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
26 October 2018
The Manager, Company Announcements
Australian Securities Exchange Limited
Exchange Centre
20 Bridge Street
Sydney NSW 2000
HORIZON OIL LIMITED 2018 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 2018 and the Notice of Annual General Meeting to be held on Wednesday, 28 November 2018.
The Notice of Annual General Meeting will be sent to all shareholders. A printed copy of the 2018
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:
https://webcast.openbriefing.com/4777/
Yours faithfully,
Kylie Quinlivan
General Counsel/Company Secretary
For more information please contact:
Horizon Oil Limited
Kylie Quinlivan General Counsel/
Company 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
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Horizon Oil
Annual Report
2018
Horizon Oil Limited
ABN 51 009 799 455
H I G H L I G H T S
20
18
“2018sawthebenefit
of year on year
oil sales growth
when coupled with
strengthening
oil prices.”
John Humphrey, Chairman
Michael Sheridan, CEO
R E V E N U E
US$100m
4 6 % I N C R E A S E F R O M 2 0 1 7
CA S H F L O W
F R O M O P E R AT I N G
AC T I V I T I E S
US$57.6m
6 2 % I N C R E A S E F R O M 2 0 1 7
Oil sales
(mmbbl)
Revenue
(US$m)
16%
46%
FY18
FY17
FY16
FY15
FY14
FY18
FY17
FY16
FY15
FY14
A D D I T I O N A L
M A A R I / M A N A I A
AC Q U I S I T I O N
TA K E S H O R I Z O N
O I L’ S I N T E R E S T T O
26%
A D D I N G 3 . 1 m m b b l
O F 2 P R E S E R V E S
1.42
1.38
1.21
1.36
1.65
Beibu
Maari
68.5
76.0
100.0
104.0
138.5
A R E A S O F
O P E R AT I O N
1. China
Block 22/12
(Production/Exploration)
26.95%/55%
1
2
2. Papua New Guinea
PDL 10 (Stanley)
PRL 21 (Elevala/Tingu/Ketu)
PRL 28 (Ubuntu)
PRL 40 (Puk Puk/Douglas)
PPL 372
PPL 373
PPL 430
3
PPL 259/574
3. New Zealand
30%
30.15%
50%1
0%1
95%
100%
100%
80%
PMP 38160 (Maari/Manaia)
26%
1 Refer to footnote 1 on page 2.
Horizon Oil Annual Report 2018
U N D E R LY I N G P R O F I T
B E F O R E TA X
FOR AN EXPLANATION OF
UNDERLYING PROFIT BEFORE
TAX REFER TO PAGE 21 OF
THE DIRECTOR’S REPORT
O I L S A L E S F O R 2 0 1 8
F I N A N C I A L Y E A R O F
1 . 6 5 M I L L I O N b b l s,
A 1 6 % I N C R E A S E
US$18.9m
5 8 6 % I N C R E A S E F R O M 2 0 1 7
1.65mmbbl
2
0
1
8
H
I
G
H
L
I
G
H
T
S
N E T D E B T
US$88.6m
1 8 % R E D U C T I O N F R O M 2 0 1 7
Net operating
cash flow
after opex incl hedging,
China cost recovery and
excl. extraordinaries
(US$m)
General &
administrative
expenses (US$m)
45%
18%
FY18
FY17
FY16
FY15
FY14
FY18
FY17
FY16
FY15
FY14
CA S H O P E R AT I N G C O S T
P E R B A R R E L S O L D
US$20/bbl
2018 Highlights
Chairman and CEO's Report
Reserves and Resources Statement
Board of Directors
Consolidated Results
Activities Review
– Production
– Development and Pre-development
– Exploration
1
2
5
10
10
11
12
16
18
75.1
51.7
52.2
81.1
93.6
4.3
5.2
6.7
5.6
6.2
Contents
Annual Financial Report
Directors’ Report
Sustainability Report
Shareholder Information
Glossary
Company Directory
19
20
40
97
99
101
Horizon Oil Annual Report 2018
1
Chairman and Chief Executive Officer’s Report
20
18
LEFT TO RIGHT:
John Humphrey
Chairman
Michael Sheridan
Chief Executive Officer
Dear Shareholders
Highlights
Financialyear2018sawthebenefitofthe
continuation of the Company’s year on year oil
sales growth when coupled with strengthening oil
prices. With annual revenues in excess of US$100
million,thesubstantialresultantfreecashflowfrom
the Company’s high margin production in China
and New Zealand further strengthened the balance
sheet, with net debt materially reduced, and enabled
the acquisition, from cash reserves, of an additional
16%interestintheMaari/Manaiaoilfields.
This strong underlying business is also financing the progression of
the Company’s material growth opportunities in China and Papua
New Guinea constituting the bulk of a net 2C resource base of
600 PJ of sales gas and 27 mmbbl1.
Increasing investor confidence in the sector, with particular interest
in exposure to rising oil prices and, in Horizon Oil’s case, recognition
of the aggressive reduction of debt from free cashflow, led to an
improved share price, increasing by over 250% in the year, albeit
from a low base.
By most measures, 2018 was a good year for the Company.
Oil sales increased 16% to 1.65 million barrels, driven by the
contribution of an additional 16% interest in Maari for the 6 months
from 1 January 2018 and the production enhancement programs
undertaken in our Beibu Gulf and Maari/Manaia fields. The solid
production performance was enhanced shortly after year end with
the drilling and completion of the two infill wells on the 12-8 West
and 12-8 Mid fields, Beibu Gulf, the gross initial flow rates of which
exceeded expectations at 3,500 bopd.
The increased sales volume and a strengthening oil price, led to
revenues in excess of US$100 million and EBITDAX of US$68.5
million, an increase of 52% on the 2017 result. With average
operating costs below US$20/bbl sold and all-in free cashflow
breakeven price of US$38/bbl sold, Horizon Oil was able to acquire
the additional interest in the Maari/Manaia joint venture from cash
reserves and reduce net debt by US$20 million, to US$88.6 million.
Accordingly, as at 30 June, the Company’s ratio of net debt to
EBITDAX2 was a modest 1.3 times and will further reduce with
substantial debt reduction from free cashflow over the coming
12 months.
O I L P R O D U C T I O N
1.3mmbbl
1 9 % I N C R E A S E F R O M 2 0 1 7
1 The Group will exchange a 20% interest in the Ubuntu field for a 20% interest in the Puk Puk, Douglas, Langia and Weimang fields in a trade with Kumul Petroleum Holdings,
Papua New Guinea’s national oil company. Completion of this transaction is conditional on customary Papua New Guinea Government approvals.
2 For an explanation of EBITDAX refer to page 21 of the Director’s Report.
2
Horizon Oil Annual Report 2018 Chairman and Chief Executive Officer’s Report (cont’d.)
E B I T DA X
U S $ 6 8 . 5m
52%
“ 2018 was a good year for the Company. Oil sales
increased 16% to 1.65 million barrels, driven by the
contribution of an additional 16% interest in Maari for
the 6 months from 1 January 2018 and the production
enhancement programs undertaken in our Beibu Gulf
andMaari/Manaiafields.”
I N C R E A S E F R O M 2 0 1 7
John Humphrey and Michael Sheridan
Good progress was made on development planning for both the
large 12-8 East field in Beibu Gulf and Horizon Oil’s material gas
and condensate resources in Western Province, PNG.
CNOOC Limited, which operates Horizon Oil’s interests in Beibu
Gulf, has scheduled final investment decision on the 12-8 East
development later this year, having substantially concluded
commercial and legal arrangements with the drilling contractor
and platform lessor which facilitate the low capex, phased
development approach adopted by the joint venture.
In Papua New Guinea, Horizon Oil progressed planning for the
commercialisation of the gross appraised resource of 2,200 PJ of
sales gas and 64 million barrels of associated condensate in the
four petroleum licences in the foreland basin of Western province
that may supply gas to the Western LNG project. The Company
holds approximately 30% of the resource1 and is operator of two
licences constituting the majority of the resource.
The condensate rich gas resources in the Stanley, Elevala, Ketu
and Ubuntu fields lie to the south of ExxonMobil and Oil Search’s
P’nyang gas field which will provide the threshold volumes for
expansion train 3 of the PNG LNG scheme. The planned pipeline
route from P’nyang to the PNG LNG facilities passes within 20
kilometres of the Ketu field.
While the Government of Papua New Guinea has announced that
its proposed Gas Policy would seek to ensure third party access to
such pipelines, it remains appropriate for Horizon Oil and its fellow
joint venturers to progress their independent development plans
for their resources.
In this regard, excellent progress was made on the Western LNG
gas aggregation scheme. Concept development planning involved
a scheme with lowest technical and execution risk, maximum use
of standard, proven technology and high system reliability. The
Company completed its preliminary Front End Engineering and
Design (pre-FEED) studies of the proposed development. Those
analyses, conducted with specialist consulting firms, including
Technip for liquefaction facilities and Petrochina’s subsidiary CPE
for pipeline studies, have confirmed both the technical viability of
the proposed concepts and cost estimates.
Further, with the resurgence of, and a strengthened outlook
for, oil prices and the current competitive cost environment for
oil field services and equipment, the Stanley early condensate
recovery scheme, which was put on hold after completion of the
development drilling when oil prices collapsed in late 2014, is
re-emerging as an attractive investment proposition that has the
potential to provide nearer term condensate and domestic gas
revenue, while planning for, and construction of, the longer-dated
Western LNG project take place.
Interest in the Western LNG project and its underlying gas-
condensate resource base led to Repsol’s announcement earlier
this year of its conditional agreement with China Changcheng
Natural Gas Power Co. Ltd Group (China Changcheng) to acquire
its Papua New Guinea licence interests.
3
Horizon Oil Annual Report 2018
Chairman and Chief Executive Officer’s Report (cont’d.)
The foregoing positive elements of Horizon Oil’s operations in
Papua New Guinea and a new Chinese joint venture partner with
strong interest in LNG offtake were tempered by the notices of
intent to cancel PDL 10 and PL 10 and a notice to terminate the
Stanley Gas Agreement received by the PDL 10 joint venture from
the PNG Petroleum Minister. Repsol, the operator of PDL 10, is of
the view that the notices are without merit and are procedurally
invalid. Based on external legal advice, Horizon Oil supports
this view. Horizon Oil and the PDL 10 joint venture continue
to work with the PNG Petroleum Minister and the Department
of Petroleum and Energy to resolve any misunderstanding or
disagreement with respect to the good standing of PDL 10,
PL 10 and the Stanley Gas Agreement.
Sustainability
The details of the Company’s activities in the areas of safety,
health and community, environment and security are contained
in the Sustainability Report later in this Annual Report.
There were again no serious injuries in Horizon Oil’s operated
assets, however there were two lost time incidents in our non-
operated assets. Thankfully, in each case, the injuries were not
serious.
Horizon Oil continues to invest in targeted health care support
programs in Western Province, Papua New Guinea. The Company
was pleased to continue its involvement by way of sponsorship
and logistical support of Australian Doctors International (ADI).
In 2018 financial year, ADI conducted 14 remote area medical
patrols, delivered over 3,400 clinical services (of which 75% were
to women and children), 37 hours of public health education and
66 hours of case based and group training to rural community
health care workers. Horizon Oil is grateful for the dedication,
capability and efficiency of ADI’s medical and support personnel
which ensure meaningful health benefits are derived by the people
of Western Province.
In February 2018, Papua New Guinea experienced a magnitude
7.5 earthquake in the Highlands region which inflicted substantial
damage to Southern Highlands, Hela and Western Provinces
and caused the loss of many lives and destruction of social
infrastructure. Given our location, there was no impact on Horizon
Oil’s personnel or operations. Horizon Oil’s assistance with
earthquake relief and reconstruction efforts in affected areas
was carried out by way of donation to the consolidated Ok Tedi
Development Foundation and the provision of logistical support,
where possible.
4
Management transition
The management changes announced at the 2017 annual general
meeting were effected on 30 June 2018 with a seamless transition
to the new management team. Brent Emmett and Alan Fernie
retired from the Company having led and been instrumental in the
Company’s growth over the last 17 years. The board has profound
appreciation for Brent’s and Alan’s respective contributions to
the Company and the manner in which they have managed the
assignment of their responsibilities.
The Company will continue to benefit from Brent’s and Alan’s
experience and skills as they have been retained in advisory roles,
assisting the new management team. The new management
team is composed predominantly of internal appointees, which
has facilitated the smooth management transition, ensured
maintenance of corporate knowledge and existing relationships
with key stakeholders.
Outlook for 2019
The 2019 year has started well with the very successful infill
drilling campaign in Beibu Gulf.
The offshore drilling and well completion program was incident
free, carried out exceptionally efficiently and achieved materially
greater reservoir penetration than planned, aided by a high
degree of directional drilling accuracy. CNOOC’s strong operating
performance is very encouraging as the CNOOC-led joint venture
looks to proceed with the proposed development of the 12-8 East
oil field.
The Company expects to achieve steady production from our
producing fields in China and New Zealand with guidance of 1.6
to 1.8 million barrels of oil sales for financial year 2019. The
resultant field operating cashflow is estimated to be in the range of
US$70 to 80 million, assuming oil prices remain above US$70/bbl
consistent with industry estimates; funding the Company’s capital
expenditure requirements with a considerable surplus available for
further material debt reduction.
In Papua New Guinea, the Company’s commercialisation efforts
for its substantial gas and condensate resources will focus on
the renewed opportunity for early condensate recovery from the
Stanley field and thereafter Elevala and Ketu fields, with progress
on development planning for the proposed Western LNG project.
The opportunity for acceleration of the large scale development
of the resource base will increase should China Changcheng
complete its acquisition of Repsol’s Papua New Guinea licence
interests.
John Humphrey
Chairman
Michael Sheridan
Chief Executive officer
3 October 2018
Horizon Oil Annual Report 2018 Reserves and Resources
Statement as at 30 June 2018
20
18
Highlights
Strong performance from producing conventional oil assets in China and New Zealand with a
16% increase in sales volumes on the prior year at 1.6 mmbbl.
Proved plus Probable Reserves (2P) of oil increased by 1 mmbbl to 8.9 mmbbl following strong
production in China and New Zealand and the increase in Horizon Oil’s participating interest in the
Maari project from 10 to 26 percent.
Following delivery1 of the infill wells WZ 12-8W-A7H and -A8H in the WZ 12-8W and WZ 12-8M oil
pools in Beibu Gulf, all undeveloped 1P and 2P reserves are now on production.
Contingent Resources (2C) of oil and condensate increased as a result of the identification of
additional infill opportunities in New Zealand and an increase in the expected recovery of condensate
from the Elevala-Ketu and Ubuntu fields in Papua New Guinea. These increases were offset by review
of the technical basis and commercial considerations of the Manaia-Moki development in
New Zealand. In aggregate, Contingent Resources (2C) of oil and condensate decreased by
1.9 mmbbl to 27 mmbbl.
Contingent Resources (2C) of gas in Papua New Guinea increased by 49 PJ to 505 PJ of Sales Gas
with incorporation of process design considerations including heat and mass balance calculations
completed as part of the Western LNG project.
1 Refer ASX announcement dated 8 August 2018.
Reserves
Proven + Probable
Total 8.9 mmbbl
Contingent
Resources
Proven + Probable
Total : 127 mmboe
China
New Zealand
Papua New Guinea
Block 22/12
PMP 38160
PRL 21
PDL 10
PRL 40
PRL 28
5
Horizon Oil Annual Report 2018
H O R I Z O N O I L’ S
S TA K E I N T H E
M A A R I P R O J EC T
16%
P R O V E D P L U S
P R O B A B L E
R E S E R V E S ( 2 P )
O F O I L
13%
F R O M 1 0 % T O 2 6 %
F R O M 7. 9 T O 8 . 9 m m b b l
Proved and Proved plus Probable Reserves
Proved and Proved plus Probable Reserves (Horizon Oil share)
1P
Developed
Liquids
mmbbl
1P
Undeveloped
Liquids
mmbbl
1P
Total
Liquids
mmbbl
2P
Developed
Liquids
mmbbl
2P
Undeveloped
Liquids
mmbbl
2P
Total
Liquids
mmbbl
China
Block 22/12
WZ 6-12 + WZ 12-8W
New Zealand
PMP 38160
Maari + Manaia
Closing Balance 30 June 2018
2.8
1.9
4.7
0.1
-
0.1
2.9
1.9
4.8
4.3
4.5
8.8
0.2
-
0.2
4.5
4.5
8.9
Reconciliation of Proved and Proved plus Probable Reserves
Production: strong net production of 1.6 mmbbl (0.5 mmbbl in New Zealand, 0.8 mmbbl in China with a
further 0.42 mmbbl of cost-recovery oil in China) up 16% on the prior year.
China: revisions following review of actual field performance and adjustment for preferential cost-recovery
due to upward revisions to the oil price forecast.
New Zealand: revisions following review of actual field performance and the acquisition of an additional 16%
participating interest in Maari, increasing Horizon Oil’s net working interest from 10% to 26% (an increase of
1.2 mmbbl on a 1P basis and 3.1 mmbbl on a 2P basis).
2 Cost recovery oil is reconciled as an Economic Interest Adjustment.
Proved and Proved plus Probable Reserves Reconciliation
Opening Balance 30 June 2017
Production (Net Working Interest)
Production (Cost Recovery Oil Entitlement)
Revisions of Previous Estimates
Economic Interest Adjustment
Transfers, Discoveries and Extensions
Acquisitions and Divestments
Closing Balance 30 June 2018
6
1P
Liquids
mmbbl
2P
Liquids
mmbbl
5.0
(1.3)
(0.4)
0.5
(0.2)
-
1.2
4.8
7.9
(1.3)
(0.4)
(0.2)
(0.2)
-
3.1
8.9
Horizon Oil Annual Report 2018
C O N T I N G E N T
R E S O U R C E S ( 2 C )
O F GA S I N P N G
I N C R E A S E D
11%
F R O M 4 5 6 PJ T O 5 0 5 PJ
Contingent Resources
China
Block 22/12
Block 22/12
New Zealand
PMP 38160
PMP 38160
Papua New Guinea
PDL 10
PRL 21
PRL 28
Closing Balance 30 Jun 2018
Contingent Resources (Horizon Oil share)
2C
Liquids
mmbbl
2C
Raw Gas
bcf
2C
Sales Gas
PJ
WZ 6-12 + WZ 12-8W
WZ 12-8E
Maari + Manaia
Manaia-Moki development
Stanley
Elevala-Ketu
Ubuntu
sub-total
sub-total
sub-total
0.2
2.8
3.0
4.3
-
4.3
3.4
15.2
1.1
19.7
27.0
2C
Liquids
mmbbl
28.9
-
(0.1)
(1.7)
(0.1)
-
-
-
-
-
-
-
-
123
351
23
497
497
-
-
-
-
-
-
110
371
24
505
505
2C
Raw Gas
Bcf
497.0
2C
Sales Gas
PJ
456.0
-
-
-
-
-
-
49.0
-
-
-
27.0
497.0
505.0
7
Reconciliation of Contingent Resources
Contingent Resources Reconciliation
Opening Balance 30 June 2017
Production (Net Working Interest)
Production (Cost Recovery Oil Entitlement)
Revisions of Previous Estimates
Economic Interest Adjustment
Transfers, Discoveries and Extensions
Acquisitions and Divestments
Closing Balance 30 June 2018
Horizon Oil Annual Report 2018
Reserves and Resources Statement as at 30 June 2018
China: 0.2 mmbbl adjustment for cost recovery entitlement due to upward revisions to the oil price
forecast and adjustment to economic interest.
New Zealand: an increase of 0.9 mmbbl associated with the identification of additional infill
opportunities in the Maari Moki and Manaia Mangahewa reservoir offset by a decrease of 2.6 mmbbl
of oil resulting from a review of the technical basis and commercial considerations of the Manaia-Moki
development in New Zealand.
Papua New Guinea: an upward revision of 0.9 mmbbl liquids and 49 PJ of Sales Gas with incorporation
of process design considerations including heat and mass balance calculations completed as part of
the proposed Western LNG project and an increase in the expected recovery of condensate from the
Elevala-Ketu and Ubuntu fields.
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 283 an increase to net Contingent Resources (2C) will be realised.
Pending revision in Contingent Resources (Horizon Oil share)
Before government approval
After government approval
Working
Interest
%
2C
Liquids
mmbbl
2C
Raw Gas
bcf
2C
Sales Gas
PJ
Working
Interest
%
2C
Liquids
mmbbl
2C
Raw Gas
bcf
2C
Sales Gas
PJ
Papua New Guinea
PRL 28
PRL 40
Total
Ubuntu
Puk Puk etc.
50%
0%
1.1
-
1.1
23
-
23
24
-
24
30%
20%
0.7
0.1
0.8
14
111
125
14
109
123
3 The Group will exchange a 20% interest in PRL 28 for a 20% interest in PRL 40 (Puk Puk, Douglas, Langia and Weimang 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.
Gross Contingent Resource Base for Western LNG
Horizon Oil has estimated the Contingent Resources (2C) in four licenses in the Western Province of
Papua New Guinea that may supply gas to the Company’s proposed Western LNG development.
Gross Contingent Resources (2C) of the combined licenses are tabulated below and have been subject
to external audit.
Gross Contingent Resource Base for Western LNG (100% share)
Papua New Guinea
PDL 10, PRL 21, PRL 28 and PRL 40
2C
Liquids
mmbbl
2C
Raw Gas
bcf
2C
Sales Gas
PJ
64.4
2,170
2,188
8
Horizon Oil Annual Report 2018
Reserves and Resources Statement as at 30 June 2018
Permits, Licences and Interests Held
Permit or License
Operator
Material Projects
Working Interest (%)
30 June 2018
30 June 2017
China
Block 22/12
New Zealand
PMP 38160
Papua New Guinea
PDL 10
PRL 21
PRL 28
PPL 574
PPL 430
PPL 372
PPL 373
PRL 40
CNOOC
WZ 6-12, WZ 6-12S, South & WZ 12-8 West fields
WZ 12-8 East field
26.95%
55.00%4
26.95%
55.00%
OMV
Maari and Manaia fields
26.00%5
10.00%
Repsol
Horizon Oil
Horizon Oil
Horizon Oil
Horizon Oil
Horizon Oil
Horizon Oil
Repsol
Stanley field
Elevala-Ketu fields
Ubuntu field
Exploration activities
Exploration activities
Exploration activities
Exploration activities
Puk Puk, Douglas, Weimang and Langia fields
30.00%6
30.15%
50.00%3
80.00%
100.00%
95.00%
100.00%
-3
30.00%
30.15%
50.00%
80.00%
100.00%
95.00%
100.00%
-
4 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.
5 As announced on 31 May 2018, Horizon Oil completed the acquisition of Todd Maari Limited’s 16% interest in PMP 38160, which contains the producing Maari and Manaia fields.
6 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.
Notes
1. All estimates are prepared in accordance with the Society of Petroleum
Engineers (SPE) Petroleum Resources Management System (PRMS).
2.
3.
4.
5.
6.
7.
8.
9.
Relevant terms used in this statement, capitalised or otherwise, have the
same meaning given to those terms in the SPE PRMS.
Reserves are those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known accumulations
from a given date forward under defined conditions.
Contingent Resources are those quantities of petroleum estimated, as of
a given date, to be potentially recoverable from known accumulations by
application of development projects, but which are not currently considered
to be commercially recoverable owing to one or more contingencies.
Contingent Resource estimates quoted for China have assumed China
National Offshore Oil Corporation (CNOOC) participation at 51%. CNOOC
is entitled to participate at up to a 51% equity level in any commercial
development within Block 22/12.
Contingent Resource estimates quoted for PNG do not assume PNG State
Nominee participation at this time. The 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.
Liquids are equal to the total of oil, condensate and natural gas liquids
where 1 barrel of condensate or natural gas liquids equals 1 barrel of oil.
Raw Gas is natural gas as it is produced from the reservoir which may
include varying amounts of heavier hydrocarbons which liquefy at
atmospheric conditions, water vapor and other non-hydrocarbon gases such
as hydrogen sulphide, carbon dioxide, nitrogen or helium.
Sales Gas represents volumes that are likely to be present a saleable
product. Sales Gas are reported assuming average values for fuel, flare
and shrinkage considering the variable reservoir fluid properties of each
constituent field on an energy basis the customary unit is PJ. PJ means
petajoules and is equal to one quadrillion joules.
10. Depending on the asset, either deterministic estimates or probabilistic
estimates have been used to calculate the petroleum reserves, contingent
resources and prospective resources in this statement.
11. Reported estimates of petroleum reserves and contingent resources have
been aggregated by arithmetic summation by category.
12. Unless otherwise noted, estimates are reported according to Horizon Oil’s
economic interest (Horizon Oil share), this being Horizon Oil’s net working
interest as adjusted for entitlements under production-sharing contracts
and risked-service contracts; and are reported net of royalties and lease fuel
up to the reference point. For New Zealand, the reference point is defined
as the outlet of the Raroa Floating Production Storage and Offtake (FPSO)
facility. For China the reference point is the exit flange of the loading hoses
at Weizhou Terminal.
13. Horizon Oil employs a Reserves Management System to ensure the veracity
of data used in the estimation process. This process includes review by
senior staff where data is endorsed for inclusion in the estimating process.
Estimates are reviewed annually, at a minimum, with interim reviews as
required, to respond to any material changes. Horizon Oil undertakes semi-
regular external reviews to complement its own internal process.
14. The estimates of petroleum reserves and resources contained in this
statement are based on, and fairly represent, information and supporting
documentation prepared by staff and independent consultants under the
supervision of Mr Andrew McArdle, Chief Operating Officer of Horizon Oil
Limited. Mr McArdle is a full-time employee of Horizon Oil Limited and is a
member of the Society of Petroleum Engineers. Mr McArdle’s qualifications
include a Master of Engineering from the University of Western Australia,
Australia and more than 15 years of relevant experience. Mr McArdle
consents to the use of the petroleum reserves and resources estimates in
the form and context in which they appear in this statement.
15. Some totals in the tables may not add due to rounding.
16. Horizon Oil uses a constant conversion factor for sales gas where 6 Bcf
of sales gas equals 1 mmboe.
9
Horizon Oil Annual Report 2018 20
18
Board of Directors
John Humphrey
Chairman
Michael Sheridan
Chief Executive Officer
Gerrit de Nys
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
2018
US$’000
2017
US$’000
2016
US$’000
2015
US$’000
2014
US$’000
100,044
(55,686)
44,358
68,534
75,952
103,950
138,450
(43,768)
(60,179)
(59,970)
(92,716)
24,766
15,773
43,980
45,734
-
835
-
15
-
-
23,830
3,638
6,842
234
(5,985)
(6,440)
(8,094)
(7,569)
(8,183)
(5,761)
(1,250)
(1,852)
(16,222)
(10,520)
-
-
(147,515)
-
-
Financing costs (includes project facility, convertible bonds and FPSO finance lease)
(14,345)
(14,481)
(17,264)
(17,360)
(18,899)
Financing costs (unrealised movement in value of options)
Unrealised movement in value of convertible bond conversion rights
Gain on buyback of convertible bonds during the period
Other expenses
(20,464)
-
-
1,400
530
-
(218)
(386)
-
5,322
1,193
(927)
-
9,063
-
-
412
-
(983)
(2,581)
Profit/(loss) before income tax expense
(1,580)
4,154
(149,726)
17,751
30,027
Net tax (expense)/benefit
(1,019)
(4,490)
5,201
556
(17,197)
Profit/(loss) for the financial year from continuing operations
(2,599)
(336)
(144,525)
18,307
12,830
Loss from discontinued operations (net of tax)
-
-
-
-
-
Profit/(loss) for the financial year
Profit/(loss) attributable to members of Horizon Oil Limited
(2,599)
(2,599)
(336)
(144,525)
18,307
12,830
(336)
(144,525)
18,307
12,830
10
Horizon Oil Annual Report 2018
Production
China
Block 22/12
Beibu Gulf
Production
Exploration
New Zealand
PMP 38160
Maari and Manaia fields,
offshore Taranaki Basin
Horizon Oil
Interest
26.95%
55%
Horizon Oil
Interest
Production & Exploration
26%
Activities
Review
2018
Development
and Pre-development
Exploration
Western LNG Project
Horizon Oil
Interest
Western Province, PNG
Horizon Oil
Interest
PDL 10
Stanley Field
30%
PPL 574 (operator)
PRL 21 (operator)
Elevala/Tingu and Ketu Fields
30.15%
PPL 430 (operator)
PRL 28 (operator)
Ubuntu Field
PRL 40
Puk Puk/Douglas Fields
30%1
PPL 372 (operator)
20%1
PPL 373 (operator)
80%
100%
95%
100%
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, subject to customary PNG government approvals. Refer to the Pending revision in Contingent Resources table on page 8 for further details.
Horizon Oil Annual Report 2018
11
PRODUCTION / ACTIVITIES REVIEW
20
18 China
BLOCK 22/12
Beibu Gulf
Production
Exploration
Horizon Oil
Interest
26.95%
55%
MAP AREA
Block 22/12
Beibu
Gulf
100km
100km
MAARI
During the year, the Group’s crude oil sales from the Beibu Gulf
fields were 1,170,022 barrels at an average price of US$62.78/bbl,
composed of working interest share of 863,608 barrels and 306,414
barrels of cost recovery oil. The Group’s share of sales volumes over
the year was an average of 3,205 bopd. Average production over the
year was 8,779 bopd, of which the Group’s share was 2,366 bopd.
Horizon Oil’s residual entitlement to cost recovery oil remaining at 30 June 2018
was US$49.1 million.
Workover programs in the WZ 6-12, WZ 12-8W and WZ 12-8M producing fields
successfully achieved programs objectives of enhancing production through the
replacement of downhole electrical submersible pumps and re-perforation of non-
producing zones. Following the workover programs, gross production increased by
approximately 2,500 bopd in the WZ 6-12, WZ 12-8W and WZ 12-8M producing fields.
Shortly after year end, two infill wells were drilled on the WZ 12- 8W and WZ 12-8M fields
to further enhance production. The wells were brought into production during the second
half of calendar year 2018 with initial flow rates of 3,500 bopd (gross).
AR Vers - Aug 2018
L E G E N D
Producing Oil Field
Discovered Oil Field
Development Area
Oil Pipeline
Gas Pipeline
Proposed 12-8E flowline
Beibu Gulf
WZ 12-1
Pip elin es to W eizh o u Ter m in al
WZ 6-12N
(26.95%)
Block 22/12
AREA A
WZ 6-12S
(26.95%)
WZ 12-3
WZ 12-10-1
WZ
12-8W WHP
WZ 12-8W
(26.95%)
WZ 12-8M
(26.95%)
Proposed
WZ 12-8E WHP
WZ 12-8E
Block 22/12
AREA B
12
NEW VERS - Aug 2018
5km
Beibu
Gulf
100km
CHINA
i
a
.
8
1
0
2
t
s
u
g
u
A
_
p
a
m
a
n
i
h
C
_
N
Z
H
MAP AREA
Block 22/12
WZ 12-3
WZ 12-10-1
Proposed
WZ 12-8E WHP
P
i
p
e
l
i
n
e
t
o
W
Z
1
2
-
1
P
U
Q
B
WZ 12-8W
WZ 12-8M
WZ 12-8W-A8H
WZ 12-8W WHP
WZ 12-8W-A7H
LEGEND
Producing Oil Field
Discovered Oil Field
Oil Pipeline
Proposed 12-8E flowline
Development Area
Oil & Gas Discovery
Oil Discovery
Horizontal Oil producer
New Production Well
ABN 51 009 799 455
WZ 12-8E
3km
Block 22/12
AREA B
Beibu GulfABN 51 009 799 455Horizon Oil Annual Report 2018
China
The Group advanced planning for the
WZ 12-8E field development. The
joint venture is progressing to a final
investment decision which the operator,
CNOOC Limited, anticipates in the
second half of calendar year 2018. The
development has been planned as a
phased development, with an initial
three wells being drilled from the leased
platform to be tied back to the existing
Block 22/12 infrastructure with a flexible
flow line. Further production wells are
planned to be added later, with well
design and location to be determined by
the performance of the initial wells.
T H E G R O U P ’ S C R U D E
O I L S A L E S F R O M T H E
B E I B U G U L F F I E L D S
W E R E 1 , 1 7 0 , 0 2 2
B A R R E L S O F O I L
AV E R AG E P R O D U C T I O N
O V E R T H E Y E A R
US$62.78bbl
8,779bopd
AV E R A G E P R I C E P E R
B A R R E L O F O I L S O L D
T H E G R O U P ’ S S H A R E
WA S 2 , 3 6 6 b o p d
I N T EG R AT E D D E V E L O P M E N T C O N C E P T
C N O O C I N F R A S T R U C T U R E
s P i p
a
G
e
e li n
a l
r m i n
Block 22/12
Beibu Gulf
Future CNOOC Fields
WZ 12-1B
e
d T
n
u I s l a
o
h
e t o W e i z
e li n
” P i p
6
1
Phase I Development
WZ 6-12 WHP
WZ 12-1 PUQB
WZ 12-1A
Existing Production
WZ 12-1PAP
WZ 12-8W
WHP
Future CNOOC Fields
Future
WZ 12-8E WHP
Proposed
Phase II Development
Horizon Oil Annual Report 2018
13
PRODUCTION / ACTIVITIES REVIEW
20
18 New Zealand
PMP 38160
Maari and Manaia
fields, offshore
Taranaki Basin
Production and
Exploration
Horizon Oil
Interest
26%
Auckland
MAP AREA
Tasman Sea
Wellington
500km
The Company advised on 6 November 2017 it had entered into an
agreement with Todd Maari Limited (Todd) to acquire Todd’s 16%
interest in PMP 38160, containing the producing Maari and Manaia
fields. The transaction completed on 31 May 2018, resulting in
Horizon Oil’s interest increasing to 26% with effect from
31 December 2017, and its 2P reserves increasing by 3.1 mmbbl.
The consideration for the 16% interest was US$17.6 million with the completion
payment offset by net working capital adjustments on and from the effective date
of 31 December 2017. These adjustments incorporated sales proceeds from pre-
completion liftings which, after setting off production, one-off oil and material
inventory acquisition costs and the assignment from Todd of post-completion sales
proceeds of US$3.7 million in respect of a May 2018 lifting, led to a net aggregate
payment of approximately US$13.1 million for the acquired interest. The acquisition
was wholly funded from the Company’s cash reserves.
During the year the Group’s working interest share of production from the Maari and
Manaia fields was 454,193 barrels of oil. Crude oil sales were 479,604 barrels at an
average effective price of US$68.17/bbl exclusive of executed hedging.
20km
TUI
MAUI
Oaonui
KAPUNI
WAIHAPA
A-NGAERE
NEW
ZEALAND
RIMU
Tasman Sea
PMP 38160
(26%)
MAARI
MANAIA
KUPE
L E G E N D
Oil Field
Gas Field
Gas Pipeline
Horizon Oil
Petroleum Licence
14
Horizon Oil Annual Report 2018
W I T H T H E
AC Q U I S I T I O N O F
A N A D D I T I O N A L
1 6 % I N T E R E S T I N
P M P 3 8 1 6 0 , H O R I Z O N
O I L’ S 2 P R E S E R V E S
I N C R E A S E D BY
3.1mmbbl
E F F EC T I V E 3 1 D EC 2 0 1 7
Average gross production from the field over the year was
approximately 7,136 bopd, of which Horizon Oil’s share was
1,244 bopd. (757 bopd for the first half of the financial
year, 1,739 bopd for the second half of the financial year
following the acquisition of Todd’s 16% interest).
A production improvement program commenced during the
year involving the perforation of a new reservoir section in
the Manaia-1 well, workovers of the MR7A, MR10 and MR4
wells, and the installation and commissioning of surface
pumps to reduce well back pressure. The pumps were
successfully commissioned in late February, commencing
operation in early April 2018, reducing back pressure and
increasing drawdown in the wells, as designed. The ongoing
elements of the production improvement program, which
will continue throughout 2018, include further workovers,
re-perforations and water injection enhancement.
Maari / Manaia schematic cross-section PMP 38160, offshore New Zealand
SW
Maui-4 Manaia-2
7km
2km
Wellhead
Platform
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 2018
15
DEVELOPMENT AND PRE-DEVELOPMENT / ACTIVITIES REVIEW
20
18 Western LNG Project
WESTERN LNG
PROJECT
PDL 10
Stanley Field
PRL 21 (operator)
Elevala/Tingu and
Ketu Fields
PRL 28 (operator)
Ubuntu Field
PRL 40
Puk Puk/Douglas
Fields
Horizon Oil
Interest
30%
30.15%
30%1
20%1
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.
Pre-FEED studies of the key elements of the
project – upstream gas processing, export
pipelines and the liquefaction facility – were
completed during the year with selected
contractors who are well qualified and
possess a good level of PNG experience.
Wewak
Madang
Lae
Oil
Pipeline
Gas
Pipeline
Daru
Port Moresby
500km
Gulf of
Papua
1 Calculated after the acquisition of a 20% interest in PRL 40 and divestment of 20% interest in PRL 28, subject to
customary PNG Government approval. See Horizon Oil’s market announcement of the transaction dated 18 July 2017.
16
Horizon Oil Annual Report 2018
Western LNG Project
The results of these studies, which importantly included Class IV
(-15%/+25%) cost estimates, are materially in line with Horizon
Oil’s preliminary estimates and confirm the technical viability of
the project. The studies are being integrated with work performed
by operators in the remaining licences that will comprise Western
LNG. As we refine and optimise the development scheme utilising
the results of the pre-FEED studies, our confidence in the technical
viability, operational reliability and economics of the project
continues to grow.
The Western LNG development scheme involves the aggregation
of multiple gas-condensate fields. Western LNG’s foundation
resources are provided by the condensate rich Stanley (PDL 10),
Elevala-Ketu (PRL 21) and Ubuntu (PRL 28) gas fields in the north
of Western Province. These fully appraised foundation fields
support development of a Northern Hub.
Future back-fill gas is provided by the southern fields of Puk Puk,
Douglas, Weimang and Langia (PRL 40) and support development
of a Southern Hub. Primary reservoir fluid separation, gas
dewpoint control, compression, condensate stabilisation
and export pumping would be undertaken at a Northern Hub
Central Processing Facility (CPF) and another in the south. The
conditioned gas and stabilised condensate streams are planned
to be conveyed via a cross country gas export pipeline (GEP) and
separate condensate export pipeline (CEP) which extend from
the northern Fly region 500 km to Daru Island. The offshore
liquefaction facility would be located near Daru Island producing
LNG, condensate and, subject to market demand, LPG.
Below is a conceptual model of the preferred offshore liquefaction
facility to be located near Daru Island.
Towards the end of the year, Repsol announced that it had
agreed to sell its Papua New Guinea licence interests, including
PDL 10, PRL 21, PRL 28 and PRL 40, to a subsidiary of the
China Changcheng Natural Gas Power Co. Ltd Group which has
investments in the natural gas and power sectors in the Asia
Pacific Region, including in the People’s Republic of China.
Horizon Oil Annual Report 2018
17
map 3 for AnRpt
PPL 574
(80%)
Ningerum
PPL 464
PPL395
Hawenai
PPL 269
STANLEY
Siphon-1
Stanley-3
PDL 10
(30%)
Stanley-1
Stanley-5
Nama-1
PPL401
PPL 269
Stanley-2
Stanley-4
i
d
e
T
A
U
P
A
P
EXPLORATION / ACTIVITIES REVIEW
T
S
E
W
Kiunga-1X
k
O
Kiunga
Drimdemasuk
PPL 422
PAPUA NEW GUINEA
Proposed P'nyang
gas and condensate
pipelines
PRL 21
(30.15%)
TINGU
Ketu-1
KETU
Tingu-1
Elevala-2
Wewak
PAPUA
NEW GUINEA
MAP AREA
Madang
Gas
Pipeline
Oil
Pipeline
Lae
DaruPt Moresby
500km
Gulf of Papua
Diffi
c
ult
PPL
287
PPL 437
PPL
470
T
errain
er
Riv
PPL 372
(90%)
Ketu-2
Ubuntu-1
i
.
20
18 Western Province, PNG
PPL 574
(80%)
FORELAND
Elevala-1
Riv e r
PRL 28
ELEVALA
LEGEND
F l y
Honinabi
Nomad
Debepare
UBUNTU
Oil Field
Gas Field
Oil Pipeline
Proposed
WESTERN
Oil Pipeline
PROVINCE, PNG
Gas Pipeline
Proposed
Gas Pipeline
PPL 574 (operator)
Rivers
Oil and Gas Discovery
Oil and Gas Shows
Township
Licence Boundary/
Application
Horizon Oil
Petroleum Licences
PPL435
offered for farmout
Horizon Oil
Petroleum Licences
Horizon Oil
Interest
80%
LEGEND
PPL 430 (operator)
Roads/Tracks
Rivers
Oil and Gas Discovery
Oil and Gas Shows
PPL 372 (operator)
Township
Licence Boundary/
Application
Horizon Oil
PPL 373 (operator)
Petroleum Licence
Oil Field
Gas Field
Oil Pipeline
Proposed
Oil Pipeline
Gas Pipeline
Proposed
Gas Pipeline
100%
95%
100%
PPL 268
20km
PPL 430
(100%)
Horizon Oil operates and holds
working interests in the
exploration licences containing
the prospective acreage
surrounding its gas-condensate
fields in PNG. The largely
unexplored acreage provides the potential for
expansion gas volumes for Western LNG.
PPL 261
d
n
a
l
k
PPL460
c
i
r
Proposed gas pipeline
t
S
route to Daru
PPL
296
PPL
296
a
D
E
P
P
O
R
C
_
6
1
0
2
t
p
R
n
A
_
6
1
0
2
r
e
b
m
e
t
p
e
S
_
s
d
l
e
F
&
s
t
c
e
p
s
o
r
P
-
G
N
P
_
N
Z
H
i
LEGEND
Wewak
Oil Field
Gas Field
Oil Pipeline
Madang
Possible/Proposed
Oil Pipeline
Gas Pipeline
Oil
Possible/Proposed
Pipeline
Gas Pipeline
Prospect/Lead
Oil and Gas Discovery
Oil and Gas Shows
Roads/Tracks
Rivers
Township
Licence Boundary/
Application
Horizon Oil
Petroleum Licence
Lae
MAP AREA
Gas
Pipeline
Daru
Key activities in the licence areas during the
year included extensive seismic data analysis
Oil Field
Gas Field
and reinterpretation, an aerial geomagnetic
Oil Pipeline
Possible/Proposed
survey together with further development of the
Oil Pipeline
Gas Pipeline
substantial prospects and leads inventory.
Possible/Proposed
Gas Pipeline
Prospect/Lead
LEGEND
Oil and Gas Discovery
Oil and Gas Shows
Roads/Tracks
Rivers
Seismic Lines
Township
Licence Boundary/
Application
Horizon Oil
Petroleum Licence
LEGEND
Oil Field
Gas Field
Oil Pipeline
Proposed
Oil Pipeline
Gas Pipeline
Proposed
Gas Pipeline
Roads/Tracks
Rivers
Oil and Gas Discovery
Oil and Gas Shows
Township
Licence Boundary/
Application
Horizon Oil
Petroleum Licence
Port Moresby
500km
Gulf of
Papua
2018 AnRpt- UPDATED Aug 2018
Oil Field
Gas Field
Gas Pipeline
Horizon Oil
Petroleum Licence
L E G E N D
Oil Field
Gas Field
Oil Pipeline
Proposed
Oil Pipeline
Gas Pipeline
Proposed
Gas Pipeline
Rivers
Township
Horizon Oil
Licence Pending
Horizon Oil
Prospecting Licences
Horizon Oil
Development/Retention
Licences
P’NYANG
PAPUA NEW
GUINEA
JUHA
NORTH
MURUK
DISCOVERY
HIDES
JUHA
ANGORE
Highlands
PRL 21
(30.15%)
KETU
TINGU
PRL 28
(30%)
UBUNTU
ELEVALA
Debepare
PPL 372
(95%)
Honinabi
Nomad
PPL 430
(100%)
River
d
n
Strickla
PRL 40
(20%)
PUK PUK
MORAN
PAUA
PPL
372
(95%)
SE MANANDA
AGOGO
KUTUBU
50km
Proposed P'nyang
gas and condensate
pipelines
HEDINIA
SE HEDINIA
Diffi
c
ult
T
err
ain
GOBE
SE GOBE
IEHI
BARIKEWA
Yavo
WEIMANG
DOUGLAS
PPL 373
(100%)
NW KOKO
LANGIA
Proposed Western LNG
pipeline route to Daru
MANTA
KOKO
KIMU
PPL 373
(100%)
Ningerum
Hawenai
di
e
T
Ok
STANLEY
PDL 10
(30%)
WEST
PAPUA
Kiunga
Drimdemasuk
r
e
v
i
R
y
l
F
PPL 574
(80%)
Foreland
18
HIGHLANDSHorizon Oil Annual Report 2018
Western Province, PNG
Annual
Financial
Report
For the financial year
ended 30 June 2018
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
23 August 2018. 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 2018 Reserves and Resources Statement dated 23 August 2018.
Horizon Oil Limited
ABN 51 009 799 455
19
Horizon Oil Annual Report 2018
For the financial year ended 30 June 2018
DIRECTORS’ REPORT
Your directors present their report on the consolidated entity (referred to hereafter as the ‘Group’) consisting
ofHorizonOilLimited(the‘Company’)andthesubsidiariesitcontrolledattheendof,orduringthefinancial
year ended, 30 June 2018.
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
G de Nys
S Birkensleigh
G Bittar
M Sheridan was appointed as an executive director and Chief Executive Officer on 1 July 2018 and continues in office as at the date of
this report.
B Emmett was an executive director and Chief Executive Officer from the beginning of the year until his retirement from the board on
30 June 2018.
A Stock was a non-executive director from the beginning of the year until his retirement from the Board at the Group’s 2017 AGM on
24 November 2017.
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 11 to 18 of this
annual financial report.
Group financial performance
Consolidated Statement of Profit or Loss and Other Comprehensive Income
2018 Profit and Loss Drivers
20
120
100
n
o
i
l
l
i
m
$
S
U
80
60
40
20
-
(20)
n
o
i
l
l
i
m
$
S
U
100
90
80
70
60
50
40
30
20
10
-
100.0
(26.5)
(6.7)
68.5
(29.5)
(5.8)
33.2
(14.3)
18.9
(20.5)
Revenue
Operating
Costs
G&A,
Insurance
and Other
EBITDAX
Dep. &
Amort.
Exploration
EBIT
Financing
Costs -
Other
Underlying
Profit Before
Tax
(1.6)
Statutory
Loss Before
Tax
(1.0)
Tax
(2.6)
Statutory
Loss for
Financial
Year
Financing
Costs -
Unrealised
Movement in
Value of
Options
63.5
(5.9)
(16.8)
(16.7)
(13.3)
(7.8)
24.5
Opening cash and
cash equivalents at
30 June 2017
Net Cash from
Operating
Activities (excl
G&A / Other)
G&A / Other
Expenditure
Debt Repayment
Acquisition of oil
Investment in oil
and gas assets
and gas assets
Exploration
Expenditure
27.6
Cash and cash
equivalents at 30
June 2018
Horizon Oil Annual Report 2018
DIRECTORS’ REPORT
For the financial year ended 30 June 2018
General and administrative expenses
18% 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 with costs of US$4.3 million
(2017: US$5.2 million) in the period. This expense comprised net
employee benefits expense of US$1.6 million (including non-cash
share based payment expense of US$0.8 million), corporate office
expense of US$1.0 million, depreciation of US$0.3 million, and
rental expense of US$0.5 million.
Insurance expense
Insurance expense of US$1.7 million (2017: US$1.2 million) in
the period reflected increased premiums associated with the
acquisition of a further 16% interest in the Maari/Manaia field.
Exploration and development expenses
Exploration and development expenses of US$5.8 million
(2017: US$1.3 million) was primarily related to the Group’s
exploration and development licences in Papua New Guinea.
Other income
Other income of US$0.8 million (2017: US$NIL) was primarily
generated from US$0.6 million of insurance recoveries associated
with the Maari water injection line repairs completed in 2017.
Finance costs
The Group’s borrowing costs of US$34.8 million (2017: US$13.1
million) are 166% higher than the prior year predominately due to
the non-cash financing costs of US$20.5 million associated with
the revaluation of the options issued under the subordinated loan
facility. The loss on revaluation reflects the 257% increase in
the Company’s share price during the period, which resulted in a
significant increase in the theoretical value of the options issued.
Income and royalty tax
The net income and royalty tax expense of US$1.0 million
(2017: US$4.5 million) incurred during the financial year included
a current tax expense of US$1.7 million, a deferred income tax
benefit of US$1.6 million and a royalty related tax expense of
US$0.9 million. The net income tax expense was driven by cash
taxes of US$1.7 million and the utilisation of carried forward tax
losses in China, which were offset by the recognition of historical
tax losses in New Zealand. Royalty tax expense of US$0.9 million
reflected cash and deferred royalty tax associated with the Maari/
Manaia field.
The full year result was an Underlying profit before tax of
US$18.9 million (2017: US$2.8 million) comprising a gross profit
of US$44.4 million (2017: US$24.8 million) from Block 22/12 and
Maari operations offset by general and administrative expenses of
US$4.3 million, financing costs of US$14.3 million, an insurance
expense of US$1.7 million and exploration and development
expenses of US$5.8 million. EBITDAX was US$68.5 million
(2017: US$45.2 million), and EBIT was US$33.2 million (2017:
US$17.2 million). After including the non-cash financing costs
of US$20.5 million associated with the revaluation of the options
issued under the subordinated loan facility, the Group reported a
statutory loss after tax of US$2.6 million (2017: US$0.3 million)
EBITDAX, EBIT and Underlying profit before tax 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, EBIT and
Underlying profit before tax to be useful measures of performance
as they are widely used by the oil and gas industry. EBITDAX, EBIT
and Underlying profit before tax information have not been audited.
However, they have been extracted from the audited annual
financial reports for the financial years ended 30 June 2018 and
30 June 2017.
Basic earnings per share for the financial year were a loss of 0.20
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 1,649,626 barrels of oil resulting in a 16% increase
on the prior year (2017: 1,421,940 barrels), with the Group’s net
working interest share of oil production for the year of 1,317,801
barrels of crude oil (2017: 1,106,353 barrels). Sales volumes
were increased by the addition of 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%). This was combined
with incremental sales volumes (217,049 barrels) associated with
the acquisition of an additional 16% interest in the Maari/Manaia
fields effective 31 December 2017.
Crude oil sales revenue of US$106.2 million (2017: US$68.0
million) was generated during the financial year resulting from
a net realised oil price of US$64.35 per barrel (2017: US$47.81).
Throughout the period 48% of sales were hedged (2017: 46%) with
a hedging settlement of US$6.1 million (2017: gain US$0.5 million)
realised on 793,750 barrels hedged at a weighted average price of
US$57.23 (2017: 660,300 barrels at US$52.05).
Operating costs of US$55.7 million were higher than the prior year
(2017: US$43.8 million) driven by the additional operating costs
associated with the further 16% interest acquired in the Maari/
Manaia field with effect from 31 December 2017.
21
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Consolidated Statement of Financial Position
At 30 June 2018, total assets were US$309.6 million (2017:
US$271.7 million) and total liabilities were US$214.3 million (2017:
US$165.0 million), resulting in a decrease in net assets to US$95.3
million (2017: US$106.7 million).
120
100.0
(26.5)
n
o
i
l
l
i
80
(6.7)
100
The increase in total assets is primarily due to the acquisition of a
further 16% interest in the Maari/Manaia field, which was funded
wholly from cash reserves following increased positive cashflow
from the producing assets during the financial period. The increase
in total liabilities primarily reflects the US$20.5 million non-cash
revaluation of the options issued under the subordinated debt
33.2
facility, combined with additional restoration liabilities recorded on
the acquisition of a further 16% interest in the Maari/Manaia field.
m
$
S
U
(29.5)
68.5
(5.8)
40
60
20
-
At 30 June 2018 the Group had a working capital deficit of US$61
million resulting predominately from the scheduled amortisation of
EBIT
the outstanding US$76.2 million Revolving Cash Advance Facility
being classified as a current liability.
G&A,
Insurance
and Other
Operating
Costs
Dep. &
Amort.
Exploration
EBITDAX
Revenue
(20)
Funding for the Group’s strategic growth plans and repayment of
the facility is to be sourced from a variety of sources, with surplus
revenues from the Group’s operations in China and New Zealand
providing core funding. The Group commenced a process during
the year to refinance the US$76 million outstanding under the
Revolving Cash Advance Facility. The refinancing is well advanced
with prospective lenders providing credit approved offers to
refinance the Facility. The prospective lenders are expected to
be mandated under a common credit approved term sheet during
Q1 FY 2019, with documentation and financial close to follow
thereafter. The Group expects to complete the refinancing during
the first half of the 2019 financial year, ahead of the Facility
maturity.
(14.3)
(20.5)
18.9
(1.0)
(2.6)
Underlying
Profit Before
Tax
At 30 June 2018, the Group’s net debt position, based on nominal
amounts drawn down, was reduced by 18% on the prior year to
(1.6)
US$88.6 million (2017: US$108.5 million), comprising of cash and
Financing
cash equivalents held of US$27.6 million (2017: US$24.5 million)
Costs -
Other
offset by borrowings of US$116.2 million (2017: US$133 million).
At financial year end, borrowings consisted US$76.2 million
principal outstanding on the Revolving Cash Advance Facility
executed with senior lenders in May 2015 and US$40.0 million
principal outstanding on the subordinated secured non-amortising
loan.
Financing
Costs -
Unrealised
Movement in
Value of
Options
Statutory
Loss for
Financial
Year
Statutory
Loss Before
Tax
Tax
Consolidated Statement of Cash Flows
2018 Cash Drivers
100
n
o
i
l
l
i
m
$
S
U
90
80
70
60
50
40
30
20
10
-
63.5
(5.9)
(16.8)
(16.7)
(13.3)
(7.8)
24.5
Opening cash and
cash equivalents at
30 June 2017
Net Cash from
Operating
Activities (excl
G&A / Other)
G&A / Other
Expenditure
Debt Repayment
Acquisition of oil
and gas assets
Investment in oil
and gas assets
Exploration
Expenditure
27.6
Cash and cash
equivalents at 30
June 2018
Net cash generated from operating activities was 62% higher for the financial year at US$57.6 million (2017: US$35.6 million) due to the
higher oil prices and the incremental production and sales volumes attributable to the acquisition of a further 16% interest in the Maari/
Manaia field, which was funded wholly from cash reserves. The free cash available after operating and investing activities enabled further
debt reduction with a net outflow of US$16.8 million from financing activities for the period.
22
Horizon Oil Annual Report 2018
DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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 2019 financial year and beyond will be
underpinned by continued strong oil production from the Group’s
China and New Zealand operations. Oil production from the
Group’s China and New Zealand operations is expected to increase
in 2019 following the acquisition announced in November 2017 of
an additional 16% interest in PMP 38160, increasing the Group’s
interest in the producing Maari and Manaia fields to 26% with
effect from 1 January 2018. In addition, natural reservoir decline
in Beibu during 2019 is expected to be offset by additional in-fill
drilling which commenced in July 2018. Horizon Oil’s production
entitlement from China is also expected to remain in excess of
35% during 2019, 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 at 30 June 2018,
revenue (before hedging) for the Group is expected to be sustained
during 2019, barring unforeseen events.
The Group’s short-term focus is on:
Optimising production performance from the Beibu and
Maari/Manaia fields through additional in-fill drilling in Beibu,
and further workovers, re-perforations and water injection
enhancement at Maari;
Progressing the Beibu Gulf fields Phase II development for
WZ 12-8E; 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.
Corporate
Acquisition of additional 16% interest in Maari/Manaia
fields, New Zealand
During the financial year the Group entered into an agreement
with Todd Maari Limited (Todd) to acquire its 16% interest in PMP
38160, which contains the producing Maari and Manaia fields,
thereby increasing Horizon Oil’s interest in the fields to 26%.
The consideration paid for the interest was US$17.6 million,
which was subject to customary working capital and purchase
price adjustments of US$0.8 million. The transaction, with an
effective date of 31 December 2017, completed 31 May 2018. The
acquisition was funded wholly from the Group’s cash reserves.
Debt facilities
Net debt was further reduced during the financial year from
US$108.5 million to US$88.6 million with a voluntary prepayment
of the subordinated debt facility of US$5.0 million and repayments
of the senior facility amounting to US$11.8 million. This provides
annual interest savings of over US$1.0 million per annum. Details
of the Group’s debt facilities are set out in Note 19.
Oil price hedging
At 30 June 2018, the Group had 600,000 barrels of crude oil
hedged through Brent oil price swaps (30 June 2017: 393,750) at
a weighted average price of US$58.80. During the financial year,
793,750 barrels of oil price derivatives were settled, securing
revenue of US$45.4 million.
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 and retire debt.
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 reserves and contingent resources in the company’s inventory
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.
23
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Significant changes in the state of affairs
Management change
As foreshadowed at the 2017 Annual General Meeting, Brent
Emmett and Alan Fernie retired from their roles in the Company
as Chief Executive Officer/Executive Director and General Manager
- Exploration and Development on 30 June 2018. They have been
retained in consultancy roles for a period of time to provide ongoing
advice to the board and management.
Effective 1 July 2018, the management team was as follows:
Michael Sheridan has replaced Brent Emmett as Chief Executive
Officer and as a Director of the Company with effect on 1 July
2018. Michael has been Horizon Oil’s Chief Financial Officer and
Company Secretary since 2003. He has been responsible for the
Company’s financial, commercial and legal affairs. Prior to joining
Horizon Oil, Michael held positions with international resource
companies including Ampolex Limited, RGC Limited and Minera
Alumbrera Limited in commercial and financial management areas.
Richard Beament has assumed the role of Chief Financial Officer.
Richard joined Horizon Oil as Finance and Commercial Manager
in 2010. He has had line management responsibility for the
Company’s statutory and joint venture accounting, treasury,
taxation and insurance matters.
Andrew McArdle recently joined the Company and, on Alan’s
retirement, has assumed the role of Chief Operating Officer.
Andrew is a petroleum engineer and has joined the Company from
Japan Australia LNG (MIMI) Pty Ltd where he was most recently
the Head of Development.
Kylie Quinlivan has been the Company’s Corporate Counsel since
2016 and has assumed the role of General Counsel and Company
Secretary. Kylie joined the Company from Minter Ellison, practicing
corporate law and specialising in mergers and acquisitions.
Kelvin Bramley continues as Chief Company Representative in PNG.
He has been deeply involved in all areas of Horizon Oil’s activity
related to PNG since being appointed to the role in 2011, and for
the last 3 years has lived and worked in Port Moresby. Kelvin joined
Horizon Oil as Financial Controller in 2006.
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
Repsol, as operator of the PDL 10 licence in PNG, received notices
of intent to cancel PDL 10 and PL 10 and a notice to terminate
the Stanley Gas Agreement for PDL 10 from the PNG Petroleum
Minister. The licensees submitted a written response to the
Minister on 24 July 2018. Repsol, the operator of PDL 10, is of the
view that the notices are without merit and are procedurally invalid.
Based on external legal advice, Horizon Oil supports this view.
Horizon Oil and the PDL 10 joint venture will continue to work with
the PNG Petroleum Minister and the Department of Petroleum
and Energy to resolve any misunderstanding or disagreement with
respect to the good standing of PDL 10, PL 10 and the Stanley
Gas Agreement. Whilst the notices are a potential indicator of
impairment, on the basis that tenure remains current, and the
notices are without merit and procedurally invalid, no impairment
has been recorded as at 30 June 2018. In the event that the
licences were to be cancelled, whilst the company would likely
mount a strong legal challenge, the maximum impairment charge
that would be recorded at 30 June 2018 is US$21 million.
Other than the matters noted above and disclosed in the review of
operations, there has not been any matter or circumstance which
has arisen since 30 June 2018 that has significantly affected, or
may significantly affect:
1. the Group’s operations in future financial years; or
2. the results of those operations in future financial years; or
3. the Group’s state of affairs in future financial years.
Environmental regulation
The Group is subject to significant environmental regulation in
respect of exploration, development and production activities in
all countries in which it operates – China, New Zealand, and Papua
New Guinea. Horizon Oil Limited is committed to undertaking
all of its exploration, development and production activities in an
environmentally responsible manner.
The directors believe the Group has adequate systems in place for
managing its environmental requirements and is not aware of any
breach of those environmental requirements as they apply to the
Group.
Reporting currency
The Company’s and the Group’s functional and reporting currency
is United States dollars. All references in this annual financial
report to “$” or “dollars” are references to United States dollars,
unless otherwise stated.
24
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Information on Directors
The following persons held office as directors of Horizon Oil Limited at the date of this report:
Non-executive independent Director and Chairman:
Professor J Humphrey LL.B., SF Fin
Experience and current directorships:
Director for 28 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.
Former directorships during last 3 years:
Non-executive director of Downer EDI Limited.
Special responsibilities:
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:
M Sheridan B.Ec, LL.M., F Fin
Experience and current directorships:
M Sheridan has been Horizon Oil’s Chief Financial Officer and Company Secretary
since 2003. He has been responsible for the Company’s financial, commercial and
legal affairs. Prior to joining Horizon Oil, Michael held positions with international
resource companies including Ampolex Limited, RGC Limited and Minera Alumbrera
Limited in commercial and financial management areas.
Former directorships during last 3 years:
None.
Special responsibilities:
Chief Executive Officer; member of Risk Management and Disclosure Committees.
Non-executive independent director:
S Birkensleigh B. Comm, CA, GAICD
Experience and current directorships:
Director for 3 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:
Chairman of Audit Committee; Member of Risk Management and Remuneration and
Nomination Committees.
Non-executive Director:
G J de Nys B. Tech, FIEAust, FAICD, CPEng (Ret)
Experience and current directorships:
Director for 11 years. Over 45 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 IMC Pan Asia
Alliance Corporation, a substantial shareholder of Horizon Oil Limited).
Former directorships during last 3 years:
Non-executive director of SOCAM Development Limited
Special responsibilities:
Non-executive Director:
Experience and current directorships:
Member of Risk Management and Remuneration and Nomination Committees.
G Bittar B.Ec., LL.B., (Hons) M.Sc., (LBS)
Director for 1 year. 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 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.
Former directorships during last 3 years:
Special responsibilities:
None.
None.
25
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Alternate Non-executive Director:
B Lorenzon B.E., MBA., CFA
Experience and current directorships:
Mr Bruno Lorenzon was 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 16 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 ten 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 a non-executive director representing the IMC Group on the
Board of Millennium Minerals Ltd.
Former directorships during last 3 years: None.
Company secretary
Company Secretary
K Quinlivan B.Comm, LL.B (Hons), LL.M.
Qualifications and experience:
Ms Quinlivan was appointed assistant Company Secretary on 3 July 2017 and Company Secretary
on 1 July 2018. She is General Counsel for Horizon Oil; joining Horizon Oil from Minter Ellison,
where she practised corporate law and specialised in mergers and acquisitions.
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
M Sheridan
J Humphrey
G de Nys
S Birkensleigh
G Bittar
B Lorenzon (as alternate)
Direct
5,791,019
-
-
-
-
-
Ordinary shares
Indirect
2,177,182
5,112,034
2,203,639
-
-
-
Total
7,968,201
5,112,034
2,203,639
-
-
-
M Sheridan also held 38,402,628 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:
Number of meetings held:
Number of meetings attended by:
J Humphrey
B Emmett2
G de Nys
S Birkensleigh
G Bittar2
A Stock2
B Lorenzon (as alternate for G Bittar)
M Sheridan (as company secretary)
Board
81
8
6
8
8
8
4
8
Audit
Committee
Risk
Management
Committee
Remuneration
and Nomination
Committee
Disclosure
Committee
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
1
1 Two board meetings were held for non-executive directors only, one immediately prior to a full board meeting and one after a full board meeting.
2 Incoming and outgoing directors attended all meetings they were eligible to attend.
26
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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
23 August 2018.
The Company’s Corporate Governance Statement for the year
ended 30 June 2018 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 – options/share appreciation rights
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. Following the changes
to Key Management Personnel effective 1 July 2018, the board
refined the remuneration framework for 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.
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 six years. Note that the
remuneration table set out on page 32 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.
27
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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.
The following table outlines the major features of the plan:
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.
Objective:
To drive performance of annual business plans and objectives, at operational and group level, to
achieve increased shareholder value.
Frequency and timing:
Participation is annual with performance measured over the twelve months to 30 June.
Entitlements under the plan are determined and paid (in cash) in the first quarter of the new financial year.
Key Performance Indicators
(KPIs):
KPIs are determined each financial year in consultation with the board. The performance of each senior
executive against these KPIs is reviewed annually in consultation with the board.
A KPI matrix, directly linked to factors critical to the success of the Group’s business plan for the financial
year, is developed for each executive incorporating health, safety and environment, financial, operational and
other KPIs.
STI opportunity:
Up to 50% of the senior executive’s fixed remuneration package (base salary plus superannuation).
Performance requirements:
The executive’s STI payment is calculated with reference to achievement of KPI targets based on a weighted
scorecard approach. Key objectives during the current year included:
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;
reserves replacement with successful acquisition of additional Maari interest;
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, only M Sheridan received an STI. 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 2018:
Senior executives
Percentage of maximum STI payment paid
Percentage of maximum STI payment forfeited
STI in respect of 2018 financial year
B Emmett
A Fernie
M Sheridan
NIL
NIL
50%
100%
100%
50%
28
Horizon Oil Annual Report 2018
DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Long-term incentive (LTI)
The LTI arrangements apply 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 up to 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 theoretical value of a SAR
at the effective allocation date. The theoretical value of a SAR at
effective allocation date is determined by an independent expert
using a Monte Carlo simulation.
A SAR is a right to receive either or both a cash payment or
shares in the Company, as determined by the board, subject to
the Company satisfying certain conditions, including performance
conditions.
The LTI Plan provides that the amount of the cash payment or the
number of shares in the Company that the participant receives on
exercise of the SAR is based on the value of the SAR at the time
it is exercised (’SAR Value’). The SAR Value is the excess, if any,
of the volume weighted average price (’VWAP’) of shares in the
Company for the ten business day period up to the date before
the date the SAR is exercised over the VWAP of shares in the
Company for the ten business day period up to the day before the
“Effective Allocation Date” for the SARs. The Effective Allocation
Date for the SARs is the grant date of the SARs or any other day
determined by the board, at the time of the grant. The Effective
Allocation Date would generally be the date the executive’s
entitlement was determined.
If the board determines that the SARs are to be satisfied in cash,
the amount of cash that the participant receives on the exercise
of the SARs is the SAR Value multiplied by the number of SARs
exercised (less any deduction for taxes that the Company is
required to make from the payment). If the board determines that
the SARs are to be satisfied in shares, the number of shares that
the participant receives on the exercise of the SARs is the SAR
Value divided by the volume weighted average price of shares in
the Company for the ten business day period up to the day before
the day the SARs are exercised. Where the number of shares
calculated is not a whole number, it will be rounded down to the
nearest whole number.
The following table outlines the major features of the plan:
Key terms & conditions
Long Term Incentive Plan
Eligible persons:
Under the terms of the LTI Plan, the Company may grant SARs to any employee. However, it is currently
intended by the Company to only grant SARs under the LTI Plan to current senior executive employees including
executive directors.
Exercise price:
No amount is payable to the Company by a participant in the LTI Plan on the exercise of a SAR.
SAR value:
V minus G:
where
Satisfaction of exercise of
SARs in cash or by issue
of shares:
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.
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.
29
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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 (’Maximum Benchmark’), 100%; 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.
Cessation of employment:
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.
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.
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.
30
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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 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 up to 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
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
e
m
u
l
o
V
3
1
l
u
J
3
1
p
e
S
3
1
v
o
N
4
1
n
a
J
4
1
r
a
M
4
1
y
a
M
4
1
l
u
J
4
1
p
e
S
4
1
v
o
N
5
1
n
a
J
5
1
r
a
M
5
1
y
a
M
5
1
l
u
J
5
1
p
e
S
5
1
v
o
N
6
1
n
a
J
6
1
r
a
M
6
1
y
a
M
6
1
l
u
J
6
1
p
e
S
6
1
v
o
N
7
1
n
a
J
7
1
r
a
M
7
1
y
a
M
7
1
l
u
J
7
1
p
e
S
7
1
v
o
N
8
1
n
a
J
8
1
r
a
M
8
1
y
a
M
8
1
l
u
J
HZN Volume
HZN Share Price
S&P/ASX 200 Energy Index (Rebased)
Brent Crude Oil (Rebased)
Horizon Oil Limited’s profit/(loss) before tax for the current and previous four financial years is set out below.
Financial year ended 30 June:
2014
2015
2016
2017
2018
Profit/(loss) before tax (US$’000)
EBITDAX (US$’000)
30,027
99,481
17,751
89,117
(149,726)
53,995
4,154
45,171
(1,580)
68,482
31
Horizon Oil Annual Report 2018
DIRECTORS’ REPORT
For the financial year ended 30 June 2018
B. Details of remuneration
Amounts of remuneration
Details of the remuneration of the directors and other Key Management Personnel (as defined by AASB 124 ‘Related Party Disclosures’)
of the Company and the Group are set out in the following tables.
The Key Management Personnel of the Company and the Group for the year ended 30 June 2018 includes the directors of Horizon Oil
Limited as per page 20, and the following executive officers, who are also the highest paid executives of the Company and Group (‘KMP’):
B Emmett
Chief Executive Officer, Horizon Oil Limited
A Fernie
General Manager - Exploration and Development, Horizon Oil Limited
M Sheridan
Chief Financial Officer, Horizon Oil Limited
B Emmett and A Fernie ceased to be KMP’s effective 30 June 2018 following a change in the management team of the company. To assist with
the transition of the new management team, both continue in consulting roles to the Company.
Financial year ended 30 June
2018 and 2017
Short-term benefits
Post-
employment
benefits
Cash salary
and fees
Cash bonus8
Non-
Monetary1
Super-
annuation2
Total cash
or in-kind
benefit
US$
US$
US$
US$
US$
Long-term
benefits
Share-based
payments
Long service
leave
accrual3,7
US$
Total5
Options/
SARs4
US$
US$
Name
Directors:
J Humphrey
Chairman
2018
2017
126,781
123,068
-
-
-
-
12,044
11,692
138,825
134,760
-
-
-
-
138,825
134,760
B Emmett
Chief Executive Officer,
Executive Director
2018
2017
672,198
645,106
G de Nys
2018
63,391
92,388
-
-
Non-executive Director
2017
61,535
-
124,044
120,309
19,428
26,408
908,058
791,823
(6,674)
12,673
307,204
1,208,588
345,472
1,149,968
-
-
-
-
-
-
-
-
-
-
6,022
5,846
3,033
5,846
6,022
5,846
6,022
1,911
-
-
69,413
67,381
34,960
67,381
69,413
67,381
69,413
22,028
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
69,413
67,381
34,960
67,381
69,413
67,381
69,413
22,028
-
-
2018
2017
2018
2017
2018
2017
2018
2017
31,927
61,535
63,391
61,535
63,391
20,117
-
-
-
-
-
-
-
-
-
-
2018
1,021,079
92,388
124,044
52,571
1,290,082
(6,674)
307,204
1,590,612
2017
972,896
-
120,309
57,549
1,150,754
12,673
345,472
1,508,899
2018
1,313,521
125,000
159,617
67,613
1,665,751
(8,588)
403,310
2,060,473
2017
1,289,429
-
159,452
76,272
1,525,153
16,796
457,872
1,999,821
A Stock
Non-executive Director
S Birkensleigh
Non-executive Director
G Bittar
Non-executive Director
B Lorenzon
Alternate Non-executive
Director for G Bittar
Total directors’
remuneration
Total directors’
remuneration (AUD)5
32
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Financial year ended 30 June
2018 and 2017
Short-term benefits
Post-
employment
benefits
Cash salary
and fees
Cash bonus8
Non-
Monetary1
Super-
annuation2
Total cash
or in-kind
benefit
US$
US$
US$
US$
US$
Long-term
benefits
Share-based
payments
Long service
leave
accrual3,7
US$
Total5
Options/
SARs4
US$
US$
Other key management
personnel:
M Sheridan
Chief Financial Officer,
Company Secretary
2018
2017
A Fernie
General Manager
- Exploration and
Development
Total other key
management personnel
remuneration
Total other key
management personnel
remuneration (AUD)5
487,764
125,259
466,021
23,034
30,225
19,428
26,408
655,485
522,654
12,861
9,155
247,757
275,820
916,103
807,629
109,046
102,593
19,428
26,408
616,238
(8,698)
595,022
9,155
247,757
275,820
855,297
879,997
-
-
-
2018
2017
487,764
466,021
2018
975,528
125,259
132,080
38,856
1,271,723
4,163
495,514
1,771,400
2017
932,042
-
132,818
52,816
1,117,676
18,310
551,640
1,687,626
2018
1,255,286
163,161
169,957
50,000
1,638,404
5,357
652,048
2,295,809
2017
1,235,285
-
176,031
70,000
1,481,316
24,267
731,117
2,236,700
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 effective allocation 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 There has been no change in underlying AUD remuneration entitlements for executives since 2014.
7 Reflects the release of previously accrued superannuation which is not payable when the employee receives a lump sum payment upon termination of contract.
8 B Emmett received an entitlement to A$125,000 relating to residual contract entitlement which crystallised on termination of his employment contract.
At-Risk remuneration summary
The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed based on the amounts
disclosed in the table on page 32.
Fixed remuneration
2017
2018
At Risk – STI
At Risk – LTI
2018
2017
2018
2017
73%
66%
0%
0%
27%
34%
Name
Executive Directors:
B Emmett
Chief Executive Officer, Executive Director
Other key management personnel:
M Sheridan
Chief Financial Officer, Company Secretary
A Fernie
71%
65%
0%
General Manager - Exploration and Development
59%
65%
14%
0%
0%
27%
35%
29%
35%
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. Due to key management personnel not being awarded the full short term incentive, the relative proportion of fixed remuneration and at
risk – LTI has increased.
33
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
C. Service agreements
M Sheridan, Chief Financial Officer, Company Secretary
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:
Term of agreement – 2.5 year period expiring 31 December
2018. M Sheridan was appointed Chief Executive Officer on
1 July 2018, upon which his previous contract was terminated
and replaced by a 3 year contract expiring on 30 June 2021.
Payment of termination benefit on early termination by the
employer, other than for gross misconduct, equal to 12 months
remuneration.
B Emmett, Chief Executive Officer
Total Fixed remuneration of A$750,000 per annum.
Term of agreement – 2 year period expiring on 31 December
2017. B Emmett’s contract was extended, on the same terms,
to 30 June 2018.
Salary levels are subject to annual review.
A Fernie, General Manager - Exploration and Development
Upon expiration of the extended contract, B Emmett entered
into an 18 month consultancy agreement with the Group, with
monthly remuneration of A$22,000.
Term of agreement – 2 year period expired on 31 December
2017. A Fernie’s contract was extended, on the same terms, to
30 June 2018.
Upon expiration of the extended contract, A Fernie entered
into a 12 month consultancy agreement with the Group, with
monthly remuneration of A$24,000.
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:
Effective allocation date
Estimated expiry date
Exercise price3
Strike price1
Value per SAR at
effective allocation date2
Date exercisable
01/07/2014
01/07/2015
01/07/2016
01/07/2016
01/07/2017
01/07/2019
01/07/2020
01/07/2021
01/07/2021
01/07/2022
Nil
Nil
Nil
Nil
Nil
A$0.3729
A$0.0865
A$0.0483
A$0.0930
A$0.0453
A$0.1433
A$0.0438
A$0.0263
A$0.0193
A$0.0197
100% after 17/08/20174
100% after 12/08/20184
100% after 20/10/20194
100% after 20/10/20194
100% after 10/09/20204
1 The ‘strike price’ for SARs is the 10 day volume weighted average price for Horizon Oil at effective allocation date.
2 The value per SAR at effective allocation date is determined by an independent expert using a Monte Carlo simulation.
3 No price is payable by a participant in the Long Term Incentive Plan on the exercise of a SAR.
4 SARs will become exercisable subject to meeting vesting or performance conditions. See summary on page 29.
SARs on issue to Brent Emmett, Horizon Oil’s Managing Director, were approved by shareholders for the purposes of the ASX Listing
Rules at the 2017, 2016, 2015, 2014 and 2013 Annual General Meetings.
34
Horizon Oil Annual Report 2018
Name
Directors:
B Emmett
DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Details of SARs provided as remuneration to the KMP (other than non-executive directors) in this financial year are set out below:
Number of SARs
granted during the
financial year
Value of SARs at
effective allocation
date1
US$
Number of SARs
vested during the
financial year
Number of SARs
lapsed during the
financial year
Value at lapse
date2
US$
22,577,706
342,282
Other key management personnel:
M Sheridan
A Fernie
16,557,004
16,557,004
251,007
251,007
-
-
-
7,341,703
5,383,916
5,383,916
-
-
-
1 The value at effective allocation 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 effective
allocation date to be allocated equally over the period from the effective allocation 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 effective allocation date to that earlier date.
The model inputs for each grant of SARs during the financial year ended 30 June 2018 included:
Effective allocation date
Estimated expiry date
Exercise price
‘Strike price’, being the 10 day VWAP of Horizon Oil Shares at effective allocation 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 2017
1 July 2022
Nil1
A$0.0453
52.30% p.a.
2.18% p.a.
0.00% p.a.
35
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
Details of remuneration –SARs
For each grant of SARs currently on issue to KMP in the current or prior financial years which results in an amount being disclosed in
the remuneration report as a share-based payment to KMP for the financial year, the percentage of the grant that vested in the financial
year and the percentage that was forfeited because the person did not meet the vesting or performance conditions is set out below. The
SARs vest after three years have elapsed subject to the vesting or performance conditions being met. No SARs will vest if the vesting or
performance conditions are not satisfied, therefore the minimum value of SARs yet to vest is US$Nil. The maximum value of the SARs
yet to vest has been determined as the amount of the effective allocation date fair value of the SARs that is yet to be expensed.
Name
Financial year granted
Vested %
Forfeited %
Options/SARs
Financial years in which
options/SARs may vest
Maximum total value of
grant yet to vest1
US$
B Emmett
M Sheridan
A Fernie
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30/06/2017
30/06/2018
30/06/2019
30/06/2020
30/06/2021
30/06/2017
30/06/2018
30/06/2019
30/06/2020
30/06/2021
30/06/2017
30/06/2018
30/06/2019
30/06/2020
30/06/2021
-
-
-
79,620
228,292
-
-
-
80,293
167,414
-
-
-
80,293
167,414
1 The above values have been converted to dollars at the exchange rate prevailing on the date of the grant of the SARs.
Equity interests held by key management personnel
Key management personnel shareholdings in the Company
The numbers of shares in the Company held during the financial year by each director of Horizon Oil Limited and other KMP 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
2018
Name
Directors:
Ordinary shares
B Emmett
J Humphrey
G de Nys
S Birkensleigh
G Bittar
20,002,607
5,112,034
2,203,639
-
-
B Lorenzon (as alternate)
Other key management personnel of the Group:
Ordinary shares and partly paid ordinary shares
-
M Sheridan
A Fernie
7,968,201
2,700,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,002,607
5,112,034
2,203,639
-
-
-
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.
36
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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:
2018
Name
Balance at start
of financial year
Executive Directors:
Share appreciation rights
Granted as
remuneration
during financial
year
Exercised
during financial
year
Lapsed during
financial year
Balance at end
of financial year
Unvested1
Vested and
exercisable at
end of financial
year1
B Emmett
37,131,167
22,577,706
Other key management personnel of the Group:
Share appreciation rights
A Fernie
27,229,540
16,557,004
M Sheridan
27,229,540
16,557,004
-
-
-
1 Subsequent to year end 25,088,617 SARs vested on 13 August 2018.
(7,341,703)
52,367,170
(5,383,916)
38,402,628
(5,383,916)
38,402,628
-
-
-
52,367,170
38,402,628
38,402,628
Details of SARs provided as remuneration and ordinary shares issued on the exercise of such SARs, together with terms and conditions of
the SARs, can be found in section D of the Remuneration Report on pages 34 to 37.
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.
Shares under option
Unissued ordinary shares of Horizon Oil Limited under option at the date of this report are as follows:
Date options granted
Number options
Issue price of ordinary shares
02/11/2015
15/09/2016
1,000,000
300,000,000
301,000,000
A$0.2001,2
A$0.0613
Expiry date
02/11/2020
15/09/2021
1 Subject to restrictions on exercise.
2 Options issued under the Employee Option Scheme.
3 General options issued to IMC on drawdown of the subordinated secured debt facility during the 2017 financial year.
No option holder has any right under the options to participate in any other share issue of the Company or any other entity.
Dividends
No dividend has been paid or declared by the Company to the shareholders since the end of the prior financial year.
Insurance of officers
During the financial year, Horizon Oil Limited paid a premium to insure the directors and secretaries of the Company and related bodies corporate.
The insured liabilities exclude conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage.
The contract prohibits the disclosure of the premium paid.
The officers of the Company covered by the insurance policy include the directors and secretaries, and other officers who are directors or
secretaries of subsidiaries who are not also directors or secretaries of Horizon Oil Limited.
The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the
officers in their capacity as officers of the Company or a related body corporate.
37
Horizon Oil Annual Report 2018 DIRECTORS’ REPORT
For the financial year ended 30 June 2018
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.
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
2018
US$
2017
US$
169,687
11,573
181,260
10,672
10,672
14,616
14,616
195,542
45,034
240,576
13,255
13,255
11,681
11,681
Total auditors’ remuneration
206,548
265,512
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
M Sheridan
Chief Executive Officer
Sydney 23 August 2018
38
Horizon Oil Annual Report 2018
Auditor’s Independence Declaration
For the financial year ended 30 June 2018
Auditor’s Independence Declaration
As lead auditor for the audit of Horizon Oil Limited for the year ended 30 June 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
(b)
no contraventions of the auditor independence requirements of the Corporations Act
2001 in relation to the audit; and
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.
Sean Rugers
Partner
PricewaterhouseCoopers
Sydney
23 August 2018
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
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
39
Horizon Oil Annual Report 2018 For the financial year ended 30 June 2018
Sustainability Report
ThefocusofHorizonOil’ssustainabilityeffortsinPapuaNewGuinearelatetosafety,healthandcommunity,
the environment and security. Horizon Oil takes seriously the impact that climate-change has on our
consolidated resource base including changes to law and policy, technology, markets and reputation.
Horizon Oil’s sustainability governance framework was
implemented to achieve alignment of our sustainability principles
with core non-operated business in China, New Zealand and
Papua New Guinea. Horizon Oil semi-annually reviews the
relevant operator’s Health, Safety, Security and Environment
(‘HSSE’) policies and monitors HSSE performance through regular
communication and reporting. Annually, Horizon Oil reviews
compliance against these HSSE policies and obtains certification
from the relevant operator that it has materially complied with its
HSSE policies.
(i) Safety, health and community
Horizon Oil continues to maintain its strong safety and health
performance in its operated assets and is committed to
maintaining a safe and healthy working environment for all people
across its operations. Horizon Oil achieved a Total Recordable
Injury Frequency Rate (‘TRIFR’), a Lost Time Injury Frequency Rate
(‘LTIFR’) of 0.0 and had no recordable injuries which far exceeded
industry norms1. Total exposure hours were consistent with the
2017 financial year and as at the date of this report, Horizon Oil
will achieve 3 years free of recordable injuries.
Horizon Oil continues to monitor its non-operated assets to ensure
that safety and health performance remains consistent with its
expectations. During the reporting period a single Lost Time Injury
(‘LTI’) was reported in each of the non-operated assets (China and
New Zealand). Incident investigations were conducted (led by the
operator) to identify the root causes of the incident and to develop
effective remedial actions that can prevent recurrence.
During the financial year, Papua New Guinea experienced a
magnitude 7.5 earthquake in the Southern Highlands region. There
was no impact on Horizon Oil’s operations in the Western Province
region with all Horizon Oil personnel unharmed and accounted for
and no damage was identified to Horizon Oil’s operated assets.
Horizon Oil donated K25,000 to the Ok Tedi Development
Foundation to assist with earthquake relief and reconstruction
efforts in affected areas of the Western Province.
Papua New Guinea Health Programs
Horizon Oil continues the development of long-term sustainable
health training and healthcare support infrastructure for its local
employees and the broader community in regional and remote
areas of the Western Province.
1 This target is the average number of recordable injuries for the oil and gas industry
in 2017, as reported in the Safety Performance Indicators 2017 data published
annually by International Association of Oil and Gas Producers (‘IOGP’).
40
During the financial year, significant outbreaks of infectious disease
including the re-emergence of polio and an outbreak of yaws in
the Western Province occurred. Horizon Oil undertakes periodic
medical examinations of its employees, which are supported by
a full range of vaccinations combatting key health risks including
cholera, typhoid, Japanese encephalitis, polio, tetanus, seasonal
influenza and hepatitis.
As part of broader community initiatives with a focus on the
Western Province region, Horizon Oil continues to develop
sustainable healthcare infrastructure through its sponsorship and
in-field support of Australian Doctors International (ADI).
Figure 1: An ADI volunteer doctor on rural medical patrol
Horizon Oil’s objective is to conduct its operations in a manner
that supports and promotes sustainable social and economic
development in the Western Province. Horizon Oil believes that
strong relationships with its host communities are essential
in maintaining a sustainable business and our social licence to
operate. Accordingly, the Company continued to engage closely
with Western Province communities in Papua New Guinea during
the year.
Horizon Oil’s program of regular engagements with local
villages and communities in the Western Province region
was supplemented during the reporting period by continued
implementation of the Horizon Oil Community Investment
Program (‘CIP’).
These small-scale community investments programs are
participatory in nature, with the community contributing both their
own time and resources to supplement materials and resources
provided by Horizon Oil. These community investments programs
are directed at improving levels of health and hygiene in Western
Province communities as well as promoting resilience and self-
sufficiency.
Horizon Oil Annual Report 2018
Sustainability Report
For the financial year ended 30 June 2018
2018 AnnRpt_Sustainability- UPDATED August 2018
Ningerum
Tedi
Ok
STANLEY
Hawenai
PDL 10
(30%)
River
Gusiore
PRL 21
(30.15%)
TINGU
Gasuke
KETU
Kiunga
Drimdemasuk
Yulawas
Fly
PPL 574
(80%)
Iowara
r
e
v
i
R
PRL 28
(30%)
UBUNTU
PPL 372
(95%)
ELEVALA
Debepare
Honinabi
Nomad
LEGEND
Horizon Oil
Prospecting Licences
Horizon Oil
Development/Retention
Licences
Gas Field
Rivers
Township
Health Support
Drinking Water
Training
Riverbank Erosion
Monitoring
Water, Sediment
and Soil Monitoring
August 2018
PPL 430
(100%)
25km
Figure 2: Western Province map
d
n
a
l
k
c
i
r
t
S
SUSTAINABILITY SUPPORT
ACTIVITIES
i
a
.
8
1
0
2
t
s
u
g
u
A
_
t
p
R
-
t
s
u
S
-
R
A
_
p
a
M
e
c
n
i
v
o
r
P
n
r
e
t
s
e
W
-
G
N
P
_
N
Z
H
With Horizon Oil’s support, Australian Doctors International
deployed two volunteer doctors during the year with these doctors,
supported by local support staff from Catholic Health Services,
conducting remote area medical patrols providing over 3,400
clinical services and delivering more than 66 hours of case-based
and group training to rural community health workers.
During the year, Horizon Oil employees based in Kiunga
participated in first aid training. Training was also offered to local
personnel who staff aid stations at remote village communities
within Horizon Oil’s project impact area in the Western Province.
The course was designed to provide all trainees with first response
capability recognising the remote locations in which they are based
and the limited access to timely external medical response.
20km
•In terms of title perhaps “Sustainability Support Activities”.
•Gusiore – shifted down to on the river.
•Gasuke – shifted down to on the river.
•Add the township of Iowara
•Area enclosed in red line – riverbank erosion monitoring.
•Area enclosed in blue line – Water, sediment and soil monitoring.
•Red cross – support for health programs – mostly through ADI.
•Blue drop – drinking water programs.
•Black book – vocational training & education programs.
•Perhaps combine the new legend items with the pre-existing legend.
Activity during the year included installation of a 25,000 litre rain
water storage and enhanced rainwater catchment systems at
Gasuke, Gusiore, Drimdemasuke and Yulawas villages. Horizon Oil
commenced the installation of poly toilets at communal village
pit toilets with the first installation completed at Drimdemasuke
village in June 2018. Poly toilets will also be distributed to Gasuke,
Gusiore and Yulawas for installation. Training courses delivered
in association with the Kiunga Vocational Training Centre and
the Bank of South Pacific during the reporting period covered
sewing, baking and financial literacy. These courses are aimed at
enhancing life skills and provide opportunities for the community to
increase their level of self-sufficiency. Over 190 participants from
within the Horizon Oil project impact area successfully completed
these courses during the reporting period.
Prospecting Licence
Application
Horizon Oil
Prospecting Licences
Horizon Oil
Development/Retention
Licences
Gas Field
Rivers
Township
Health Support
Drinking Water
Training
Riverbank Erosion
Monitoring
Water, Sediment
and Soil Monitoring
August 2018
Tasman Sea
LEGEND
Figure 3: Financial literacy training at Gusiore
Horizon Oil continues to support social investments in Papua New
Guinea. Substantial financial and in-kind support is provided to
two non-government organisations active in the Western Province,
namely Australian Doctors International and Mercy Works.
Both these organisations are focused on improving healthcare
services in the North Fly region of the Western Province, building
partnerships with local communities to enhance capacity and self-
reliance in areas where access to basic health care is limited or
non-existent.
Figure 4: First Aid trainees practice CPR under the trainer’s
watchful eye
(ii) Environment
Papua New Guinea Baseline Monitoring
Horizon Oil maintains its strong environmental management
performance during the year with environmental baseline
monitoring showing no discernible or material environmental
impact from activities in the Western Province project impact area
and broader environment. Water sampling and assessment of
riverbank erosion indicated a healthy and dynamic riverine system.
Through its ongoing baseline monitoring program, rehabilitation
trials and specific studies, Horizon Oil continues to develop its
knowledge of the ecosystem of the project area, which is integral
to managing the impact of its current and future operations.
The scope of Horizon Oil’s environmental baseline monitoring
program includes assessment of environmental stability, riverbank
erosion and testing of water, soil and sediment quality. Quarterly
assessment allows for potential seasonal variations. During the
financial year, the program’s footprint was expanded to include
sites in the North Fly district. Horizon Oil also actively engages
with regulators and fellow industry participants to share data
with a view to the creation of a coherent and integrated regional
biodiversity data-set.
41
PAPUA NEW GUINEAPNG FORELANDSUSTAINABILITY SUPPORTACTIVITIESPAPUA NEW GUINEAGulf of PapuaMAPAREA500kmMadangLaeDaruPortMoresbyWewakHorizon Oil Annual Report 2018
Sustainability Report
For the financial year ended 30 June 2018
Climate Change Risks
Horizon Oil has identified the potential impact to its asset
portfolio associated with climate-change and has implemented
a governance framework to assess and evaluate material risks
arising from climate change and to formulate strategic responses
to the risks and possible opportunities. During the financial year,
Horizon Oil initiated a review of the data collected from its operated
assets and non-operated projects to enable it to better evaluate the
risks and opportunities presented by climate change. The Horizon
Oil Risk Management Committee has oversight and is responsible
to the board for the evaluation and management of material risks
associated with climate-change.
Emissions from Horizon Oil’s operated and non-operated activities
in Papua New Guinea are nominal as these assets are in the
exploration and pre-development phase. Emissions from Horizon
Oil’s non-operated China assets were managed by CNOOC in
accordance with the robust environmental standards relating to
air quality in China and subject to periodic regulatory reporting.
Emissions arising from Horizon Oil’s non-operated New Zealand
assets were offset by the acquisition and surrender of carbon units
in accordance with the New Zealand Carbon Emissions Trading
Scheme.
(iii) Security
Horizon Oil operations are conducted in compliance with internal
policies based on the Voluntary Principles on Security and Human
Rights. During the financial year, periods of unrest in Papua New
Guinea did not impact our employees or operations and there were
no reportable security incidents.
Figure 5: Sample collection
During the financial year, Horizon Oil also initiated a program
to identify and assess the nature and extent of its activities by
analysing and mapping impact and disturbance based on multi-
spectral imaging of current and future operational sites.
Monitoring of the riverine system indicated a healthy and dynamic
riverine system that exhibits many metres of riverbank movement
from one year to the next with no discernible evidence of impact
from historical oil and gas activities in the area. In addition to
monitoring and evaluating Horizon Oil’s impact, the continued
monitoring of the riverine system allows Horizon Oil to understand
how ecosystems and communities interact with the dynamic
and rapidly changing water-ways. Understanding the existing
processes of adaptation is important to the development of change
management strategies that may result from operational activities
or broader forces such as climate change.
Figure 6: Small rivercraft traffic near the Kiunga wharf
42
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
Independent auditor’s report
To the members 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)
(b)
giving a true and fair view of the Group's financial position as at 30 June 2018 and of
its financial performance for the year then ended
complying with Australian Accounting Standards and the Corporations Regulations
2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2018
the consolidated statement of profit or loss and other comprehensive income for the
year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the 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
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
43
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
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
•
•
•
•
For the purpose of our audit we
used overall Group materiality
of $1.38 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 and
is a generally accepted
benchmark in the oil and gas
industry. We determined that a
2% threshold was appropriate
based on our professional
judgement, noting it is within
the range of commonly
acceptable thresholds.
Our audit focused on
where the Group made
subjective judgements;
for example, significant
accounting estimates
involving assumptions
and activities that involve
future events that are
inherently uncertain.
Our audit focused on the
oil producing joint
operations in New
Zealand and China, the
joint operation gas
exploration and
development assets in
PNG and the Group’s
corporate head office in
Sydney.
The Group uses 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.
•
•
Amongst other relevant
topics, we
communicated the
following key audit
matters to the Audit
and Risk Committee:
− Funding
requirements to
support the objective
of monetising the
PNG exploration
assets
− Impairment of oil
and gas assets
− Reserves and
Resources
These are further
described in the Key
audit matters section of
our report.
44
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
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
Funding requirements to support the
objective of monetising the PNG
exploration assets and repayment of the
debt facility
Refer to note 19
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.
The Group’s revolving cash advance facility (debt
facility) which is based on the level of economic
oil reserves available, matures in May 2019. The
Group is in the process of securing a new loan to
facilitate the repayment of the debt facility.
The Group prepared a detailed cash flow forecast
to assess the surplus cash available to fund the
repayment of the debt facility.
The funding requirements of the Group are a key
audit matter due to net current deficit of $61
million noted as of the year end mainly in
relation to the maturing debt facility of $76
million and the significant level of funding that
will be required to monetise the joint operation
exploration assets in PNG.
How our audit addressed the key audit
matter
We performed the following procedures,
amongst others:
•
•
•
Tested the Group’s cash flow forecasts which
included the net cash inflows from the China
and New Zealand joint operations and the
development expenditure planned to
monetise the PNG exploration and
development assets. To evaluate the key
assumptions used in the forecasts 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 also considered
the independence, experience and
competency of the Group’s independent
expert as well as the results of their
procedures.
̵ Considered the Group’s forecast oil
prices which were derived from broker
forecasts and compared them to a
forward oil price curve (beyond 12
months), that was independently
compiled by PwC using Bloomberg
data.
Compared the cash flow forecast to the debt
facility amortisation schedule as provided by
the Group’s lenders and considered
alternative forecast scenarios prepared by the
Group.
Inspected correspondence with the potential
lenders on the credit term sheets to consider
the ability of the Group to refinance the debt
facility that is due to mature within the next
12 months.
Impairment of exploration, development
and oil & gas assets
We performed the following procedures,
amongst others:
Refer to note 15 & 16
The Group prepared an impairment assessment
at 30 June 2018. The impairment assessment
was modelled on a Fair Value less Cost of
•
Read the impairment assessment prepared
by the Group. Assisted by PwC valuation
experts, we assessed the reasonableness of
the key assumptions applied within the
45
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
Disposal (FVLCD) basis.
This is a key audit matter due to the:
•
•
•
•
significant judgement required by the
Group in estimating the recoverable
amount of the exploration, development
and oil and gas assets in different
jurisdictions
pressure on global oil prices in recent
years
financial significance of these assets to
the business
risks associated with monetising the gas
exploration and development assets in
PNG
•
Group’s discounted cash flow model,
including:
̵ Comparing the discount rates applied
against the assets in the New Zealand,
China and PNG joint operations against
the range of discount rates considered
reasonable by PwC valuation experts
̵ Performing a sensitivity analysis over
the change in project risks associated
with the monetisation of the PNG
exploration assets
̵ Comparing oil prices to our
independently compiled future oil price
estimates
Compared the underlying value drivers
(reserves estimate, production profile,
operating and capital expenditure
requirements) 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 the China and New Zealand joint
operations.
Additional Net Working Interest (NWI) in the
New Zealand operation
Additional NWI in the New Zealand joint
operation
The Group acquired an additional NWI in the
New Zealand joint operations during the year.
The consideration agreed and paid by the Group
was proportionately less than the carrying value
of the existing 10% NWI held by the Group.
While the acquisition of the increased NWI is
accounted for as a business combination, it does
not require the re-measurement of the previously
held interest.
In addition to the reasons noted above, we
considered the acquisition of the increased NWI
as a key audit matter given that the acquisition
price was an indicator of impairment of the
existing held interest.
• We agreed the transaction as recorded in the
Group’s accounting records to the relevant
supporting documents.
•
Given the acquisition price is considered an
indicator of impairment of the original 10%
NWI held, we reconsidered the carrying
amount of the existing interest, specifically to
confirm the reasonableness of the key
assumptions.
• We assessed the Group’s discounted cash
flow model as at year-end based on the
combined 26% NWI for the NZ assets by
applying the procedures noted above. In
both cases, we found that the recoverable
amount was higher than the carrying
amount.
PNG Petroleum Ministry’s notice of intention to
cancel the licenses
PNG Petroleum Ministry’s notice of intention to
cancel the licenses
During the year, the PNG Petroleum Ministry
issued a letter of intention to cancel the PDL10,
PL10 and Stanley Gas agreements in PNG
suggesting that there were certain conditions that
the license holders did not fulfil as part of the
license and invited a response from the joint
venture parties.
•
To develop an understanding of the
implications of the notice of intent, we read
correspondence between the Ministry and
the Group, including the Group’s response to
the Ministry, and held discussions with the
Group’s external solicitor surrounding the
legal merit and validity of the notices.
46
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
In addition to the reasons noted above, we
considered this a key audit matter given the
notices from the Ministry introduce judgement
about the validity of the Groups interest in the
PNG licenses and therefore whether the carrying
value of the asset is appropriate.
• We evaluated the adequacy of the disclosures
made in note 2, including the statements
made in relation to the notices received from
the Ministry in light of the requirements of
Australian Accounting Standards.
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 in the key
audit matter above.
The Statement of Reserves and Resources is a
key audit matter due to its importance to the
cash flow models and the impairment
assessment and due to the sensitivity of these
models to changes in the base information.
We read the Statement of Reserves and Resource
prepared by the Group’s internal expert and we
performed the following procedures amongst
others:
• Compared the findings of the Group’s
internal expert with the Group’s independent
expert.
• 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.
Other information
The directors are responsible for the other information. The other information comprises
the information included in the annual report for the year ended 30 June 2018, but does
not include the financial report and our auditor’s report thereon. Prior to the date of this
auditor's report, the other information we obtained included the Director's report, 2018
Reserves and Resources Statement and Sustainability report. We expect the remaining
other information to be made available to us after the date of this auditor's report,
including 2018 Highlights, Chairman and Chief Executive Officer's report, Reserves and
resources snapshot, Consolidated results, Activities review, Shareholder information,
Glossary and Company Directory.
Our opinion on the financial report does not cover the other information and we do not and
will not express an opinion or 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 on the other information that we obtained prior to
the date of this auditor’s report, 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.
47
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
When we read the other information not yet received as identified above, if we conclude
that there is a material misstatement therein, we are required to communicate the matter
to the directors and use our professional judgement to determine the appropriate action to
take.
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_responsibilities/ar1.pdf. This description forms part of
our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 12 to 22 of the directors’ report
for the year ended 30 June 2018.
27 to 37
In our opinion, the remuneration report of Horizon Oil Limited for the year ended 30 June
2018 complies with section 300A of the Corporations Act 2001.
48
Horizon Oil Annual Report 2018 Independent auditor’s report to the shareholders of Horizon Oil Limited
For the financial year ended 30 June 2018
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.
PricewaterhouseCoopers
Sean Rugers
Partner
Sydney
23 August 2018
49
Horizon Oil Annual Report 2018 For the financial year ended 30 June 2018
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;
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the
financial year ended on that date; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by Section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
J Humphrey
Chairman
M Sheridan
Chief Executive Officer
Sydney
23 August 2018
50
Horizon Oil Annual Report 2018
Consolidated statement of profit or loss and other comprehensive income
For the financial year ended 30 June 2018
Revenue
Cost of sales
Gross profit
Other income
General and administrative expenses
Insurance expense
Exploration and development expenses
Financing costs – interest, transaction costs, other
Financing costs – unrealised movement in value of options
Unrealised movement in value of convertible bond conversion rights
Other expenses
(Loss)/profit 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
Consolidated
2018
US$’000
2017
US$’000
Note
4
5
4
5
5
5
5
5
4
5
6a
6b
100,044
(55,686)
44,358
835
(4,261)
(1,724)
(5,761)
(14,345)
(20,464)
-
(218)
(1,580)
(869)
(150)
(2,599)
68,534
(43,768)
24,766
15
(5,200)
(1,240)
(1,250)
(14,481)
1,400
530
(386)
4,154
(512)
(3,978)
(336)
Changes in the fair value of cash flow hedges
Total comprehensive (loss)/income for the financial year
24a
(9,627)
(12,226)
1,612
1,276
Loss attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Loss for the financial year
Total comprehensive loss attributable to:
Security holders of Horizon Oil Limited
Non-controlling interests
Total comprehensive income/(loss) for the financial year
(2,599)
-
(2,599)
(336)
-
(336)
(12,226)
1,196
-
80
(12,226)
1,276
Earnings per share for loss attributable to ordinary equity holders of Horizon Oil Limited:
US cents
US cents
Basic earnings per ordinary share
Diluted earnings per ordinary share
41a
41b
(0.20)
(0.20)
(0.03)
(0.03)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying
notes.
51
Horizon Oil Annual Report 2018
Consolidated statement of financial position
As at 30 June 2018
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax receivable
Derivative financial instruments
Other assets
Total current assets
Non-current assets
Deferred tax assets
Plant and equipment
Exploration phase expenditure
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Payables
Current tax payable
Borrowings
Derivative financial instruments
Total current liabilities
Non-current liabilities
Payables
Deferred tax liabilities
Other financial liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Consolidated
2018
US$’000
2017
US$’000
Note
7
8
9
10
11
12
13
14
15
16
17
18
19
27,625
15,477
3,147
-
-
903
47,152
10,659
594
57,453
193,774
262,480
309,632
19,479
2,946
75,145
24,529
6,376
1,497
47
2,191
1,000
35,640
4,122
903
51,940
179,098
236,063
271,703
9,950
354
22,132
11 10,768
-
108,338
32,436
17
22
20
19
21
23
24a
24b
62
17,876
22,995
36,867
28,185
105,985
214,323
95,309
174,801
5,740
(85,232)
95,309
28
17,705
2,531
102,666
9,611
132,541
164,977
106,726
174,801
14,558
(82,633)
106,726
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
52
Horizon Oil Annual Report 2018
Consolidated statement of changes in equity
For the financial year ended 30 June 2018
Consolidated
Attributable to members of Horizon Oil Limited
Contributed
equity
Reserves
Retained
profits /
(accumulated
losses)
Total
Non-
controlling
interest
Total
Equity
Note
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Balance as at 1 July 2016
174,801
12,030
(82,217)
104,614
(80)
104,534
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)
-
-
-
-
-
-
-
-
1,612
1,612
916
916
(336)
(80)
-
(336)
(80)
1,612
(416)
1,196
-
-
916
916
Balance as at 30 June 2017
174,801
14,558
(82,633)
106,726
Balance as at 1 July 2017
174,801
14,558
(82,633)
106,726
Loss for the financial year
Changes in the fair value of
cash flow hedges
24(b)
24(a)
Total comprehensive loss for the financial year
Transactions with owners in their
capacity as equity holders:
Employee share-based
payments expense
24(a)
-
-
-
-
-
-
(2,599)
(9,627)
-
(2,599)
(9,627)
(9,627)
(2,599)
(12,226)
809
809
-
-
809
809
Balance as at 30 June 2018
174,801
5,740
(85,232)
95,309
-
(336)
80
-
-
80
-
-
-
-
-
-
-
-
-
-
1,612
1,276
916
916
106,726
106,726
(2,599)
(9,627)
(12,226)
809
809
95,309
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
53
Horizon Oil Annual Report 2018
Consolidated statement of cash flows
For the financial year ended 30 June 2018
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 oil and gas 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
Consolidated
2018
US$’000
2017
US$’000
Note
95,975
(27,754)
68,221
20
(9,372)
(1,289)
57,580
(7,777)
(13,261)
-
(20)
(16,660)
(37,718)
-
(16,765)
(16,765)
3,097
24,529
(1)
27,625
71,294
(26,149)
45,145
15
(9,413)
(114)
35,633
(2,682)
(4,483)
(376)
(2)
(198)
(7,741)
45,483
(64,943)
(19,460)
8,432
16,079
18
24,529
40
27
19a
19a
7
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
54
Horizon Oil Annual Report 2018
For the financial year ended 30 June 2018
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.
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:
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.
1.
2.
New hedge accounting requirements including changes to
hedge effectiveness testing, treatment of hedging costs, risk
components that can be hedged and disclosures;
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
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 2018 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 2018. 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 2018.
None of the new and revised standards and interpretations were
deemed to have a material impact on the results of the Group.
3.
The mandatory effective date is for reporting periods beginning
on or after 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, as follows:
(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.
55
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 1. Summary of Significant Accounting Policies (cont’d.)
During the period, the Group revised the future cost estimates
from which the provision for restoration of the New Zealand
asset is 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$3,257,800.
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 2018 and the results of all
subsidiaries for the financial year then ended. Horizon Oil Limited
and its subsidiaries together are referred to in these financial
statements as ‘the Group’.
Subsidiaries are those entities (including special purpose entities)
over which the Group has control. Control exists when the
Company is exposed to, or has the rights to, variable returns from
its involvement and has the ability to affect those returns through
its power over that entity. There is a general presumption that
a majority of voting rights results in control. The existence and
effect of potential voting rights that are currently exercisable or
convertible are also considered when assessing whether the Group
controls another entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are de-consolidated from the
date that control ceases.
The acquisition method of accounting is used to account for
business combinations by the Group (refer to Note 1(n)).
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of the impairment of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Investments in subsidiaries are accounted for at cost in the
individual financial statements of Horizon Oil Limited. These
investments may have subsequently been written down to their
recoverable amount determined by reference to the net assets of
the subsidiaries as at 30 June each financial year where this is less
than cost.
Joint operations
A joint operation is a joint arrangement whereby the participants
that have joint control of the arrangement (i.e. joint operators) have
rights to the assets, and obligations for the liabilities, relating to
the arrangement.
The Group recognises assets, liabilities, revenues and expenses
according to its share in the assets, liabilities, revenues and
expenses of a joint operation or similar as determined and specified
in contractual arrangements (Joint Operating Agreements).
Details of major joint operation interests and the sum of the
Group’s interests in joint operation assets, liabilities, revenue and
expenses are set out in Note 29.
Where part of a joint operation interest is farmed out in
consideration of the farminee undertaking to incur further
expenditure on behalf of both the farminee and the entity in the
joint operation area of interest, exploration expenditure incurred
and carried forward prior to farm-out continues to be carried
forward without adjustment, unless the terms of the farm-out are
excessive based on the diluted interest retained. An impairment
provision is then made to reduce exploration expenditure to its
estimated recoverable amount. Any cash received in consideration
for farming out part of a joint operation interest is recognised in the
profit or loss.
d) Crude oil and gas inventory and materials in inventory
Crude oil and gas inventories, produced but not sold, are valued
at the lower of cost and net realisable value. Cost comprises a
relevant proportion of all fixed and variable production, overhead,
restoration and amortisation expenses and is determined on an
average cost basis.
Stocks of materials inventory, consumable stores and spare parts
are carried at the lower of cost and net realisable value, with cost
primarily determined on an average cost basis.
e) Operating segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors.
f) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s
subsidiaries are measured using the currency of the primary
economic environment in which the subsidiary operates (the
‘functional currency’). The consolidated financial statements are
presented in United States dollars, which is Horizon Oil Limited’s
functional and presentation currency. Horizon Oil Limited has
selected United States dollars as its presentation currency for the
following reasons:
(a) a significant portion of Horizon Oil Limited’s activity is
denominated in United States dollars; and
(b) it is widely understood by Australian and international
investors and analysts.
56
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
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.
(ii) Government royalties
Government royalties are treated as taxation arrangements
when they are imposed under Government authority and when
the calculation of the amount payable is derived from a measure
of profit that falls within the definition of ‘taxable profit’ for the
purposes of AASB 112 Income Taxes. Current and deferred tax is
then provided on the same basis as described in (i) above. Royalty
arrangements that do not meet the criteria for treatment as a tax
are recognised on an accruals basis.
j) Leases
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases (Note 38). Payments made under operating leases (net
of any incentives received from the lessor) are charged to profit
or loss on a straight-line basis over the period of the lease. The
Company has no leases which are classified as finance leases
under AASB 117 Leases at 30 June 2018.
Note 1. Summary of Significant Accounting Policies (cont’d.)
(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 Goods and Services Tax.
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.
57
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 1. Summary of Significant Accounting Policies (cont’d.)
k) Impairment of assets
n) Business combinations
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 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.
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.
58
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
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).
Once commercial levels of production commence, amortisation
is charged using the unit-of-production method. The unit-of-
production method results in an amortisation expense proportional
to the depletion of proven and probable hydrocarbon reserves for
the field. Production assets are amortised by area of interest in
the proportion of actual production for the financial period to the
proven and probable hydrocarbon reserves of the field. The proven
and probable hydrocarbon reserves figure is that estimated at
the end of the financial period plus production during the financial
period.
The cost element of the unit-of-production calculation is the
capitalised costs incurred to date for the field together with the
estimated/anticipated future development costs (stated at current
financial period-end unescalated prices) of obtaining access to all
the proven and probable hydrocarbon reserves included in the unit-
of-production calculation.
Production assets are tested for impairment in accordance with
the accounting policy set out in Note 1(k).
(iii) Restoration provision
The estimated costs of decommissioning and removing an asset
and restoring the site are included in the cost of the asset as at
the date the obligation first arises and to the extent that it is first
recognised as a provision. This restoration asset is subsequently
amortised on a unit-of-production basis.
The corresponding provision, of an amount equivalent to the
restoration asset created, is reviewed at the end of each reporting
period. The provision is measured at the best estimate of the
present value amount required to settle the present obligation at
the end of the reporting period, based on current legal and other
requirements and technology, discounted where material using
market yields at the balance sheet date on US Treasury bonds
with terms to maturity and currencies that match, as closely as
possible, to the estimated future cash outflows.
Where there is a change in the expected restoration, rehabilitation
or decommissioning costs, an adjustment is recorded against the
carrying value of the provision and any related restoration asset,
and the effects are recognised in profit or loss on a prospective
basis over the remaining life of the operation.
The unwinding of the effect of discounting on the restoration
provision is included within finance costs in profit or loss.
Development expenditure is tested for impairment in accordance
with the accounting policy set out in Note 1(k).
(iv) Reserves
(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.
Production assets are stated at cost less accumulated
amortisation and any accumulated impairment losses.
The estimated reserves include those determined on an annual
basis by Mr Andrew McArdle, Chief Operating Officer, Horizon Oil
Limited. Mr McArdle is a full-time employee of Horizon Oil Limited
and is a member of the Society of Petroleum Engineers. Mr
McArdle’s qualifications include a Master of Engineering from The
University of Western Australia, Australia and more than 15 years
of relevant experience. The reserve estimates are determined
by Mr McArdle 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.
59
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 1. Summary of Significant Accounting Policies (cont’d.)
q) Investments and other financial assets
Subsidiaries are accounted for in the consolidated financial
statements as set out in Note 1(c).
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money, goods or services
directly to a debtor with no intention of selling the receivable. They
are included in current assets, except for those with maturities
greater than 12 months after the end of the reporting period which
are classified as non-current assets. Loans and receivables are
included in receivables in the statement of financial position.
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).
r) Plant and equipment
(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.
(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.
The cost of improvements to, or on, leasehold property is
depreciated over the unexpired period of the lease or the estimated
useful life of the improvement to the Group, whichever is shorter.
Depreciation on other assets is calculated using the straight-line
method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives, as follows:
Computer equipment
3 – 4 years
Furniture, fittings and equipment
3 – 10 years
Leasehold improvement
10 years
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of the reporting period.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit or
loss.
s) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year which are
unpaid. Due to their short-term nature they are not discounted.
The amounts are unsecured and are usually paid within 30 days
of recognition. They are included in current liabilities, except for
those with maturities greater than one year after the end of the
reporting period which are classified as non-current liabilities.
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.
60
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 1. Summary of Significant Accounting Policies (cont’d.)
u) Borrowings
(ii) Long service leave
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 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.
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 (2017: US$Nil) capitalised
during the current financial year and the amount of borrowing
costs amortised to the income statement were US$892,123 (2017:
US$860,000).
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.
(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 33.
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 effective allocation 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 effective allocation 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 effective allocation 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.
61
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 1. Summary of Significant Accounting Policies (cont’d.)
x) Contributed equity
(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 2018 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 new standard is based on the principle
that revenue is recognised when control of a good or service
transfers to a customer, therefore the notion of control replaces
the existing notion of risks and rewards. The standard permits
either a full retrospective or a modified retrospective approach for
the adoption.
The Group intends to adopt the standard using the modified
retrospective approach, which means that the cumulative impact
of the adoption will be recognised in retained earnings as of
30 June 2019 and that comparatives will not be restated. The
Group has assessed the effects of applying the new standard on
the financial statements and has concluded that there is no impact
for the current financial year end, and anticipates no material
impact on future periods associated with the existing operations.
(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 position 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 2020. The Group intends to apply the simplified transition
approach and will not restate comparative amounts for the year
prior to first adoption. The full impact of these changes are yet
to be assessed, however management have commenced their
assessment.
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.
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 42, has been prepared on the same basis as the
consolidated financial statements, except as set out below.
(i) Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities
are accounted for at cost in the financial statements of Horizon Oil
Limited. Dividends received from associates are recognised in the
parent entity’s profit or loss, rather than being deducted from the
carrying amount of these investments.
62
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
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.
During the period, the Group revised the future cost estimates
from which the provision for restoration of the New Zealand
asset is derived, taking into consideration enhanced experience
and reduction in uncertainty surrounding future obligations. The
resultant effect, following an external consultant review, is an
increase in the restoration provision of US$3,257,800. In addition
to the revision of the Maari restoration provision, a further $14.8
million was recorded for the acquisition of a further 16% interest in
the Maari/Manaia field. The fair value of the assets acquired and
liabilities assumed for the acquisition are disclosed in Note 27.
(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 fair value 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.
(ii) Reserve estimates
Notice of intent to cancel PDL 10
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.
Repsol, as operator of the PDL 10 licence in PNG, received notices
of intent to cancel PDL 10 and PL 10 and a notice to terminate
the Stanley Gas Agreement for PDL 10 from the PNG Petroleum
Minister. The licensees submitted a written response to the
Minister on 24 July 2018. Repsol, the operator of PDL 10, is of
the view that the notices are without merit and are procedurally
invalid. Based on external legal advice, Horizon Oil supports this
view. Horizon Oil and the PDL 10 joint venture will continue
to work with the PNG Petroleum Minister and the Department
of Petroleum and Energy to resolve any misunderstanding or
disagreement with respect to the good standing of PDL 10, PL 10
and the Stanley Gas Agreement. Whilst the notices are a potential
indicator of impairment, on the basis that tenure remains current,
and the notices are without merit and procedurally invalid, no
impairment has been recorded as at 30 June 2018. In the event
that the licences were to be cancelled, whilst the company would
likely mount a strong legal challenge, the maximum impairment
charge that would be recorded at 30 June 2018 is US$21 million.
63
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 2. Critical accounting estimates and judgements (cont’d.)
(v) Share-based payments and general options
(b) Critical judgements in applying the Group’s
Share-based payment transactions with directors and employees
are measured by reference to the fair value of the share
performance rights and employee options at the date they were
granted. The fair value of the derivative liability associated with
the general options is valued as at financial year end. The fair
value is ascertained using an appropriate pricing model, being
either the Black-Scholes or Monte Carlo simulation, depending
on the terms and conditions upon which the share performance
rights, employee options and general 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, employee options and general options
outstanding are disclosed in Note 33.
(vi) Recoverability of deferred tax assets
The recoverability of deferred tax assets is based on the probability
that future taxable amounts will be available to utilise those
temporary differences and losses. The Group has not recognised
deferred tax assets in respect of some tax losses and temporary
tax differences as the future utilisation of these losses and
temporary tax differences is not considered probable at this
point in time. Assessing the future utilisation of tax losses and
temporary tax differences requires the Group to make significant
estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecast cash
flows from operations and the application of existing tax laws. To
the extent that future utilisation of these tax losses and temporary
tax differences becomes probable, this could result in significant
changes to deferred tax assets recognised, which would in turn
impact future financial results. During the current year, tax losses
and temporary tax differences in Australia and New Zealand 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 recorded.
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.
(c) Assumptions on funding
The general purpose financial statements for the year ended
30 June 2018 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.
The Group has a working capital deficit of US$61 million at
30 June 2018 resulting predominately from the scheduled
amortisation and maturity, in May 2019, of the outstanding
US$76 million Revolving Cash Advance Facility being classified
as a current liability at balance date.
Funding for the Group’s strategic growth plans and repayment of
the facility is to be sourced from a variety of sources, with surplus
revenues from the Group’s operations in China and New Zealand
providing core funding. The Group commenced a process during
the year to refinance the US$76 million outstanding under the
Revolving Cash Advance Facility. The refinancing is well advanced
with prospective lenders providing credit approved proposals to
refinance the Facility. The prospective lenders are expected to
be mandated under a common credit approved term sheet during
Q1 FY 2019, with documentation and financial close to follow
thereafter. The Group expects to complete the refinancing during
the first half of the 2019 financial year, ahead of the Facility
maturity.
Given the current advanced status of refinancing of the Revolving
Cash Advance Facility, together with the surplus cashflows
forecast to be generated from the Group’s China and New Zealand
operations, the Group expects to have available the necessary
cash reserves to meet debt repayment obligations, and to pursue
the current strategy. Should the full amount of the forecast
internally generated cash flow and capital required to pursue
the strategy not be raised, the directors expect that the Group
would be able to adopt a modified strategy and would be able to
secure the necessary financing through one or a combination of,
additional borrowings, equity raisings or asset sales; or deferring
discretionary exploration and development activities.
64
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
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:
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
China Exploration
and Development
New Zealand
Exploration and
Development
US$’000
US$’000
Papua New
Guinea
Exploration and
Development
US$’000
All other
segments
Total
US$’000
US$’000
2018
Segment revenue:
Revenue from external customers
Profit/(loss) before tax
Depreciation and amortisation
Total segment assets as at 30 June 2018
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:
68,875
28,448
(18,779)
124,420
922
1,455
-
Total segment liabilities as at 30 June 2018
124,348
31,169
2,197
(10,383)
99,720
525
23,785
-
60,668
-
(6,156)
(148)
75,542
4,639
4,551
-
5,207
-
(26,337)
(181)
9,950
-
-
20
24,100
100,044
(1,848)
(29,491)
309,632
6,086
29,791
20
214,323
65
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 3. Segment information (cont’d.)
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
US$’000
US$’000
Papua New
Guinea
Exploration and
Development
US$’000
All other
segments
Total
US$’000
US$’000
52,180
15,220
(17,031)
128,183
1,679
(27)
-
16,354
(5,210)
(9,270)
52,695
56
1,924
-
44,743
-
(2,955)
(159)
71,186
1,832
2,996
-
5,161
-
(3,385)
(226)
19,639
-
-
2
68,534
3,670
(26,686)
271,703
3,567
4,893
2
3,689
164,977
Total segment liabilities as at 30 June 2017
111,385
(c) Other segment information
(i) Segment revenue
The Group’s revenue is derived from the sale of crude oil produced in China and New Zealand. The Group sells to external customers,
including through sales agreements with the respective joint venture operators.
Segment revenue reconciles to total consolidated revenue as follows:
Total segment revenue
Proceeds from insurance claims
Interest income
Other non-operating income
Total revenue
(ii) Segment profit before tax
Consolidated
2018
US$’000
100,044
610
20
205
2017
US$’000
68,534
-
15
-
100,879
68,549
The chief operating decision maker assesses the performance of operating segments based on a measure of profit before tax.
Segment profit before tax reconciles to consolidated profit before tax as follows:
Total segment profit/(loss) before tax
Interest income
Unrealised movement in value of convertible bond conversion rights
Net foreign exchange losses
Profit/(loss) before tax
(iii) Segment assets
Consolidated
2018
US$’000
(1,848)
20
-
248
(1,580)
2017
US$’000
3,670
15
530
(61)
4,154
The amounts provided to the chief operating decision maker with respect to total assets are measured in a manner consistent with that of
the financial statements.
Reportable segment assets are equal to consolidated total assets.
(iv) Segment liabilities
The amounts provided to the chief operating decision maker with respect to total liabilities are measured in a manner consistent with that
of the financial statements.
Reportable segment liabilities are equal to consolidated total liabilities.
66
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 4. Revenue
From continuing operations
Crude oil sales
Net realised (loss)/gain on oil hedging derivatives
Other income
Insurance claim income
Interest received from unrelated entities
Other non-operating income
Gains – Conversion rights on convertible bonds
Unrealised movement in fair value of convertible bond conversion rights1
Consolidated
2018
US$’000
2017
US$’000
106,153
(6,109)
100,044
67,988
546
68,534
610
20
205
835
-
-
-
15
-
15
530
530
1 The amount shown in the prior year reflects the movement during the prior financial year of the fair value of the conversion rights relating to the 5.5% convertible bonds issued
on 17 June 2011. As the bonds were redeemed during the prior financial year, before the extended redemption date of 19 September 2016, the carrying balance of the fair
value of the derivative financial liability associated with the conversion rights of US$530,000 was written back to the profit and loss during the prior financial year.
Note 5. Expenses
Cost of sales
Direct production costs
Inventory adjustments1
Amortisation expense
Royalties and other levies
1 Includes production overlift/underlift and inventory adjustments.
General and administrative expenses
Employee benefits expense (net)
Employee share options expense
Corporate office expense
Depreciation expense
Rental expense relating to operating leases
Insurance expense
Insurance expense (including Loss of Production Income insurance)
Exploration and development expenses
Exploration and development expenditure written off/expensed
Financing costs
Interest and finance charges
Discount unwinding on provision for restoration
Unrealised movement in fair value of derivative financial instrument1
Amortisation of prepaid financing costs
Consolidated
2018
US$’000
2017
US$’000
23,304
1,610
29,163
1,609
55,686
1,635
809
1,031
329
457
4,261
1,724
1,724
5,761
5,761
11,078
529
20,464
2,738
34,809
16,262
612
26,301
593
43,768
2,594
916
926
385
379
5,200
1,240
1,240
1,250
1,250
11,925
133
(1,400)
2,423
13,081
1 The amount shown reflects an unrealised loss/(gain) of $20,464,000 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.
Other expenses
Net foreign exchange losses/(gain)
Other expenses
(43)
261
218
323
63
386
67
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
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
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/(Increase) 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
Tax at the Australian tax rate of 30% (2017: 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Expenditure not allowed for income tax purposes
Other deductible items
Non-assessable income
Effect of overseas tax rates
Deferred tax asset not brought to account
Previously unrecognised deferred tax assets now recognised
Previously recognised tax losses now not allowable
Tax paid on non-resident insurance premiums
Previously unrecognised tax losses now recognised to reduce current tax expense
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% (2017: 28%)
Horizon Oil (New Zealand) Limited – 28% (2017: 28%)
Consolidated
2018
US$’000
2017
US$’000
2,482
(1,613)
869
1,445
(1,578)
283
150
(449)
(1,129)
(1,578)
(1,580)
(2,482)
(4,062)
(1,219)
7,164
(1,508)
(559)
3,878
(981)
2,576
(6,402)
651
30
115
283
150
869
1,019
(3,049)
(3,049)
2,522
3,514
6,036
1,690
816
(304)
512
-
3,837
141
3,978
2,331
1,506
3,837
4,154
(816)
3,338
1,001
1,160
(1,814)
(28)
319
(215)
3,733
-
-
-
-
141
3,978
512
4,490
579
579
4,995
3,764
8,759
2,453
Potential tax benefit at applicable tax rates
The Company has no Australian subsidiaries and therefore it is not subject to the Australian tax consolidation regime.
68
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 7. Cash and cash equivalents
Cash at bank and on hand
Restricted cash1
Consolidated
2018
US$’000
16,274
11,351
27,625
2017
US$’000
19,368
5,161
24,529
1 Under the terms of Horizon Oil’s Revolving Cash Advance Facility (refer to Note 19(b)), certain cash balances are available to the Group after certain conditions of the relevant
facility agreement are satisfied. No restricted cash was held on deposit during the year (2017: US$Nil).
Note 8. Receivables
Trade and other receivables1
Consolidated
2018
US$’000
2017
US$’000
15,477
15,477
6,376
6,376
1 Of this balance US$Nil (2017: US$Nil) related to amounts receivable from related parties. Refer to Note 32 for further details.
Information about the Company’s exposure to credit and market risks, and collectability of overdue amounts, is included in Note 25(b).
Note 9. Inventories
Crude oil, at cost
Drilling and workover spares inventory
Note 10. Current tax receivable
Income tax – China
Note 11. Derivative financial instruments
Current:
Derivative (liability)/asset - Oil price swaps – cash flow hedges
Consolidated
2018
US$’000
1,976
1,171
3,147
2017
US$’000
758
739
1,497
Consolidated
2018
US$’000
-
2017
US$’000
47
Consolidated
2018
US$’000
(10,768)
(10,768)
2017
US$’000
2,191
2,191
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 25(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 2018, the Group has
600,000 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 loss of US$6,109,000 (2017: gain of US$546,000) was
transferred to profit or loss.
Note 12. Other assets
Prepayments
Consolidated
2018
US$’000
903
903
2017
US$’000
1,000
1,000
69
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 13. Deferred tax assets
Recognised deferred tax assets are attributable to:
Tax losses
Development and production expenditure
Cash flow hedges
Provisions and other
Total deferred tax assets
Set off of deferred tax liabilities pursuant to set off provisions
Net deferred tax assets
2018
Movements
At 1 July 2017
(Charged)/credited
- to profit or loss
- to other comprehensive income
At 30 June 2018
2017
Movements
At 1 July 2016
(Charged)/credited
- to profit or loss
At 30 June 2017
Note 14. Plant and equipment
As at 1 July 2016
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2017
Opening net book amount
Additions
Disposals
Depreciation expense
Closing net book amount
As at 30 June 2017
Cost
Accumulated depreciation
Net book amount
Financial year ended 30 June 2018
Opening net book amount
Additions
Disposals
Depreciation expense
Closing net book amount
As at 30 June 2018
Cost
Accumulated depreciation
Net book amount
70
Consolidated
2018
US$’000
2017
US$’000
4,421
6,149
568
411
11,549
(890)
10,659
3,410
-
-
712
4,122
-
4,122
Tax Losses
US$’000
Development
and production
expenditure
$US’000
Cash flow
hedges
US$’000
Provisions and
other
US$’000
Total
$US’000
3,410
1,011
-
4,421
-
6,149
-
6,149
-
-
568
568
(301)
-
411
712
4,122
Tax Losses
US$’000
Provisions and other
$US’000
5,118
(1,708)
3,410
1,335
(623)
712
Other plant and
equipment
US$’000
Consolidated
Leasehold
improvements
US$’000
2,157
(1,625)
532
532
2
-
(263)
271
2,159
(1,888)
271
271
20
-
(222)
69
2,179
(2,110)
69
1,863
(509)
1,354
1,354
-
(600)
(122)
632
1,263
(631)
632
632
-
-
(107)
525
1,263
(738)
525
6,859
568
11,549
Total
$US’000
6,453
(2,331)
4,122
Total
US$’000
4,020
(2,134)
1,886
1,886
2
(600)
(385)
903
3,422
(2,519)
903
903
20
-
(329)
594
3,442
(2,848)
594
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 15. Exploration phase expenditure
Exploration phase expenditure
Consolidated
2018
US$’000
2017
US$’000
Deferred geological, geophysical, drilling and other exploration and evaluation expenditure
57,453
51,940
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
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
Expenditure written off during financial year
Carried forward accumulated impairment losses
Less accumulated amortisation
The reconciliation of development and production phase expenditure carried forward above is as follows:
51,940
6,086
-
-
(573)
57,453
53,613
3,567
(6,049)
1,390
(581)
51,940
Consolidated
2018
US$’000
2017
US$’000
505,671
457,835
(3,997)
(98,041)
(209,859)
193,774
-
(98,041)
(180,696)
179,098
Balance at 1 July 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
Acquisition of oil and gas asset
Amortisation incurred
Reassessment of rehabilitation asset
Expenditure incurred during financial year
Expenditure written off during financial year
Balance at 30 June 2018
Note 17. Payables
Current liabilities:
Trade creditors
Share of joint operation creditors and accruals
Other creditors
Non-current liabilities:
Other creditors
Development
phase
expenditure
US$’000
15,357
6,049
(6,049)
2,053
-
2,996
20,406
-
-
-
4,551
(3,997)
20,960
Consolidated
Production
phase
expenditure
US$’000
179,255
-
6,049
(2,208)
(26,301)
1,897
158,692
32,642
(29,163)
3,258
7,385
-
Total
US$’000
194,612
6,049
-
(155)
(26,301)
4,893
179,098
32,642
(29,163)
3,258
11,936
(3,997)
172,814
193,774
Consolidated
2018
US$’000
2017
US$’000
6,532
9,956
2,991
19,479
62
62
468
5,769
3,713
9,950
28
28
71
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 18. Current tax payable
Current tax payable – China
Current tax payable – New Zealand
Note 19. Borrowings
Current:
Bank loans (b)
Non-current:
Bank loans (b)
Subordinated debt (c)
Total Borrowings
a) Net debt reconciliation
Consolidated
2018
US$’000
1,411
1,535
2,946
2017
US$’000
-
354
354
Consolidated
2018
US$’000
2017
US$’000
75,145
75,145
22,132
22,132
-
36,867
36,867
112,012
63,534
39,132
102,666
124,798
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
Cash and cash equivalents
Borrowings1 – repayable within one year (including overdraft)
Borrowings1 – repayable after one year
Net (debt)/cash
Cash and liquid investments
Gross debt – fixed interest rates
Gross debt1 – variable interest rates
Net (debt)/cash
2018
US$’000
2017
US$’000
27,625
24,529
(76,233)
(22,132)
(40,000)
(110,866)
(88,608)
(108,469)
27,625
24,529
-
(116,233)
(88,608)
-
(132,998)
(108,469)
1 Borrowings exclude associated transaction costs and accrued interest and accordingly represents the nominal value of the borrowings as at 30 June 2018.
Cashflows
Non-cash changes
Opening
1 July 2017
Drawdown1
Repayments
US$’000
US$’000
US$’000
Amortisation
of transaction
costs
US$’000
Changes in fair
value
US$’000
Closing
30 June
2018
US$’000
Revolving Cash Advance Facility
(current)
Revolving Cash Advance Facility
(non-current)
Subordinated debt
Total liabilities from financing
activities
22,132
63,534
39,132
124,798
-
-
-
-
(11,765)
-
64,778
75,145
-
(5,000)
(16,765)
1,244
1,494
2,738
(64,778)
-
1,241
1,241
36,867
112,012
1 Funds drawn down are shown net of associated transaction costs incurred during the period.
72
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 19. Borrowings (cont’d.)
b) Bank loans – Revolving Cash Advance Facility
The Group holds a US$120 million Revolving Cash Advance Facility
with Australia and New Zealand Banking Group (ANZ) and Westpac
Banking Corporation (Westpac) which was executed on 14 May
2015. The facility was used to refinance the previous Reserves
Based Debt Facility which primarily financed the development
of the Group’s Block 22/12 oil fields in China, and Maari Growth
Program in New Zealand. 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 2018, total debt drawn under the facility was US$76.2
million with undrawn debt capacity available of approximately
US$16.4 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, Horizon Oil (Ketu) Limited (formerly
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), which enabled
the redemption of US$58.8 million convertible bonds prior to the
due date of 19 September 2016. 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
option holder 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.
During the year the Group voluntarily prepaid and cancelled a
further US$5 million of the outstanding facility resulting in total
remaining debt drawn at 30 June 2018 of US$40 million, following
an earlier voluntary prepayment and cancellation of US$5 million
in May 2017. There is no undrawn debt capacity available under
the facility at 30 June 2018. The following is a reconciliation of the
movement of the carrying value of the subordinated debt facility
for the year ended 30 June 2018:
Face value of debt drawn down
Less: Other financial liabilities – value of share options1
Less: Transaction costs
Initial fair value
Finance costs in prior periods
Finance costs2
Less: Principal repaid during the financial year3
Less: Principal repaid during the prior financial year
Add back: loss recognised on principal repayment3
Add back: loss recognised on prior period principal repayment
Less: Interest paid
Less: Interest paid in prior period
Less: Interest accrued4
Non-current liability at amortised cost
2018
US$’000
2017
US$’000
50,000
50,000
(3,931)
(3,931)
(4,483)
(4,483)
41,586
41,586
5,784
6,798
(5,000)
(5,000)
486
682
(4,581)
(3,118)
-
5,784
(5,000)
-
682
-
(3,118)
-
(770)
(802)
36,867
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 to the debt component. The effective interest rate ranged from 10.17% to 11.36% during the financial period.
3 On 22 December 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$486,000 was recorded to profit or loss reflecting the difference between the carrying value and the nominal amount paid.
4 Interest accrued at 30 June 2018 is included within the ‘other creditors’ balance per Note 17.
73
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 20. Other financial liabilities
Non-Current
Fair value of share options
Total other financial liabilities
Consolidated
2018
US$’000
2017
US$’000
22,995
22,995
2,531
2,531
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$0.061 per share and as
the functional currency of the Group is United States dollars, which will result in a variable amount of cash being received on exercise
of the options, the share options are accounted for as a derivative financial liability at fair value on a recurring basis and are marked
to market at each balance date, with any gains/losses arising recognised through profit or loss. Refer to Note 25 (d) for details of the
valuation techniques used to derive this fair value.
The following is a reconciliation of the fair value of the share options:
Balance at beginning of financial year
Initial recognition during the period (see Note 19(c))1
Unrealised loss/(gain) on revaluation during the period
Balance at end of financial year
Consolidated
2018
US$’000
2017
US$’000
2,531
-
-
20,464
22,995
3,931
(1,400)
2,531
1 The weighted average fair value of the options at measurement date was A$0.1037. Refer to Note 25(d) for details of the valuation techniques used to derive this fair value.
Note 21. Provisions
Restoration (current)
Restoration (non-current)
The reconciliation of the movement in the total of the restoration provisions is as follows:
Balance at beginning of financial year
Prepayments made into China restoration fund
Acquisition related restoration asset
Additional provision during financial year
Unwinding of discount
Balance at end of financial year
Note 22. Deferred tax liabilities
Recognised deferred tax liabilities are attributable to:
Development and production expenditure
Accounting profits royalty
Cash flow hedges
Other
Total deferred tax liabilities
Set off of deferred tax assets pursuant to set off provisions
Net deferred tax liabilities
74
Consolidated
2018
US$’000
-
28,185
28,185
2017
US$’000
-
9,611
9,611
Consolidated
2018
US$’000
2017
US$’000
9,611
-
14,787
3,258
529
28,185
8,671
(428)
-
1,235
133
9,611
Consolidated
2018
US$’000
2017
US$’000
12,579
5,962
-
1,764
20,305
(2,429)
17,876
13,488
7,700
579
2,592
24,359
(6,654)
17,705
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 22. Non-current liabilities – Deferred tax liabilities (cont’d.)
2018
Movements
At 1 July 2017
Charged/(credited)
- to profit or loss
- to other comprehensive income
At 30 June 2018
2017
Movements
At 1 July 2016
Charged/(credited)
-to profit or loss
-to other comprehensive income
At 30 June 2017
Development
and production
expenditure
$US’000
Accounting
profits
royalty
$US’000
Cash flow
hedges
Other
Total
US$,000
US$’000
$US’000
13,488
(909)
-
12,579
7,700
(1,738)
-
5,962
579
-
(579)
-
Development
and production
expenditure
Accounting profits
royalty
Cash flow
hedges
2,592
(828)
-
1,764
24,359
(3,475)
(579)
20,305
Other
Total
$US’000
$US’000
US$,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
Note 23. Contributed equity
(a) Issued share capital
Ordinary shares
Fully paid
Partly paid to A$0.01
(b) Movements in ordinary share capital
(i) Ordinary shares (fully paid):
Date
30/06/2017
30/06/2018
Details
Balance as at 30 June 2017
Balance as at 30 June 2018
(ii) Ordinary shares (partly paid to A$0.01):
Date
Details
30/06/2017
Balance as at 30 June 2017
30/06/2018
Balance as at 30 June 2018
Consolidated
Consolidated
2018
2017
2018
2017
Number of shares
’000
’000
US$’000
US$’000
1,301,981
1,301,981
1,500
1,500
1,303,481
1,303,481
174,342
459
174,801
174,342
459
174,801
Number of shares
1,301,981,265
1,301,981,265
Number
1,500,000
1,500,000
US$’000
174,342
174,342
US$’000
459
459
75
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 23. Contributed equity (cont’d.)
(c) Ordinary shares
Fully paid
Fully paid ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to
the number of shares held. Voting rights are governed by the Company’s Constitution. In summary, on a show of hands every holder of
ordinary shares present at a meeting in person or by proxy is entitled to one vote and upon a poll each fully paid ordinary share is entitled
to one vote.
Partly paid
Partly paid ordinary shares are issued on exercise of employee options. The partly paid shares currently on issue are held by the
Company following forfeiture by their original holder. The outstanding obligation in relation to the partly paid ordinary shares is payable
either when called or by the date not exceeding 5 years from the grant date of the option which gave rise to the partly paid ordinary
share. Partly paid ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of shares held. Voting rights are governed by the Company’s Constitution. In summary, on a show of hands
every holder of partly paid ordinary shares present at a meeting in person or by proxy is entitled to one vote and upon a poll, is entitled to
one vote to the proportion of the total issue price then paid up.
(d) Unlisted options over unissued ordinary shares
Information related to general options and the Employee Option Scheme, including details of options issued, exercised and lapsed during
the financial year and options outstanding at the end of the financial year is set out in Note 33.
Consolidated
2018
US$’000
2017
US$’000
12,946
809
13,755
1,612
(12,959)
3,332
(8,015)
12,030
916
12,946
-
2,191
(579)
1,612
5,740
14,558
Consolidated
2018
US$’000
2017
US$’000
(82,633)
(2,599)
-
(82,217)
(336)
(80)
(85,232)
(82,633)
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
76
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 24. Reserves and retained profits (cont’d.)
(c) Nature and purpose of reserves
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).
Note 25. 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 2018 and 30 June 2017:
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)
Derivative financial instruments
Other financial liabilities
Consolidated
30 June 2018
US$’000
30 June 2017
US$’000
27,625
15,477
-
-
43,102
19,479
2,946
62
112,012
10,768
22,995
168,262
24,529
6,376
2,191
47
33,143
9,950
354
28
124,798
-
2,531
137,661
77
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates.
Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are denominated
in a currency that is not the Group’s functional currency.
The Group operates internationally and is exposed to foreign exchange risk arising predominately from Australian and New Zealand
dollars, Chinese Renminbi, Papua New Guinea Kina and Singapore dollar.
The Group manages foreign exchange risk by monitoring forecast cash flows in currencies other than US dollars and ensuring that
adequate Australian dollar, New Zealand dollar, Chinese Renminbi, Papua New Guinea Kina and Singapore dollar cash balances are
maintained.
The objective of the Group’s foreign exchange risk management policy is to ensure its financial viability despite potential periods of
unfavourable exchange rates. Regular sensitivity analysis is conducted to evaluate the potential impact of unfavourable exchange rates
on the Group’s future financial position. The results of this evaluation are used to determine the most appropriate risk mitigation tool to
be used. The Group will hedge when it is deemed the most appropriate risk mitigation tool to be used.
No foreign currency hedging transactions were entered into during the current or prior financial year.
Exposure to foreign exchange risk
The Group’s exposure to foreign exchange risk at the end of each reporting period was as follows:
Group
30 June 2018
30 June 2017
AUD
US$’000
NZD
US$’000
PGK
US$’000
RMB
US$’000
SGD
US$’000
AUD
US$’000
NZD
US$’000
PGK
US$’000
RMB
US$’000
SGD
US$’000
Cash and cash
equivalents
Receivables
Current tax
payable
Current
payables
Non-current
payables
672
173
-
39
336
831
1,195
2,152
62
-
75
3
-
88
-
2
-
1,411
827
-
-
-
-
-
-
330
95
-
1,269
28
137
107
351
175
-
25
5
-
238
-
-
185
369
-
-
-
-
3
5
-
For the financial year ended and as at 30 June 2018, if the currencies set out in the table below had strengthened or weakened against
the US dollar by the percentage shown, with all other variables held constant, net result for the financial year would increase/(decrease)
and net assets would increase/(decrease) by:
Group
Net Result
Net Assets
Net Result
Net Assets
Change in currency1
Australian dollar impact
New Zealand dollar impact
Papua New Guinea Kina impact
Chinese Renminbi impact
2018
US$’000
2017
US$’000
2018
US$’000
+10%
(77)
(453)
(64)
(47)
+10%
(566)
(440)
(61)
(11)
+10%
(29)
(183)
(1)
(157)
2017
US$’000
+10%
2018
US$’000
-10%
(61)
(20)
(11)
(9)
77
453
64
47
2017
US$’000
-10%
566
440
61
11
2018
US$’000
-10%
2017
US$’000
-10%
29
183
1
157
61
20
11
9
1 This has been based on the change in the exchange rate against the US dollar in the financial years ended 30 June 2018 and 30 June 2017. 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.
78
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
(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 2018, the Group had a derivative liability of US$10,768,000 (30 June 2017: US$2,191,000 derivative asset) as there were
600,000 bbls hedged at this date (30 June 2017: 393,750 bbls) at a weighted average price of US$58.80/bbl.
For the financial year ended and as at 30 June 2018, if the crude oil price rose or fell by the percentage shown, with all other variables
held constant, the result for the financial year would increase/(decrease) and net assets would increase/(decrease) by:
Group
Net Result
Net Assets
Net Result
Net Assets
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
Change in crude oil price
Impact
+10%
3,306
+10%
2,585
+10%
3,306
+10%
2,585
-10%
(3,845)
-10%
(2,585)
-10%
(3,845)
-10%
(2,585)
(iii) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
The Group has no interest-bearing assets considered to materially expose the Group’s core income and/or operating cash flows to
changes in market interest rates.
As at 30 June 2018 and 30 June 2017, the Group’s interest rate risk arises from long term borrowings, issued at variable rates, exposing
the Group to cash flow interest rate risk. Group policy is to manage material interest rate exposure. Regular sensitivity analysis is
conducted to evaluate the potential impact of unfavourable interest rate movements on the Group’s future financial position. The results
of this evaluation are used to determine the most appropriate risk mitigation tool to be used. During the current and prior financial year,
the Group did not enter into any interest rate swap contracts.
The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest rate swaps have the
economic effect of converting borrowings from floating to fixed rates. Under the interest rate swaps, the Group agrees with other parties
to exchange, at specific intervals, the difference between fixed contract rates and floating-rate interest amounts calculated by reference
to the agreed notional principal amounts.
The Group’s exposure to interest rate risk for financial instruments is set out below:
Floating
interest rate
Fixed interest rate maturing in:
Non-interest
bearing
Carrying
amount
1 year or less
US$’000
US$’000
Over 1 to 2
years
US$’000
Over 2 to 5
years
US$’000
US$’000
US$’000
As at 30 June 2018
Financial assets
Cash and cash equivalents
Receivables
Weighted average interest rate p.a.
Financial liabilities
Trade and other payables
Current tax payable
Borrowings
Weighted average interest rate p.a.
5,485
-
5,485
0.15%
-
-
112,011
112,011
6.57%
Net financial assets/(liabilities)
(106,526)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,140
15,477
37,617
19,479
2,946
-
22,425
27,625
15,477
43,102
19,479
2,946
112,011
134,436
15,192
(91,334)
79
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
Floating
interest rate
Fixed interest rate maturing in:
Non-interest
bearing
Carrying
amount
1 year or less
US$’000
US$’000
Over 1 to 2
years
US$’000
Over 2 to 5
years
US$’000
US$’000
US$’000
As at 30 June 2017
Financial assets
Cash and cash equivalents
14,813
Receivables
Derivative financial instruments
Current tax receivable
Weighted average interest rate p.a.
Financial liabilities
Trade and other payables
Current tax payable
Borrowings
Weighted average interest rate p.a.
Net financial assets/(liabilities)
-
-
-
14,813
0.16%
-
-
124,798
124,798
5.94%
(109,985)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,716
6,376
2,191
47
18,330
9,950
354
-
10,304
24,529
6,376
2,191
47
33,143
9,950
354
124,798
135,102
8,026
(101,959)
As at 30 June 2018 and 30 June 2017, the Group had the following variable rate borrowings outstanding:
External loans
Net exposure to cash flow interest rate risk
Weighted average
interest rate
% p.a.
6.57%
30 June 2018
30 June 2017
Weighted average
interest rate
% p.a.
5.94%
Balance
US$’000
116,233
116,233
Balance
US$’000
132,998
132,998
At 30 June 2018, if the interest rates had been 1.0% p.a. higher or lower and all other variables held constant, the net result for the
financial year would increase/(decrease) and net assets as at 30 June 2018 would increase/(decrease) by:
Group
Net Result
Net Assets
Net Result
Net Assets
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
2018
US$’000
2017
US$’000
Change in interest rate p.a.
Impact of Assets
Impact of Liabilities
Impact of Net Assets
+1%
71
829
(758)
+1%
99
795
(696)
+1%
71
829
(758)
+1%
99
795
(696)
-1%
(10)
(829)
818
-1%
(15)
(795)
780
-1%
(10)
(829)
818
-1%
(15)
(795)
780
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the Group. Credit risk arises from cash and cash equivalents, derivative financial instruments, as well as
credit exposures to customers, including outstanding receivables.
It is acknowledged that the Group’s sales of crude oil are currently concentrated with two counterparties. However, the Group has policies
in place to ensure that sales of products and services are made to customers with an appropriate credit history, and that the Group has
the ability to sell crude to other parties if desired.
Derivative counterparties and cash transactions are limited to high credit quality financial institutions. Where commercially practical the
Group seeks to limit the amount of credit exposure to any one financial institution.
The maximum exposure to credit risk at the end of each reporting period is the carrying amount of the financial assets as summarised in
this note.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings
(if available) or to historical information about counterparty default rates.
80
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
Cash and cash equivalents
Counterparties with external credit rating (Standard & Poors)
AA-
A+
B
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
Total receivables
Consolidated
2018
US$’000
2017
US$’000
25,168
22,329
2
7
-
-
25,177
22,329
2,381
67
2,448
27,625
93
-
336
7,765
6,189
14,383
907
187
1,094
15,477
2,175
25
2,200
24,529
19
107
513
3,844
1,827
6,310
65
1
66
6,376
As at 30 June 2018, there were no financial assets that are past due (30 June 2017: US$Nil). Management has assessed the
collectability of these amounts based on the customer relationships and historical payment behaviour and believe that the amounts are
still collectable in full.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
The Group has policies in place to manage liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and
actual cash flows and matching profiles of financial assets and liabilities.
Financing arrangements
The Group had access to the following undrawn borrowing facilities as at the end of each reporting period:
Floating rate:
Expiring within one year
Expiring beyond one year
Consolidated
30 June 2018
30 June 2017
US$’000
US$’000
16,357
-
8,832
-
81
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
Maturities of financial liabilities
An analysis of the Group’s financial liability maturities for the current and prior financial year is set out below:
Total contractual cash flows
31,609
134,768
Non-interest
bearing
US$’000
Variable rate1
Fixed rate
US$’000
US$’000
29,902
1,645
-
62
-
4,268
80,114
4,619
45,767
-
10,304
-
-
28
-
11,145
19,203
32,529
87,761
-
Non-interest
bearing
Variable rate1
Fixed rate
US$’000
US$’000
US$’000
-
-
-
-
-
-
-
-
-
-
-
-
As at 30 June 2018
Less than 6 months
6 – 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
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
10,332
150,638
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).
(i) Fair value measurements
The following table presents the Group’s assets and liabilities measured and recognised at fair value as at 30 June 2018 and
30 June 2017:
As at 30 June 2018
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
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
-
-
10,768
-
10,768
-
-
-
-
-
-
-
-
22,995
22,995
-
-
10,768
22,995
33,763
82
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
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
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
2,191
2,191
-
-
-
-
-
-
-
-
-
-
-
2,531
2,531
2,191
2,191
-
2,531
2,531
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 2018.
(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 hedging derivatives 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.
(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 2018 for recurring fair value measurements:
Opening balance at 1 July 2017
Additions during the period
Loss recognised in profit or loss
Closing balance at 30 June 2018
Options over unissued shares
US$’000
2,531
-
20,464
22,995
83
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 25. Financial risk management (cont’d.)
a) Valuation inputs and relationships to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
measurements.
Description
Options over unissued
shares
Fair value at
30 June 2018
US$’000
22,995
Unobservable
inputs
Share price
volatility
Range of inputs
(probability-
weighted average)
63.40%
Relationship of unobservable
inputs to fair value
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
(iv) Other fair value measurements
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 63.4% as applied in the model. All other parameters were based
on the specific terms of the options issued.
Note 26. New Zealand Imputation Credits
Imputation credits available for subsequent financial years1
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 and current classification. 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 was determined to approximate their carrying value.
(e) 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
2018
US$’000
2,856
2017
US$’000
2,775
1 The franking credits available for subsequent financial years are only available to New Zealand resident shareholders under the Trans-Tasman imputation legislation.
84
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 27. Acquisition of a further interest in PMP 38160 (Maari/Manaia)
(a) Summary of acquisition
On 6 November 2017, Horizon Oil International Limited, a wholly owned subsidiary of Horizon Oil Limited, entered into a purchase
agreement with Todd Maari Limited (Todd) to acquire Todd’s 16% interest in PMP 38160, which contains the producing Maari and Manaia
fields. Following completion of the transaction on 31 May 2018, Horizon Oil holds a 26% interest in the PMP 38160 joint venture.
The effective date of acquisition was 31 December 2017.
The acquisition of the 16% interest in PMP 38160 has been accounted for as a business combination. In accordance with the accounting
policy described in Note 1 (n), the group identified and recognised the fair value of the individual identifiable assets acquired and liabilities
assumed at the effective acquisition date. The fair values recognised for the identifiable assets acquired and liabilities assumed was the
cash consideration paid, with the exception of the restoration asset and liability of US$14,787,000 which was estimated by the Group on
acquisition following an external consultant review.
Details of the purchase consideration and the net assets acquired are as follows:
Purchase consideration:
Cash paid
Net working capital cash flows
Total purchase consideration
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Receivables
Inventory – consumable spare parts
Inventory – crude oil
Oil and gas assets
Restoration provision
Payables
Net identifiable assets acquired
2018
US$’000
17,600
717
18,317
Fair Value
US$’000
1,6571
6101
5741
2,8291
32,642 1
(14,787)1
(5,208)1
18,317
1 In addition to the abovementioned identifiable assets and liabilities, the Group assumed oil and gas expenditure commitments in New Zealand associated with the acquired
licence. Refer to Note 39 for further detail in relation to the Group’s capital commitments.
(b) Purchase consideration – cash outflow
Outflow of cash to acquire subsidiary, net of cash acquired
Cash consideration
Net working capital cash flows
Less: cash balances acquired
Outflow of cash – investing activities
US$’000
17,600
717
18,317
1,657
16,660
85
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 28. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy set out in Note 1(c):
Name of subsidiary
Country of
incorporation
Percentage of equity holding and voting
interest (all shares issued are ordinary
shares)
Business activities
carried on in
2018
2017
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.
Horizon Oil (Ketu) Limited
Horizon Oil (Ubuntu) Limited
New Zealand
New Zealand
BVI
BVI
BVI
BVI
Bermuda
USA
BVI
BVI
%
100
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
100
100
New Zealand
New Zealand
BVI
China
BVI
BVI
PNG
USA
PNG
PNG
During the financial period the group changed the names of Eaglewood Energy (BVI) Limited and Ketu Petroleum Limited to Horizon Oil
(Ubuntu) Limited and Horizon Oil (Ketu) Limited.
Note 29. Interest in joint operations
Companies in the Group were participants in a number of joint operations. The Group has an interest in the assets and liabilities of these
joint operations. The Group’s share of 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:
Current assets
Cash and cash equivalents
Receivables
Inventories
Total current assets
Non-current assets
Plant and equipment
Exploration phase expenditure
Oil and gas assets
Total non-current assets
Total assets
Current liabilities
Payables
Total current liabilities
Non-current liabilities
Payables
Total non-current liabilities
Total liabilities
Share of net assets employed in joint operations
Contingent liabilities in respect of joint operations are detailed in Note 36.
Exploration and development expenditure commitments in respect of joint operations are detailed in Note 39.
86
Consolidated
2018
US$’000
2017
US$’000
2,381
297
3,147
5,825
536
57,453
193,774
251,763
257,588
10,106
10,106
-
-
10,106
247,482
2,175
64
1,497
3,736
536
51,940
179,098
231,574
235,310
5,769
5,769
-
-
5,769
229,541
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 29. Interest in joint operations (cont’d.)
The Group had an interest in the following joint operations:
Permit or licence
New Zealand
Principal activities
Interest (%)
30 June 2018
Interest (%)
30 June 2017
PMP 38160 (Maari/Manaia)
Oil and gas production, exploration and development
26.00%1
10.00%
China
Block 22/12
PNG
PDL 10
PRL 21
PRL 28
PPL 259/574
PPL 430
PPL 372
PPL 373
PRL 40
Oil and gas production, exploration and development
26.95% / 55%2
26.95% / 55%2
Oil and gas development
Oil and gas exploration and development
Oil and gas exploration and development
Oil and gas exploration
Oil and gas exploration
Oil and gas exploration
Oil and gas exploration
Oil and gas exploration
30.00%3
30.15%3
50.00%3.4
80.00%3
100.00%3
95.00%3
100.00%3
- 4
30.00%3
30.15%3
50.00%3
80.00%3
100.00%3
95.00%3
100.00%3
-
1 Effective 31 December 2017, the Group acquired an additional 16% interest in PMP 38160, which contains the producing Maari and Manaia fields.
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 The Group will exchange 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.
Note 30. Remuneration of external auditors
During the financial year, the following fees were paid or payable for services provided by the external auditor
of the parent entity and its related practices:
1. PwC Australia
Audit and other assurance services
Audit and review of financial reports
Other assurance services
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
2018
US$
2017
US$
169,687
11,573
181,260
10,672
10,672
195,542
45,034
240,576
13,255
13,255
14,616
14,616
11,681
11,681
206,548
265,512
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.
87
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 31. Remuneration of key management personnel
See the Remuneration Report within the Directors’ Report for details of directors and other key management and their detailed
remuneration.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments (non-cash)
Total key management personnel remuneration
2018
US$
2017
US$
2,470,376
2,158,065
91,429
(2,511)
802,717
110,365
30,983
897,111
3,362,011
3,196,524
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, other than as disclosed in
sections A – D of the remuneration report.
Note 32. Related parties
Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other
parties, unless otherwise stated.
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 a further US$5
million of the outstanding facility. Refer to Notes 19(c) and 20 for further details.
Directors and other key management personnel
There were no related party transactions with directors and other key management personnel during the current or prior year other than
as disclosed in sections A – D of the Remuneration report and Note 32.
Subsidiaries
Interests in subsidiaries are set out in Note 28. Details in respect of guarantees provided to subsidiaries are set out in Note 42 (ii).
Transactions with related parties
Transactions between Horizon Oil Limited and related parties in the wholly-owned Group during the financial years ended 30 June 2018
and 30 June 2017 consisted of:
(a) Contributions to share capital by Horizon Oil Limited;
(b) Loans advanced by Horizon Oil Limited;
(c) Loans repaid to Horizon Oil Limited;
(d) Payments to Horizon Oil Limited under financial guarantee contract arrangements;
(e) Interest payments to Horizon Oil Limited on loans advanced to subsidiaries;
(f) Dividends paid to Horizon Oil Limited; and
(g) Reimbursement of expenses to Horizon Oil Limited.
The reimbursement of expenses to Horizon Oil Limited by subsidiaries is based on costs recharged on a relevant time allocation of
consultants and employees and associated office charges.
88
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 32. Related parties (cont’d.)
The following transactions occurred with related parties:
Superannuation contributions
Superannuation contributions to superannuation funds on behalf of employees
383,100
405,321
Other transactions
Payments to Horizon Oil Limited under financial guarantee contract arrangements from wholly
owned subsidiary
2,556,383
2,590,136
2018
US$
2017
US$
Loans to/from related parties
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
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
156,527,472
207,348,013
33,068,359
19,178,094
(17,002,398)
(74,636,997)
1,707,849
4,122,964
-
(2,628,602)
(16,939,732)
(10,000,000)
6,000,000
13,144,000
163,361,550
156,527,472
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 7.4% (2017: 6.7%). Outstanding
balances are unsecured and repayable in cash.
Note 33. Share-based payments
Set out below is a summary of unlisted options and share appreciation rights on issue:
Effective
allocation
date
Estimated
expiry date
Exercise price Balance start
of financial
year
Granted
during
financial year
Exercised
during
financial year
Number
Number
Number
Lapsed/
cancelled
during
financial year
Number
Balance end
of financial
year
Number
Vested and
exercisable
at end of
financial year
Number
-
-
-
-
-
-
Consolidated Entity 2018
Share Appreciation Rights issued
13/08/2012
13/08/2017
19/08/2013
19/08/2018
01/07/2014
01/07/2019
A$0.272
A$0.332
A$0.372
9,561,936
8,547,599
7,402,177
01/07/2015
01/07/2020
A$0.092,6
25,088,617
01/07/2016
01/07/2021
01/07/2016
01/07/2021
01/07/2017
01/07/2022
A$0.092
A$0.052
A$0.052
Total
16,617,522
24,372,395
-
55,691,714
91,590,246
55,691,714
Weighted average exercise price
A$0.14
A$0.05
Options issued
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$0.431
A$0.401
A$0.201
A$0.064
350,000
350,000
1,500,000
300,000,000
302,200,000
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.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(9,561,936)
(8,547,599)
-
-
-
-
-
-
-
7,402,177
25,088,617
16,617,522
24,372,395
55,691,714
(18,109,535)
129,172,425
A$0.30
A$0.8
(350,000)
(350,000)
-
-
(500,000)5
1,000,000
-
300,000,000
(1,200,000)
301,000,000
A$0.28
A$0.06
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3 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.
4 Relates to general options issued in connection with the subordinated secured debt facility. Refer to Notes 19(c) and 20 for further details.
5 The group cancelled 500,000 employee options during the financial year 2018.
6 On 13 August 2018 25,088,617 SARs vested.
89
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 33. Share-based payments (cont’d.)
Effective
allocation
date
Estimated
expiry date
Exercise price Balance start
of financial
year
Granted
during
financial year
Exercised
during
financial year
Number
Number
Number
Lapsed/
cancelled
during
financial year
Number
Balance end
of financial
year
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
13/08/2012
13/08/2017
A$0.272,6
19/08/2013
19/08/2018
01/07/2014
01/07/2019
01/07/2015
01/07/2020
01/07/2016
01/07/2021
01/07/2016
01/07/2021
A$0.332
A$0.372
A$0.092
A$0.092
A$0.052
Total
6,478,276
9,561,936
8,547,599
7,402,177
25,088,617
-
-
-
-
-
-
-
16,617,522
24,372,395
57,078,605
40,989,917
Weighted average exercise price
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
A$0.27
-
-
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.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
The weighted average remaining contractual life of share options
outstanding at the end of the period was 3.13 years (2017 – 2.48
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 up to 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
90
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 33. Share-based payments (cont’d.)
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.
Each option entitles the employee to subscribe for one share in
the Company and each option expires 5 years from the date of
issue. Options granted are progressively exercisable in three equal
tranches from dates which are 12, 24 and 36 months after grant
date. Upon exercise of the option, only one cent of the exercise
price will be payable, with the balance being paid at the expiration
of the period which is 5 years from the date of the issue of the
options.
The exercise price will be the greater of:
(a) the price determined by directors but will not be less than the
weighted average sale price per share of all sale prices at which
fully paid ordinary shares are sold on the ASX during the period
of 5 business days ending on the business day prior to the date
of the directors’ meeting at which the directors resolved to
grant the option; and
(b) 20 cents per option.
The option exercise prices are subject to adjustment in certain
circumstances in line with the ASX Listing Rule 6.22.2.
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 2018 was $22,995,000 (2017:
$2,531,000). 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 option holder 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 prior 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 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 25(d) for further details of
the valuation techniques and option pricing models associated with
these instruments.
The model inputs for the measurement of the fair value of the
general options on grant date during the financial year ended
30 June 2018 included:
Grant date
Expiry date
Exercise price
15 September 2016
15 September 2021
A$0.061
Horizon Oil share price at grant date A$0.043
Expected price volatility
Risk free rate
Expected dividend yield
63.40% p.a.
2.12% p.a.
0.00% p.a.
91
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 33. Share-based payments (cont’d.)
Share appreciation rights issued
55,691,714 share appreciation rights were issued under the Long Term Incentive Plan. The weighted average exercise price of these
SARs is A$0.0453 with performance hurdles to be achieved prior to exercise. The independently assessed weighted average fair value at
effective allocation date of these share appreciation rights was A$0.019709 per SAR.
The fair value at effective allocation 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 effective allocation 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 2018 included:
Effective allocation date
Estimated expiry date
Exercise price
1 July 2017
1 July 2022
N/A
10 Day VWAP of Horizon Oil shares at effective allocation date
A$0.0453
Expected price volatility
Risk free rate
Expected dividend yield
52.30% p.a.
2.18% p.a.
0.00% p.a.
No options were issued under the Employee Option Scheme during the year.
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the financial year as part of employee benefits expense
in profit or loss were as follows:
Consolidated
2018
US$’000
2017
US$’000
803
897
6
809
19
916
Share Appreciation Rights issued under:
Long Term Incentive Plan
Options issued under:
Employee Option Scheme
Total employee share-based payments expense
Options/SARs in respect of which expiry dates were modified during the financial year
No options/SARs were modified during the financial year.
Options/SARs exercised during the financial year
No options/SARs were exercised during the financial year.
Options/SARs lapsing or cancelled during the financial year
During the financial year 500,000 unlisted general options lapsed or were cancelled.
During the financial year 18,109,535 SARs lapsed or were cancelled.
Options/SARs exercised and options/SARs issued subsequent to 30 June 2018
No options or SARs have been granted subsequent to financial year end.
Options/SARs lapsed subsequent to 30 June 2018
No options or SARs have lapsed subsequent to financial year end.
No options or SARs have been exercised subsequent to financial year end.
92
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 34. Employee entitlements
Employee entitlement liabilities are included within:
Current – other creditors
Non-current - other creditors (Note 17)
Employee numbers
Average number of employees during financial year
Note 35. Contingent asset
Consolidated
2018
US$’000
2017
US$’000
748
62
Number
2018
32
791
28
2017
34
(i) On 23 May 2013, the Group advised the 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 2018. 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
and within budget and the Group’s share of the repair costs was approximately US$6.5 million. At the date of this report the Group
had recovered US$0.6 million and investigation by the relevant insurers continues. The Group anticipates that a further portion of
these costs will be recovered from insurance.
Note 36. Contingent liabilities
The Group had contingent liabilities as at 30 June 2018 and 30 June 2017 that may become payable in respect of:
In accordance with normal oil and gas industry practice, the Group has entered into joint operations and farm-out agreements with
other parties for the purpose of exploring and developing its petroleum interests. If a participant to a joint operation defaults and fails to
contribute its share of joint operation obligations, then the remaining joint operation participants are jointly and severally liable to meet
the obligations of the defaulting participant. In this event, the interest in the permit or licence held by the defaulting participant may be
redistributed to the remaining participants. In the event of a default, a contingent liability exists in respect of expenditure commitments
due to be met by the Group in respect of defaulting joint operation participants.
The Group occasionally receives claims arising from its operations in the normal course of business. In the opinion of the directors, all
such matters are either covered by insurance or, if not covered, are without merit or are of such a nature the amounts involved would not
have a material impact on the results.
No material losses are anticipated in respect of any of the above contingent liabilities.
Note 37. Events after balance sheet date
Other than the matters disclosed in this report, there has not been any matter or circumstance which has arisen since 30 June 2018 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 23 August 2018. The Board of Directors has the power
to amend and reissue the financial statements.
93
Horizon Oil Annual Report 2018 Notes to the financial statements
For the financial year ended 30 June 2018
Note 38. 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 2018 or 30 June 2017.
Consolidated
2018
US$’000
2017
US$’000
442
133
575
456
476
932
Note 39. Exploration and development commitments
The Group has entered into joint operations for the purpose of exploring, developing and producing from certain petroleum interests.
To maintain existing interests or rights to earn interests in those joint operations the Group will be expected to make contributions
to ongoing exploration and development programs. Since such programs are subject to continual review by operating committees,
upon which the Group is represented, the extent of future contributions in accordance with these arrangements is subject to continual
renegotiation.
Subject to the above mentioned limitations, the directors have prepared the following disclosure of exploration and development
expenditure commitments not recognised in the consolidated financial statements. These are payable as follows, based on current
status and knowledge of estimated quantum and timing of such commitments by segment.
2018
Within one financial year
Later than one financial year but not later than 5 financial years
After 5 financial years
Total
2017
Within one financial year
Later than one financial year but not later than 5 financial years
After 5 financial years
Total
New Zealand
Development
China
Exploration &
Development
US$’000
US$’000
Papua New
Guinea
Exploration &
Development
US$’000
3,912
3,743
2,159
-
-
-
-
-
-
Total
US$’000
9,814
-
-
3,912
3,743
2,159
9,814
New Zealand
Development
China
Exploration &
Development
US$’000
2,269
US$’000
5,551
-
-
-
-
2,269
5,551
Papua New
Guinea
Exploration &
Development
US$’000
5,748
6,350
2,443
14,541
Total
US$’000
13,568
6,350
2,443
22,361
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.
94
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 40. Reconciliation of profit after income tax to net
cash flows from operating activities
Loss for financial year
Exploration and development expenditure written off/expensed
Depreciation expense
Movement in employee entitlement liabilities
Non-cash employee share-based payments expense
Amortisation expense
Amortisation of prepaid financing costs
Provision for restoration
Unrealised movement in value of convertible bond conversion rights
Unrealised fair value movements associated with subordinated debt
Unrealised movement in in fair value of other financial liabilities
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 other creditors
Net cash inflow from operating activities
Note 41. Earnings per share
(a) Basic earnings per share attributable to the ordinary equity holders of the Company
Consolidated
2018
US$’000
(2,599)
2017
US$’000
(336)
4,571
329
(9)
809
29,163
2,738
1,250
385
26
916
26,301
2,423
529
133
-
(530)
1,241
1,750
20,464
1
(1,400)
(18)
(4,069)
(1,323)
(1,652)
(6,366)
(2,638)
9,765
6,626
57,580
2,761
335
313
3,533
832
(1,635)
(1,406)
35,633
Consolidated
2018
US cents
(0.20)
2017
US cents
(0.03)
(b) Diluted earnings per share attributable to the ordinary equity holders of the Company
(0.20)
(0.03)
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
2018
Number
2017
Number
1,303,481,265
1,303,481,265
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in
calculating diluted earnings per share
1,303,481,265
1,303,481,265
Reconciliation of earnings used in calculating earnings per share
Loss attributable to the ordinary equity holders of the company used in calculating basic and diluted
earnings per share
(2,599)
(336)
2018
US$’000
2017
US$’000
95
Horizon Oil Annual Report 2018
Notes to the financial statements
For the financial year ended 30 June 2018
Note 41. Earnings per share (cont’d.)
Information concerning the classification of securities
(a) Partly paid ordinary shares
Partly paid ordinary shares carry the rights of fully paid ordinary shares and to that extent they have been recognised as ordinary share
equivalents in the determination of basic earnings per share. All partly paid shares on issue are held by the Company.
Details regarding the partly paid ordinary shares are set out in Note 23.
(b) Options and share appreciation rights granted as compensation
Options and share appreciation rights (SARs) granted to employees under the Long Term Incentive Plan or Employee Option Scheme
and general options issued (including the 300 million options issued in connection with the drawdown of the subordinated secured
non-amortising loan facility during the period), are included in the calculation of diluted earnings per share to the extent to which they
are dilutive. The SARs are considered to be contingently issuable shares and are treated as outstanding and included in the calculation
of diluted earnings per share if the relevant performance hurdles have been met. Options and SARs have not been included in the
determination of basic earnings per share.
Details regarding the options and share appreciation rights are set out in Note 33.
Note 42. Parent Entity financial information
(i) Summary financial information
The individual financial statements for the Parent Entity show the following aggregate amounts:
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Share-based payments reserve
Retained earnings
Total equity
Profit/(loss) for the financial year
Total comprehensive profit/(loss) for the financial year
(ii) Guarantees entered into by the parent entity
Parent Entity
2018
US$’000
2017
US$’000
5,898
14,847
148,274
114,333
154,172
129,180
1,043
23,057
24,100
1,127
2,558
3,685
130,072
125,495
174,801
13,756
(58,485)
130,072
174,801
12,946
(62,252)
125,495
3,767
(78,076)
3,767
(78,076)
The parent entity has provided guarantees in respect of bank loans, hedge derivatives and environmental compliance obligations of its
subsidiaries amounting to US$127,781,000 (2017: US$134,998,000).
No liability has been recognised for guarantees provided. After factoring in the likelihood that the parent entity would be required to
perform under the guarantees the fair value of the liability was not considered material.
(iii) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017. For information about guarantees given by
the parent entity, see above.
(iv) Contractual commitment for the acquisition of property, plant or equipment
As at 30 June 2018, the parent entity had no contractual commitments for the acquisition of property, plant or equipment (30 June 2017
– US$Nil).
96
Horizon Oil Annual Report 2018 SHAREHOLDER INFORMATION
Horizon Oil Limited and Controlled Entities
Securities Exchange Information as at 4 October 2018
DISTRIBUTION OF EQUITY SECURITIES
The distribution of equity security holders ranked according to size at 4 October 2018 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
Ordinary shares
Unlisted
options
Share
appreciation
rights
-
-
-
-
3
3
-
-
-
-
3
3
Shares
506
900
875
2,205
882
5,368
A total of 1,016 holders held less than a marketable parcel of 3,333 ordinary shares.
TWENTY LARGEST SHAREHOLDERS
The names of the twenty largest shareholders of the Company’s ordinary shares are listed below:
Name
1
Citicorp Nominees Pty Limited
2 HSBC Custody Nominees (Australia) Limited
3
4
J P Morgan Nominees Australia Limited
Carrington Land Pty Ltd
5 Mr Geoffrey Victor Day & Mrs Anne Margaret Day
6 Mr David Harvey Peek
7
NGE Capital Limited
8 National Nominees Limited
9 Mr John Gustav Svendsen & Associated Entities
10 V L H Pty Ltd
11 Finot Pty Ltd
12 Grizzley Holdings Pty Limited
13 Berne No 132 Nominees Pty Ltd
14 Mr Michael Sheridan
15 Mr Douglas Thomas Nicholas & Mr Graeme Douglas Nicholas
16 Mr John Bernard Porteous
17 AET CT Pty Limited
18 Mr Christian James Haustead
19 Hamilton Securities Limited
20 Neweconomy.Com.Au Nominees Pty Limited
Total
No. of ordinary
shares
% of issued
ordinary shares
521,426,405
40.05
97,838,672
49,882,788
20,000,000
19,000,000
14,000,000
13,760,451
13,392,978
11,109,000
10,002,607
8,857,143
8,511,941
8,262,911
7,968,201
7,926,729
7,558,716
7,200,000
6,800,000
6,250,000
5,539,681
7.51
3.83
1.54
1.46
1.08
1.06
1.03
0.85
0.77
0.68
0.65
0.63
0.61
0.61
0.58
0.55
0.52
0.48
0.43
845,288,223
64.92
97
Horizon Oil Annual Report 2018
SHAREHOLDER INFORMATION
As at 4 October 2018
ISSUED SECURITIES
Issued securities as at 4 October 2018:
Security
Ordinary fully paid shares1
Ordinary partly paid shares1
Unlisted general options
Unlisted employee options
Unlisted share appreciation rights
Number on issue
Number of holders
1,301,981,265
1,500,000
300,000,0002
1,000,000
129,172,425
5,367
1
1
2
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.
SUBSTANTIAL HOLDERS
Substantial holders in the Company are set out below:
Ordinary shares
IMC Investments Ltd (an associate of Austral-Asia Energy Pty Ltd)
Spheria Asset Management Pty Limited
Commonwealth Bank of Australia
Total
VOTING RIGHTS
a) Ordinary shares – fully paid
No. of ordinary
shares
% of issued
ordinary shares
393,981,792
109,519,176
95,340,252
598,841,220
30.26
8.41
7.32
45.99
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.
98
Horizon Oil Annual Report 2018
Glossary
A-IFRS
ASIC
ASX
bbl(s)
bcf
boe
boepd
bopd
CEPA
CNOOC
DEC
DPE
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
Conservation & Environment Protection Authority (PNG)
China National Offshore Oil Corporation
Department of Environment and Conservation (PNG)
Department of Petroleum and Energy (PNG)
EBITDAX
Earnings before interest, tax, depreciation, depletion and amortisation, and exploration expenses
ESP
FID
FPSO
FEED
GST
JOA
km
LIBOR
LNG
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
mmbbl Million barrels
mmbo
mmboe
mmcfb
mtpa
NDRC
NGL(s)
ODP
PJ
PL
PDL
PMP
PPL
PRL
Million barrels of oil
Million barrels of oil equivalent
Millions cubic feet barrels
Million tonnes per annum
National Development and Reform Commission
Natural gas liquid(s)
Overall Development Plan
Petajoules, equal to one quadrillion joules
Pipeline licence
Petroleum development licence
Petroleum mining permit
Petroleum prospecting licence
Petroleum retention licence
99
Horizon Oil Annual Report 2018 GLOSSARY
Reserves
Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of
development projects to known accumulations from a given date forward under defined conditions.
Contingent Resources Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations by application of development projects, but which are not currently
considered to be commercially recoverable owing to one or more contingencies.
PSA
PNG
SDA
Production Sharing Agreement
Papua New Guinea
Supplemental Development Agreement
SPE-PRMS
Society of Petroleum Engineers – Petroleum Resources Management System
Sq km
tcf
Square kilometres
Trillion cubic feet of natural gas
USD / US$
United States dollars
WHP
WOU
Wellhead platform
Workover unit
WLNG The “Western LNG” gas aggregation development project
2D Seismic
3D Seismic
Seismic recorded in 2 dimensions
Seismic recorded in 3 dimensions
100
Horizon Oil Annual Report 2018 Directory
20
18
Horizon Oil Limited
ABN 51 009 799 455
Board of Directors
John Humphrey (Chairman)
Michael Sheridan (Chief Executive Officer)
Gerrit de Nys
Sandra Birkensleigh
Gregory Bittar (Alternate: Bruno Lorenzon)
General Counsel/Company
Secretary
Kylie Quinlivan
Australian Registered Office
(Principal place of business)
Level 6, 134 William Street,
SYDNEY NSW 2011
Telephone:
Facsimile:
E-mail:
Website:
Domicile and country of
incorporation
Share Registrar
Telephone:
Solicitors
+(612) 9332 5000
+(612) 9332 5050
exploration@horizonoil.com.au
www.horizonoil.com.au
Australia
Boardroom Pty Limited
Level 7, 207 Kent Street
SYDNEY NSW 2000
+(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
Horizon Oil Limited shares are listed on the ASX (ASX code: HZN)
Notice of Annual General Meeting The Annual General Meeting of
Horizon Oil Limited will be held at
Mezzanine Level, Robinson/William Room,
The Sydney Boulevard Hotel,
90 William Street, Sydney
Time:
Date:
10.00am
28 November 2018
Horizon Oil Annual Report 2018 101
Horizon Oil Limited
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
Designed by willfarge.com.au
Notice of 2018
Annual General Meeting
Horizon Oil Limited ABN 51 009 799 455
The Annual General Meeting (‘AGM’) of the members of Horizon Oil Limited
ACN 009 799 455 (the ‘Company’) will be held at 10.00am (Sydney time) on
Wednesday, 28 November 2018 at Mezzanine Level, Robinson/William Room,
The Sydney Boulevard Hotel, 90 William Street, Sydney, New South Wales, 2011
to transact the business set out below.
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 Monday, 26 November 2018.
Members should refer to the accompanying Explanatory Memorandum for further
information concerning the business to be carried out at the AGM.
Proxies
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 2018.
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 2018 (set out in the
Directors’ Report) be adopted.”
Note: The vote on this resolution is advisory only and does not bind the Company or the
directors.
Note: A voting exclusion applies to this item – see the Explanatory Memorandum.
3. Re-election of director – Mr Gerrit de Nys
To consider and, if thought appropriate, to pass the following as an ordinary resolution:
“That Mr Gerrit de Nys, a non-executive director retiring in accordance with the Company’s
Constitution, being eligible, is re-elected as a non-executive director of the Company.”
Further information in relation to this resolution and Mr de Nys is set out in the Explanatory
Memorandum.
4. Approval of 2018 grant of long term incentives (‘LTIs’) to Mr Michael
Sheridan, Managing Director and Chief Executive Officer
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 5,135,087 securities
(including share appreciation rights (‘SARs’) and shares which may be issued as a result
of the exercise or vesting of SARs) to the Managing Director and Chief Executive Officer,
Mr Michael Sheridan, in accordance with the terms of his employment agreement and as
set out in the accompanying Explanatory Memorandum.”
Further information in relation to this resolution is set out in the Explanatory Memorandum.
Note: A voting exclusion applies to this item – see the Explanatory Memorandum.
By order of the Board.
Dated: 26 October 2018
.............................................................................
Kylie Quinlivan
General Counsel and Company Secretary
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 Monday, 26 November 2018, 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 Items 2, 3 or 4 on the proxy form (which you may do by
ticking ‘For’, ‘Against’ or ‘Abstain’ opposite Items 2, 3 or 4, as applicable, on the
proxy form), you are expressly authorising the Chairman of the meeting to vote
in favour of Items 2, 3 or 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 Items 2, 3 and 4).
To vote online:
TO VOTE ONLINE
Step 1: VISIT https://www.votingonline.com.au/horizonoilagm2018
Step 2: Enter your Postcode OR Country of Residence (if outside Australia)
Step 3: Enter your Voting Access Code:
By mail:
Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001
AUSTRALIA
For delivery:
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
AUSTRALIA
By fax:
Boardroom Pty Limited
+61 2 9290 9655
Admission to meeting
Members who will be attending the meeting and who will not be appointing a proxy are
asked to bring the proxy form to the meeting to help with admission.
Members who do not plan to attend the meeting are encouraged to complete and return
a proxy form for each of their holdings of shares in the Company.
A replacement proxy form may be obtained from the Company’s external share registry:
Boardroom Pty Limited
Level 12, 225 George Street Sydney NSW 2000
Telephone: +61 2 9290 9600 or 1300 737 760
Fax:
Email:
+61 2 9279 0664
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 2018 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:
> the content of the Independent Auditor Report; or
> the conduct of the audit of the Annual Financial Statements,
must be submitted no later than Wednesday, 21 November 2018 to:
The Company Secretary
Level 6, 134 William Street
Woolloomooloo NSW 2011 Australia
Facsimile: +61 2 9332 5050
Email: exploration@horizonoil.com.au
Copies of the questions, if any, to the Company’s auditor will be available at or before
the 2018 AGM.
2. Remuneration Report
The Remuneration Report is contained in the ‘Directors’ Report’ of the Company’s 2018
Annual Report. A copy of the 2018 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.
3. Re-election of director – Mr Gerrit de Nys
The Company’s Constitution provides that an election of directors shall take place every
year.
Accordingly, Mr de Nys will retire at the end of this AGM and seeks re-election in
accordance with the requirements of the Company’s Constitution.
Mr de Nys has been a director since 2007. He is chairman of the Risk Management
Committee and a member of the Remuneration and Nomination Committee. Mr de Nys
has over 45 years’ experience in civil engineering, construction, oil field contracting
and natural resource investment management. Mr de Nys is a non-executive director
of IMC Pan Asia Alliance Group subsidiaries (a related party of IMC Pan Asia Alliance
Corporation, a substantial shareholder of Horizon Oil Limited).
The directors (with Mr de Nys abstaining) recommend that you vote in favour of this
ordinary resolution.
4. Approval of 2018 grant of long term incentives (‘LTIs’) to Mr Michael
Sheridan, Managing Director and Chief Executive Officer
The Company introduced the LTI Plan during 2010 to provide annual performance
incentives to the Company’s key employees.
On 9 October 2018, the board (with Mr Sheridan abstaining) approved the issue of
5,135,087 share appreciation rights (‘SARs’) to be granted to Mr Sheridan, subject to
the approval of shareholders.
As at the date of this Notice of Meeting, Mr Sheridan’s total fixed remuneration is
A$750,000. The amount of 5,135,087 SARs to be issued to Mr Sheridan (subject to the
resolution of this Item 4) was calculated in accordance with the LTI Plan by dividing 50%
of Mr Sheridan’s fixed remuneration by the present day value of the SARs as calculated
using a Monte Carlo simulation by an independent valuer, Dalway Securities, on the
effective allocation date for the SARS, being 1 July 2018 (‘Effective Allocation Date’)
(A$0.073027). 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 2018 SARs award
is A$0.1439.
Shareholder approval of the grant of securities under the LTI Plan to Mr Sheridan is
sought for all purposes under the Corporations Act and the Listing Rules of the ASX,
including Listing Rule 10.14. If approval is given under this ASX Listing Rule 10.14, then
approval is not required under ASX Listing Rule 7.1.
The proposed grant to Mr Sheridan is on the terms and conditions as outlined below.
Summary of the terms of the LTI Plan
In order to provide annual performance incentives to the Company’s executives,
the Company adopted the LTI Plan on 18 November 2010 to replace previous LTI
arrangements for the Company’s senior executives. The LTI arrangements apply to
senior executives and involve the grant of rights which will vest subject (amongst other
things) to the level of total shareholder return (‘TSR’) achieved in the vesting period,
relative to an appropriate index. Under the LTI Plan, the board has the discretion, subject
to ASX Listing Rule requirements, to grant SARs to executives as LTIs. The board has
determined that a fixed proportion of a senior executives’ fixed remuneration would be
LTIs in the form of SARs, with the number of SARs granted to be based on the present
day value of a SAR.
A SAR is a right to receive either or both 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 (being, in the case of 2018 SARs, A$0.1439).
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
Explanatory Memorandum
make from the payment).
If the board determines that the SARs are to be satisfied in shares, the number of shares
that the participant receives on the exercise of the SARs is the SAR Value divided by the
VWAP of shares in the Company for the 10 business day period up to the day before
the day the SARs are exercised. Where the number of shares calculated is not a whole
number, it will be rounded down to the nearest whole number.
Other key terms and conditions of the SARs that may be granted under the LTI Plan
include:
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 price 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 10 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 10 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, the Company may satisfy the exercise of SARs by a participant by payment in cash, issue of 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 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 shares in the Company 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’). TSR for the Company is the rate of return of the Company’s share price over the relevant
performance period. TSR for the Index is the rate of return of the Index over the relevant performance period.
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, pro rata between 50% and 100%
based on the Company’s TSR performance between the Minimum Benchmark and Maximum Benchmark.
The Maximum Benchmark of 14% above the Index return equates to the performance level likely to exceed the 75th percentile of market
returns of companies (weighted by company size) in the Index.
Furthermore, even where these performance conditions are satisfied, the SARs will not vest unless the Company achieves a TSR of at least
10% over the relevant period.
The performance conditions are tested on the date that is three years after the Effective Allocation Date of the SARs, and are then re-tested
every six months after that until the date that is five years after the Effective Allocation Date of the SARs (the final retesting date). The
performance conditions are also tested where certain circumstances occur, such as a takeover bid for the Company.
If the SARs have not, pursuant to these performance conditions, vested by the final retesting date that is five years after the date the SARs are
granted, the SARs will lapse.
Cessation of employment:
If a holder of SARs under the LTI Plan ceases to be employed by a member of the Company’s corporate group, then this generally does not
affect the terms and operation of the SARs. The board does, however, under the LTI Plan have discretion, to the extent permitted by law, to
cause the SARs to lapse or accelerate the date on which the SARs become exercisable.
Maximum number of shares that
can be issued:
Subject to various exclusions, the maximum number of shares that may be issued on the exercise of SARs granted under the LTI Plan is
capped at 5% of the total number of issued shares of the Company.
Restrictions on exercise:
A SAR cannot be exercised unless it has vested. Where a SAR vests, a participant may not exercise the SAR until the first time after the time
the SAR vests that the participant is able to deal with shares in the Company under the Company’s securities trading policy.
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 Company’s ordinary
shares that may be acquired on exercise
of the proposed grant of securities and
the formula for calculating the number of
securities to be issued:
Item 4
LTI Plan
In the case of SARs:
The maximum number of SARs granted to Mr Sheridan is 5,135,087 SARs, calculated on the basis of
50% of Mr Sheridan’s fixed remuneration divided by the present day value of a SAR (A$0.073027) on the
Effective Allocation Date (1 July 2018), as calculated using a Monte Carlo simulation 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 Sheridan to satisfy exercise of SARs is
5,135,087 ordinary shares applying the following formula.
The number of 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 shares in the Company 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 10 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 10 business day period up to the day before the
Effective Allocation Date for the SARs.
For the 2018 SARs, ‘G’ is A$0.1439.
Explanatory Memorandum
10.15.2 (cont’d.)
By way of example:
> provided the Company outperforms by 14% the S&P ASX 200 Energy Index and the 10 business
day VWAP of the Company before the day the SAR is exercised is:
• A$ 0.18, Mr Sheridan would be entitled to approximately 20.1% of the maximum number of
shares
> where the Company’s rate of return is equal to the S&P ASX 200 Energy Index and the 10 business
day VWAP of the Company before the day the SAR is exercised is:
• A$ 0.18, Mr Sheridan would be entitled to approximately 10.1% of the maximum number of
shares
> where the Company’s rate of return does not meet the rate of return of the S&P ASX 200 Energy
Index and the 10 business day VWAP of the Company before the day the SAR is exercised is:
• A$ 0.18, Mr Sheridan would be entitled to nil shares
Mr Sheridan is not required to pay any price in order to acquire SARs under the LTI Plan. Each 2018 SAR
has a present day value on the Effective Allocation Date (1 July 2017) of A$0.073027, as calculated using
a Monte Carlo simulation by an independent valuer, Dalway Securities. No price is payable on exercise of a
SAR.
Mr Brent Emmett, formerly Chief Executive Officer and Managing Director, was issued 22,577,706 SARs in
2017. Mr Sheridan, in his former position as Chief Financial Officer, was issued 16,557,004 SARs in 2017.
Neither Mr Emmett nor Mr Sheridan were required to pay any price in order to acquire SARs under the
LTI Plan. Each SAR issued to them in 2017 had a value at the Effective Allocation Date (1 July 2017) of
A$0.019709, as calculated using a Monte Carlo simulation by independent valuer, Dalway Securities.
Formula for calculating the price of securities
to be acquired under the scheme:
Names of directors and associates who have
received securities under the scheme since
the last approval; number received; and
acquisition price:
Names of directors and associates entitled to
participate in scheme:
Mr Sheridan.
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 2018 AGM, but in
any event no later than 12 months after the date of the 2018 AGM.
10.15.3
10.15.4
10.15.4A
10.15.5
10.15.6
10.15.7
Voting exclusion statement – Item 4
The Company will disregard any votes cast in favour of Item 4 by:
• Mr Michael Sheridan; or
• an associate of Mr Sheridan.
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 Sheridan abstaining) recommend that you vote in favour of Item 4.
Sydney
26 October 2018
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 Monday 26 November 2018
TO VOTE ONLINE
BY SMARTPHONE
STEP 1: VISIT https://www.votingonline.com.au/horizonoilagm2018
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 Monday 26 November 2018. 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
https://www.votingonline.com.au/horizonoilagm2018
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.
Sample
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 Mezzanine Level, Robinson/William Room, The Sydney Boulevard Hotel, 90 William Street, Sydney NSW 2011 on Wednesday
28 November 2018 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 Items 2 and 4, I/we expressly authorise the Chair of the Meeting to exercise my/our
proxy in respect of Items 2 and 4 (as applicable) even though Items 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 Items 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*
Item 2
Adoption of the Remuneration Report
Item 3
Re-election of Director – Mr Gerrit de Nys
Item 4
Approval of 2018 grant of long term incentives to Mr Michael Sheridan, Managing Director and Chief Executive Officer
STEP 3
SIGNATURE OF SECURITYHOLDERS
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 / / 2018
Sample