Horizon Global
Annual Report 2020

Plain-text annual report

2020 INVESTMENT HIGHLIGHTS — Strengthened balance sheet with return to net cash despite economic headwinds — Consistent strong production with sales volume maintained above 1.4 mmbbls — Accelerated debt reduction with 101% reduction in net debt in FY20 — Maintenance of low operating costs driving strong cashflow and EBITDAX — 2P reserves added in China resulting from exploration success and further commitment to development UNDERLYING PROFIT BEFORE TAX US$15 million SALES VOLUME 1.43 mmbbls RETURN TO NET CASH US$0.5 million Net Debt Reduction of US$28.4 million SALES REVENUE US$84 million 2P RESERVES ~50% reserves replacement ratio EBITDAX US$50.6 million 2020 Highlights Chairman’s Message CEO’s Message Reserves and Resources Statement Activities Review Annual Financial Report Shareholder Information Glossary Corporate Directory 1 2 3 4 10 16 113 116 117 Looking ahead, we intend to further strengthen the Horizon balance sheet and to augment it by identifying growth opportunities for the company. OIL SALES (mmbbls) Maari Beibu REVENUE1 (US$m) Maari Beibu Cost recovery entitlement Cost recovery entitlement 1.87 0.29 1.00 1.65 0.31 0.86 1.43 0.83 1.38 0.90 1.42 0.30 0.80 0.58 0.60 0.47 0.48 0.32 122.4 19.2 60.9 84.0 0.1 46.8 42.3 37.1 100.0 18.0 50.9 31.2 76.0 35.5 40.5 68.5 14.2 38.0 16.4 EBITDAX (US$m) [Excl. cost recovery] Cost recovery 93.0 19.2 73.8 68.5 18.0 50.5 50.6 0.1 50.5 54.0 54.0 45.2 14.2 31.0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 1 Net of hedge settlements UNDERLYING PROFIT BEFORE TAX (US$m) (Excl. cost recovery) Cost recovery 37.3 19.2 18.1 15.0 0.1 14.9 2.2 14.2 18.9 18.0 0.9 (12.0) FY18 FY19 FY20 FY17 [8.7] (8.7) FY16 AREAS OF OPERATION CHINA Block 22/12 (Production/Exploration) 26.95%/55% PAPUA NEW GUINEA PDL 10 (Stanley) PRL 21 (Elevala/Ketu) PRL 28 (Ubuntu) PRL 40 (Puk Puk/Douglas) PPL 372 PPL 373 PPL 574 NEW ZEALAND PMP 38160 (Maari/Manaia) 30% 30.15% 30% 20% 95% 100% 80% 26% CHINA PAPUA NEW GUINEA NEW ZEALAND 12- - - 3HORIZON OIL LIMITED 2020 RESERVES & RESOURCES STATEMENT as at 30 June 2020 Highlights 5Proved and Proved plus Probable Reserves (Horizon Oil share) CHINA Block 22/12 NEW ZEALAND PMP 38160 Developed: WZ6-12 + WZ12-8W Undeveloped: Infill drilling, WZ12-8E (Phase 1) Total China (arithmetic summation) Developed: Maari + Manaia Closing Balance 30 June 2020 (arithmetic summation) Contingent Resources (Horizon Oil share) CHINA Block 22/12 NEW ZEALAND PMP 38160 PAPUA NEW GUINEA PDL 10 PRL 21 PRL 28 PRL 40 WZ6-12 + WZ12-10-1 + WZ12-8E Maari + Manaia Stanley Elevala-Ketu Ubuntu Puk Puk, Douglas, Weimang & Langia Fields Closing Balance 30 Jun 2020 (arithmetic summation) 1P Total Liquids (MMbbl) 2P Total Liquids (MMbbl) 1.4 0.4 1.9 1.4 3.2 2C Raw Gas (Bcf) – – 123 351 14 111 599 3.2 1.1 4.3 3.8 8.1 2C Sales Gas (PJ) – – 110 371 14 109 604 2C Total Liquids (MMbbl) 1.1 5.3 3.4 15.2 0.7 0.1 25.8 6Reconciliation of Proved and Proved plus Probable Reserves PRODUCTION Total production of 1.5 MMbbl Net Working Interest similar to prior year (1.6 MMbbl Net Working Interest) CHINA At a 2P level, production of 0.9 MMbbl Net Working Interest and a 0.5 MMbbl downward revision in ultimate recovery due to field performance, offset by the transfer from contingent resources of 1.1 MMbbl associated with the addition of the WZ12-8 East project and two planned infill wells; similar changes at a 1P level. NEW ZEALAND No revisions were made to previous 1P or 2P ultimate recovery with the reduction in reserves due to net production of 0.6 MMbbl. Proved and Proved plus Probable Reserves Reconciliation Opening Balance 30 June 2019 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 2020 1P Total Liquids (MMbbl) 2P Total Liquids (MMbbl) 4.9 (1.5) 0.1 (0.8) 0.0 0.4 - 3.2 8.8 (1.5) 0.1 (0.5) 0.1 1.1 - 8.1 Reconciliation of Contingent Resources CHINA Transfer of 0.9 MMbbl to reserves associated with the WZ12-8 East project and one infill well, with two possible infill wells remaining as contingent resources at this time. NEW ZEALAND No revisions from prior estimates. PAPUA NEW GUINEA No revisions from prior estimates. Contingent Resources Reconciliation Opening Balance 30 June 2019 Revisions of Previous Estimates Economic Interest Adjustment Transfers, Discoveries and Extensions Acquisitions and Divestments Closing Balance 30 June 2020 2C Total Liquids (MMbbl) 26.7 – – (0.9) – 25.8 2C Total Raw Gas (Bcf) 2C Total Sales Gas (PJ) 599 604 – – – – – - – – 599 604 7Permits, Licences and Interests Held PERMIT OR LICENSE OPERATOR MATERIAL PROJECTS WORKING INTEREST (%) 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 6-12N, WZ 6-12S, WZ 6-12Mid, WZ 12-8W & W12-8E Fields 30 June 2020 30 June 2019 26.95% 26.95% WZ 12-8 Development area 55.00%1 55.00%1 OMV Maari and Manaia fields 26.00% 26.00% Arran Energy Stanley field Horizon Oil Horizon Oil Horizon Oil Horizon Oil Horizon Oil Horizon Oil Arran Energy Elevala-Ketu fields Ubuntu field Exploration activities Exploration activities Exploration activities 30.00%2,3 30.15%2,4 30.00%2 80.00%2 – 5 95.00%2,6 30.00%2,3 30.15%2,4 30.00%2 80.00%2 100.00%2 95.00%2,6 Exploration activities 100.00%2,6 100.00%2,6 Puk Puk, Douglas, Weimang and Langia fields 20.00%2,3 20.00%2,3 1 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. 2 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. 3 On 28 January 2020 Arran Energy Niugini Pty Limited became Operator of PDL10 and PRL40. 4 The PRL 21 licensees have applied for a development licence. Tenure remains current, subject to PNG ministerial approval. 5 PPL 430 licence term expired on 24 July 2019. 6 The PPL 372 and 373 licensees have applied for an extension and variation of the licences. Tenure remains current, subject to PNG ministerial approval. The licences had no identified reserves or contingent resources at 30 June 2020. 8Notes 1 2 3 4 5 6 7 8 9 All estimates are prepared in accordance with the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS) revised 2018. 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 1015 joules. 10 11 12 13 14 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. Reported estimates of petroleum reserves and contingent resources have been aggregated by arithmetic summation by category. 1P reserves reported beyond the field, property or project level aggregated by arithmetic summation may be a very conservative estimate due to the portfolio effects of arithmetic summation. Estimates are reported according to Horizon Oil’s economic interest, this being Horizon Oil’s net working interest as adjusted for entitlements (Economic Interest adjustment) 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. 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. 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 Gavin Douglas, Subsurface Manager of Horizon Oil Limited. Mr Douglas is a full-time employee of Horizon Oil Limited and is a member of the American Association of Petroleum Geologists and the Society of Petroleum Engineers. Mr Douglas’ qualifications include a Master of Reservoir Evaluation and Management from the Heriot Watt University UK, and more than 23 years of relevant experience. Mr Douglas 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. 9Block 22/12, Beibu Gulf, Offshore China HORIZON INTEREST % PRODUCTION EXPLORATION 26.95 55% During the year, the Group's working interest share of production from the Beibu Gulf fields was 907,886 barrels of oil. Crude oil sales were 833,071 barrels at an average price of US$50/bbl, exclusive of executed hedging. Gross oil production for the 2020 financial year averaged 9,230 bopd, of which the Group’s working interest share was 2,487 bopd. The Group’s share of sales volumes over the year was an average of 2,282 bopd. As anticipated, sales volumes during the financial year reverted to being materially in line with the Group’s net working interest share of production owing to the recoupment of the company’s remaining Block 22/12 exploration and development cost recovery entitlement under the petroleum sharing contract. Sales volumes attributable to the cost recovery entitlement reduced to 2,474 bbls during the year, compared with 288,454 bbls in the prior year. Production from the fields continued uninterrupted by the COVID-19 pandemic, with production maintained above budget. Workover campaigns were carried out throughout the year to sustain production rates, with the most recent program commencing shortly after period end. This is focused on optimising downhole electrical submersible pumps and adding perforations of undrained oil zones with the objective of increasing gross production from the field to over 10,000 bopd. Average cash operating costs including workovers for the year were US$11.38/bbl (produced). The strong production result, coupled with the low cost of production, ensured continued strong free cashflow generation from the Beibu Gulf fields, despite the lower oil price environment resulting from the COVID-19 pandemic. The WZ6-12 M1 exploration well was successfully drilled to a total depth of 2025mMD during the year, with the well intersecting 65m of oil pay in the Oligocene-aged Weizhou T30A, T31L, T31C and T32L sands. The WZ6-12 M1 well is located between the Weizhou 6-12 North and South fields, with the joint venture advancing plans to develop the discovery with an infill well drilled from the WZ6-12 platform later in the 2020 calendar year. 1112HORIZON INTEREST PRODUCTION % 26 During the year the Group's working interest share of production from the Maari and Manaia fields was 567,676 barrels of oil. Crude oil sales were 594,450 barrels at an average effective price of US$56/bbl exclusive of executed hedging. Average gross production from the field over the year was approximately 5,982 bopd, of which Horizon’s share was 1,555 bopd. Production for the year exceeded budget, driven by well optimisation activities including the installation of a larger electric submersible pump (ESP) in the MR6a well and continued water injection. Whilst production and liftings from the Maari oil field continued largely uninterrupted by the COVID-19 pandemic, temporary shut-ins of production wells MR6A, MR7A and MR9 impacted production late in the year with the Operator advancing plans to workover these wells. Continued cost savings initiatives were implemented by the Operator, with average cash operating costs maintained below US$25/bbl (sold) during the year. Average cash operating costs decreased 17.6% for the 2020 financial year despite a modest 6% reduction in production attributable to the temporary well shut-ins. During the year Jadestone Energy Inc. (AIM:JSE, TSXV:JSE) announced that it had executed a conditional sale and purchase agreement to acquire OMV New Zealand Limited’s 69% interest in the Maari project. The completion of the proposed transaction will occur upon satisfaction of conditions, including acceptance of Jadestone as operator by the Maari joint venture partners, New Zealand Government approvals relating to title transfer and change of operatorship and other customary conditions on or before 15 November 2020. Whilst the transaction continues to remain subject to joint venture and New Zealand government approvals, OMV and Jadestone progressed plans for operatorship transition. OMV New Zealand will continue as operator of the Maari Project until, and subject to, completion of the proposed transaction. 13Western Province, Papua New Guinea HORIZON INTEREST STANLEY FIELD (PDL 10) % 30 ELEVALA/KETU FIELDS (PRL 21) 30.15 UBUNTU FIELD (PRL 28) PUK PUK & DOUGLAS FIELDS (PRL 40) 30 20 In Papua New Guinea, Horizon continued planning for the commercialisation of the gross appraised resource of 2,200 PJ of sales gas and 64 million barrels of associated condensate in four petroleum licences in the foreland basin of Western Province. The Company holds approximately 30% of the resource and is Operator of two licences constituting the majority of the resource. During the year, Arran Energy Pty Limited became the legal and beneficial owner of Repsol Oil & Gas Niugini Pty Ltd and Foreland Oil Limited, which hold PNG licence interests, including PDL 10, PRL 21, PRL 28 and PRL 40. As part of the transaction, Arran assumed operatorship of PDL 10 and PRL 40. The new Operator of the PDL 10 licence articulated its proposal to progress a condensate stripping operation at the Stanley field and to refine development costs. The PDL 10 joint venture was also encouraged by the recent receipt of correspondence from the Papua New Guinea Petroleum & Energy Minister, Hon. Kerenga Kua M.P. withdrawing the purported notices of intention to cancel PDL 10 and PL 10, and notice of cancellation of the Stanley Gas Agreement. The Minister’s correspondence and the development options for the Stanley field are being reviewed by the PDL 10 joint venture. Refinement of the engineering basis for a PRL 21 condensate development encompassing the Elevala and Ketu fields also continued during the year. 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 is planned to 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. Gas agreement negotiations for the planned expansion of PNG LNG continued during the year with the State publicly expressing its strong encouragement for third party access to the pipelines. On 31 January 2020 the Prime Minister of PNG issued a media release stating that negotiations on the P’nyang Gas Agreement had stopped as the parties were unable to reach a mutually acceptable commercial arrangement. 1415D Directors ubsidiaries it controlled at the end of, or during the financial year ended, 30 June 2020. il 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: M Harding C Hodge G de Nys S Birkensleigh G Bittar M Sheridan C Hodge was a non-executive director up until 14 February 2020 when he was appointed as Chief Executive Officer and Managing Director. He continues in office as at the date of this report. C Hodge replaced M Sheridan as Executive Officer on 28 February 2020. 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 10 to 15 of this annual financial report. 17Group Financial Performance Consolidated Statement of Profit or Loss and Other Comprehensive Income 2020 Profit Drivers The Group reported a statutory loss before tax of US$44.2 million for the financial year (2019: profit US$48.4 million). The loss result includes a non- (2019: US$nil) and non-cash financing income of US$8.0 million (2019: US$11.2 million) associated with the revaluation of the options issued under the subordinated loan facility, which once excluded results in an Underlying Profit Before Tax of US$15.0 million (2019: US$37.3 million). EBITDAX was US$50.6 million (2019: US$93.0 million), and EBIT was a loss of US$48.4 million (2019: US$49.0 million). Included in the EBIT result is the non- interests. Cashflows from operating activities of US$36.7 million (2019: US$72.8 million) and cash reserves enabled the Group to meet its capital expenditure commitments and also repay a further US$24.0 million in debt during the financial year. 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 2020 and 30 June 2019. Basic earnings per share for the financial year were a loss of 4.18 US 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 concluded a strong financial year despite the economic challenges resulting from the COVID-19 pandemic, with net production of 1,475,562 barrels of oil (2019: 1,604,578 barrels), a modest reduction from the prior comparative period owing to natural reservoir decline and temporary well shut-ins in New Zealand. Sales volumes were 1,427,521 bbls (2019: 1,866,581 bbls) which, as anticipated, reverted to being materially entitlement under the petroleum sharing contract. Sales volumes attributable to the cost recovery entitlement reduced to 2,474 bbls (2019: 288,454 bbls) during the financial year. 18Crude oil sales revenue of US$84.0 million (2019: US$122.4 million) was generated during the financial year resulting from a net realised oil price of US$58.86 per barrel (2019: US$65.57 per barrel), inclusive of hedge settlements. Whilst oil prices were materially impacted by the collapse in oil demand resulting from the COVID-19 pandemic during the second half of the financial year, revenue was supported by t Throughout the year 53% of sales were hedged (2019: 53%) with a hedging gain of US$9.1 million (2019: loss US$4.3 million) realised on 760,000 barrels hedged at a weighted average price of US$64.05 per barrel (2019: 980,000 barrels at US$64.79 per barrel). Operating costs for the period were US$53.4 million, 21% lower than the prior comparative period (2019: US$67.4 million) driven by continued cost optimisation initiatives, particularly at Maari, combined with a lower amortisation charge. General and Administrative Expenses General and administrative expenses were higher than the prior comparative period at US$4.5 million (2019: US$3.8 million) owing to ad-hoc legal costs pertaining to the PNG investigation conducted during the period. These ad-hoc costs were partially offset by a continued focus on costs and reduced headcount following the COVID-19 pandemic. This expense comprised net employee benefits expense of US$2.3 million (including non-cash share-based payment expense of US$0.6 million), corporate office expense of US$1.8 million, depreciation of US$0.4 million, and rental expense of US$0.1 million. Insurance Expense Insurance expense of US$2.1 million (2019: US$1.9 million) in the period reflected increased premiums associated with a deterioration in insurance markets. Exploration and Development Expenses Exploration and development expenses of US$5.0 million (2019: US$4.6 million) were and PNG assets. During the period there was continued focus on infill, appraisal and exploration opportunities in and China s, in particular in China. The objective is to integrate any commercial discoveries, such as the drilling success at the WZ 6-12 M1 well, into the existing Block 22/12 development to sustain production rates late into the decade. Impairment of Non-Current Assets Included in the result was US$67.3 million of non-cash development assets in Papua New Guinea. The impairment assessment conducted in respect of the period considered challenges faced by the Company in PNG, including unresolved licence tenure issues, the lack of progress in commercialisation of the discovered resources in the Western Province of PNG, and the recent shift by the PNG Government in requiring improved fiscal returns from resource projects. Reference was also made to comparable market transactions. In light of these matters and uncertainties, the Group impaired its PNG exploration and development assets during the year to a carrying amount of US$5.8 million. Other Income Other income was minimal in the current year, with the US$4.4 million recorded in the prior financial period generated from insurance recoveries associated with the repairs to the Maari water injection flow line, production and test riser, and wellhead platform which were performed during the 2016 and 2017 financial years. Finance Costs repayment of debt during the period and reduced global interest rates has further reduced interest and other financing costs. Other non-cash financing income of US$8.0 million (2019: US$11.2 million) associated with the revaluation of the options issued under the subordinated loan facility was recorded during the financial period. The progressive 19Income and Royalty Tax The net income and royalty tax expense of US$10.9 million (2019: US$12.6 million) incurred during the financial year included a current tax expense of US$5.9 million, a deferred income tax expense of US$2.0 million and a royalty related tax expense of US$2.9 million. The net income tax expense was driven by cash taxes of US$4.3 million in China and US$1.6 million in New Zealand. Royalty tax expense of US$2.9 million reflected cash and deferred royalty tax associated with the Maari/Manaia field. Consolidated Statement of Financial Position At 30 June 2020, total assets were US$171.6 million (2019: US$262.7 million) and total liabilities were US$88.8 million (2019: US$141.3 million), resulting in a reduction in net assets to US$82.9 million (2019: net assets of US$141.3 million). The reduction in assets is primarily due to the non-cash impairment expense of US$67.3 million, coupled with the amortisation of the producing oil and gas assets. The reduction in total liabilities primarily reflects the US$24.0 million of debt repayments made during the financial period, combined with the US$8.0 million non-cash revaluation of the options issued under the subordinated debt facility. At 30 June 2020, the Group had a working capital surplus of US$15.3 million (2019: US$13.9 million) resulting predominately from the strong cash flow generation which was offset by the US$24.0 million in debt repayments. At 30 June 2020, the Group returned to a net cash position of US$0.5 million, based on nominal amounts drawn down, which represented a 101% reduction in the net debt position from 2019 of US$28.0 million. Net cash of US$0.5 million comprised of cash and cash equivalents held of US$25.9 million (2019: US$21.5 million) offset by borrowings of US$25.4 million (2019: US$49.4 million). At financial year end, borrowings consisted US$25.4 million principal outstanding on the US$95 million Syndicated Revolving Cash Advance Facility executed with senior lenders in November 2018. Consolidated Statement of Cash Flows 2020 Cash Drivers Net cash generated from operating activities was 50% lower for the financial year at US$36.7 million (2019: US$72.8 million) due to the lower oil prices following the COVID-19 pandemic and reduced sales volumes. As foreshadowed and previously communicated, sales volumes reduced owing to the full recoupment of the C and development cost recovery entitlement under the petroleum sharing contract. Following the recoupment early in the 20production. The free cash available after operating and investing activities enabled further debt reduction with a net outflow of US$24.0 million from financing activities for the period. Corporate Debt Facilities At 30 June 2020 of US$28.0 million), a reduction of US$28.4 million during the financial year. The net cash position comprises cash and cash equivalent assets held of US$25.9 (30 June 2019: US$21.5 million) offset by the nominal value of borrowings drawn down of US$25.4 million (30 June 2019: US$49.4 million) on the Syndicated Revolving Cash Advance Facility. Details of the further reduced to a net cash position of US$0.5 million (30 June 2019: net debt are set out in Note 18. Oil Price Hedging At 30 June 2020, the Group had 220,000 barrels of crude oil hedged through Brent oil price swaps (30 June 2019: 480,000 barrels) at a weighted average price of approximately US$36/bbl. Subsequent to period end, a further 180,000 barrels of crude oil were hedged through Brent oil price swaps at a weighted average price of approximately US$45/bbl. During the financial year, 760,000 barrels of oil price derivatives were settled, securing revenue of US$48.7 million. Group business strategies and prospects for future financial years d and growth program and retire debt. That program is directed to bring -lived New Zealand and Papua New Guinea, and identify suitable inorganic growth opportunities. 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 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, global growth, volatile commodity prices, exchange rates, climate change, access to financing and political these objectives; key risks of which include production and development risk, exploration and drilling risks, joint operations risk, and geological risk surrounding resources and reserves. The Group has various risk management policies and procedures in place to enable the identification, assessment and mitigation of risks that may arise. Whilst the Group can mitigate some of the risks described above, many are beyond the e Corporate Governance Statement. Outlook It is expected that the 2021 financial year and beyond will be underpinned by continued strong oil production from the Continued water injection at Maari combined with the progressive planned development of WZ 12-8E oil field in China and other infill well opportunities, are forecast to materially offset the longer term reduction in production associated with natural reservoir decline. In the near term, strong cashflow generation is forecast to continue albeit at a slightly reduced rate owing to the lower oil price environment resulting from the COVID-19 pandemic debt levels and funding for the Block 22/12 infill drilling and WZ 12-8E oil field development. Whilst we acknowledge the current challenges faced in Papua New Guinea, we continue to focus on progressing opportunities to realise value from our PNG resources in the near term. 21-term focus is on: – Optimising production performance from the Beibu and Maari/Manaia fields through various well intervention activities; – Successfully executing the Block 22/12 infill drilling program; – Progressing the Block 22/12 WZ 12-8E field development; – Continued evaluation of growth opportunities to completement the Group s existing oil producing assets; and – Progressing opportunities Significant changes in the state of affairs PNG Investigation payment to acquire a 10 percent licence interest in PRL 21 in the Western Province of Papua New Guinea during 2011. Given transaction occurred more than 8 years ago, the Horizon Board initiated an immediate and in-depth investigation. The investigation, which included a forensic review of all aspects of the transaction, was conducted by Herbert Smith Freehills and Deloitte with the oversight of an Independent Board Committee (IBC). The investigation was to examine whether the The investigation was concluded in June 2020 with Horizon confirming that the investigation did not establish any breach of Australian foreign bribery laws. At the date of this report, Horizon is not aware of any regulatory investigation into these matters involving the Company in Australia or Papua New Guinea. Other than the matters noted above and disclosed in the review of operations, there have not been any other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Other than the matters noted above and disclosed in the review of operations, there has not been any matter or circumstance which has arisen since 30 June 2020 that has significantly affected, or may significantly affect: [1] - [2] - the results of those operations in future financial years; or [3] - 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 committed to undertaking all of its exploration, development and production activities in an environmentally responsible manner. China, New Zealand, and Papua New Guinea. Horizon Oil Limited is 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 22Information on Directors Chairman, Independent Non-Executive Director Mike Harding Responsibilities: Mr Harding has been Chairman of Horizon since November 2018. He is Chairman Experience: Directorships: Remuneration and Nomination Committees. Mr Harding has held management positions around the world with British Petroleum (BP), including President and General Manager of BP Exploration Australia. Mr Harding is currently the Chairman of Downer and a Director of Cleanaway Waste Management Limited. He is a former Chairman of Lynas Limited, Roc Oil Company Limited, Clough Limited and ARC Energy Limited and a former Director of Santos Limited. Qualifications: Mr Harding holds a Master of Science, majoring in Mechanical Engineering. Managing Director, Chief Executive Officer Chris Hodge Responsibilities: Experience: Directorships: Qualifications: Mr Hodge has been Managing Director and Chief Executive Officer of Horizon since February 2020, and a Director since April 2019. Management and Disclosure Committees. petroleum geophysicist. Mr Hodge held senior managerial and consulting positions in major petroleum exploration and production companies, including E&P Advisor to both Mitsubishi and Mitsui in Australia, Managing Director of Adelphi Energy and Exploration Manager of Ampolex. He played a significant part in the growth of each of these companies through a mix of successful exploration, field development and acquisition. Mr Hodge is a former Director of Roc Oil Company Limited and Xstate Resources. Mr Hodge holds a Master of Science, majoring in Structural Geology and Rock Mechanics and a Graduate Diploma of Applied Finance. He is a Member of the Petroleum Exploration Society of Australia (PESA) and the American Association of Petroleum Geologists (AAPG). Non-executive Director Gerrit de Nys Responsibilities: Mr de Nys has been a Director of Horizon since June 2007. He is Chairman of Experience: Directorships: Qualifications: and Nomination Committees. Mr de Nys has over contracting and natural resource investment management. Mr de Nys is a Director of various IMC Pan Asia Alliance Group subsidiaries, companies Group. Mr de Nys is a former Director of SOCAM Development Limited. Mr de Nys holds a Bachelor of Technology (Civil Engineering). He is a Fellow of the Institution of Engineers, Australia, a past Fellow of the Australian Institute of Company Directors and a retired Chartered Professional Engineer. 23Independent Non-Executive Director Sandra Birkensleigh Responsibilities: Ms Birkensleigh has been a Director of Nomination Committees. Experience: Directorships: Qualifications: and corporate governance with PricewaterhouseCoopers including as Global Lead for Governance Risk & Compliance, National Lead for Partner Risk and Controls Solutions and a Service Team Leader for Performance Improvement. Ms Birkensleigh is a Director of Auswide Bank Limited, MLC Limited, 7-11 Holdings and its Centre and a Council Member of the University of the Sunshine Coast. Ms Birkensleigh is Chair of the Audit and Risk Committee of the University of the Sunshine Coast, Chair of the Audit and Risk Committee of the Public Trustee of Queensland and an Independent Member of the Audit Committee of the Reserve Bank of Australia. Ms Birkensleigh is a Former Director of Plum Financial Services Limited. Ms Birkensleigh is a Chartered Accountant and holds a Bachelor of Commerce. She is a Graduate Member of the Australian Institute of Company Directors. Non-executive Director Greg Bittar Responsibilities: Experience: Directorships: Qualifications: substantial shareholder IMC Pan Asia Alliance Group. Mr Bittar has extensive experience in public and private markets mergers and acquisitions, capital markets and strategic advisory assignments across a range of sectors including general industrials, metals and mining, mining services and energy. Mr Bittar has worked for Bankers Trust, Baring Brothers Burrows and Morgan Stanley. Mr Bittar is Chairman of Trek Metals Limited, and former Chairman of Millennium Minerals Limited. Mr Bittar holds a Master of Finance from London Business School, a Bachelor of Economics and a Bachelor of Laws (Hons). Alternate Director for Greg Bittar Bruno Lorenzon Responsibilities: Experience: Qualifications: Company Secretary Responsibilities: Experience: Mr Lorenzon has been an Alternate Director for Greg Bittar since March 2017. Mr Lorenzon is Head, Group Corporate Finance for the IMC Pan Asia Alliance Group and has experience in investments, strategy and corporate finance in the resources sector both in Australia and overseas. He has worked for the IMC Pan Asia Alliance Group for the past 10 years and previously worked for Vale in Brazil and Rio Tinto in Australia in roles encompassing strategic planning, mergers and acquisitions and business development. Mr Lorenzon is a Chartered Financial Analyst and holds a Master of Business Administration and Bachelor of Civil Engineering. Kylie Quinlivan Ms Quinlivan has been General Counsel and Company Secretary of Horizon since July 2018. Ms Quinlivan is a corporate lawyer with expertise in public markets mergers and acquisitions and private transactions, corporate fund raising and corporate governance across a range of sectors, particularly oil and gas. She has over 14 including first tier Corporate M&A practice at Minter Ellison, Sydney. as a corporate lawyer Qualifications: Ms Quinlivan holds a Master of Laws and Bachelor of Commerce. Assistant Company Secretary Kyle Keen Responsibilities: Experience: Qualifications: Mr Keen joined Horizon in February 2018 as Finance Manager and has been the Assistant Company Secretary since November 2018. Mr Keen is a Chartered Accountant with expertise in external audit across a range of sectors, in particular oil and gas. He has 9 practices such as EY, United Kingdom and KPMG, South Africa. including working in first tier auditing Mr Keen holds a Bachelor of Accounting (Hons) and is a member of the South African Institute of Chartered Accountants. 24Directors held the following number of fully paid ordinary shares: ORDINARY SHARES DIRECT INDIRECT TOTAL - - - - - - - - - - 2,203,639 2,203,639 - - - - - - DIRECTOR M Harding C Hodge G de Nys S Birkensleigh G Bittar B Lorenzon (as alternate) Meetings of Directors financial year, and the numbers of meetings attended by each Director were: BOARD AUDIT COMMITTEE RISK MANAGEMENT COMMITTEE REMUNERATION AND NOMINATION COMMITTEE DISCLOSURE COMMITTEE Number of meetings held: Number of meetings attended by: M Harding G de Nys S Birkensleigh G Bittar C Hodge2 B Lorenzon (as alternate for G Bittar) M Sheridan4 111 11 11 11 10 10 7 5 3 3 3 3 2 1 2 2 2 2 1 3 3 3 3 1 23 1 5 5 4 1 1 Eleven Board meetings were held during the period, with an additional six Board meetings held exclusively for Independent Non-Executive Directors during the financial year. 2 C Hodge attended audit committee meetings in his capacity as Chief Executive Officer of Horizon Oil Limited and is not a member of the audit committee. 3 C Hodge attended the remuneration and nomination committee meetings in his capacity as chair of the committee and as an Independent Non- Executive Director prior to his appointment as Chief Executive Officer. 4 M Sheridan attended an audit committee meeting in his capacity as Chief Executive Officer of Horizon Oil Limited and was not a member of the audit committee. 25Corporate Governance The Company and the Board are committed to achieving and demonstrating the highest standards of corporate interests of shareholders. The Corporate Governance Statement was approved by the Board on 27 August 2020. 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 rd edition, released in March 2014. Sustainability Reporting This year Horizon has increased its focus on sustainability and engaged a sustainability consultant to undertake a materiality review of the environmental, social and governance issues arising from our operations. Our materiality review is our first step in building an environment, social and governance (ESG) framework and action plan for the Company. Horizon is reporting for the first time against the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). We are also participating in the Carbon Disclosure Project (CDP) in 2020. This is consistent with Principle 7.4 of the ASX Corporate Governance Council Principles and Recommendations (fourth edition), which recommends that ASX listed entities disclose any material exposure to environmental or social risks, and how the company manages or intends to manage those risks. www.horizonoil.com.au. Remuneration Report This Remuneration Report (Report) outlines the remuneration arrangements for the Key Management Personnel (KMP) of the Company for the financial year ended 30 June 2020. This Report audited in accordance with section 308(3)(c) of the Corporations Act 2001. The Report is structured as follows: [1] - Individuals covered by the Remuneration Report [2] - Executive remuneration framework [3] - Actual remuneration of executives [4] - Contractual arrangements for executives [5] - Performance and financial year remuneration outcomes [6] - Non-executive Director remuneration [7] - Statutory and share-based reporting Individuals Covered by the Remuneration Report The Group is required to prepare a Report in respect of KMP, those persons who have the authority and responsibility for planning, directing, and controlling the activities of the Company and the Group, either directly or indirectly, being: – Directors; and – Other Key Management Personnel 26The table below outlines the KMP movements during the financial year: NAME DIRECTORS Mike Harding Chris Hodge1 Michael Sheridan2 Gerrit de Nys TITLE PERIOD AS KMP Chairman (non-executive) Full financial year Director (executive) Director (executive) Director (non-executive) Full financial year Up to 28 February 2020 Full financial year Full financial year Sandra Birkensleigh Director (non-executive) Greg Bittar Bruno Lorenzon OTHER KMP (EXECUTIVES) Richard Beament Kylie Quinlivan Kelvin Bramley Andrew McArdle3 Director (non-executive) Full financial year Alternate Director (non-executive) Full financial year Chief Financial Officer Full financial year General Counsel/Company Secretary Full financial year General Manager - PNG Full financial year Chief Operating Officer Up to 19 December 2019 1 C Hodge served as an Independent Non-executive Director until his appointment as Chief Executive Officer and Managing Director effective 14 February 2020. 2 M Sheridan ceased to be a Director and KMP effective 28 February 2020. 3 A McArdle ceased to be a KMP effective 19 December 2019. Executive Remuneration Framework [2.1] - How does Horizon determine remuneration outcomes? appropriate for the results delivered. The Board, through its Remuneration and Nomination Committee, continues to . The remuneration remuneration. – Good reward governance principles: – competitiveness and reasonableness; – acceptability to shareholders; – performance linkage / alignment of executive compensation; – transparency; and – capital management. – focuses on sustained growth in shareholder value; and – 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. 27[2.2] - Remuneration policy and link to performance The remuneration framework is designed to recognise performance during the financial year (Short-Term Incentives (STIs)) and maximise shareholder value (Long-Term Incentives (LTIs)). Executive remuneration is comprised of fixed and variable remuneration mix of maximum incentive payments as a percentage of total remuneration. Annual incentives have been established to drive performance without encouraging undue risk taking. The remuneration mix for the financial year is shown in the table below. nd LTIs. The graph below sets out the proportion of fixed and variable Chief Executive Officer Performance-based Total Fixed Remuneration (TFR) 50% Maximum STI 25% Maximum LTI1 25% Other Executive KMP Total Fixed Remuneration (TFR) 70% Maximum STI 15% Maximum LTI1 15% 1 Fair value of LTI determined at 1 July in accordance with the Long Term Incentive Plan. [2.3] - Elements of remuneration FIXED REMUNERATION (FR) What is Fixed Remuneration? Fixed Remuneration (TFR), together with non-monetary benefits. TFR is base salary plus superannuation. Non-monetary benefits include car parking, insurances and other expenses inclusive of fringe benefits tax. 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. Link to strategy and performance Competitive TFR is paid to ensure that the Group can attract and retain suitable executives to deliver the strategic goals. Fixed Remuneration is reviewed annually by the Remuneration and Nomination C qualification and individual performance. ted skill, experience and SHORT-TERM INCENTIVE (STI) Objective The STI provides all Executives with an opportunity to earn an annual incentive which is delivered in cash. The STI award is determined by the Board following the end of the financial year having regard to Group performance over the financial year. How is the STI linked to performance? The STI is designed to motivate and reward Executives for contributing to the delivery of annual business performance. Key Performance Indicators (KPIs) are determined each financial year and approved by the Board. The against these KPIs is reviewed annually. How is performance measured for the STI? Awards are made annually with performance measured over the twelve months to 30 June and are aligned to the attainment of . Awards under the plan are determined and paid (in cash) in the first quarter of the new financial year. Actual performance against financial, non-financial and individual measures is assessed at the end of the financial year. In assessing the achievement of measures, the Remuneration and Nomination Committee may exercise its discretion to adjust outcomes for significant factors outside the control of management that contribute positively or negatively to results. STI opportunity Other Executives TFR. 28LONG-TERM INCENTIVE (LTI) Objective The LTI plan aims to align Executive remuneration with the creation of shareholder value. How is the LTI linked to performance? LTI vesting is linked to absolute Horizon share performance, and Horizon share performance relative to the S&P ASX 200 Energy Index. Form of LTI grant? LTIs are awarded as performance rights, known as share appreciation rights (SARs). SARs vest over a three to Shareholder Return (TSR Energy Index (Index), with the level of outperformance determining the proportion of SARs that vest. The SAR value on vesting is calculated as the difference between the Horizon share price at allocation, and the Horizon share price at exercise. The Company may settle the SAR value in cash or shares or a combination, in the Bo What are the performance measures applied to the LTI? The Board considers that the absolute and relative TSR performance hurdles effectively align the interests of Executives with shareholders, by motivating Executives to achieve superior outcomes. TSR is a robust and transparent means of measuring shareholder returns. SARs vest over a three to five-year period on fulfilment of two performance criteria: vest is calculated as follows: if Horizon • • • linear pro rata calculation. TSR) must exceed 10%; and SX 200 Energy Index, whereby the proportion of SARs that vest; the Index, 100% vest; and percentage vest based on a Performance fourteen percent above the Index equates to a performance level likely to exceed the 75th percentile of market returns of companies in the Index (weighted by company size). Performance period? SARs will first be tested for vesting at 3 years from award; and thereafter re-tested every 6 months until 5 years from award. What is the LTI opportunity? The CEO has an LTI opportunity equal to 50% of TFR, and other Executives have an LTI opportunity equal to The number of SARs issued to an Executive in a relevant year is calculated by dividing the monetary value determined by an independent expert each year using a Monte Carlo simulation. Treatment of incentives on cessation of employment When do SARs lapse? exercisable, become exercisable. SARs will lapse: – where the SAR has not vested, 5 years after award or such longer period necessary for the Executive to freely deal in Horizon securities in accordance with the Securities Trading Policy; – the Board exercises its discretion to lapse the SARs on cessation of employment; – the Board exercises its discretion to lapse the SARs for serious misconduct or fraud by an Executive; or – the Executive provides a notice to Horizon that they wish the SARs to lapse. Effect of take-over or change of control of Company, death or disablement In the event of a takeover or change of control event, the Board will either have the discretion or be required (if a change of control occurs) to determine a special retesting date for SARs. For example, the Board will have discretion to determine a special retesting date where a takeover bid is made for the Company. 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 will vest if the performance criteria are fulfilled in relation to that special retesting date. 29[2.4] - Associated policies The Group has adopted several policies to support remuneration framework and governance, including the Securities www.horizonoil.com.au. Actual Remuneration of Executives Disclosing actual pay provides shareholders with additional information to assist in understanding the cash and other benefits received by Executives in respect of a financial year. This information differs from the remuneration details prepared in accordance with statutory obligations and accounting standards on pages 36 - 37 of this Report, as those details include the values of performance rights that have been awarded, but which may or may not vest. The information provided below is not prescribed by Australian Accounting Standards and represents the actual remuneration payable to KMP in respect of this financial year. See Statutory and Security-based Reporting (Section 7) of this Report for statutory remuneration disclosures that have been prepared in accordance with the Australian Accounting Standards. The table below excludes the accounting expenses of equity grants and other long-term benefits such as annual and long service leave awards and sets out the actual value of remuneration received by executive KMP in connection with the financial year. Actual remuneration received in respect of the financial year EXECUTIVE C Hodge3 M Sheridan4 R Beament K Quinlivan7 K Bramley5 A McArdle6 Total TOTAL FIXED REMUNERATION (INCLUDING SUPERANNUATION) US$ NON-MONETARY BENEFITS US$ STI AMOUNTS US$1 LTI AWARDS2 TOTAL 2020 156,007 2019 - 2020 349,594 2019 536,138 2020 308,881 2019 321,486 2020 172,159 2019 271,480 2020 316,5705 2019 399,6125 2020 174,991 2019 357,425 2020 1,478,202 2019 1,886,141 11,151 - 40,517 56,829 8,786 7,277 4,837 5,165 82,0445 146,1365 3,279 6,171 150,614 221,578 - - - 223,539 12,808 57,405 7,211 48,475 10,816 48,475 - 63,783 30,835 441,677 - - - - - - - - - - - - - 167,158 - 390,111 816,506 330,475 386,168 184,207 325,120 409,430 594,223 178,270 427,379 1,659,651 2,549,396 Includes STIs payable in respect of the current financial period performance. LTI awards that vested and were exercised during the financial year. 1 2 3 Actual remuneration for C Hodge reflects only the remuneration received from the date of appointment as Chief Executive Officer and Managing Director on 14 February 2020. Mr Hodge forfeited 100% of his STI opportunity for the financial year. 4 Actual remuneration for M Sheridan reflects only the remuneration to 28 February 2020, when M Sheridan ceased to be a KMP and Director. M Sheridan was on notice from 28 February 2020 to 9 June 2020 during which period he was paid US$135,907 in accordance with his employment contract. Following the notice period M Sheridan received a US$558,088 termination payment in accordance with his employment contract. Mr Sheridan is not entitled to any STI above his termination payment. 5 on- living abroad in countries such as Papua New Guinea. Mr Bramley returned to Australia during December 2019, upon which his entitlement to expatriate allowances ceased. 6 A McArdle ceased to be a KMP effective 19 December 2019. 7 K Quinlivan was on unpaid parental leave from 30 Contractual Arrangements for Executives Remuneration and other terms of employment for the Executives are formalised in employment contracts. The key terms of the contractual arrangements for the CEO are summarised below: COMPONENT CONTRACT TERM EXPIRY DATE NOTICE PERIOD EMPLOYEE NOTICE PERIOD GROUP Chief Executive Officer Ongoing basis No expiration date 6 months 6 months Termination of employment (without cause) Payment of termination benefit on termination without cause by the Company, equal to the total of: ▪ ▪ for between 1 year and 2 years continuo remuneration: and ▪ Board has discretion to permit the SARs not yet exercised to lapse or accelerate the date on which the SARs become exercisable. Termination of employment (with cause) STI is not awarded. Board has discretion to lapse all SARs. The key terms of the contractual arrangements for the other Executive KMPs are summarised below: COMPONENT CONTRACT TERM EXPIRY DATE NOTICE PERIOD EMPLOYEE NOTICE PERIOD GROUP Other Executives Ongoing basis No expiration date 3 months 6 months Termination of employment (without cause) Payment of termination benefit on termination without cause by the Company, equal to 6 months remuneration. 50% of the value of any STI paid to the Executive in the preceding 12 months. 50% of the value of any LTI awards granted or paid in the preceding 12 months. Board has discretion to cause the SARs not yet exercised to lapse or accelerate the date on which the SARs become exercisable. Termination of employment (with cause) STI is not awarded. Board has discretion to lapse all SARs. 31Group Performance and Financial Year Remuneration Outcomes [5.1] - Overview of Horizon performance The Board aligns remuneration and dependent on overall company performance and the vesting of LTIs occurs on fulfilment of absolute Horizon Total Shareholder Return (TSR), and Horizon TSR relative to the S&P/ASX200 Energy Index. Award of STIs is Horizon share price performance for the current and previous four financial years is displayed in the chart below: Horizon share price ("HZN") versus S&P/ASX200 Energy Index and Brent Crude Oil $0.18 $0.16 $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - e m u o V l HZN Trading Volume HZN Share Price S&P/ASX 200 Energy Index (Rebased) Brent Crude Oil (Rebased) The table below sets out information regarding the Gro Corporations Act. FY20 FY19 FY18 (44,235) 48,409 (1,580) 50,600 93,012 68,482 FY17 4,154 45,171 d by the FY16 (149,726) 53,995 Net cash/(debt) 489 (27,959) (88,608) (108,469) (131,862) [5.2] - Performance against STI measures for the financial year approach. The following table sets out the performance conditions for the STI and their rationale for the financial year. opportunity is calculated with reference to achievement of KPI targets based on a weighted scorecard 32KEY FOCUS AREAS OBJECTIVE AND MEASUREMENT RATIONALE STATUS FINANCIAL Financial Metrics & Profitability Achievement of budgeted revenue, operating costs and cashflow across the Block 22/12 and Maari/Manaia fields Maintain average Group operating costs below US$20/bbl and maintain low corporate general and administrative expenditure Maintain and enhance operating income streams Maximise profitability and cashflow Partially Achieved Effective cost control Exceed Capital Management Gearing & Net debt reduction Appropriate level of gearing and exposure to manage business risk Exceed Production Optimisation Achieve budgeted production Maximise profitability and cashflow Achieved OPERATIONAL Reserves Reserves replacement PNG Commercialisation Progression of PNG resource development planning and commercialisation Ensure sustainability of business and cashflow Maximise shareholder value and future growth Partially Achieved In Progress BUSINESS DEVELOPMENT Growth of the business Focus on organic & inorganic growth opportunities Ensure sustainability of the business and cashflow whilst creating value for shareholders In Progress SAFETY HSSE Achievement of no lost time People & Culture PEOPLE, CULTURE & SUSTAINABILITY Sustainability operated joint ventures Attracting the right skills and retaining key staff Disclosure and reporting in accordance with TCFD guidelines and external benchmarking participation Provide a safe workplace for employees and residents Ensure Company has the necessary resources to achieve strategic objectives Sustainability awareness; make the right kind of impact Achieved Achieved Achieved Voluntary forfeiture of STI Opportunity Based on the KPI scorecard approved by the Board in respect of the financial year, Executives were eligible for a possible STI award equal to 38% of their total STI opportunity. Horizon, and the broader economy, has experienced significant adverse financial impacts as a result of the global COVID- 19 pandemic. In particular, the oil and gas sector faced and continues to face ongoing oil price volatility due to lower short to medium term demand and variable supply. financially stable position and has not had to seek any forms of supplementary corporate financing. Having regard to the impact of COVID-19, the Chief Executive Officer voluntarily forfeits 100% of his possible STI opportunity, and all other Executives voluntarily forfeit 50% of their possible STI Opportunity. 33The table below shows the STIs awarded during the financial year: EXECUTIVE C Hodge1 M Sheridan2 R Beament K Quinlivan3 K Bramley A McArdle4 TOTAL OPPORTUNITY US$5 % OF FIXED REMUNERATION % AWARDED % FORFEITED 79,464 262,510 67,413 37,951 56,926 74,903 50% 50% 21.4% 21.4% 21.4% 21.4% 0% 0% 19% 19% 19% 0% 100% 100% 81.0% 81.0% 81.0% 100% 1 Under the terms of Mr from 14 February 2020. Mr Hodge forfeited 100% of his STI opportunity for the financial year. 2 M Sheridan ceased as a KMP on 28 February 2020. Mr Sheridan is not entitled to any STI above his termination payment. 3 K Quinlivan was on unpaid parental leave from 1 July 2019 to 31 October 2019. 4 A McArdle ceased as a KMP on 19 December 2019. Mr McArdle was not eligible for an STI for FY20. 5 The STI opportunity is calculated by translating the Executives Australian Dollar denominated TFR to United States Dollars at the prevailing spot rate on 30 June 2020. -rata basis asis. [5.3] - Performance against LTI measures for the financial year 5.1 of this Report. LTI awarded in respect of FY20 LTI awards for Executives are made at the beginning of the financial year. In 2019, LTIs were awarded to was approved by shareholders at the AGM on 22 November 2019. LTI awards take the form of SARs. For 2019, each SAR had a fair value of A$0.057617, calculated by an LTI quantum for FY20 The table below shows the financial year LTI grants. EXECUTIVE % OF TFR NUMBER OF SARS GRANTED DURING FY20 VALUE OF SARS AT EFFECTIVE ALLOCATION DATE1 NUMBER OF SARS VESTED DURING FY20 NUMBER OF SARS LAPSED DURING FY20 C Hodge2 50% - - - - M Sheridan 50% 6,508,496 $262,275 12,186,198 2,200,649 R Beament 21.4% 1,671,382 $67,352 K Quinlivan 21.4% 1,411,389 $56,875 K Bramley 21.4% 1,411,389 $56,875 A McArdle3 21.4% 1,857,091 $74,836 - - - - - - - - 1 The value of a SAR at allocation (1 July 2019) 2 Mr Hodge was not a KMP at the time of LTI award at the beginning of the financial year. Under the terms of Mr - employment agreement, he will be eligible for an LTI award Executive Officer. 3 Awards vesting in FY20 No SARs were exercised by KMP during the financial year. 34Non-Executive Director Remuneration NEDs are paid fees for services on the Board and committees and do not receive any performance-related incentives and no retirement benefits are provided other than superannuation contributions. The Remuneration and Nomination Committee reviews fees annually and the Board may also seek advice from external advisers when undertaking the review process. NED fees are determined within an aggregate D shareholders. Shareholders approved the current fee pool limit of A$600,000 at the 2009 Annual General Meeting. These fees have not changed in A$ terms for the last seven years. Note that the remuneration table set out on page 36 shows tional currency. The table below shows the levels for NEDs (exclusive of superannuation) for FY20. FEES Board Fees DESCRIPTION Chair PER ANNUM A$163,110 Other Non-executive Directors A$81,555 There were no additional fees paid to NEDs during the financial year for being members of the Board committees. The NEDs are reimbursed for expenses reasonably incurred in attending to the affairs of the Company. There are no retirement allowances in place for NEDs. 35 Statutory and share based reporting [7.1] - Director remuneration for the financial year The following table sets out the statutory disclosures required under the Corporations Act 2001 (Cth) and in accordance with Australian Accounting Standards remuneration for Directors for the years ended 30 June 2020 and 30 June 2019. FINANCIAL YEAR ENDED 30 JUNE 2020 AND 2019 NON-EXECUTIVE DIRECTORS M Harding J Humphrey1 G de Nys S Birkensleigh G Bittar2 C Hodge3 Total Director remuneration Total Director remuneration (A$) SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS TOTAL5 CASH SALARY / BOARD FEES SUPERANNUATION4 US$ 109,198 68,260 - 59,188 54,599 58,237 54,599 58,237 54,599 58,237 33,898 12,508 306,893 314,667 457,729 441,234 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 US$ 10,374 6,485 - 5,623 5,187 5,532 5,187 5,532 5,187 5,532 3,220 1,188 29,155 29,892 43,484 41,917 US$ 119,572 74,745 - 64,811 59,786 63,769 59,786 63,769 59,786 63,769 37,118 13,696 336,048 344,559 501,213 483,151 John Humphrey resigned as a Director and Chairman on 28 November 2018. 1 2 B Lorenzon, as alternate Director to G Bittar, received no fees during the current and prior financial periods. 3 Remuneration for C Hodge reflects remuneration as an Independent Non-executive Director prior to and Managing Director on 14 February 2020. appointment as Chief Executive Officer 4 Superannuation includes both compulsory superannuation payments and salary sacrifice payments made on election by Directors. 5 Remuneration is paid in Australian dollars and converted to US dollars at the foreign exchange rate prevailing on the date of the transaction. 36[7.2] - Statutory details of other key management personnel remuneration for the financial year The table below outlines the remuneration of other key management personnel for the years ended 30 June 2020 and 30 June 2019. FINANCIAL YEAR ENDED 30 JUNE 2020 AND 2019 SHORT-TERM BENEFITS POST-EMPLOY- MENT BENEFITS LONG-TERM BENEFITS CASH SALARY AND FEES STIs NON- MONETARY1 SUPERANNUATION2 TOTAL CASH OR IN-KIND BENEFIT LONG SERVICE LEAVE ACCRUAL3 SHARE BASED PAYMENTS SARs4 TOTAL6 OTHER KEY MANAGEMENT PERSONNEL US$ US$ US$ US$ US$ US$ US$ US$ C Hodge6 Chief Executive Officer M Sheridan7 Chief Executive Officer R Beament Chief Financial Officer K Quinlivan10 General Counsel K Bramley8 General Manager PNG A McArdle9 Chief Operations Officer Total KMP remuneration Total KMP remuneration (A$) 2020 149,765 2019 - 2020 340,570 - - - 2019 518,266 223,539 56,829 - 40,517 - 9,024 17,871 11,151 6,242 167,158 - - - - 167,158 - - 390,111 9,838 175,900 575,849 816,505 30,733 256,706 1,103,944 2020 294,458 12,808 8,786 14,423 330,475 6,850 46,231 383,556 2019 303,615 57,405 7,277 17,871 386,168 25,119 23,675 434,962 2020 163,456 7,211 4,837 8,703 2019 253,608 48,475 5,165 17,871 184,207 325,119 - - 39,040 223,247 19,992 345,111 2020 302,062 10,816 82,044 14,508 409,430 6,122 39,040 454,592 2019 381,761 48,475 146,136 17,852 594,224 26,689 19,992 640,905 2020 170,185 - 3,279 2019 342,748 63,783 6,171 4,806 14,677 178,270 427,379 - - 12,495 190,765 - 427,379 2020 1,420,496 30,835 150,614 57,706 1,659,651 22,810 312,706 1,995,167 2019 1,799,998 441,677 221,578 86,142 2,549,395 82,541 320,365 2,952,301 2020 2,113,057 44,929 223,101 85,991 2,467,078 33,625 430,427 2,931,130 2019 2,518,714 629,799 309,964 120,531 3,579,008 115,466 428,768 4,123,242 1 Non-monetary benefits include the value of car parking, insurances 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 Remuneration for C Hodge reflects remuneration from the date of ment as Chief Executive Officer and Managing Director on 14 February 2020. Mr Hodge forfeited 100% of his STI opportunity for the financial year. 7 Actual remuneration for M Sheridan reflects only the remuneration to 28 February 2020, when M Sheridan ceased to be a KMP and Director. M Sheridan was on notice from 28 February 2020 to 9 June 2020 during which period he was paid US$135,907 in accordance with his employment contract. Following the notice period M Sheridan received a US$558,088 termination payment in accordance with his employment contract. Mr Sheridan is not entitled to any STI above his termination payment. 8 and non-monetary benefits are expatriate allowances and insuranc living abroad in countries such as Papua New Guinea. Mr Bramley returned to Australia on 7 December 2019, upon which his entitlement to expatriate allowances ceased. 9 A McArdle ceased to be a KMP effective 19 December 2019. 10 K Quinlivan was on unpaid parental leave from 1 July 2019 to 31 October 2019. 37 [7.3] - Shareholding of key management personnel Shareholding The following tables detail the number of shares held by KMP, either directly or indirectly or beneficially during the reporting period ended 30 June 2020: KMP OPENING BALANCE 30 JUNE 2019 ACQUIRED DURING FY20 DISPOSED OF DURING FY20 RECEIVED DURING FINANCIAL YEAR ON THE EXERCISE OF OPTIONS CLOSING BALANCE 30 JUNE 2020 DIRECTORS M Harding C Hodge - - M Sheridan 7,968,201 G de Nys 2,203,639 S Birkensleigh G Bittar OTHER KMP - - R Beament 38,184 - - - - - - - K Bramley 36,250 146,040 - - - - - - - - A McArdle 50,000 K Quinlivan - - - (50,000) - - - - - - - - - - - - - 7,968,201 2,203,639 - - 38,184 182,290 - - Long Term Incentives (Share Appreciation Rights) The following tables detail the number of SARs held by KMP, either directly or indirectly or beneficially during the reporting period ended 30 June 2020: KMP BALANCE AT START OF FINANCIAL YEAR GRANTED AS REMUNERATION DURING FINANCIAL YEAR EXERCISED DURING FINANCIAL YEAR LAPSED DURING FINANCIAL YEAR BALANCE AT END OF FINANCIAL YEAR VESTED AND EXERCISABLE AT END OF FINANCIAL YEAR UNVESTED C Hodge1 - - M Sheridan 43,537,715 6,508,496 R Beament 1,318,690 1,671,382 K Quinlivan 1,113,561 1,411,389 K Bramley 1,113,561 1,411,389 A McArdle2 - 1,857,091 - - - - - - - - - - 2,200,649 47,845,562 19,644,975 28,200,587 - - - - 2,990,072 2,524,950 2,524,950 1,857,091 - - - - 2,990,072 2,524,950 2,524,950 1,857,091 1 Mr Hodge will be eligible for an LTI award following the first anniversary of employment as the Chief Executive Officer and Managing Director. 2 Subsequent to year end the Board exercised its discre 3 Subsequent to year end and in accordance with contract entitlement, 10,004,499 SARs were issued to key management personnel. due to the cessation of his employment. 38Option holdings No listed or unlisted options in the Company were held during the current or prior financial year by Directors and other KMP, including their personally related entities. [7.4] - Securities Trading Policy sets out the procedures and principles that apply to trading in Horizon Oil Limited securities. A copy of the Securities Trading Policy is available on the Company website www.horizonoil.com.au. [7.5] - Other transactions with KMP Other than as noted above, there are no other transactions between any of the KMP with any of the companies which are related to or provide services to the Group unless disclosed in this Report. There were no loans to any of the KMP during the financial year. [7.6] - Additional statutory information Terms and conditions of the share-based arrangements The terms and conditions of each grant of SARs presently on issue affecting remuneration for Executive KMP in the previous, current or future reporting periods are as follows: EFFECTIVE ALLOCATION DATE ESTIMATED EXPIRY DATE EXERCISE PRICE3 STRIKE PRICE1 VALUE PER SAR AT EFFECTIVE ALLOCATION DATE2 DATE EXERCISABLE 01/07/2015 01/07/2020 01/07/2016 01/07/2021 01/07/2016 01/07/2021 01/07/2017 01/07/2022 01/07/2018 01/07/2023 01/07/2019 01/07/2024 Nil Nil Nil Nil Nil Nil A$0.0865 A$0.0438 100% after 12/08/20184 A$0.0483 A$0.0263 100% after 20/10/20194 A$0.0930 A$0.0193 100% after 20/10/20194 A$0.0453 A$0.0197 100% after 20/10/20204 A$0.1439 A$0.0730 100% after 20/10/20214 A$0.1054 A$0.0576 100% after 20/10/20224 The value per SAR at effective allocation date is determined by an independent expert using a Monte Carlo simulation. 1 2 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 in section 2. 5 SARs on issue to Michael Sheridan for the 30 June 2020 financial year, were approved by shareholders for the purposes of the ASX listing rules at the -day volume weighted average price for Horizon shares at effective allocation date. 2019 Annual General Meeting. 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 effective date of allocation. Fair values have been assessed by an independent expert the current price and expected price volatility of the underlying Horizon 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 e- 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. effective allocation date to be allocated equally over 39The model inputs for each grant of SARs during the financial year ended 30 June 2020 included: Effective allocation date Estimated expiry date Exercise price Expected price volatility Risk free rate Expected dividend yield -day VWAP of Horizon shares at effective allocation date A$0.1054 1 July 2019 1 July 2024 Nil1 65.80% p.a. 1.030% p.a. 0.00% p.a. 1 No price is payable by a participant in the Long-Term Incentive Plan on the exercise of a SAR. Details of remuneration SARs For each grant of SARs currently on issue to KMP in the current or prior financial years which results in an amount being disclosed in the Remuneration Report as a share-based payment to KMP for the financial year, the percentage of the grant that vested in the financial year and the percentage that was forfeited because the person did not meet the vesting or performance conditions is set out below. The SARs may vest after three years, subject to the performance conditions being met. No SARs will vest if the performance conditions are not fulfilled, therefore the minimum value of SARs yet to vest is US$Nil. The maximum value of the SARs yet to vest has been determined as the amount of the fair value of the SARs at the effective allocation date that is yet to be expensed. NAME FINANCIAL YEAR GRANTED VESTED % FORFEITED % FINANCIAL YEARS IN WHICH SARs MAY VEST MAXIMUM TOTAL VALUE OF GRANT YET TO VEST1 US$ SARs R Beament K Bramley K Quinlivan FORMER KMP M Sheridan A Fernie B Emmett 2019 2020 2019 2020 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2015 2016 2017 2018 - - - - - - 100% 100% - - - - 100% 100% - - 100% 100% - - - - - - - - - - - - - - - - - - - - - - 30/06/2022 30/06/2023 30/06/2022 30/06/2023 30/06/2022 30/06/2023 30/06/2018 30/06/2019 30/06/2020 30/06/2021 30/06/2022 30/06/2023 30/06/2018 30/06/2019 30/06/2020 30/06/2021 30/06/2018 30/06/2019 30/06/2020 30/06/2021 23,675 44,861 19,992 37,882 19,992 37,882 - - - - 92,191 174,690 - - - - - - - - The above values have been converted to dollars at the exchange rate prevailing on the date of the grant of the SARs. 1 2 Subsequent to year end the Board exercised its discretion to lapse Mr . 40Dividends No dividend has been paid or declared by the Company to the shareholders since the end of the prior financial year. Insurance of Officers During the financial year, Horizon Oil Limited paid a premium to insure the Directors and secretaries of the Company and related bodies corporate. The insured liabilities exclude conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. The contract prohibits the disclosure of the premium paid. The officers of the Company covered by the insurance policy include the Directors and secretaries, and other officers who are Directors or secretaries of subsidiaries who are not also Directors or secretaries of Horizon Oil Limited. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company or a related body corporate. Non-Audit Services The Company may decide to employ PricewaterhouseCoopers on assignments additional to its statutory audit duties where 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 -making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards. 41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 CONSOLIDATED 2020 US$ 2019 US$ 158,282 168,234 14,267 14,307 Total remuneration for audit and other assurance services 172,549 182,541 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 15,895 15,895 8,085 8,085 16,361 16,361 19,667 19,667 196,529 218,569 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. 42set out on page 44. Rounding of Amounts to The Nearest Thousand Dollars tions Act 2001 is 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 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. M Harding Chairman Sydney 27 August 2020 C Hodge Chief Executive Officer 43Auditor’s Independence Declaration As lead auditor for the audit of Horizon Oil Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Horizon Oil Limited and the entities it controlled during the period. Sean Rugers Partner PricewaterhouseCoopers Sydney 27 August 2020 44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) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • • • • • • the consolidated statement of financial position as at 30 June 2020 the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of profit or loss and other comprehensive income 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 (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 45individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope Key audit matters • Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee: − Impairment assessment of exploration, development and oil & gas assets • These are further described in the Key audit matters section of our report. • For the purpose of our audit we used overall Group materiality of $1.01 million, which represents approximately 2% of the Group’s EBITDA after adjusting for exploration and development expenses and impairment (adjusted EBITDA). • 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 adjusted 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 inherently uncertain future events. • • Our audit focused on the joint arrangement oil producing operations in New Zealand and China, the joint arrangement gas exploration and development assets in PNG and the Group’s corporate head office in Sydney. The Group uses an internal expert to perform an assessment of the Reserves and Resources on an annual basis. Our scope included assessing the work of the internal expert. 46 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Impairment assessment of exploration, development and oil & gas assets Refer to note 1(k), 1(0), 14, 15 & 28 As indicators of impairment were identified by the Group with respect to exploration, development and oil & gas assets, the Group performed an impairment assessment and calculated the recoverable amount of the assets which is the higher of the asset’s fair value less costs to sell and value in use. This is a key audit matter due to the: • • • significant judgement exercised by the Group in estimating the recoverable amount of the exploration, development and oil and gas assets in different jurisdictions volatility of global oil prices which have been impacted by the recent COVID19 pandemic financial significance of these assets to the business We performed the following procedures, amongst others: • Read the impairment assessment prepared by the Group. Assisted by PwC valuation experts, we assessed the key assumptions applied within the Group’s discounted cash flow model, including: ̵ the assessment of the discount rates used by the Group in the valuation process of its exploration, development and oil and gas assets held in the joint arrangements, New Zealand and China. ̵ Considering the Group’s forecast oil prices which were derived from broker forecasts and analysing the Group’s process for developing oil price assumptions. ̵ Comparing recent market transactions to the carrying value of the relevant asset, where available. 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 internal expert in their most recent reserves and resources statement on China and New Zealand joint arrangements. 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 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information 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. 47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. 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. 48 Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 26 to 40 of the directors’ report for the year ended 30 June 2020. In our opinion, the remuneration report of Horizon Oil Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Sean Rugers Partner Sydney 27 August 2020 49 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) for the financial year ended on that date; and on as at 30 June 2020 and of its performance 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. M Harding Chairman Sydney 27 August 2020 C Hodge Chief Executive Officer 50 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 CONSOLIDATED NOTE 2020 2019 REVENUE Cost of sales Gross profit Other income General and administrative expenses Insurance expense Exploration and development expenses Impairment of non-current assets Finance costs interest, transaction costs, other Finance income unrealised movement in value of options Other expenses (Loss)/profit before income tax NZ royalty tax expense Income tax (expense)/benefit (Loss)/profit for the financial year OTHER COMPREHENSIVE (LOSS)/INCOME ITEMS THAT MAY BE RECLASSIFIED TO PROFIT AND LOSS Changes in the fair value of cash flow hedges Total comprehensive (loss)/income for the financial year (Loss)/profit attributable to: Security holders of Horizon Oil Limited Non-controlling interests (Loss)/profit for the financial year Total comprehensive (loss)/income attributable to: Security holders of Horizon Oil Limited Non-controlling interests Total comprehensive (loss)/income for the financial year Earnings per share for (loss)/profit attributable to ordinary equity holders of Horizon Oil Limited: Basic earnings per ordinary share Diluted earnings per ordinary share 4 5 4 5 5 5 5, 28 5 5 5 6a 6b 84,025 (53,384) 30,641 28 (4,469) (2,132) (5,035) (67,285) (3,850) 8,047 (180) (44,235) (2,949) (7,955) (55,139) (2,749) (57,888) (55,139) - (55,139) (57,888) - (57,888) 122,401 (67,354) 55,047 4,427 (3,754) (1,907) (4,592) - (11,748) 11,157 (221) 48,409 (1,653) (10,930) 35,826 9,782 45,608 35,826 - 35,826 45,608 - 45,608 US cents US cents 40a 40b (4.23) (4.23) 2.75 2.17 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 51CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 CONSOLIDATED NOTE 2020 2019 CURRENT ASSETS Cash and cash equivalents Receivables Inventories Derivative financial instruments Other assets Total current assets NON-CURRENT ASSETS Deferred tax assets Property, 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 7 8 9 10 11 12 13 14 15 16 17 18 10 16 21 19 18 20 22 23a 23b 25,920 7,923 3,510 15 1,387 38,755 7,084 869 8,225 116,702 132,880 171,635 6,887 2,942 12,236 1,344 21,472 8,046 5,519 2,708 1,673 39,418 8,357 528 56,903 157,453 223,241 262,659 11,503 4,189 9,506 307 23,409 25,505 385 15,169 3,791 12,079 33,947 65,371 88,780 82,855 174,801 12,599 (104,545) 82,855 71 16,623 11,838 38,298 29,018 95,848 121,353 141,306 174,801 15,911 (49,406) 141,306 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 52CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 CONSOLIDATED ATTRIBUTABLE TO MEMBERS OF HORIZON OIL LIMITED CONTRIBUTED EQUITY RESERVES TOTAL EQUITY RETAINED PROFITS / (ACCUMULATED LOSSES) Balance as at 1 July 2018 174,801 NOTE Profit for the financial year 23(b) Changes in the fair value of cash flow hedges 23(a) Total comprehensive income for the financial year Transactions with owners in their capacity as equity holders: Employee share-based payments expense 23(a) - - - - - Balance as at 30 June 2019 Balance as at 1 July 2019 174,801 174,801 Loss for the financial year 23(b) Changes in the fair value of cash flow hedges 23(a) Total comprehensive loss for the financial year Transactions with owners in their capacity as equity holders: Employee share-based payments benefit 23(a) - - - - - 5,740 - 9,782 (85,232) 35,826 - 95,309 35,826 9,782 9,782 35,826 45,608 389 389 15,911 15,911 - - - (49,406) (49,406) (55,139) (2,749) - 389 389 141,306 141,306 (55,139) (2,749) (2,749) (55,139) (57,888) (563) (563) - - (563) (563) Balance as at 30 June 2020 174,801 12,599 (104,545) 82,855 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 53 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 CONSOLIDATED NOTE 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes paid Net cash inflow from operating activities 39 CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration phase expenditure Payments for oil and gas assets Payments for plant and equipment Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Transaction costs incurred on borrowings Leasing arrangements Proceeds from borrowings 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 18a 18a 83,871 (32,386) 51,485 28 (3,469) (11,313) 36,731 (2,274) (5,755) (22) (8,051) - (233) - (24,000) (24,233) 4,447 21,472 1 130,383 (37,441) 92,942 32 (6,490) (13,671) 72,813 (2,684) (7,465) (71) (10,220) (1,942) - 94,588 (161,390) (68,744) (6,151) 27,625 (2) Cash and cash equivalents at the end of the financial year 7 25,920 21,472 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 54Notes to the consolidated Financial Statements 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 statements, the consolidated entity is a for profit entity. Statement of compliance These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, Interpretations and the Corporations Act 2001. The consolidated financial statements comply with Australian Accounting Standards as issued by the AASB and 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 Compan 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 2020 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 2020. 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 ended 30 June 2020. None of the new and revised standards and interpretations were deemed to have a material impact on the results of the Group. Leases Leases n d liabilities for leases with terms of more than 12 months unless the underlying asset is of low value. The new standard has been applied as at 1 July 2019 using the simplified transition approach. Under this method, the cumulative effect of initial application is recognised as an adjustment to the opening balance of retained earnings as at 1 July 2019 and comparatives are not restated. The application of AASB 16 has resulted in the recognition of right-of-use assets of US$140,510 and an equal increase in lease liabilities at 1 July 2019, with no impact on the opening retained earnings for the year ending 30 June 2020. 55 The adoption of AASB 16 has resulted in a change in the Groups lease recognition policy (refer to Note 1(j)). 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. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires ing 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 financial year ended 30 June 2020, except as disclosed in Note 2. estimates has not affected items recognised in the financial statements for the Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Horizon Oil Limited (the 20 and the results of all subsidiaries for the financial year then ended. Horizon Oil Limited and its subsidiaries together are referred to in these fina 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). liabilities, revenue and expenses are set out in Note 27. 56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. 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. 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. Foreign currency translation [i] Functional and presentation currency Items included in the financia statements are presented in United States dollars Horizon Oil Limited has selected United States dollars as its presentation currency for the following reasons: (a) (b) it is widely understood by Australian and international investors and analysts. d in United States dollars; and [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. Revenue recognition Revenue arises from the sale of crude oil. To determine whether to recognise revenue, the Group follows a 5-step process: Identifying the contract with a customer; Identifying the performance obligations; [1] - [2] - [3] - Determining the transaction price; [4] - Allocating the transaction price to the performance obligations; and [5] - Recognising revenue when/as performance obligation(s) are satisfied. 57 The Group enters into sales transactions involving a single product. The total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods to its customers. Revenue from Block 22/12, China, is derived over a period in time as the crude oil produced continuously flows through a metered pipeline. The metered monthly production is invoiced at the end of each month, in accordance with a monthly sales contract, and revenue recognised for the month of production. At the end of each month, once billing occurs and revenue is recognised, there are no unsatisfied performance obligations or variable revenue requiring estimation. Revenue from the Maari/Manaia fields, New Zealand, is derived at a point in time as the crude oil produced is stored and sold in individual liftings which are pursuant to individual sales contracts. Each lifting is invoiced in accordance with the respective contract and revenue recognised based on the bill of lading date associated with the lifting. Once the lifting is complete there are no unsatisfied performance obligations or variable revenue requiring estimation. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. 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. Taxation [i] Income tax The income tax expense or 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 reportin provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially 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. 58[ii] Government royalties Government royalties are treated as taxation arrangements when they are imposed under Government authority and when 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. Leases The Group leases offices in Sydney and PNG, as well as various equipment, with rental contracts typically taken out for fixed periods of 12 months to 3 years. These contracts do not have a reasonably certain extension option and may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are negotiated on an individual basis, and do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Previously, the above leases were classified as operating leases by the Group, where the Group is the lessee. The company did not have any leases which are classified as finance leases. On adoption of AASB 16 at 1 July 2019, the leases described above are recognised as a right-of-use asset (Note 13) and a corresponding liability (Note 16) at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: – fixed payments (including in-substance fixed payments), less any lease incentives receivable; and – variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. on 1 July 2019 was 5.1%. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost and are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The Group has elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether an Arrangement contains a Lease. Impairment of assets Assets are reviewed for impairment at each reporting date to determine whether there is any indication of impairment. If an impairment indicator exists a formal estimate of the recoverable amount is calculated. An impairment loss is amount is the high assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows f - an after-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 59Exploration phase expenditure is assessed for impairment in accordance with Note 1(o). 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. 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. The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. The expected loss rates are based on the payment profiles of sales over a period of 36 months before 30 June 2020 and the corresponding historical credit losses experienced within this period. The historical rates are adjusted to reflect current and forward-looking information on key factors affecting the ability of the customers to settle the receivables. Management assesses the collectability of these amounts based on the customer relationships and historical payment behaviour. 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 at the original effective interest rate. The amount of the provision is recognised in profit or loss. Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities assumed, equity interests issued by the Group, fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Acquisition related costs are expensed as incurred. For purchase combinations which do not constitute the acquisition of a business, the Group identifies and recognises the individual identifiable assets acquired and liabilities assumed. The consideration paid is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Transaction costs associated with the acquisition are a component of the consideration transferred and are therefore capitalised. 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. 60When an oil or gas field has been approved for development, the capitalised exploration phase expenditure is reclassified as oil and gas assets in the statement of financial position. Prior to reclassification, capitalised exploration phase expenditure is assessed for impairment. Where an ownership interest in an exploration and evaluation asset is purchased, any cash consideration paid net of transaction costs is treated as an asset acquisition. Alternatively, where an ownership interest is sold, any cash consideration received net of transaction costs is treated as a recoupment of costs previously capitalised, with any excess accounted for as a gain on disposal of non-current assets. Impairment of capitalised exploration phase expenditure Exploration phase expenditure is reviewed for impairment semi-annually in accordance with the requirements of AASB 6 Exploration for and Evaluation of Mineral Resources. The carrying value of capitalised exploration phase expenditure is assessed for impairment at the asset or cash-generating unit level (which usually is represented by an exploration permit or licence) whenever facts and circumstances (as defined in AASB 6) suggest that the carrying amount of the asset may exceed its recoverable amount. If 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. 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. field is capable of operating in the manner intended by management (that is, when commercial levels of production are capable of being achieved). Development expenditure is tested for impairment in accordance with the accounting policy set out in Note 1(k). [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. 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 61 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 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. [iv] Reserves The estimated reserves include those determined on an annual basis by Mr Gavin Douglas, Subsurface Manager of Horizon Oil Limited. Mr Douglas is a full-time employee of Horizon Oil Limited and is a member of the American Association of Heriot Watt University, UK and more than 23 years of relevant experience. The reserve estimates are determined by Mr Douglas 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. 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. 62 Plant and equipment The cost of improvements to, or on, leasehold property is depreciated over the unexpired period of the lease or the estimated useful life of the improvement to the Group, whichever is shorter. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: – Computer equipment – Furniture, fittings and equipment – Leasehold improvement 4 years 10 years 3 3 10 years 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. 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. Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges). The Group currently does not have any derivatives designated as fair value hedges. The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of derivative financial instruments used for hedging purposes are disclosed in Note 10. Movements in the hedging reserve in equity are shown in Note 23(a). [i] Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other income or other expenses. Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of gain or loss relating to the effective portion of forward foreign exchange contracts and commodity price contracts hedging export 63 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. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest 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. 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. 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 (2019: US$Nil) capitalised during the current financial year and the amount of borrowing costs amortised to the income statement were US$776,816 (2019: US$1,053,169). Employee benefits [i] Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and related on-costs expected to be settled within 12 months of the end of the reporting period are recognised in other payables in respect of employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are recognised in other payables. [ii] Long service leave The liability for long service leave is recognised as a provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of 64the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. [iii] Share-based payments Share-based payment compensation benefits are provided to employees and consultants via the Horizon Oil Limited 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 32. The fair 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. Oil Limited Long Term Incentive 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. Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options over unissued ordinary shares are shown in share capital as a deduction, net of related income tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration but are expensed. 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. 65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. Parent entity financial information The financial information for the parent entity, Horizon Oil Limited, disclosed in Note 41, 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 reco being deducted from the carrying amount of these investments. [ii] Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. 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. 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 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 14. [ii] Reserve estimates The estimated quantities of proven and probable hydrocarbons reported by the Group are integral to the calculation of amortisation expense (depletion), assessments of impairment of assets, provision for restoration and the recognition of deferred tax assets due to changes in expected future cash flows. Reserve estimates require interpretation of complex and judgemental geological and geophysical models in order to make an assessment of the size, shape, depth and quality 66 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 20. During the period the Group revised the future cost estimates from which the provisions for restoration of the PNG licences are derived. Following the significant reductions in yields and inflation rates caused by the COVID-19 pandemic, the Group revised the discount and inflation rate used in quantifying the restoration provisions. The resultant effect is an increase in the restoration provision of US$1.7 million pertaining to PNG licences and a US$2.3 million increase in the restoration provision for the New Zealand licence. [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 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 -tax discount rate of between 10% and 11% to take into account risks which have not already been adjusted for in the cash flows. The Group s current oil price forecast assumes a recovery in oil prices over the next 4 years to US$60/bbl real. Should longer term oil prices be sustained at current levels this may lead to further impairment of the Groups assets. During the period the Group recorded a US$67.3 million non- exploration and development assets in Papua New Guinea. The impairment assessment conducted in respect of the period considered challenges faced by the company in PNG, including unresolved licence tenure issues, the lack of progress in commercialisation of the discovered resources in the Western Province of PNG, and the recent shift by the PNG Government in requiring improved fiscal returns from resource projects. Reference was also made to comparable market transactions. In light of these matters and uncertainties, the Group has impaired its PNG exploration and development assets during the financial period, to a carrying amount of US$5.8 million. The impairment of the PNG assets is disclosed in Note 28. [v] Share-based payments and General options 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 32. 67[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, the deferred that it is no longer expected that the those losses recorded. operations would generate sufficient taxable profits to fully utilise on the basis 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. Segment information 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. 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: s working interest in each individual oil and gas permit, – 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 Block 22/12; WZ 6-12 and WZ 12-8W oil field development and in the exploration and evaluation of hydrocarbons within – 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 PPL 373; and PRL 21, PRL 28, PRL 40, PPL 574, PPL 372 and – 68 Segment information provided to the chief operating decision maker CHINA EXPLORATION & DEVELOPMENT NEW ZEALAND EXPLORATION & DEVELOPMENT PAPUA NEW GUINEA EXPLORATION & DEVELOPMENT ALL OTHER SEGMENTS TOTAL 2020 SEGMENT REVENUE: Revenue from external customers Profit/(loss) before tax 46,958 15,346 Depreciation and amortisation (15,554) 37,067 5,670 (10,800) - (71,536) (95) - 6,285 (263) Total segment assets as at 30 June 2020 Additions to non-current assets other than financial assets and deferred tax during the financial year ended: - Exploration phase expenditure: 77,307 70,156 18,678 5,494 2,431 1,107 817 Development and production phase expenditure: Plant and equipment: Total segment liabilities as at 30 June 2020 55 - 321 - 470 73 35,237 41,059 6,069 - 796 6,415 84,025 (44,235) (26,712) 171,635 4,355 846 869 88,780 CHINA EXPLORATION & DEVELOPMENT NEW ZEALAND EXPLORATION & DEVELOPMENT PAPUA NEW GUINEA EXPLORATION & DEVELOPMENT ALL OTHER SEGMENTS TOTAL 2019 SEGMENT REVENUE: Revenue from external customers Profit/(loss) before tax Depreciation and amortisation 80,112 36,126 (21,234) 42,289 6,810 (18,050) - (4,298) (20) - 9,771 (116) Total segment assets as at 30 June 2019 Additions to non-current assets other than financial assets and deferred tax during the financial year ended: Exploration phase expenditure: 80,480 96,340 75,407 1,440 1,070 171 66 10,432 122,401 48,409 (39,420) 262,659 2,747 4,258 71 - 66 13,438 121,353 Development and production phase expenditure: Plant and equipment: Total segment liabilities as at 30 June 2019 3,495 - 62,732 3 - 40,573 760 5 4,610 Other segment information [i] Segment revenue customers, including through sales agreements with the respective joint venture operators. Reportable segment revenues are equal to consolidated revenue. [ii] Segment profit before tax The chief operating decision maker assesses the performance of operating segments based on a measure of profit before tax. 69 Segment profit before tax is equal to consolidated profit before tax. [iii] Segment assets The amounts provided to the chief operating decision maker with respect to total assets are measured in a manner consistent with that of the financial statements. Reportable segment assets are equal to consolidated total assets. [iv] Segment liabilities The amounts provided to the chief operating decision maker with respect to total liabilities are measured in a manner consistent with that of the financial statements. Reportable segment liabilities are equal to consolidated total liabilities. Revenue FROM CONTINUING OPERATIONS Crude oil sales Net realised gain/(loss) on oil hedging derivatives OTHER INCOME Insurance claim income1 Interest received from unrelated entities CONSOLIDATED 2020 2019 74,942 9,083 84,025 - 28 28 126,742 (4,341) 122,401 4,395 32 4,427 1 During the prior financial period the Group finalised the recovery of US$4.4 million of outstanding insurance claims associated with historical Maari repair works. Revenue for the financial year ended 30 June 2020 relates to contracts executed for the sale of crude oil and all performance obligations have been met within the period. There is no variable consideration requiring estimation for the year ended 30 June 2020. The Group did not have contracts that were executed in a prior period, whereby the performance obligations were partially met at the beginning of the period. There are no existing contracts that are unsatisfied or partially unsatisfied as at 30 June 2020. revenue recognition is as follows: Segment information. CONSOLIDATED 2020 2019 37,067 46,958 84,025 42,289 80,112 122,401 CRUDE OIL SALES Goods transferred at a point in time Goods transferred over a period of time 70 Expenses COST OF SALES Direct production costs Inventory adjustments1 Amortisation expense Royalties and other levies 1 Adjustment for the cost of inventory produced which is on hand as at the end of the financial period. 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 expensed IMPAIRMENT OF NON-CURRENT ASSETS Impairment of non-current assets2 2 Refer to Note 28 for a non-current assets. FINANCING COSTS Interest and finance charges Discount unwinding on provision for restoration Unrealised movement in fair value of derivative financial instrument3 Amortisation of prepaid financing costs CONSOLIDATED 2020 2019 24,538 2,243 26,354 249 53,384 1,655 611 1,756 358 89 4,469 2,132 2,132 5,035 5,035 67,285 67,285 2,454 885 (8,047) 511 (4,197) 27,414 (1,750) 39,284 2,406 67,354 1,317 680 1,189 136 432 3,754 1,907 1,907 4,592 4,592 - - 6,379 833 (11,157) 4,536 591 3 The amount shown reflects an unrealised gain of $8,047,000 (2019: gain of $11,157,000) relating to the mark to market revaluation of the derivative financial liability arising from the share options issued in respect of the subordinated secured facility. Refer to Note 19 for further details of the component parts recognised in relation to this financing transaction. OTHER EXPENSES Net foreign exchange losses/(gain) Other expenses 104 76 180 104 117 221 71 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 Income tax expense Total royalty tax expense (b) Current tax expense Tax expense related to movements in deferred tax balances Adjustments for current tax of prior periods Total income tax expense Deferred income tax expense/(benefit) included in income tax expense comprises: Decrease in deferred tax assets Decrease in deferred tax liabilities Total deferred income tax expense (c) Numerical reconciliation between profit before tax and tax expense/(benefit) (Loss)/profit from continuing operations before income tax Less: Royalty paid/payable Tax at the Australian tax rate of 30% (2019: 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 Other assessable income Effect of overseas tax rates Deferred tax asset not brought to account Previously unrecognised deferred tax now recognised Previously recognised tax losses now not recognised Tax losses utilised to reduce current tax expense 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 Royalty tax expense Total tax expense/(benefit) recognised in statement of profit or loss CONSOLIDATED 2020 2019 4,220 (1,271) 2,949 4,775 2,071 1,109 7,955 3,398 (1,327) 2,071 4,069 (2,416) 1,653 10,798 126 6 10,930 875 (749) 126 CONSOLIDATED 2019 2020 (44,235) (4,220) (48,455) (14,537) 27,336 (48) (9,740) 786 18,334 (888) 1,161 - 2,985 (212) 3 - 1,109 7,955 2,949 10,904 48,409 (4,069) 44,340 13,302 6,497 (268) (7,844) 214 (1,401) (2,017) 1,320 1,163 - - 6 (1,449) 6 10,930 1,653 12,583 72CONSOLIDATED 2020 2019 Amounts recognised in other comprehensive income (d) 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 (990) (990) 3,387 3,387 (e) Tax losses Unused tax losses (and applicable tax rate) for which no deferred tax asset has been recognised: Horizon Oil Limited 30% (2019: 30%) Potential tax benefit at applicable tax rates 3,038 3,038 - - The Company has no Australian subsidiaries and therefore it is not subject to the Australian tax consolidation regime. Cash and cash equivalents Cash at bank and on hand Restricted cash1 CONSOLIDATED 2020 2019 23,007 2,913 25,920 10,050 11,422 21,472 1 Advance Facility (refer to Note 18(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 (2019: US$Nil). Receivables Trade and other receivables1 CONSOLIDATED 2020 2019 7,923 7,923 8,046 8,046 1 Of this balance US$Nil (2019: US$Nil) related to amounts receivable from related parties. Refer to Note 31 for further details. Note 24(b). exposure to credit and market risks, and collectability of overdue amounts, is included in 73 Inventories Crude oil, at cost Drilling and workover spares inventory Derivative financial instruments CURRENT: Derivative (liability)/asset - Oil price swaps Derivative asset Derivative (liability) Derivative (liability) Foreign exchange contracts Interest rate swaps Foreign exchange contracts cash flow hedges cash flow hedges cash flow hedges cash flow hedges CONSOLIDATED 2020 1,483 2,027 3,510 2019 3,726 1,793 5,519 CONSOLIDATED 2020 2019 (1,197) 15 (147) - (1,329) 2,605 103 - (307) 2,401 The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to oil price, interest rate and foreign exchange (refer to Note 24(a)). Oil price swap contracts (cash flow hedges) During the financial year, oil price hedging was undertaken as a risk mitigation measure to ensure the position remains sound and that the Group is able to meet its financial obligations in the event of low oil prices. At 30 June 2020, the Group had 220,000 barrels of crude oil hedged through Brent oil price swaps (30 June 2019: 480,000) at a weighted average price of US$35.75. Interest rate swap contracts (cash flow hedges) During the financial year, interest rate hedging was in place position remains sound and that the Group is able to meet its financial obligations in the event of a high LIBOR rate. As at 30 June 2020, the Group had no outstanding LIBOR swaps. Foreign exchange contracts (cash flow hedges) During the financial year, foreign currency hedging was undertaken as financial position remains sound and that the Group is able to meet its financial obligations in the event of a weakening had RMB 48 million hedged through currency swaps, hedging a portion of the China operating and capital costs over the next 12 months. In addition, the Group had hedged NZD 6 million, through forward exchange contracts, hedging a portion of the New Zealand operating costs over the next 6 months. The Group had also hedged AUD 1.5 million, through forward exchange contracts, hedging a portion of its corporate costs over the next 6 months. , AUD and RMB. As at 30 June 2020, the Group The gain or loss arising from re-measurement of the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and re-classified into profit or loss when the hedged transaction is recognised. The ineffective portion is recognised in profit or loss immediately. During the financial year, a profit of US$ $8,795,267.56 (2019: loss of US$4,379,815) was transferred to profit or loss. 74 Other assets Prepayments Financial asset at fair value New Zealand carbon credits1 CONSOLIDATED 2020 585 802 1,387 2019 877 796 1,673 1 The Group acquires New Zealand Units ((NZUs) also referred to as carbon credits) to surrender to the New Zealand Government through the Environmental Protection Authority, for its proportionate share of the Maari/Manaia fields direct greenhouse gas emissions for the calendar year. NZUs are tradable instruments with transactions taking place on the New Zealand Emissions Trading Register, which is operated by the Environmental Protection Authority. The NZUs are recorded at fair value through profit and loss. 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 CONSOLIDATED 2020 2019 - 6,824 352 128 7,304 (220) 7,084 2,804 6,681 78 865 10,428 (2,071) 8,357 2020 TAX LOSSES DEVELOPMENT & PRODUCTION EXPENDITURE CASH FLOW HEDGES PROVISIONS AND OTHER TOTAL MOVEMENTS AT 1 JULY 2019 (Charged)/credited – to profit or loss – to other comprehensive income At 30 June 2020 2,804 6,681 (2,804) - - 143 - 6,824 78 - 274 352 865 (737) - 128 10,428 (3,398) 274 7,304 2019 TAX LOSSES DEVELOPMENT & PRODUCTION EXPENDITURE CASH FLOW HEDGES PROVISIONS AND OTHER TOTAL MOVEMENTS AT 1 JULY 2018 (Charged)/credited – to profit or loss – to other comprehensive income At 30 June 2019 4,421 (1,617) - 2,804 6,149 532 - 6,681 568 - (490) 78 411 454 - 865 11,549 (631) (490) 10,428 75 Property, plant and equipment LAND(2) BUILDING(2) OTHER PLANT AND EQUIPMENT(2) LEASEHOLD IMPROVEMENTS TOTAL As at 1 July 2018 Cost Accumulated depreciation Net book amount FINANCIAL YEAR ENDED 30 JUNE 2019 Opening net book amount Additions Disposals Depreciation expense Closing net book amount As at 30 June 2019 Cost Accumulated depreciation Net book amount As at 1 July 2019 Cost Adjustment on transition to AASB 16 Accumulated depreciation Net book amount FINANCIAL YEAR ENDED 30 JUNE 2020 Opening net book amount Additions Disposals Depreciation expense(1) Closing net book amount As at 30 June 2020 Cost Accumulated depreciation - - - - - - - - - - - - 16 - 16 16 - (8) (8) - - - - - - - - - - - - - - - 103 - 103 103 547 (17) (203) 430 603 (173) Net book amount 430 (1) Depreciation expense in relation to the right of use assets is US$223,283. - 2,179 (2,110) 69 69 71 (1) (55) 84 2,247 (2,163) 84 2,247 21 (2,163) 105 105 37 - (53) 89 2,305 (2,216) 89 1,263 (738) 525 525 - - (81) 444 1,263 (819) 444 1,263 - (819) 444 444 - - (94) 350 1,263 (913) 350 3,442 (2,848) 594 594 71 (1) (136) 528 3,510 (2,982) 528 3,510 140 (2,982) 668 668 584 (25) (358) 869 4,171 (3,302) 869 76(2) Included in the net book amount of land and building, and other plant and equipment are right-of-use assets as follows: Land Office premises Photocopier and IT equipment Total Exploration phase expenditure 30 JUN 2020 1 JUL 2019 - 430 24 454 16 103 21 140 CONSOLIDATED 2020 2019 EXPLORATION PHASE EXPENDITURE Deferred geological, geophysical, drilling and other exploration and evaluation expenditure 8,225 56,903 The reconciliation of exploration phase expenditure carried forward above is as follows: Balance at beginning of financial year Acquisition of exploration asset Disposal of exploration asset Reassessment of rehabilitation asset Transfer of costs to production phase Exploration expenditure incurred during financial year Exploration expenditure expensed during financial year Impairment expenditure Balance at end of financial year Oil and gas assets 56,903 - - 1,695 (1,372) 3,538 (3,811) (48,728) 8,225 57,453 202 (202) - - 2,747 (3,297) - 56,903 CONSOLIDATED 2020 2019 DEVELOPMENT AND PRODUCTION PHASE EXPENDITURE Producing oil and gas property acquisition, deferred geological, seismic and drilling, production and distribution facilities and other development expenditure 506,855 505,932 Development costs expensed during financial year Increase in restoration asset during financial year Carried forward accumulated impairment losses Impairment expenditure recognised during the period Less accumulated amortisation (407) 2,349 (98,041) (18,557) (275,497) 116,702 (1,295) - (98,041) - (249,143) 157,453 77 The reconciliation of development and production phase expenditure carried forward above is as follows: CONSOLIDATED DEVELOPMENT PHASE EXPENDITURE PRODUCTION PHASE EXPENDITURE BALANCE AT 1 JULY 2018 Amortisation incurred Development and production costs incurred during financial year Development and production costs expensed during financial year Balance at 30 June 2019 Amortisation incurred Increase in restoration asset Transfer from exploration phase Impairment expenditure Development and production costs incurred during financial year Development and production costs expensed during financial year Balance at 30 June 2020 20,960 - 760 (760) 20,960 - - - (18,557) 469 (464) 2,408 Payables CURRENT LIABILITIES Trade creditors Share of joint operation creditors and accruals Financial liability at fair value ETS obligation1 Lease liabilities2 Other creditors NON-CURRENT LIABILITIES Lease liabilities2 Other creditors TOTAL 193,774 (39,284) 4,258 (1,295) 157,453 (26,354) 2,349 1,372 (18,557) 846 (407) 172,814 (39,284) 3,498 (535) 136,493 (26,354) 2,349 1,372 - 377 57 114,294 116,702 CONSOLIDATED 2020 2019 784 3,996 361 223 1,523 6,887 262 123 385 707 7,546 488 - 2,762 11,503 - 71 71 1 The ETS financial liability represents Horizon Oil International Limited obligation to the New Zealand Government for the companies proportionate share of the Maari/Manaia fields greenhouse gas emissions. Refer to Note 11 for the disclosure of the carbon credits acquired (NZUs) which will be surrendered to the New Zealand Government for settlement of this obligation. The ETS obligation is recorded at fair value through profit and loss. 782 The Group has leases for offices in Sydney and PNG, and various equipment. The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 30 June 2020 were as follows: MINIMUM LEASE PAYMENTS DUE Within one year One to five years After five years Total 244 (21) 223 271 (9) 262 - - - 515 (30) 485 30 June 2020 Lease payments Finance charges Net present values Current tax payable Current tax payable Current tax payable Current royalty tax payable China New Zealand New Zealand Borrowings CURRENT: Bank loans (b) NON-CURRENT: Bank loans (b) Total Borrowings Net debt reconciliation CONSOLIDATED 2019 2,503 - 1,686 4,189 2020 134 1,638 1,170 2,942 CONSOLIDATED 2020 2019 12,236 12,236 12,079 12,079 24,315 9,506 9,506 38,298 38,298 47,804 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 Borrowings1 repayable within one year (including overdraft) repayable after one year Net cash/(debt) Cash and liquid investments Gross debt Gross debt1 fixed interest rates variable interest rates Net cash/(debt) 2020 2019 25,920 (12,758) (12,673) 489 25,920 - (25,431) 489 21,472 (10,030) (39,401) (27,959) 21,472 - (49,431) (27,959) Borrowings exclude associated transaction costs and accrued interest and accordingly represents the nominal value of the borrowings as at 30 June 2020 and 30 June 2019. 79 CASHFLOWS NON-CASH CHANGES OPENING 1 JULY 2019 DRAWDOWN1 REPAYMENTS AMORTISATION OF TRANSACTION COSTS CHANGES IN FAIR VALUE CLOSING 30 JUNE 2020 Syndicated Revolving Cash Advance Facility Total liabilities from financing activities 47,804 47,804 - - (24,000) (24,000) 511 511 - - 24,315 24,315 1 Funds drawn down are shown net of associated transaction costs incurred during the period. Bank loans Syndicated Revolving Cash Advance Facility On 15 November 2018, the Group finalised and executed a US$95 million Syndicated Revolving Cash Advance Facility with Australia and New Zealand Banking Group (ANZ), Westpac Banking Corporation (Westpac) and Industrial and Commercial Bank of China (ICBC). The proceeds on this facility were applied to repay the outstanding subordinated and senior debt facilities. The facility retained some key elements of the previous Reserves Based Debt Facility, with key changes including additional tenure to July 2022, reduced interest rate at LIBOR plus 2.75% and the removal of lender security over 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 2020, total debt drawn under the facility was US$25.43 million with undrawn debt capacity of US$1.6 million. Floating interest in respect of the facility was at LIBOR plus a weighted average margin of 2.75%. The facility was secured by a floating charge over the shares and assets of the borrowers (Horizon Oil International 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 has guaranteed the performance of Horizon Oil International Limited and Horizon Oil (Beibu) Limited (which have also given guarantees) in relation to the loan facility from ANZ, Westpac and ICBC. In addition, the shares of the following Horizon Oil Limited subsidiaries have been mortgaged to ANZ Fiduciary Services Pty Limited: Horizon Oil International Limited and Horizon Oil (Beibu) Limited. The Group is subject to covenants which are common for a facility of this nature. Other financial liabilities NON-CURRENT Fair value of share options Total other financial liabilities CONSOLIDATED 2019 US 11,838 11,838 2020 US 3,791 3,791 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 a subordinated debt facility executed in 2016 and repaid in full during 2018. 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 24(d) for details of the valuation techniques used to derive this fair value. 80The following is a reconciliation of the fair value of the share options: Balance at beginning of financial year Unrealised gain on revaluation during the period Balance at end of financial year CONSOLIDATED 2020 US 11,838 (8,047) 3,791 2019 US 22,995 (11,157) 11,838 1 The weighted average fair value of the options at measurement date was A$0.0184 (2019: A$0.0563). Refer to Note 24(d) for details of the valuation techniques used to derive this fair value. Provisions Restoration (current) Restoration (non-current) The reconciliation of the movement in the total of the restoration provisions is as follows: Balance at beginning of financial year Additional provision during financial year Unwinding of discount Effect of change in inflation/discount rate Balance at end of financial year Non-current liabilities Deferred tax liabilities CONSOLIDATED 2020 US - 33,947 33,947 29,018 1,695 885 2,349 33,947 2019 US - 29,018 29,018 28,185 - 833 - 29,018 CONSOLIDATED RECOGNISED DEFERRED TAX LIABILITIES ARE ATTRIBUTABLE TO: Development and production expenditure Accounting profits royalty Cash flow hedges Other Total deferred tax liabilities Set off of deferred tax assets pursuant to set off provisions Net deferred tax liabilities 2020 US - 11,919 2,227 4 1,239 15,389 (220) 15,169 2019 US - 11,345 3,498 711 3,140 18,694 (2,071) 16,623 812020 MOVEMENTS AT 1 JULY 2019 (Charged)/credited – to profit or loss – to other comprehensive income At 30 June 2020 2019 MOVEMENTS AT 1 JULY 2018 (Charged)/credited – to profit or loss – to other comprehensive income At 30 June 2019 DEVELOPMENT AND PRODUCTION EXPENDITURE ACCOUNTING PROFITS ROYALTY CASH FLOW HEDGES US$,000 OTHER TOTAL 11,345 574 - 11,919 3,498 (1,271) - 2,227 711 - (707) 4 DEVELOPMENT AND PRODUCTION EXPENDITURE ACCOUNTING PROFITS ROYALTY CASH FLOW HEDGES US$,000 3,140 (1,901) - 1,239 18,694 (2,598) (707) 15,389 OTHER TOTAL 12,579 (1,234) - 11,345 5,962 (2,464) - 3,498 - - 711 711 1,764 1,376 - 20,305 (2,322) 711 3,140 18,694 Contributed equity Issued share capital Ordinary shares Fully paid Partly paid to A$0.01 Movements in ordinary share capital [i] Ordinary shares (fully paid) CONSOLIDATED NUMBER OF SHARES 2020 2019 CONSOLIDATED 2020 US 2019 US 1,301,981 1,301,981 174,342 174,342 1,500 1,500 459 459 1,303,481 1,303,481 174,801 174,801 DATE 30/06/2019 30/06/2020 DETAILS NUMBER OF SHARES Balance as at 30 June 2019 Balance as at 30 June 2020 1,301,981,265 1,301,981,265 US$'000 174,342 174,342 82 [ii] Ordinary shares (partly paid to A$0.01): DATE 30/06/2019 30/06/2020 Ordinary shares DETAILS NUMBER OF SHARES US$'000 Balance as at 30 June 2019 Balance as at 30 June 2020 1,500,000 1,500,000 459 459 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 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 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. 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 32. Reserves and retained profits 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 CONSOLIDATED 2020 US 2019 US 14,144 (563) 13,581 1,767 (3,730) 981 (982) 12,599 13,755 389 14,144 (8,015) 13,169 (3,387) 1,767 15,911 83 Accumulated (losses)/retained profits Accumulated losses at beginning of financial year Net (loss)/profit for financial year Accumulated losses at end of financial year Nature and purpose of reserves CONSOLIDATED 2020 US (49,406) (55,139) (104,545) 2019 US (85,232) 35,826 (49,406) 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). 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; liquidity risk; capital risk; and climate related and other emerging risks. 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, interest rate swaps and foreign exchange forward contracts, 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. 84 The Group held the following financial instruments at 30 June 2020 and 30 June 2019: FINANCIAL ASSETS Cash and cash equivalents Receivables Derivative financial instruments Financial asset New Zealand carbon credits FINANCIAL LIABILITIES Payables (current) Current tax payable Payables (non-current) Borrowings (net of borrowing costs capitalised) Derivative financial instruments Other financial liabilities Market risk [i] Foreign exchange risk CONSOLIDATED 30 JUNE 2020 US 30 JUNE 2019 US 25,920 7,923 15 802 34,660 6,887 2,942 385 24,315 1,344 3,791 39,664 21,472 8,046 2,708 796 33,022 11,503 4,189 71 47,804 307 11,838 75,712 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 The Group operates internationally and is exposed to foreign exchange risk arising predominately from Australian and New Zealand dollars, Chinese Renminbi and Papua New Guinea Kina. The Group manages foreign exchange risk by monitoring forecast cash flows in currencies other than US dollars and ensuring that adequate Australian dollar, New Zealand dollar, Chinese Renminbi and Papua New Guinea Kina cash balances are maintained. periods of unfavourable exchange rates. Regular sensitivity analysis is conducted to evaluate the potential impact of 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. As at 30 June 2020, the Group had a derivative asset of US$15,000 (30 June 2019: US$103,000 derivative asset) and a derivative liability of US$147,000 (30 June 2019: $Nil) with NZD 6 million hedged through forward exchange contracts at an average USD rate of 0.6501, RMB 48 million hedged through currency swaps at an average USD rate of 7.0580, and AUD 1.5 million hedged through forward exchange contracts at an average USD rate of 0.6755. All hedges are designed to cover a portion of the G and China, and corporate costs in Australia. 85Effects of hedge accounting The effects of the foreign currency related hedging instruments on the G follows: FOREIGN CURRENCY SWAPS (USD/RMB) Carrying amount Notional amount (liability)/asset Maturity date Hedge ratio1 Change in discounted spot value of outstanding hedging instruments since 30 June 2019 Change in value of hedged item used to determine hedge ineffectiveness Weighted average hedged rate for the year FOREIGN CURRENCY FORWARDS (USD/NZD) (liability)/asset Carrying amount Notional amount Maturity date Hedge ratio1 Change in discounted spot value of outstanding hedging instruments since 30 June 2019 Change in value of hedged item used to determine hedge ineffectiveness Weighted average hedged rate for the year FOREIGN CURRENCY FORWARDS (USD/AUD) Carrying amount asset Notional amount Maturity date Hedge ratio1 Change in discounted spot value of outstanding hedging instruments since 30 June 2019 Change in value of hedged item used to determine hedge ineffectiveness Weighted average hedged rate for the year CONSOLIDATED 30 JUNE 2020 30 JUNE 2019 (75) 6,801 1 July 2020 June 2021 1:1 30 8 1,739 1 July 2019 31 December 2019 1:1 (75) 8 - US$1: RMB7.0580 (8) US$1: RMB6.9013 (72) 3,900 15 July 2020 16 December 2020 1:1 95 3,953 15 July 2019 16 December 2019 1:1 (72) 95 - US$1: NZD0.6501 (95) US$1: NZD0.6588 15 1,013 10 10 July 2020 December 2020 1:1 15 - US$1: AUD0.6755 - - - - - - - 1 The foreign currency swaps and foreign currency forward contracts are denominated in the same currencies as the highly probable future operating and corporate overhead expenditures (RMB and NZD operating and AUD corporate expenditures), therefore the hedge ratio is 1:1. 86Exposure to foreign exchange risk each reporting period was as follows: GROUP 30 JUNE 2020 30 JUNE 2019 AUD NZD PGK RMB AUD NZD PGK RMB Cash and cash equivalents Receivables Financial asset Zealand carbon credits New Current tax payable 937 111 - - Current payables 2,073 Non-current payables 96 804 178 66 2,808 391 - 72 12 - - 65 - 9 - - 134 19 - 702 128 - - 1,760 71 279 111 796 1,686 542 - 90 8 - - 120 - 9 - - 2,503 256 - For the financial year ended and as at 30 June 2020, 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, the 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 2020 +10% (553) (422) (56) - 2019 +10% (519) (979) (84) (87) 2020 +10% (78) (102) 2 (11) 2019 +10% (70) (75) (2) (206) 2020 -10% 553 422 56 - 2019 -10% 519 979 84 87 2020 -10% 78 102 (2) 11 2019 -10% 70 75 2 206 1 This has been based on the change in the exchange rate against the US dollar in the financial years ended 30 June 2020 and 30 June 2019. The sensitivity analysis has been based on the sensitivity rates when reporting foreign exchange risk internally to key management personnel and sensitivity analysis is not fully representative of the inherent foreign exchange risk as the end of the reporting period exposure does not necessarily reflect the exposure during the course of the financial year. [ii] Commodity price risk Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market commodity prices for crude oil. periods of unfavourable prices. Regular sensitivity analysis is conducted to evaluate the potential impact of unfavourable 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 the Group is able to meet its financial obligations in the event of low oil prices. As at 30 June 2020, the Group had a derivative liability of US$1,197,000 (30 June 2019: US$2,605,000 derivative asset) as there were 220,000 bbls hedged at this date (30 June 2019: 480,000 bbls) at a weighted average price of US$35.75/bbl. 87 Effects of hedge accounting OIL PRICE SWAPS Carrying amount Notional amount Maturity date (liability)/asset Hedge ratio1 Change in fair value of outstanding hedging instruments since 30 June 2019 Change in value of hedged item used to determine hedge ineffectiveness Weighted average hedged rate for the year CONSOLIDATED 30 JUNE 2020 US 30 JUNE 2019 US (1,197) 7,865 1 July 2020 31 December 2020 1:1 (1,197) - US$35.75/bbl 31 2,605 33,326 1 July 2019 March 2020 1:1 13,373 (13,373) US$69.43/bbl 1 The oil price swaps were executed in the same oil price benchmark as the highly probable future oil sales, therefore the hedge ratio is 1:1. For the financial year ended and as at 30 June 2020, 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 2020 +10% 965 2019 +10% 2,661 2020 +10% 965 2019 +10% 2,661 2020 2019 2020 2019 -10% (1,587) -10% (3,360) -10% (1,587) -10% (3,360) Change in crude oil price Impact [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- flows to changes in market interest rates. As at 30 June 2020 and 30 June 2019 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 tool to be used. 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. As at 30 June 2020, the Group had no outstanding LIBOR swaps (30 June 2019: US$307,000 of derivative liability). 88Effects of hedge accounting CONSOLIDATED 30 JUNE 2020 30 JUNE 2019 liability INTEREST RATE SWAPS Carrying amount Notional amount Maturity date Hedge ratio1 Change in fair value of outstanding hedging instruments since 30 June 2019 Change in value of hedged item used to determine hedge effectiveness Weighted average hedged rate for the year - - - - - - - 307 36,600 30 June 2020 1:1 (307) 307 2.867% 1 The interest rate swaps were executed with the same reference rate as the interest rate applied against the senior debt facility, therefore the hedge ratio is 1:1. FLOATING INTEREST RATE FIXED INTEREST RATE MATURING IN: NON- INTEREST BEARING CARRYING AMOUNT 1 YEAR OR LESS OVER 1 TOP 2 YEARS OVER 2 TO 5 YEARS AS AT 30 JUNE 2020 FINANCIAL ASSETS Cash and cash equivalents Receivables Financial asset Zealand carbon credits Derivative financial instruments New Weighted average interest rate p.a. FINANCIAL LIABILITIES Trade and other payables Current tax payable Non-current payables Derivative financial instruments Borrowings Weighted average interest rate p.a. Net financial assets/(liabilities) 4,233 - - - 4,233 0.15% - - - - 25,431 25,431 4.92% (21,198) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 21,687 7,923 25,920 7,923 802 15 802 15 30,427 34,660 6,887 2,942 385 1,344 - 11,558 6,887 2,942 385 1,344 25,431 36,989 18,869 (2,329) 89 FLOATING INTEREST RATE FIXED INTEREST RATE MATURING IN: NON- INTEREST BEARING CARRYING AMOUNT 1 YEAR OR LESS OVER 1 TOP 2 YEARS OVER 2 TO 5 YEARS AS AT 30 JUNE 2019 FINANCIAL ASSETS Cash and cash equivalents Receivables Financial asset Zealand carbon credits Derivative financial instruments New Weighted average interest rate p.a. FINANCIAL LIABILITIES Trade and other payables Current tax payable Non-current payables Derivative financial instruments Borrowings Weighted average interest rate p.a. Net financial assets/(liabilities) 6,687 - - - 6,687 0.15% - - - - 49,431 49,431 5.90% (42,744) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 14,785 8,046 21,472 8,046 796 796 2,708 26,335 2,708 33,022 11,503 4,189 71 307 - 16,070 11,503 4,189 71 307 49,431 65,501 10,265 (32,479) As at 30 June 2020 and 30 June 2019, the Group had the following variable rate borrowings outstanding: 30 JUNE 2020 30 JUNE 2019 WEIGHTED AVERAGE INTEREST RATE BALANCE WEIGHTED AVERAGE INTEREST RATE BALANCE % P.A. 4.92% % P.A. 5.90% 25,431 25,431 49,431 12,831 External loans Net exposure to cash flow interest rate risk At 30 June 2020, 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 2020 would increase/(decrease) by: GROUP NET RESULT NET ASSETS NET RESULT NET ASSETS 2020 2019 2020 2019 2020 2019 2020 2019 CHANGE IN INTEREST RATE p.a. Impact of Assets Impact of Liabilities Impact of Net Assets +1% 38 51 (13) +1% 43 521 (478) +1% 38 51 (13) +1% 43 521 (478) -1% (6) (51) 46 -1% (6) (521) 515 -1% (6) (51) 46 -1% (6) (521) 515 90 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. 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. es of crude oil are currently concentrated with two counterparties. However, the 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. CONSOLIDATED 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- B Counterparties without external credit rating Share of joint operation receivables balances Joint operations partners Other Total receivables 2020 US 24,819 9 7 24,835 1,019 66 1,085 25,920 111 178 2,795 2,434 2,073 12 7,603 273 47 - 320 7,923 2019 US 19,794 9 - 19,803 1,579 90 1,669 21,472 125 111 1,492 5,656 - 5 7,389 412 117 128 657 8,046 91 The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. The expected loss rates are based on the payment profiles of sales over a period of 36 months before 30 June 2020 and the corresponding historical credit losses experienced within this period. The historical rates are adjusted to reflect current and forward-looking information on key factors affecting the ability of the customers to settle the receivables. 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. On that basis, the loss allowance as at 30 June 2020 was determined as follows for trade receivables: AS AT 30 JUNE 2020 CURRENT Expected loss rate Gross carrying amount Loss Allowance 0% 7,923 - MORE THAN 30 DAYS DUE PAST MORE THAN 60 DAYS DUE PAST 0% - - 0% - - TOTAL 7,923 - As at 30 June 2020, there were no financial assets that are past due (30 June 2019: US$Nil). At the date of this report, the full balance of the receivables has been received in cash. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group has policies in place to manage liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching profiles of financial assets and liabilities. Financing arrangements The Group had access to the following undrawn borrowing facilities as at the end of each reporting period: FLOATING RATE: Expiring within one year Expiring beyond one year Maturities of financial liabilities CONSOLIDATED 30 JUNE 2020 30 JUNE 2019 1,599 - 9,300 - NON-INTEREST BEARING VARIABLE RATE1 FIXED RATE AS AT 30 JUNE 2020 12 months Less than 6 months 6 Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows 9,829 1,354 375 - - 11,558 5,556 13,230 7,662 - - 26,448 - - - - - - 92NON-INTEREST BEARING VARIABLE RATE1 FIXED RATE AS AT 30 JUNE 2019 12 months Less than 6 months 6 Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows 15,692 307 71 - - 16,070 1 Includes principal repayments and future interest payments. Fair value estimation 1,350 11,315 25,216 16,338 - 54,219 - - - - - - The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. value measurement hierarchy: requires disclosure of fair value measurements by level of the following fair (a) (b) (c) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); 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 inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). [i] Fair value measurements and 30 June 2019: AS AT 30 JUNE 2020 ASSETS Derivatives used for hedging New Zealand carbon credits Total Assets LIABILITIES Derivatives used for hedging New Zealand ETS obligation Financial liabilities at fair value through profit or loss: Options over unissued shares Total liabilities 20 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL - 802 802 - 361 - 361 15 - 15 1,344 - - 1,344 - - - - - 3,791 3,791 15 802 817 1,344 361 3,791 5,496 93 AS AT 30 JUNE 2019 ASSETS Derivatives used for hedging New Zealand carbon credits Total Assets LIABILITIES Derivatives used for hedging New Zealand ETS obligation Financial liabilities at fair value through profit or loss: Options over unissued shares Total liabilities LEVEL 1 LEVEL 2 LEVEL 3 TOTAL 2,708 796 3,504 307 488 - 795 - - - - - - - - - - - - 11,838 11,838 2,708 796 3,504 307 488 11,838 12,633 There were transfers between levels 1 and 2 for recurring fair value measurements during the year. The Group transferred its hedging derivatives from level 1 to level 2. There were no other transfers between levels 1,2 or 3 for recurring fair value measurements during the year. cy 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 2020. [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. Specific valuation techniques used to value financial instruments include: – the fair value of oil price swaps is calculated as the present value of the estimated future cash flows based on forward prices at balance sheet date; – the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves; – the fair value of foreign currency contracts and swaps 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. 94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 2020 for recurring fair value measurements: Opening balance at 1 July 2019 Additions during the period Profit recognised in profit or loss Closing balance at 30 June 2020 OPTIONS OVER UNISSUED SHARES 11,838 - (8,047) 3,791 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 FAIR VALUE AT 30 JUNE 2020 UNOBSERVABLE INPUTS RANGE OF INPUTS (PROBABILITY- WEIGHTED AVERAGE) RELATIONSHIP OF UNOBSERVABLE INPUTS TO FAIR VALUE Options over unissued shares 3,791 Share price volatility 62.50% All other inputs being equal, an increase/decrease in share volatility results in an increase/decrease in the fair value of the liability Valuation processes The Group engages external, independent and qualified valuers to determine the fair value of the share options for financial reporting purposes on a half yearly basis. The fair value of the share options is determined based on a risk- neutral framework using the Black-Scholes Model. The Black-Scholes Model used to calculate the theoretical value of the options uses current stock prices, expected dividend yield, the option's strike price, expected interest rates, time to expiration and expected volatility. A calculated share price volatility of 62.5% was applied in the valuation. All other parameters were based on the specific terms of the options issued or observable market data. [iv] Other fair value measurements The carrying value of receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of other financial liabilities (being financial guarantees), after factoring in the likelihood that the parent entity would be required to perform under the guarantees, was not considered material. 95 The fair value of borrowings for disclosure purposes is not materially different to their carrying value given the likely anticipated repayment profile. Refer to Note 18 for further details. The fair value of other classes of financial instruments not yet covered above was determined to approximate their carrying value. 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. Climate-related and other emerging risks Climate-related and other emerging risks encompass the impact of climate change, any associated climate change regulations, funding restrictions and any other emerging factors (e.g. technological disruption to the oil and gas industry) that could have a material impact on the Group. The Group will continue to monitor the impact of these risks. At the date of this report, the Group is impacted by emissions trading regulations in New Zealand. Currently there are no equivalent emissions trading regulations in the other jurisdictions in which the Group operates. The Group manages the impact of the emissions trading regulations in New Zealand by acquiring New Zealand carbon credits (NZUs) throughout the financial period to offset its annual obligation, such that it is not wholly exposed to the NZU price at the date of settlement. At 30 June 2020, if the New Zealand carbon credit price had been 10% 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 2020 would increase/(decrease) by: GROUP NET RESULT NET ASSETS NET RESULT NET ASSETS 2020 2019 2020 2019 2020 2019 2020 2019 Change in NZU price Impact +10% (42) +10% (74) +10% 44 +10% 31 -10% 42 -10% 74 -10% (44) -10% (31) New Zealand Imputation Credits Imputation credits available for subsequent financial years1 CONSOLIDATED 2019 US 2,983 2020 US 2,961 1 The franking credits available for subsequent financial years are only available to New Zealand resident shareholders under the Trans-Tasman imputation legislation. 96 Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy set out in Note 1(c): NAME OF SUBSIDIARY COUNTRY OF INCORPORATION PERCENTAGE OF EQUITY HOLDING AND VOTING INTEREST (ALL SHARES ISSUED ARE ORDINARY SHARES) BUSINESS ACTIVITIES CARRIED ON IN Horizon Oil International Limited Horizon Oil (New Zealand) Limited Horizon Oil International Holdings Limited Horizon Oil (Beibu) Limited Horizon Oil (China Holdings) Limited Horizon Oil (PNG Holdings) Limited Horizon Oil (Papua) Limited Horizon Oil (Ketu) Limited Horizon Oil (Ubuntu) Limited New Zealand New Zealand BVI BVI BVI BVI Bermuda BVI BVI 2020 % 100 100 100 100 100 100 100 100 100 2019 % 100 100 100 100 100 100 100 100 100 New Zealand New Zealand BVI China BVI BVI PNG PNG PNG The Group has deregistered the Horizon Oil USA Inc. subsidiary and accordingly the subsidiary is not consolidated into the financial statements for the 30 June 2020 financial period. 97 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 ed in the consolidated statement of financial position in accordance with the accounting policy described in Note 1(c), and the 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 CONSOLIDATED 2019 US$ 1,579 412 5,519 7,510 - 56,903 157,453 214,356 221,866 7,441 7,441 - - 7,441 214,425 2020 US 1,019 273 3,510 4,802 - 8,225 116,702 124,927 129,729 3,996 3,996 - - 3,996 125,733 Contingent liabilities in respect of joint operations are detailed in Note 35. Exploration and development expenditure commitments in respect of joint operations are detailed in Note 38. 98The Group had an interest in the following joint operations: PERMIT OR LICENCE PRINCIPAL ACTIVITIES INTEREST (%) 30 JUNE 2020 INTEREST (%) 30 JUNE 2019 NEW ZEALAND PMP 38160 (Maari/Manaia) CHINA Block 22/12 PNG PDL 10 PRL 21 PRL 28 Oil and gas production, exploration and development 26.00% 26.00% Oil and gas production, exploration and development 26.95% / 55%1 26.95% / 55%1 Oil and gas development 30.00%2 30.00%2 Oil and gas exploration and development 30.15%2,3 30.15%2 Oil and gas exploration and development 30.00%2 30.00%2 PPL 259/574 Oil and gas exploration PPL 430 PPL 372 PPL 373 PRL 40 Oil and gas exploration Oil and gas exploration Oil and gas exploration Oil and gas exploration 80.00%2 80.00%2 0%4 100.00%2,4 95.00%2,5 95.00%2 100.00%2,5 100.00%2 20.00%2 20.00%2 1 2 3 4 5 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%. 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. The PRL 21 licensees have applied for a development licence. Tenure remains current, subject to PNG ministerial approval. During the financial period the PPL 430 licence term expired. The licence had a $nil carrying value at 30 June 2019 and the date of expiration. The PPL 372 and 373 licensees have applied for an extension and variation of the licenses. Tenure remains current, subject to PNG ministerial approval. equity level in any commercial development within Block Impairment of non-current assets During the financial period, the Group reassessed the carrying amounts of its exploration and development assets for hierarchy), using a discounted cash flow method, and are most sensitive to the following key assumptions: -in-use or fair value less costs to sell (level 3 value For oil and gas assets, the estimated future cash flows for the value-in-use calculation are based on estimates, the most significant of which are 2P hydrocarbon reserves, future production profiles, commodity prices, operating costs and any future development costs necessary to produce the reserves. Under a fair value less costs to sell calculation, future cash flows are based on estimates of 2P hydrocarbon reserves in addition to other relevant factors such as value attributable to additional resource and exploration opportunities beyond 2P reserves based on production plans. external market reviewed at least annually. Forecasts of the foreign exchange rate for foreign currencies, where relevant, are estimated with reference to observable external market data and forward values, including analysis of broker and consensus estimates. capital, adjusted for risks where appropriate, including the risk profile of the countries in which the asset operates. -tax weighted average cost of 99 For capitalised exploration phase expenditure, in conjunction with consideration of the key assumptions detailed above, a further assessment is performed at each balance date, to determine whether any of the following indicators of impairment exists: (i) (ii) tenure over the licence area has expired during the period or will expire in the near future, and is not expected to be renewed; or substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is not budgeted or planned; or (iii) exploration for and evaluation of resources in the specific area have not led to the discovery of commercially viable quantities of resources, and the Group has decided to discontinue activities in the specific area; or (iv) sufficient data exists to indicate that although a development is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or from sale. greater than its estimated recoverable amount. This assessment considers, amongst other things, whether the asset is still in use and the value that would likely be recovered from sale. Recoverable amounts and resulting impairment write-downs recognised during the year ended 30 June 2020 are presented in the table below: AREA OF INTEREST/CGU SEGMENT IMPAIRMENT WRITE DOWN RECOVERABLE AMOUNT1 Exploration Phase Expenditure Block 22/12 PRL 21 PRL 28 PRL 40 PRL 259/574 PPL 372 PPL 373 China Exploration Papua New Guinea Exploration and Development Papua New Guinea Exploration and Development Papua New Guinea Exploration and Development Papua New Guinea Exploration and Development Papua New Guinea Exploration and Development Papua New Guinea Exploration and Development Impairment of exploration phase expenditure Oil & Gas Assets PMP 38160 (Maari/Manaia) Block 22/12 PDL 10 (Stanley) Impairment of oil and gas assets Property, Plant & Equipment Building Building Other plant and equipment Leasehold improvements Leasehold improvements Impairment of property, plant & equipment Total New Zealand Development and Production China Development and Production Papua New Guinea Exploration and Development All other segments Papua New Guinea Exploration and Development All other segments All other segments Papua New Guinea Exploration and Development - (48,498) (230) - - - - (48,728) - - (18,557) (18,557) - - - - - - 4,872 3,353 - - - - - 8,225 52,295 61,999 2,408 116,702 410 21 91 295 52 869 (67,285) 125,796 1 Recoverable amount represent the carrying value of the asset before deducting the carrying value of the restoration liability (US$33,947,000) and deferred royalty tax balance (US$2,226,000]. 100The post-tax discount rates that have been applied to the above non-current assets range between 10% and 11% (2019: between 10% and 11%). The impairment assessment conducted in respect of the period considered recent challenges faced by the company in PNG, including unresolved licence tenure issues, the lack of progress in commercialisation of the discovered resources in the Western Province of PNG, and the recent shift by the PNG Government in requiring improved fiscal returns from resource projects. Reference was also made to comparable market transactions. In light of these matters and uncertainties, the Group has impaired its PNG exploration and development assets, to a carrying amount of US$5.8 million. Remuneration of external auditors During the financial year, the following fees were paid or payable for services provided by the external auditor of the parent entity and its related practices: 1. PwC Australia Audit and other assurance services Audit and review of financial reports Other assurance services Total remuneration for audit and other assurance services Taxation services Tax compliance1 Total remuneration for taxation services 2. Non-PwC audit firms Audit and other assurance services Total remuneration for audit and other assurance services CONSOLIDATED 2020 US$ 2019 US$ 158,282 14,267 172,549 15,895 15,895 8,085 8,085 196,529 168,234 14,307 182,541 16,361 16,361 19,667 19,667 218,569 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. where Pri competitive tenders for all major consulting projects. Remuneration of key management personnel See the Remuneration Report within the detailed remuneration. KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments (non-cash) 2020 US$ 2019 US$ 2,485,483 2,777,949 86,860 22,810 312,706 116,036 82,541 320,365 Total key management personnel remuneration 2,907,859 3,296,891 Detailed remuneration disclosures are provided in sections 1-7 of the audited Remuneration Report. 101 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 1-7 of the remuneration report. Related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties, unless otherwise stated. Directors and other key management personnel There were no related party transactions with directors and other key management personnel during the current or prior year other than as disclosed in sections 1-7 of the Remuneration report and Note 32. Subsidiaries Interests in subsidiaries are set out in Note 26. Details in respect of guarantees provided to subsidiaries are set out in Note 41 (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 2020 and 30 June 2019 consisted of: (a) (b) (c) (d) (e) (f) (g) Contributions to share capital by Horizon Oil Limited; Loans advanced by Horizon Oil Limited; Loans repaid to Horizon Oil Limited; Payments to Horizon Oil Limited under financial guarantee contract arrangements; Interest payments to Horizon Oil Limited on loans advanced to subsidiaries; Dividends paid to Horizon Oil Limited; and Reimbursement of expenses to Horizon Oil Limited. The reimbursement of expenses to Horizon Oil Limited by subsidiaries is based on costs recharged on a relevant time allocation of consultants and employees and associated office charges. The following transactions occurred with related parties: 2020 US$ 2019 US$ SUPERANNUATION CONTRIBUTIONS Superannuation contributions to superannuation funds on behalf of employees OTHER TRANSACTIONS 284,020 296,757 Payments to Horizon Oil Limited under financial guarantee contract arrangements from wholly owned subsidiary Dividends from Horizon Oil International Limited to Horizon Oil Limited Dividends from Horizon Oil (Beibu) Limited to Horizon Oil Limited 1,158,521 9,500,000 4,000,000 2,067,258 - 5,000,000 102LOANS TO/FROM RELATED PARTIES Balance at beginning of the financial year Loans advanced Loan repayments received Interest charged Balance at end of financial year 2020 US$ 170,251,852 36,090,468 (22,456,323) 1,719,196 185,605,193 2019 US$ 163,361,550 58,923,695 (53,403,781) 1,370,388 170,251,852 Terms and conditions Transactions relating to dividends, calls on partly paid shares and subscriptions for new ordinary shares were on the same terms and conditions that applied to other shareholders. All other transactions were made on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of loans between the parties. Certain loans to/from subsidiaries are subject to interest, however, the interest is typically suspended until commercial production commences or a change in the ownership interest of the entity occurs. The average interest rate on loans attracting interest during the financial year was LIBOR plus 5.14% (2019: LIBOR plus 5.64%). Outstanding balances are unsecured and repayable in cash. 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/CAN CELLED DURING FINANCIAL YEAR NUMBER BALANCE END OF FINANCIAL YEAR NUMBER VESTED AND EXERCISABLE AT END OF FINANCIAL YEAR NUMBER CONSOLIDATED ENTITY 2020 SHARE APPRECIATION RIGHTS ISSUED 01/07/2014 01/07/2015 01/07/2016 01/07/2016 01/07/2017 01/07/2018 01/07/2019 Total 01/07/2019 01/07/2020 01/07/2021 01/07/2021 01/07/2022 01/07/2023 01/07/2024 A$0.372 A$0.092 A$0.092 A$0.052 A$0.052 A$0.072 A$0.112 7,402,177 17,629,840 16,617,522 24,372,395 55,691,714 8,680,899 - - - - - - - 12,859,747 - 10,171,063 - 12,186,198 - - - 7,402,177 - - - - - - - 7,458,777 16,617,522 12,186,197 55,691,714 8,680,899 12,859,747 - 7,458,777 16,617,522 12,186,197 - - - 130,394,547 12,859,747 22,357,261 7,402,177 113,494,856 36,262,496 Weighted average exercise price A$0.08 A$0.011 A$0.07 A$0.37 A$0.07 A$0.08 OPTIONS ISSUED 02/11/2015 15/09/2016 Total 02/11/2020 15/09/2021 A$0.201 A$0.063 Weighted average exercise price 1,000,000 300,000,000 301,000,000 A$0.06 - - - - - - - - - - - - 1,000,000 - 300,000,000 300,000,000 301,000,000 300,000,000 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. 3 Relates to general options issued in connection with the subordinated secured debt facility. Refer to Note 19 for further details. 103 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/CAN CELLED DURING FINANCIAL YEAR NUMBER BALANCE END OF FINANCIAL YEAR NUMBER VESTED AND EXERCISABLE AT END OF FINANCIAL YEAR NUMBER CONSOLIDATED ENTITY 2019 SHARE APPRECIATION RIGHTS ISSUED 01/07/2014 01/07/2015 01/07/2016 01/07/2016 01/07/2017 01/07/2018 Total 01/07/2019 A$0.372 7,402,177 01/07/2020 01/07/2021 01/07/2021 01/07/2022 A$0.092 A$0.092, A$0.052 A$0.052 25,088,617 16,617,522 24,372,395 55,691,714 - - - - - 01/07/2023 A$0.072 - 8,680,899 - 7,458,777 - - - - 129,172,425 8,680,899 7,458,777 Weighted average exercise price A$0.08 A$0.07 A$0.09 OPTIONS ISSUED 02/11/2015 15/09/2016 Total 02/11/2020 15/09/2021 A$0.201 A$0.063 Weighted average exercise price 1,000,000 300,000,000 301,000,000 A$0.06 - - - - - - - - - - - - - - - - - - - - 7,402,177 - 17,629,840 16,617,522 24,372,395 55,691,714 8,680,899 17,629,840 - - - - 130,394,547 17,629,840 A$0.08 A$0.09 1,000,000 - 300,000,000 300,000,000 301,000,000 300,000,000 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. 3 Relates to general options issued in connection with the subordinated secured debt facility. Refer to Note 19 for further details. The weighted average remaining contractual life of share options outstanding at the end of the period was 1.89 years (2019 3.32 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 share achieved in the vesting period, relative to an appropriate index. TSR Under the LTI Plan, the board has the discretion, subject to the ASX Listing Rule requirements, to grant share appreciation SARs -term 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 ( ). The SAR Value is riod VWAP 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 date of the SARs or any other day determined by the board, at the time of the grant. The Effective Allocation Date would 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 104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 Compa 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 (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 a subordinated secured non-amortising loan during the period. The carrying value of the associated derivative liability at 30 June 2020 was $3,790,926 (2019: $11,838,224). Refer to Note 19 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 2017 financial year. The options are standalone instruments and accordingly were not cancelled and/or lapsed upon early settlement of the subordinated secured debt facility in November 2018. The Group engages external, independent and qualified valuers to determine the fair value of the share options for financial reporting purposes on a half yearly basis. The fair value of the share options is determined based on a risk- neutral framework using the Black-Scholes Model. The Black-Scholes Model used to calculate the theoretical value of the 105options uses current stock prices, expected dividend yield, the option's strike price, expected interest rates, time to expiration and expected volatility. A calculated share price volatility of 62.5% was applied in the valuation. All other parameters were based on the specific terms of the options issued or observable market data. Refer to Note 24(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 2020 included: Grant date Expiry date Exercise price Horizon share price at grant date Expected price volatility Risk free rate Expected dividend yield Share appreciation rights issued 15 September 2016 15 September 2021 A$0.061 A$0.064 62.50% p.a. 0.26% p.a. 0.00% p.a. 12,859,747 share appreciation rights were issued under the Long-Term Incentive Plan. The weighted average exercise price of these SARs is A$0.1054 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$0.057617 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 2020 included: Effective allocation date Estimated expiry date Exercise price 10 Day VWAP of Horizon shares at effective allocation date Expected price volatility Risk free rate Expected dividend yield 1 July 2019 1 July 2024 N/A A$0.1054 65.80% p.a. 1.030% 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: 106SHARE APPRECIATION RIGHTS ISSUED UNDER: Long Term Incentive Plan OPTIONS ISSUED UNDER: Employee Option Scheme Total employee share-based payments expense CONSOLIDATED 2020 2019 611 - 611 678 2 680 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 During the financial year 22,357,261 SARs were exercised and settled with cash payments of US$1,174,315. Options/SARs lapsing or cancelled during the financial year During the financial year 7,458,777 SARs lapsed. Options/SARs exercised and options/SARs issued subsequent to 30 June 2020 Subsequent to year end and in accordance with contract entitlement, 10,004,499 SARs were issued to key management personnel. No options or SARs have been exercised subsequent to financial year end. Options/SARs lapsed subsequent to 30 June 2020 No options or SARs have lapsed subsequent to financial year end. Employee entitlements EMPLOYEE ENTITLEMENT LIABILITIES ARE INCLUDED WITHIN: other creditors Current Non-current - other creditors (Note 16) CONSOLIDATED 2020 US 396 123 NUMBER 2020 2019 US 453 71 NUMBER 2019 EMPLOYEE NUMBERS Average number of employees during financial year 23 30 107 Contingent asset [i] On 23 May 2013, the Group advised ASX that it had entered into an Agreement to sell 40% of its Papua New Guinea completion that was received, a further $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 $130 million, and the potential production payments, all remaining consideration under the Agreement is disclosed as a contingent asset as at 30 June 2020. 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. If Osaka Gas decide to transfer their PNG decide to sell the [ii] The Maari joint venture carried out an upgrade of the FPSO Raroa flow line, production and test riser, and Maari wellhead platform during the 2016 and 2017 financial years. The works the date of this report the Group had recovered $5.0 million as settlement for the claims relating to the repairs to the water injection flow line, production and test riser, and Maari wellhead platform. Investigation and discussions with the relevant insurers continues in relation to the claim for the upgrade of the FPSO Raroa was approximately $6.5 million. At Contingent liabilities The Group had contingent liabilities as at 30 June 2020 and 30 June 2019 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. 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 2020 that has significantly affected, or may significantly affect: – – the results of those operations in future financial years; or – The financial statements were authorised for issue by the Board of Directors on 27 August 2020. The Board of Directors has the power to amend and reissue the financial statements. 108 Commitments for expenditure Non-cancellable operating leases On 1 July 2019, the Group adopted Leases , the new standard for lease accounting statements of financial position assets and liabilities. Accordingly, commitments for minimum leases payments in relation to non-cancellable operating leases are not disclosed below at 30 June 2020 as the financial obligations are recognised on the balance sheet at that date. 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 CONSOLIDATED 2020 2019 - - - 329 543 872 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. 2020 NEW ZEALAND DEVELOPMENT CHINA EXPLORATION & DEVELOPMENT PAPUA NEW GUINEA EXPLORATION & DEVELOPMENT TOTAL Within one financial year Later than one financial year but not later than 5 financial years After 5 financial years Total 2,810 - - 2,810 8,319 12,537 - 20,856 1,098 - - 1,098 12,227 12,537 - 24,764 109 2019 NEW ZEALAND DEVELOPMENT CHINA EXPLORATION & DEVELOPMENT TOTAL PAPUA NEW GUINEA EXPLORATION & DEVELOPMENT Within one financial year Later than one financial year but not later than 5 financial years After 5 financial years 2,767 2,058 3,300 8,125 - - - - - - - - Total 2,767 2,058 3,300 8,125 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. Reconciliation of profit after income tax to net cash flows from operating activities CONSOLIDATED (LOSS)/PROFIT FOR FINANCIAL YEAR Impairment expense Exploration and development expenditure written off/expensed Depreciation expense Profit on sale of fixed assets Movement in employee entitlement liabilities Non-cash employee share-based payments expense Amortisation expense Amortisation of prepaid financing costs Provision for restoration Unrealised fair value movements associated with subordinated debt Unrealised movement in in fair value of other financial liabilities CHANGE IN OPERATING ASSETS AND LIABILITIES: (Increase)/Decrease in trade debtors Decrease/(Increase) in other debtors and prepayments Decrease/(Increase) in inventory Decrease in net deferred tax liabilities (Decrease)/Increase in tax payable Increase/(Decrease) in trade creditors Decrease in other creditors Net cash inflow from operating activities 2020 (55,139) 67,285 4,218 358 (24) 51 611 26,354 511 885 - (8,047) (154) 426 2,243 (181) (1,247) 77 (1,496) 36,731 2019 35,826 4,592 136 (24) 9 680 39,284 1,406 833 3,133 (11,157) 6,806 (3) (2,372) (1,049) 1,243 (5,825) (705) 72,813 110 Earnings per share (a) Basic earnings per share attributable to the ordinary equity holders of the Company (b) Diluted earnings per share attributable to the ordinary equity holders of the Company 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 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share CONSOLIDATED 2020 US CENTS 2019 US CENTS (4.23) (4.23) 2020 NUMBER 2.75 2.17 2019 NUMBER 1,303,481,265 1,303,481,265 1,303,481,265 1,653,557,138 2020 2019 RECONCILIATION OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE (Loss)/profit attributable to the ordinary equity holders of the company used in calculating basic and diluted earnings per share (55,139) 35,826 Information concerning the classification of securities 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 22. 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 in a prior 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 32. 111 Parent Entity financial information [i] Summary financial information The individual financial statements for the Parent Entity show the following aggregate amounts: STATEMENT OF FINANCIAL POSITION Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Share-based payments reserve Retained earnings Total equity (Loss)/profit for the financial year Total comprehensive (loss)/profit for the financial year [ii] Guarantees entered into by the parent entity PARENT ENTITY 2020 2019 4,697 120,518 125,215 2,524 3,891 6,415 118,800 174,801 13,592 (69,593) 118,800 (28,753) (28,753) 6,988 154,556 161,544 1,530 11,909 13,439 148,105 174,801 14,144 (40,840) 148,105 17,645 17,645 The parent entity has provided guarantees in respect of bank loans and hedge derivatives of its subsidiaries amounting to US$26,775,165 (2019: US$50,405,616) and has also provided customary joint venture guarantees. No liability has been recognised for guarantees provided. After factoring in the likelihood that the parent entity would be required to perform under the guarantees the fair value of the liability was not considered material. [iii] Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020 or 30 June 2019. For information about guarantees given by the parent entity, see above. [iv] Contractual commitment for the acquisition of property, plant or equipment As at 30 June 2020, the parent entity had no contractual commitments for the acquisition of property, plant or equipment (30 June 2019 US$Nil). 112114115116117

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