney
time) on Wednesday 22 November 2017. Any Proxy Form received after that time will not
be valid for the scheduled meeting.
Proxy forms may be lodged using the enclosed Reply Paid Envelope or:
Online
www.votingonline.com.au/horizonoilagm2017
By Fax
+ 61 2 9290 9655
By Mail
Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001 Australia
In Person
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000 Australia
Attending the Meeting
If you wish to attend the meeting please bring this form with you to assist registration.
Horizon Oil Limited
ABN 51 009 799 455
Your Address
This is your address as it appears on the company’s share
register. If this is incorrect, please mark the box with an “X” and
make the correction in the space to the left. Securityholders
sponsored by a broker should advise their broker of any changes.
Please note, you cannot change ownership of your securities
using this form.
PROXY FORM
STEP 1
APPOINT A PROXY
I/We being a member/s of Horizon Oil Limited (Company) and entitled to attend and vote hereby appoint:
the Chair of the Meeting (mark box)
OR if you are NOT appointing the Chair of the Meeting as your proxy, please write the name of the person or body corporate (excluding the registered shareholder) you are
appointing as your proxy below
or failing the individual or body corporate named, or if no individual or body corporate is named, the Chair of the Meeting as my/our proxy at the Annual General Meeting
(Meeting) of the Company to be held at The Sydney Boulevard Hotel, Grand Ballroom, Level 1, 90 William Street, Sydney NSW 2011 on Friday 24 November 2017 at
10:00am (Sydney time) and at any adjournment or postponement of that meeting, to act on my/our behalf and to vote in accordance with the following directions or if no
directions have been given, as the proxy sees fit.
If the Chair of the Meeting is your proxy or becomes your proxy by default: If I/we have appointed the Chair of the Meeting as my/our proxy or the Chair of the Meeting becomes
my/our proxy by default and I/we have not directed my/our proxy how to vote in respect of Resolutions 2 and 4, I/we expressly authorise the Chair of the Meeting to exercise
my/our proxy in respect of Resolutions 2 and 4 (as applicable) even though Resolutions 2 and 4 are connected directly or indirectly with the remuneration of a member of the key
management personnel of the Company.
Subject to any applicable laws or voting exclusions, the Chair of the Meeting will vote all undirected or available proxies in favour of all Items of business (including Resolutions 2
and 4). In exceptional circumstances, the Chair of the Meeting may change his/her voting intention on any item of business, in which case an ASX announcement will be made
by the Company. If you wish to appoint the Chair of the Meeting as your proxy with a direction to vote against, or to abstain from voting on an item of business, you must provide
a direction by marking the 'Against' or 'Abstain' box opposite that item of business.
The Chair of the Meeting intends to vote all undirected or available proxies in favour of each item of business.
STEP 2
VOTING DIRECTIONS
* If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your vote will not
be counted in calculating the required majority if a poll is called.
For
Against
Abstain*
Resolution 2
To Adopt the Remuneration Report
Resolution 3
Election of director – Mr Greg Bittar
Resolution 4
Approval of 2017 grant of long term incentives to Chief Executive Officer and Managing Director
STEP 3
SIGNATURE OF SHAREHOLDERS
This form must be signed to enable your directions to be implemented.
Individual or Securityholder 1
Securityholder 2
Securityholder 3
Sole Director and Sole Company Secretary
Director
Director / Company Secretary
Contact Name…………………………………………….... Contact Daytime Telephone………………………................................ Date / / 2017