Jupiter Energy Limited
Annual Report 2013

Plain-text annual report

ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2013 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE INFORMATION Jupiter Energy Limited ABN 65 084 918 481 Directors Geoffrey Gander (Executive Chairman/Chief Executive Officer) Alastair Beardsall (Non-Executive Director) Baltabek Kuandykov (Non-Executive Director) Scott Mison (Executive Director) Company Secretary Scott Mison Registered Office & Principal Place of Business Level 2, 28 Kings Park Road West Perth WA 6005 PO Box 1282 Western Australia 6872 Telephone Facsimile Email Website +61 8 9322 8222 +61 8 9322 8244 info@jupiterenergy.com www.jupiterenergy.com Solicitors Steinepreis Paganin Level 4, 16 Milligan Street Perth WA 6000 Auditors Ernst & Young 11 Mounts Bay Road Perth WA 6000 Bankers National Australia Bank Ltd UB13.03, 100 St Georges Terrace Perth WA 6000 Stock Exchange Listing Nomad FinnCap Ltd 60 New Broad St London, EC2M 1JJ United Kingdom Share Registry Computershare Investor Services Pty Ltd Level 2, 45 St George’s Terrace Perth WA 6000 Telephone Facsimile Website 1300 557 010 (only within Australia) +61 8 9323 2000 +61 8 9323 2033 www.computershare.com Jupiter Energy Limited shares are listed on the Australian Securities Exchange under the code JPR, on the AIM Market under the code JPRL and on the Kazakh Stock Exchange (KASE) under the code AU_JPRL. ii JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT Contents of Financial Report Chairman’s Letter ................................................................................................................................................ 1 Directors' Report ................................................................................................................................................. 2 Corporate Governance Statement .................................................................................................................... 23 Auditor Independence Declaration ................................................................................................................... 29 Consolidated Jupiter Energy Limited Financial Statements Consolidated Statement of Comprehensive Income ...................................................................................... 31 Consolidated Statement of Financial Position ............................................................................................... 32 Consolidated Statement of Cash Flows ......................................................................................................... 33 Consolidated Statement of Changes in Equity ............................................................................................. 34 Notes to the Consolidated Financial Statements .............................................................................................. 35 Directors' Declaration ........................................................................................................................................ 73 Independent Audit Report to the members of Jupiter Limited ........................................................................... 74 ASX Additional Information................................................................................................................................ 76 ii JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CHAIRMAN’S LETTER Dear Shareholder, I am pleased to present the 2013 Annual Report for Jupiter Energy Limited (Jupiter Energy or the Company). Over the past twelve months, the Company has continued to focus on the development of the Block 31 licence area with the drilling of three exploration wells in the southern extension of the permit (known locally as West Zhetybai) and with ongoing trial production from three wells in the northern area of the permit. More detail on this activity is contained in the Operations Review section of this report. The prospectivity of our 100% owned licence area continues to improve and on 11 September 2013 the Company announced the results from three independent reserve reports; the outstanding, post period end highlight was that the independent reserve reports for the Akkar East and West Zhetybai fields, prepared as part of the Kazakh State Reserves process, estimated that the combined C1+C2 reserves of these two fields now stands at approximately 102.5 million barrels of recoverable oil, an almost threefold increase from the 2012 State approved C1+C2 figure of 37 million barrels. The Competent Persons Report prepared by McDaniel and Associates estimated reserves from the mid Triassic as follows: • Proved Reserves: 1P 9.7 mmbbls • Proved plus Probable Reserves: 2P 19.2 mmbbls • Proved plus Probable plus Possible: 3P 28.7 mmbbls As part of the work undertaken by McDaniel to establish the commercial threshold of the mid-Triassic reserves, the Net Present Value of the proved+probable reserves using a discounted cashflow model with a discount rate of 10% was calculated as $US304.6m (~$US15.9/bbl) pre-tax and $US222.5m (~$US11.6/bbl) after tax. Also during September 2013, the Company gained all the necessary approvals to complete its listing on the Kazakh Stock Exchange (KASE), meaning the Company’s shares will shortly be able to be traded on KASE. With Jupiter Energy’s shares already listed on London’s AIM Market (AIM) and the Australian Stock Exchange (ASX), the Company now has access to investment communities in most of the key jurisdictions that have an interest in Central Asia. Our two major shareholders, the Waterford Group and Soyuzneftegas Capital Limited, continue to show great support for the Company, participating in both the August 2012 Rights Issue and May 2013 issue of $US9m of Series A Convertible Notes. Waterford Group also participated in the September 2013 Series B Convertible Notes. Their holdings remain at 29.5% and 19.8% respectively and the total number of shares on issue as of the date of this report totals 153,377,693. I believe that the Company has a pivotal 12 months ahead of it with a need to focus on both exploration and appraisal drilling as well as to start the building of the requisite infrastructure to allow the Akkar East oilfield to move into Full Field Development phase – a key step in the Company achieving its first sale of export oil. The Board remains confident of the prospectivity of the licence area and that the two oilfields that have already been discovered on Block 31 can be both developed into significant producers. Finally, I would like to take this opportunity to thank all our employees and shareholders for their continued support over the past twelve months. Sincerely Geoff Gander Chairman/CEO 1 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT Your Directors submit their report for the year ended 30 June 2013. DIRECTORS The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications experience and special responsibilities Geoffrey Anthony Gander (50) B.COM Executive Chairman/CEO Appointed 27 January 2005 Alastair Beardsall (59) Non-Executive Director Appointed 5 October 2010 Baltabek Kuandykov (65) Non-Executive Director Appointed 5 October 2010 Mr Gander graduated from the University of Western Australia in 1984 where he completed a Bachelor of Commerce Degree. Mr Gander is responsible for Group Corporate Development, Group Investor Relations and the overall Operational Leadership of the Company. Other Current Directorships of Listed Companies None Former Directorships of Listed Companies in last three years None Mr Beardsall has been involved in the oil industry for more than 30 years starting in 1980 with Schlumberger, the oil-field services company. From 1992 he began working for independent oil companies, with increasing responsibility for specific exploration, development and production ventures. Between 2003 and 2009, he was Executive Chairman of Emerald Energy plc; Emerald grew, from a market capitalisation of less than £8 million, until in October 2009 Emerald was acquired by Sinochem Resources UK Limited, in a transaction that valued Emerald at £532 million. Other Current Directorships of Listed Companies Sterling Energy Plc – (AIM) Former Directorships of Listed Companies in last three years None. Mr Kuandykov has considerable experience in the oil and gas industry in the region, having served as President of Kazakhoil (predecessor of the Kazakh State oil company KazMunaiGas). He was also seconded by the Kazakh Government to work with Chevron Overseas Petroleum on CIS projects. Mr Kuandykov also has extensive government experience in Kazakhstan, having served as Deputy Minister of Geology, Head of the Oil and Gas Directorate at the Ministry of Geology, and was Deputy Minister of Energy and Fuel Resources Other Current Directorships of Listed Companies Chagala Group Limited (LSE) Former Directorships of Listed Companies in last three years None 2 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) Scott Adrian Mison (37) B.Bus, CA, ACSA Executive Director Appointed 31 January 2011 Company Secretary Appointed 29 May 2007 Mr Mison holds a Bachelor of Business degree majoring in Accounting and Business Law, is a Member of the Institute of Chartered Accountants in Australia and Chartered Secretaries Australia. Mr Mison is also CFO/Company Secretary of IDM International Limited and is a board member of Wheelchair Sports WA Inc. Other Current Directorships of Listed Companies: Intermet Resources Ltd. Former Directorships of Listed Companies in last three years: None. Interests in the shares and options of the company and related bodies corporate At the date of this report, the interest of the Directors in the shares and options of Jupiter Energy Limited were: Director G Gander A Beardsall B Kuandykov S Mison Number of ordinary shares 3,147,224 1,250,000 - 391,234 Performance Rights 2,166,667 2,166,667 2,166,667 500,000 In compliance with Corporations Law, none of the Directors’ shareholdings in the Company is subject to hedging. Each Director must disclose any changes via formal ASX, AIM and KASE announcement within 5 working days of that change. Any changes in Directors’ shareholdings are also confirmed at each Board meeting. 3 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) CORPORATE STRUCTURE Jupiter Energy Limited is a company limited by shares that is incorporated and domiciled in Australia. Jupiter Energy Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in note 28 of the financial statements. PRINCIPLE ACTIVITIES The principal activities of the consolidated entity during the course of the financial year included: • Exploration for oil and gas in Kazakhstan: and • Appraisal, development and production of oil and gas properties in Kazakhstan. EMPLOYEES The consolidated entity employed 50 employees as at 30 June 2013 (2012: 39 employees). DIVIDENDS No dividends in respect of the current or previous financial year have been paid, declared or recommended for payment. FINANCIAL REVIEW Operating Results The consolidated loss for the year after income tax was $4,885,829 (2012: $4,295,102). Review of Financial Condition At the end of the 2013 financial year, cash resources were $4,131,731 (2012: $395,445). Assets increased to $72,091,204 (2012: $44,297,607) and equity increased to $54,573,145 (2012: $38,468,617). CAPITAL RAISING / CAPITAL STRUCTURE During the year the following capital raisings occurred: - - - A 1 for 4 non renounceable Rights Issue was announced in June 2012. This offer was priced at $0.40 per share and raised approximately $11,613,016 (before costs). The issue was fully underwritten by Waterford Petroleum Limited and Soyuzneftegas Capital Limited. In August Soyuzneftegas Capital Limited converted its $US3.45m Convertible Notes in exchange for 8,215,000 shares. In December 2012, the Group raised US$3m via promissory notes repayable on 31 December 2013 (December 2013 Promissory Notes). These notes were converted to Convertible Notes on 30 May 2013. In March 2013, the Group raised US$3m via promissory notes repayable on 31 March 2014 (March 2014 Promissory Notes). In May 2013, the Group raised US$9m through the issue of Convertible Notes with a coupon of 12% and an exercise price of $1.25 and expiring 31 May 2016. The net cash raised was US$6m before costs, as the December 2013 Promissory Notes were converted to Convertible Notes. - - Post year end the following capital raising occurred: In September 2013, the Group raised US$6.5m through the issue of Series B Convertible Notes with a coupon of 12% and an exercise price of $1.25 and expiring 31 September 2016. The net cash raised was US$3.5m before costs, as the March 2014 Promissory Notes were converted to Convertible Notes. 4 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) Summary of share and share options on issue At the date of this report, the unissued ordinary shares of Jupiter Energy Limited under Performance Rights are as follows: Date of Vesting Vesting Conditions Number under Performance Rights 31 December 2013 Share Price Performance from a base 7,000,001 level of $0.919 Summary of Conditions relating to the vesting of the Performance Rights: The Performance Rights for each holder shall vest in proportion to the % increase in the Share price of the Company above $0.735 subject to a minimum increase of 25%, i.e. Performance Rights will start vesting at $0.919. For 100% of the Performance Rights to vest, the share price of the Company needs to reach $1.47 (Vesting Conditions). In respect of the Vesting Conditions, the % increase in the Share price of the Company will be calculated by reference to the volume weighted average price of Shares in the 20 consecutive trading days immediately prior to the Vesting Date. OPERATING REVIEW This section provides details on the operations of the past 12 months. The key operational events for the year were the drilling, completion and production testing of Jupiter Energy’s fifth, sixth and seventh operated wells (J-55, J-58 and J-59) on the southern extension area of Block 31 and the ongoing trial production from the J-50, J-51 and J-52 wells. Details on all these wells are outlined below as are details on other work carried out over the course of the year. Well Operations J-50, J-51 and J-52 Trial Production The J-50, J-51 and J-52 wells all have their trial production licences in place and during year the Company received cash of $US7.549m from the sale of approximately 194,300 barrels of oil at an average price of $US38.85 per barrel. All oil sales were made into the domestic market, as is required under Trial Production, and made through predominantly two local traders. All sales were made on a pre-paid basis, with oil collected by the traders from the well head. The Company announced during April 2013 that the J-50 well had been shut in and an application made for a new gas emissions permit. The improved production from J-50 after the installation of an Electric Submersible Pump in October 2012 meant that the gas emission limit originally approved for 2013 was exceeded earlier than expected. The J-50 well is currently forecasted to return to production in January 2014. In the meantime the J-51 and J-52 wells continue to produce at a cumulative rate of approximately 650 barrels of oil per day (bopd). J-53 The J-53 well is located 2.8 km southeast of the J-52 well. The well has been shut in awaiting remedial work to address a water influx that has reduced the overall commercial performance. The work will be carried out a soon as is feasible and it is hoped to bring the well onto Trial Production during 2014. 5 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) The Trial Production Licences for the J-50, J-51, J-52 and J-53 wells have a term of three years and the next step post Trial Production will be the implementation of the necessary surface infrastructure required to develop the discoveries for long term production. J-55 (Southern Extension) The J-55 well was the Company’s fifth exploration well and the second of its two 2012 commitment wells on Block 31. The well is located 5.7 km southeast of the J-53 well and is the first well that the Company has drilled on the southern area extension. This area was granted to the Company in 2011 and is located to the south of the already discovered Akkar East oil accumulation. The J-55 well took a total of 55 days to drill and reached a total depth of 3,400m on 29 September 2012. Hydrocarbon shows while drilling, including a core in the reservoir zone, and subsequent open hole wireline logs all indicated hydrocarbons in the Triassic reservoir. The open hole logs indicated good levels of oil saturation and porosity. Analysis by independent consulting firm Reservoir Evaluation Services LLC (“RES”) confirmed some 112m of gross reservoir and approximately 60m of net pay at the Middle Triassic carbonate reservoir unit, the primary reservoir objective in the well. The reservoir is located on a separate structure to the Akkar East field. Cut offs of 3.8% porosity and 50% oil saturation were used in the analysis, with a correction for mud filtrate displacement. Initial testing of the J-55 well produced oil with a high water cut post perforation and stimulation of both the T2B and T2A horizons; the origins of the water still needs to be determined with further remedial work. An application for a Trial Production licence will be submitted for the J-55 well as soon as the State Reserves Report for the Southern Extension area has been approved by the relevant authorities. This is expected to occur during the 1st quarter of 2014. An application for further testing work on the well may also be submitted prior to the Trial Production Licence being received. J-58 (Southern Extension) The J-58 well was the Company’s sixth exploration well and is located 3.8km southeast of the J-55 discovery well and is the second well that the Company drilled on the southern area extension. The well took a total of 37 days to drill and reached a total depth of 3,320m on 28 November 2012; the performance of the drilling operation was better than anticipated with the well reaching final depth ahead of schedule. Hydrocarbon shows while drilling, including a core in the reservoir zone, and subsequent open hole wireline logs all indicated hydrocarbons in the Triassic reservoir. The open hole logs indicated good levels of oil saturation and porosity. Analysis by independent consulting firm RES confirmed some 152.8m of gross reservoir and approximately 75.6m of net pay at the Middle Triassic T2B carbonate reservoir unit, the primary reservoir objective in the well. In addition RES analysis also confirmed an additional 120.1m of gross reservoir and approximately 52m of net pay at the Middle Triassic T2A carbonate reservoir unit. Cut offs of 3.8% porosity and 50% oil saturation were used in the analysis, with a correction for mud filtrate displacement. Initial production testing of the J-58 well from a 5.5m unstimulated zone in the lower T2B Triassic over a 7 day period with a 9mm choke size, resulted in a flow rate of approximately 1,300 bopd. Testing of the T2A horizon was then carried out and results indicated that no additional inflow from this horizon was achieved. The well was brought back onto production from the T2B horizon for a short period and then shut in on the day that the approved Production Testing period expired. An application for a Trial Production Licence will be submitted for the J-58 well as soon as the State Reserves Report for the Southern Extension area has been approved by the relevant authorities. This is expected to occur during the 1st quarter of 2014. An application for further testing work on the well may also be submitted prior to the Trial Production Licence being received. 6 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) J-59 (Southern Extension) The J-59 well was the Company’s seventh exploration well and is located 3.8km southeast of the J-58 discovery well and is the third well that the Company has drilled on the southern area extension, alongside the J-55 and J-58 wells. The well took a total of 52 days to drill and reached a total depth of 3,191m on 20 February 2013; the performance of the drilling operation was in line with expectations. Hydrocarbon shows while drilling, including a core in the reservoir zone, and subsequent open hole wireline logs all indicated hydrocarbons in the Triassic reservoir. The open hole logs indicated good levels of oil saturation and porosity. Analysis by independent consulting firm RES confirmed some 102.8m of gross reservoir and approximately 42.8m of net pay at the Middle Triassic T2B carbonate reservoir unit, the primary reservoir objective in the well. In addition RES analysis also confirmed an additional 64.6m of gross reservoir and approximately 40.4m of net pay at the Middle Triassic T2A carbonate reservoir unit. Cut offs of 3.8% porosity and 50% oil saturation were used in the analysis, with a correction for mud filtrate displacement. The permit for testing of the T2B horizon of the J-59 well was issued prior to the completion of the extended testing program on the J-58 well, this overlap of 90 day testing permits resulted in less of the approved 90 day testing period for J-59 being used effectively. The completion and testing of J-59 was commenced in June 2013 and in the limited time available the key focus was to establish the parameters required to provide the required information to enable the completion of the State Reserves Report for the Southern Extension area. During testing oil was recovered to surface and bottom hole samples taken before the 90 day production period expired. An application for a Trial Production Licence will be submitted for the J-59 well as soon as the State Reserves Report for the Southern Extension area has been approved by the relevant authorities. This is expected to occur during the 1st half of 2014. An application for further testing work on the well may also be submitted prior to the Trial Production Licence being received. Independent Reserve Reports The Company is required to complete a Final Reserves Report for the Akkar East oilfield as part of the process of applying for a Full Field Development licence. This report must be prepared by an approved, independent, Kazakh institute and submitted to the relevant authorities for approval. In addition, as part of the Trial Production application process for the J-55, J-58 and J-59 wells, a Preliminary Reserves Report needs to be completed for the Southern Extension area. This report must also be prepared by an approved, independent, Kazakh institute and submitted to the relevant authorities for approval. Both these reports are prepared using the Kazakh classification system of reserves which has been developed from the Russian reserves system which is based on the analysis of geological attributes. In December 2012, the Company also appointed an independent reserves engineering company to undertake an audit of the producing Mid Triassic T2B horizon using the Petroleum Resource Management System (“PRMS”) classification system. Under this classification system, reserves are defined as those quantities of oil which are estimated to be commercially recovered from a known accumulation from a given date forward. The results of these three reports were released to shareholders on 11 September 2013 and are detailed in the “Significant Events after the Balance Sheet Date” section below. 7 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) Forward Plan for Drilling Activity The Company is currently reviewing the funding plan for the coming twelve months. Assuming the funding is in place, it is expected that there will be a combination of exploration, appraisal and early development wells drilled. The next exploration well (J-54) is a large structural closure mapped using 3D seismic to the north of the producing East Akkar field. The prospect is believed to be a separate accumulation and the prognosis is that it is structurally up dip of Akkar East. The Company estimates a potential resource of over 20 million barrels of oil associated with this prospect. The Company considers that the main risk associated with the proposed J-54 well is an adequate top seal to trap oil. Assuming success, it is believed that the reservoir quality and flow rates should be similar to that found in the Akkar East field. The current plan is to drill the J-54 well during the 1st quarter of 2014. Details on the Exploration and Production Licences The Company expects to submit an application for a further two year extension to the Block 31 Exploration Licence in 2014. The Exploration Licence had an initial 6 year term (ending December 2012) and already has had its 1st two year extension approved to December 2014. This further extension, should it be approved, will take the exploration period through to December 2016. The Block 31 contract also has the right to a 25 year Production Licence and it is the Company’s intention to continue exploring on the southern section of Block 31 whilst also applying, during 2015, for a Production Licence for the already discovered Akkar East field in the northern section of Block 31. Prospectivity As outlined in the Forward Plan for Drilling Activity section of this report, the drilling of J-54 during the 1st quarter of calendar 2014 has the potential, assuming success, for an a further upgrade of Block 31 reserves. The Company believes the prospectivity of Jupiter Energy’s Block 31 continues to improve and the Board are confident that further additions to the reserves are achievable. Production As outlined above, the J-50, J-51, J-52 and J-53 wells already have their respective Trial Production Licences approved and it is expected that wells J-55, J-58 and J-59 will have their application for Trial Production licences approved during 2014. Total barrels sold under Trial Production during the 2012/13 financial year totalled 194,300 for revenues of A$5,778,057 This represents a 443% increase in revenues achieved in the 2011/12 financial year ($1,063,086). Board and Staffing An integrated operating team that has proven in-country experience as well as the capacity to operate major assets is a critical component to success in Kazakhstan. The continued building of such a team has been a major priority over the course of several years and the past 12 months has been no exception. The Board is confident that the Company is well prepared for continued growth over the coming years. 8 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) SIGNIFICANT EVENTS AFTER THE BALANCE DATE Independent Reserve Reports On 11 September 2013 the Company announced the details of three independent reserve estimations that had been carried out on the various accumulations on the Block 31 permit. Two of these reports were State Reserve Reports prepared by independent consulting firm RES. The first of these reports was the Akkar East Reserves Report and this report was prepared as part of the process of moving the Akkar East field into Full Field Development. This review of the Akkar East field was a follow on to the 2012 Preliminary Reserves report prepared by RES submitted as part of the process required to enable the J-50, J-51, J- 52 and J-53 wells to be granted their respective Trial Production Licences (TPL’s). The Preliminary Reserves report was approved by the Kazakh authorities in June 2012. The second report was the Southern Extension area (known locally as West Zhetybai) Preliminary Reserves Report and this report is the first step towards the granting of TPL’s for the J-55, J-58 and J-59 wells. In summary, the Akkar East accumulation covers the area delineated by the J-51, J-52 and J-53 wells and the Oil-In- Place (OIP) for this area has been estimated at ~129 mmbbls with recoverable reserves estimated at ~32.6 mmbbls. The C1 reserves have been estimated at ~10.7 mmbbls and C2 reserves at ~21.9 mmbbls. The recoverable reserves are based on a recovery factor of 27.2%. The J-50 well is part of the Akkar North accumulation and the estimated recoverable reserves for this area are ~8.6 mmbbls (C1 - ~4 mmbbls and C2 - ~4.6 mmbbls) bringing the total recoverable reserves in the area delineated by the wells J-50, 51, 52 and 53 to ~41.2 mmbbls; C1 reserves of ~14.7 mmbbls and C2 reserves of ~26.5 mmbbls. Estimated reserves from the T31, T32 (both formerly known as the Z Sand), T2A and T2B horizons were used in these calculations. The Akkar East Reserves Report has now been submitted to the relevant authorities; the approval process is expected to take three months. The West Zhetybai accumulation covers the area delineated by the J-55, J-58 and J-59 wells and reserves have been evaluated for the T31, T32, T2A and T2B horizons. The OIP for this area has been estimated at ~232 mmbbls (from all four horizons) with recoverable reserves estimated at ~61.2 mmbbls. The C1 reserves have been estimated at ~2.3 mmbbls and C2 reserves at ~58.9 mmbbls; the recoverable reserves are based on a recovery factor of 27.2%. The higher proportion of C2 to C1 reserves indicates the need for (i) further testing of the J-55 and J-59 wells and (ii) general appraisal of the area which may include the drilling of additional wells. RES has submitted the West Zhetybai Preliminary Reserves Report to the relevant authorities; approval is expected to take three months. The third report was a Competent Persons Report (CPR) that was prepared using the Society of Petroleum Engineers Petroleum Resources Management System (PRMS) classification system; reserves are defined as those quantities of oil which are estimated to be commercially recoverable from a known accumulation from a given date forward. McDaniel & Associates (McDaniel) were engaged to complete this independent reserves audit of only the mid Triassic horizon as identified by wells J-50, J-51, J-52, J-53, J-55, J-58 and J-59. One of the underlying differences between the Kazakh State Reserves classification system and PRMS classification system is that PRMS also considers the commercial uncertainties rather than only geological attributes and therefore the lack of established commercial oil flow from the J-53, J-55 and J-59 wells resulted in the reserve calculations based primarily on production from the T2B horizon from wells J-50, J-51, J-52 and J-58. 9 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) The results, by reserve category, were: • Proved Reserves: 1P 9.7 mmbbls • Proved plus Probable Reserves: 2P 19.2 mmbbls • Proved plus Probable plus Possible: 3P 28.7 mmbbls As part of the work undertaken by McDaniel to establish the commercial threshold of the mid-Triassic reserves, the Net Present Value of the proved+probable reserves using a discounted cashflow model with a discount rate of 10% was calculated as $US304.6m (~$US15.9/bbl) pre-tax and $US222.5m (~$US11.6/bbl) after tax. Shareholders are encouraged to read the 11 September 2013 announcement in full as it contains more details on the differing reserve classification methodologies used by RES in preparing the State Reserve Reports and by McDaniel in preparing the CPR. In summary, the results of both independent reserve audits confirmed the prospectivity of the Block 31 permit. Capital Raising On 23 September 2013, the Company announced details regarding the issue of $US6.5million of Series B Convertible Notes, issued on 20 September 2013. The key terms of these Convertible Notes were as follows: • Term: 3 years • Conversion Price: $US1.25 per share (maximum of 5.2 million shares may be issued) • Coupon Rate: 12% per annum, with the interest accruing from and including the Issue Date until the earlier of the Conversion Date, Redemption Date or Maturity Date of the Note. • The Convertible Notes may be redeemed by Jupiter at any time with a minimum of 12 months interest payable if the Convertible Notes are redeemed within the 1st 12 months of their Term • The issue of the Convertible Notes is carried out under Jupiter’s 15% capacity in accordance with ASX Listing Rule 7.1 The breakdown of subscriptions for the Convertible Notes is as follows: • Waterford Petroleum Limited: $US1.5m • Mid Ocean Limited $US0.5m • Mobile Energy Limited: $US4m • Other Private Investors: $US0.5m The net cash proceeds of the fundraising was $US3.305m, following the repayment of $US3m of Promissory Notes held by Mobile Energy Limited and the payment of a fee of 3% of the proceeds of the raising ($US195,000) by the Company to Waterford Petroleum Limited for its role in arranging the funding. The net cash proceeds of the fundraising will be used for the following purposes: • Remedial work on J-53: ~$US150,000; • Further testing of the J-59 well: ~$US350,000 and • General working capital: ~$US2.805m. The holders of Series A Convertible Notes issued on 31 May 2013 have also agreed to convert their notes to Series B Convertible Notes, effective from 20 September 2013. This means that all interest payable on the entire $US15.5m Convertible Notes now outstanding will be deferred and accrue from and including the Issue Date of the Series B Convertible Notes until the earlier of the Conversion Date, Redemption Date or Maturity Date of the Note. 10 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Except as otherwise set out in this report, the Directors are unaware of any significant changes in the state of affairs or principal activities of the consolidated entity that occurred during the period under review. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Directors will continue to pursue oil and gas exploration and production opportunities in the Republic of Kazakhstan. As Jupiter Energy Limited is listed on the Australian Stock Exchange and London’s AIM Market (AIM), it is subject to the continuous disclosure requirements of the ASX Listing Rules and the AIM Rules for Companies which require immediate disclosure to the market of information that is likely to have a material effect on the price or value of Jupiter Energy Limited’s securities. The requirement for continuous disclosure is also required for the KASE. ENVIRONMENTAL REGULATION The consolidated entity is committed to achieving the highest standards of environmental performance. Standards set by the Government of Kazakhstan are comprehensive and highly regulated. The consolidated entity strives to comply not only with all Kazakh government regulations, but also maintain worldwide industry standards. To maintain these high standards the Company is committed to a locally developed environmental monitoring programme. This monitoring programme will continue to expand as and when new regulations are implemented and adopted in Kazakhstan. HEALTH & SAFETY The Company has developed a comprehensive Health and Safety policy for its operations in Kazakhstan and has the appropriate personnel in place to monitor the performance of the Company with compliance under this policy. The Company outsources many of its key drilling functions and as part of any contract entered into with third parties, a commitment to Health & Safety and a demonstrated track record of success in this area is a key performance indicator in terms of deciding on which companies will be contracted. 11 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT DIRECTORS’ REPORT (continued) MEETINGS OF DIRECTORS The number of meetings of the Directors held during the year and the number of meetings attended by each Director was as follows: Board of Directors Number attended Number eligible to attend 7 7 7 7 7 7 7 7 Current Directors G Gander A Beardsall B Kuandyukov S Mison Committee membership Due to the small number and geographical spread of the Directors, it was determined that the Board would undertake all of the duties of properly constituted Audit & Compliance and Remuneration Committees. Competent Persons Statements General Keith Martens, BSc Geology and Geophysics, with over 35 years' oil & gas industry experience, is the qualified person who has reviewed and approved the technical information contained in this report. Keith Martens has no material interest in the Company. Independent Reserves (PRMS) The information in this report which relates to the proven, probable and possible reserve estimations of the Mid Triassic is based on information compiled by McDaniel & Associates (“McDaniel”), a Canadian based oil & gas consulting company that specialises in oil & gas reserve estimations. McDaniel has used the Petroleum Resources Management System (PRMS) classification system in determining their reserve estimations. McDaniel has sufficient experience which is relevant to oil & gas reserve estimation and to the specific permit in Kazakhstan to qualify as competent to verify the information pertaining to the Mid Triassic reserves. McDaniel has given and not withdrawn its written consent to the inclusion of the Mid Triassic reserve estimations in the form and context in which they appear in this report. McDaniel has no financial interest in the Company. Kazakh State Approved Reserves The information in this report which relates to the C1 and C2 Block 31 reserve estimations is based on information compiled by Reservoir Evaluation Services LLP (“RES”), a Kazakh based oil & gas consulting company that specialises in oil & gas reserve estimations. RES has used the Kazakh Reserve classification system in determining their estimations. RES has sufficient experience which is relevant to oil & gas reserve estimation and to the specific permit in Kazakhstan to qualify as competent to verify the information pertaining to the C1 and C2 reserve estimations. RES has given and not withdrawn its written consent to the inclusion of the C1 and C2 reserve estimations in the form and context in which they appear in this report. RES has no financial interest in the Company. 12 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) This remuneration report outlines the Director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the parent company, and includes the three executives in the Company and the Group. For the purposes of this report, the term 'executive' encompasses the chief executive, senior executives, general managers and secretaries of the Company and the Group. Details of key management personnel (including the three highest executives of the Company and the Group) (i) Directors Geoff Gander Alastair Beardsall Baltabek Kuandykov Scott Mison (ii) Executives Keith Martens John Kroshus Chairman / CEO (Executive) Director (Non-Executive) Director (Non-Executive) Director / CFO / Company Secretary (Executive) Technical Consultant Technical Consultant (appointed August 2012, resigned July 2013) There were no other changes after reporting date and before the date the financial report was authorised for issue. Remuneration Philosophy The remuneration policy of the Group has been designed to align Directors and executives interests with the shareholder and business objectives by providing a fixed remuneration component and offering long term incentives based on a key performance area – the material improvement in share price performance. The Board of the Group believes the remuneration policy to be appropriate to attract and retain the best executives and Directors to run and manage the Company, as well as create goal congruence between Directors, executives and shareholders. The Board's policy for determining the nature and amount of remuneration for Board members and senior executives of the Company is as follows: * * * The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the Board after a review of similar listed and unlisted companies with activities in overseas jurisdictions and taking into account the experience and skill set required to successfully develop operations in these jurisdictions from early stage development. The Company does not have a remuneration committee. The Board is of the opinion that due to the nature and size of the Company, the functions performed by a Remuneration Committee can be adequately handled by the full Board. All executives receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits and performance incentives. The Board reviews executive packages annually by reference to the Company's performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. Executives are eligible to participate in the Company’s long term performance rights plan. 13 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) The executive Directors and executives receive a superannuation guarantee contribution as required by the government which is currently 9.25%, and do not receive any other retirement benefits. The remuneration paid to Directors and executives is valued at the cost to the Company and expensed. Shares given to Directors and executives are valued as the difference between the market price of those shares and the amount paid by the Director or executive. Options are valued using the Black & Scholes methodology. Performance Rights are valued using a hybrid employee share option model. The hybrid model incorporates a trinomial option valuation and a Monte Carlo simulation. Remuneration Structure Non-Executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive Directors is subject to approval by shareholders at the Annual General Meeting. Total remuneration for all non-executive Directors, is not to exceed $350,000 per annum as approved by shareholders at the Annual General Meeting held on 15 November 2010. Fees for non-executive Directors are not linked to performance of the Company. However, to align Directors' interests with shareholder interests, the non-executive Directors have been issued Performance Rights which have vesting conditions that are specifically linked to share price performance. Non-executive Directors are also encouraged to hold shares in the company. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers the fees paid to non-executive directors of comparable companies and the potential value provided via the allocation of Performance Rights when undertaking the annual review process. Each Director receives a fee for being a Director of the Company. Directors who are called upon to perform extra services beyond the director’s ordinary duties may be paid additional fees for those services. Executive Remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to: - - - - reward executives for Company, business unit and individual performance; align the interests of executives with those of shareholders; link reward with the strategic goals and performance of the Company; and ensure total remuneration is competitive by market standards. 14 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Structure In determining the level and make-up of executive remuneration, the Board reviews remuneration packages provided by similar listed and unlisted companies with activities in overseas jurisdictions and taking into account the experience and skill set required to successfully develop operations in these jurisdictions from early stage development as well as the salary levels of local workers in that jurisdiction. It is the Board’s policy that employment contracts are entered into with the Chief Executive Officer and all key management personnel. Fixed Remuneration The fixed remuneration of executives is comprised of a base salary and superannuation. The fixed remuneration of executives is reviewed annually. Variable remuneration – Short Term Incentives (STI) The Group operates a STI program for its Kazakh based employees, which is based on a cash bonus subject to the attainment of clearly defined Branch and individual measures. Actual STI payments awarded to each employee depends on the extent to which specific targets are met. The targets consist of a number of key performance indicators (KPIs) covering financial and non-financial Branch and individual measures of performance. Directors are not eligible for participation in the STI program. Variable Remuneration – Long Term Incentives (LTI) Objective The objectives of long term incentives are to: - - - - align executives remuneration with the creation of shareholder wealth; recognise the ability and efforts of the Directors, employees and consultants of the Company who have contributed to the success of the Company and to provide them with rewards where deemed appropriate; provide an incentive to the Directors, employees and consultants to achieve the long term objectives of the Company and improve the performance of the Company; and attract persons of experience and ability to employment with the Company and foster and promote loyalty between the Company and its Directors, employees and consultants. Structure Long term incentives granted to Directors and senior executives are delivered in the form of Performance Rights, issued under the Performance Rights Plan. Company Performance Due to the current embryonic stage of the Company’s growth it is not appropriate at this time to evaluate the Company’s financial performance using generally accepted measures such as EBITDA and profitability; this assessment will be developed over the next few years. 15 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) The following information provides a summary of the Company’s financial performance for the last five years: Loss before income tax Earnings per share (cents)* Last share price at Balance Date* Market capitalisation 2013 $ (4,885,829) (3.25) 0.55 82.7m 2012 $ (4,295,102) (3.70) 0.415 48.2m 2011 $ (4,889,671) (5.25) 0.72 83.4m 2010 $ (5,512,070) (8.25) 0.51 30.1m 2009 $ (2,610,253) (10.80) 0.36 8.7m *The earnings per share and last share price have been adjusted for all periods to reflect the 15:1 share consolidation approved on 12 August 2011. Relationship of Reward and Performance The value of Performance Rights will represent a significant portion of an executive’s salary package. The ultimate value to the executives of the Performance Rights depends on the share price of Jupiter Energy Ltd. The share price is the key performance criteria for the long term incentive as the realised value arising from Performance Rights issued is dependent upon an increase in the share price to above the minimum vesting price for the Performance Rights. Below is a summary of performance conditions for Performance Rights: The number of Performance Rights vest in proportion to the percentage increase in share price above $0.735 at vesting date. If the share price is less than $0.919 (minimum vesting price) no Performance Rights vest. For 100% of the Performance Rights to vest, the share price of the Company needs to reach $1.47. In respect of the Vesting Condition, the % increase in the Share price of the Company will be calculated by reference to the volume weighted average price of Shares in the 20 consecutive trading days immediately prior to the Expiry Date (31 December 2013). No Performance Rights vest if the calculated share price is less than the minimum vesting price at vesting date. The minimum vesting price was set based on 25% premium to the Company’s share price at the original grant date. 16 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives Table 1: Remuneration for the year ended 30 June 2013 Short-term benefits Post-employmen t benefits Share-based payment Cash salary and Consulting fees $ Cash bonus $ Other $ Super- annuation $ Performance Rights $ Total $ Remuneration consisting of Performance Rights % Performance related % 40,000 40,415 80,415 296,990 130,000 157,200 290,190 874,380 954,795 - - - - - - - - - - - - 120,429 - - 38,567 158,996 158,996 - - - 16,000 - 236,611 236,611 473,222 236,611 52,054 276,611 277,026 553,637 670,030 182,054 85.54% 85.41% 85.54% 85.41% 35.31% 28.59% 35.31% 28.59% - - - 14,194 157,200 342,951 - 4.14% - 4.14% 16,000 16,000 302,859 776,081 1,352,235 1,905,872 Name Non-executive director A Beardsall B Kuandykov Total non-executive directors Executive directors G Gander (a) S Mison (b) Other key management personnel K Martens J Kroshus Total executives Totals (a): Other relates to living expenses covering cost of apartment/office in London as per service agreement. (b): Fees relate to CFO, Company Secretary and Director Fees. Table 2: Remuneration for the year ended 30 June 2012 Short-term benefits Post-employment benefits Share-based payment Cash salary and Consulting fees $ Cash bonus $ Other $ Super- annuation $ Performance Rights $ Total $ 40,000 40,000 80,000 - 49,135 (a) 49,135 - - - - - - 119,203 (b) - 48,000 - 164,462 164,462 328,924 188,021 32,891 204,462 253,597 458,059 617,211 164,558 261,987 131,667 (c) 107,875 146,936 - - - - - - - - - - 107,875 146,936 Name Non-executive director A Beardsall B Kuandykov Total non-executive directors Executive directors G Gander S Mison Other key management personnel K Martens H Wolski (resigned 30 November 2011) G Kulumbetov (appointed 8 August 2011; resigned 4 June 2012) Total executives Totals - 48,000 48,000 (a): Relates to a one off cash bonus for work completed outside his duties as a non-executive director. (b): Other relates to living expenses covering cost of apartment/office in London as per service agreement. (c): Fees relate to CFO, Company Secretary and Director Fees 169,863 818,328 898,328 - 119,203 119,203 - - 49,135 - 220,912 549,836 169,863 1,206,443 1,664,502 17 Remuneration consisting of Performance Rights % 80.44 64.85 Performance related % 80.44 84.23 30.46 19.99 30.46 19.99 - - - - - - JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives (continued) Compensation Options: Granted and vested during the year ended 30 June 2013 During the 2013 and 2012 year, there were no options granted. 866,669 unlisted options lapsed on 31 December 2012. No options, listed or unlisted, were exercised during the year. Share issued on Exercise of Compensation Options There were no shares issued on the exercise of compensation options during the financial years ended 30 June 2013 or 30 June 2012. Performance Rights On 9 November 2012, 5,066,666 Performance Rights were approved by shareholders to Directors and executives. The number of Performance Rights vest in proportion to the percentage increase in share price at vesting date $0.919 (minimum vesting price). For 100% of the Performance Rights to vest, the share price of the Company needs to reach $1.47. In respect of the Vesting Condition, the percentage increase in the Share price of the Company will be calculated by reference to the volume weighted average price of Shares in the 20 consecutive trading days immediately prior to the Vesting Date (31st December 2013). No Performance Rights vest if the calculated share price is less than the minimum vesting price at vesting date. The fair value of Performance Rights granted to Directors is estimated as at the grant date using a Monte Carlo simulation option pricing model taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models for the period ended 30 June 2013: Performance Rights Grant date Number of Performance Rights Share price Exercise price Dividend Yield Expected volatility Risk-free interest rate Expected life Weighted average fair value Total amount Expensed to 30 June 2013 During the current year, no Performance Rights vested. 9 November 2012 5,066,666 51 cents 0 cents 0.0% 75.0% 2.72% 1.14 year 11.04 cents $559,360 $359,589 18 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives (continued) Table 3: Compensation Performance Rights: Granted and vested during the year ended 30 June 2013 Granted Grant Date Fair Value per right at grant date $ Terms & Conditions for each Grant Exercise price per right $ Expiry Date 9 Nov 2012 9 Nov 2012 9 Nov 2012 9 Nov 2012 $0.51 $0.51 $0.51 $0.51 $0.00 $0.00 $0.00 $0.00 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 Original Grant Directors A Beardsall B Kuandykov G Gander S Mison Total Number 1,500,000 1,500,000 1,500,000 366,666 4,866,666 First Exercise Date 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 Vested Number % - - - - - - - - - Table 4: Compensation Performance Rights: Granted and vested during the year ended 30 June 2012 Granted Number Grant / Modification Date Fair Value per right at grant date $ Terms & Conditions for each Grant Exercise price per right $ Expiry Date First Exercise Date Vested Number % Original Grant Directors A Beardsall B Kuandykov G Gander S Mison 666,667 666,667 666,667 133,334 26 August 2011 26 August 2011 26 August 2011 26 August 2011 $0.27 $0.27 $0.27 $0.27 $0.00 $0.00 $0.00 $0.00 21 August 2012 21 August 2012 21 August 2012 21 August 2012 21 August 2012 21 August 2012 21 August 2012 21 August 2012 Total 2,133,335 Modification * A Beardsall B Kuandykov G Gander S Mison - - - - 14 May 2012 14 May 2012 14 May 2012 14 May 2012 $0.19(i) $0.19(i) $0.19(i) $0.19(i) $0.00 $0.00 $0.00 $0.00 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 - - - - - - - - - - - - - - - - - Total *The only modification was the expiry vesting date was extended from 21 August 2012 to 31 December 2013. All other terms and conditions remained the same. (i) Represents the incremental fair value, between the original and modified awards at modification date. - - 19 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives (continued) Service agreements Remuneration and other terms of employment for the Executive Chairman/CEO, Company Sec/CFO, and all other key management positions held in Kazakhstan have been formalised in service agreements. The main provisions of the agreements in relation to Directors holding management roles are set out below. Geoff Gander, Executive Chairman (Effective – 1 July 2012) Base Terms • This agreement was effective from 1 July 2012 and was for a term of 1.5 years (to December 31 2013). • Base Salary of GBP200,000 including Director Fees and the current Superannuation Levy of 9%. • Living expenses of GBP 75,000 per year, covering the cost of an apartment/office in London. • Mr Gander has been issued, after shareholder approval in August 2011, 666,667 Performance Rights. • At a General Meeting on 14 May 2012, shareholders approved an extension of the expiry date of the Performance Rights from 21 August 2012 to 31 December 2013. • An additional allocation of 1.5m Performance Rights was approved by shareholders at the 2012 AGM. The termination provisions are as follows: Employer - initiated termination with reason Employer - initiated termination without reason Termination for serious misconduct Employee – initiated termination Notice period 1 or 3 months Payment in lieu of notice 1 or 3 months Treatment of Performance Rights Unvested rights forfeited 3 months 3 months Unvested rights forfeited None 1 or 3 months None None Unvested rights forfeited Unvested rights forfeited Scott Mison, CFO / Company Secretary / Executive Director (Effective – 1 July 2012) Base Terms • This agreement was effective from 1 July 2012 and was for a term of 1. 5 years (to 31 December 2013). • Base Salary of A$90,000. • Director fees of A$40,000. • Mr Mison has been issued, after shareholder approval in August 2011, 133,334 Performance Rights. • At a General Meeting on 14 May 2012, shareholders approved an extension of the expiry date of the Performance Rights from 21 August 2012 to 31 December 2013. • An additional allocation of 366,666 Performance Rights was approved by shareholders at the 2012 AGM. 20 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives (continued) The termination provisions are as follows: Employer - initiated termination with reason Employer - initiated termination without reason Termination for serious misconduct Employee – initiated termination Notice period 1 or 3 months Payment in lieu of notice 1 or 3 months Treatment of Performance Rights Unvested rights forfeited 3 months 3 months Unvested rights forfeited None 1 or 3 months None None Unvested rights forfeited Unvested rights forfeited Keith Martens, Technical Consultant (Effective – 1 July 2011) Base Terms • This agreement is effective from 1 July 2011. The term is on a rolling month basis. • Fee is $2,000 (excluding GST) per full working day. The termination provisions are as follows: Employer - initiated termination with reason Employer - initiated termination without reason Termination for serious misconduct Employee – initiated termination Notice period 1 month 1 month None 1 month Payment in lieu of notice 1 month 1 month None None End of Remuneration Report (Audited) 21 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company has entered into Deeds of Indemnity with the Directors, indemnifying them against certain liabilities and costs to the extent permitted by law. The Company has also agreed to pay a premium in respect of a contract insuring the Directors and Officers of the Company against certain liabilities and costs to the extent permitted by law. Full details of the cover and premium are not disclosed as the insurance policy prohibits the disclosure. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Jupiter Energy Limited adhere to strict principles of corporate governance. The Company’s corporate governance statement is included on page 23 of this annual report. AUDITOR INDEPENDENCE The Directors received the declaration included on page 29 of this annual report from the auditor of Jupiter Energy Limited. NON-AUDIT SERVICES There were no non-audit services provided by the entity’s auditors, Ernst & Young during the year. This report has been made in accordance with a resolution of the Directors. G A Gander Director Perth, Western Australia 27 September 2013 22 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Jupiter adhere to strict principles of corporate governance. The Board of Directors of Jupiter Energy Limited is responsible for the overall corporate governance of the consolidated entity, guiding and monitoring the business and affairs of Jupiter on behalf of the shareholders by whom they are elected and to whom they are accountable. The Company’s corporate governance principles and policies are structured with reference to the Corporate Governance Councils best practice recommendations, which are as follows: Principle 1. Lay solid foundations for management and oversight Principle 2. Structure the Board to add value Principle 3. Promote ethical and responsible decision making Principle 4. Safeguard integrity in financial reporting Principle 5. Make timely and balanced disclosure Principle 6. Respect the rights of shareholders Principle 7. Recognise and manage risk Principle 8. Remunerate fairly and responsibly The Board’s Corporate Governance Charter includes procedures for compliance with the ASX Listing Rules continuous disclosure requirements, trading in the Company’s securities, the management of risk, and a Code of Conduct. Jupiter’s corporate governance practices were in place throughout the year ended 30 June 2013. BOARD OF DIRECTORS Role of the Board In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of the Company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company. Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following: • To set the strategic direction for the Company and monitor progress of those strategies; • Establish policies appropriate for the Company; • Monitor the performance of the Company, the Board and management; • Approve the business plan and work programmes and budgets; • Authorise and monitor investment and strategic commitments; • Review and ratify systems for health, safety and environmental management; risk and internal control; codes of conduct and regulatory compliance; • Report to shareholders, including but not limited to, the Financial Statements of the Company; and • Take responsibility for corporate governance. 23 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Composition of the Board To add value to the Company the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties given its current size and scale of operations. The names of Directors of the Company in office at the date of this statement are set out in the Directors’ Report. Information regarding Directors’ experience and responsibilities are included in the Directors’ Report section of this Annual Report. The number of Directors is specified in the Constitution of the Company as a minimum of three up to a maximum of ten. The preferred skills and experiences for a Director of the Company include: • Exploration for oil and gas accumulations; • Development and production operations of hydrocarbon accumulations; • Financing of operations • Business Development; and • Public Company financial reporting and administration. Chairman of the Board The Chairman of the Board should be a Non-Executive Director and the Chairman will be elected by the Directors. Mr Geoff Gander, however is an Executive Chairman and is not independent. Given his skills, experience and knowledge of the Company, the Board considers that it is appropriate for him to be Chairman. Independent Directors The Board considers that a Director is independent if that Director complies with the following criteria: • Apart from Director’s fees and shareholding, independent Directors should not have any business dealings which could materially affect their independent judgment; • Must not have been in an Executive capacity in the Company in the last 3 years; • Must not have been in an advisory capacity to the Company in the last 3 years; • Must not be a significant customer or supplier for the Company; • Must not be appointed through a special relationship with a Board member; • Must not owe allegiance to a particular group of shareholders which gives rise to a potential conflict of interest; • Must not hold conflicting cross Directorships; and • Must not be a substantial shareholder or a nominee of a substantial shareholder (as defined under section 9 of the Corporations Act). Using the ASX Best Practice Recommendations on the assessment of the independence of Directors. The Board considers that of a total of four Directors, only one is considered independent. Mr Geoff Gander is an Executive Chairman of the Company and is not considered to be independent. However, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. Mr Baltabek Kuandykov is an independent Non-Executive Director of the Company. His oil industry experience, especially within Kazakhstan, makes his contribution to the Board important and significant. Mr Alastair Beardsall is a Non-Executive Director of the Company and is not considered to be independent as he was a nominee Director by The Waterford Group, a substantial shareholder. However, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. 24 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Mr Scott Mison is an executive director / CFO / Company Secretary of the Company and is not considered to be independent. However, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. Retirement and Rotation of Directors Retirement and rotation of Directors are governed by the Corporations Act 2001 and the Constitution of the Company. Each year one third Directors must retire and offer themselves for re-election. Any casual vacancy filled will be subject to shareholder vote at the next Annual General Meeting of the Company. Independent Professional Advice Each Director has the right to seek independent professional advice at the Company’s expense after consultation with the Chairman. Once received the advice is to be made immediately available to all Board members. Access to Employees Directors have the right of access to any employee. Any employee shall report any breach of corporate governance principles or Company policies to a Director and/or Company Secretary/CFO who shall remedy the breach. If the breach is not rectified to the satisfaction of the employee, they shall have the right to report any breach to an independent Director without further reference to senior managers of the Company. Insurance The Directors review the requirements for insurance cover for the associated risks for its field operations, including drilling, production and storage of hydrocarbons and other activities and procures insurance cover at levels and costs they feel are appropriate. Directors and officers insurance for Directors will be arranged by the Company at Company expense. Share Ownership Directors are encouraged to own Company shares. Board Meetings The following points identify the frequency of Board Meetings and the extent of reporting from management at the meetings: • A minimum of four meetings are to be held per year; • Other meetings will be held as required, meetings can be held by telephone link; and • Information provided to the Board includes all material information on: operations, budgets, cash flows, funding requirements, shareholder movements, broker activity in the Company’s securities, assets and liabilities, disposals, financial accounts, external audits, internal controls, risk assessment, new venture proposals, and health, safety and environmental (HSE) reports. The number of Directors’ meetings and the number of meetings attended by each of the Directors of the Company during the financial year are set out in the Directors’ Report. Board Performance Review There was no evaluation conducted during the financial year. 25 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Other Areas for Board Review • Reporting to shareholders and the market to ensure trade in the Company’s securities takes place in an efficient, competitive and informed market; and Insurance, both corporate and joint venture related insurances. • Board Committees Audit Committee The Company does not have an audit committee. The Board is of the opinion that due to the nature and size of the Company, the functions performed by an audit committee can be adequately handled by the full Board. The CEO and the CFO declare in writing to the Board that the Company’s financial statements for the year ended 30 June 2013 present a true and fair view, in all material aspects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. This representation is made by the CEO and the CFO prior to the Director’s approval of the release of the annual and six monthly accounts. This representation is made after enquiry of, and representation by, appropriate levels of management. A non-executive Director meets with the Auditors without Executives present to go through the financial statements prior to sign off on the accounts. Jupiter Energy Limited has requested the external auditors to attend the annual general meeting to be available to answer shareholders questions regarding the audit. Nomination Committee The Board of Directors of the Company does not have a nomination committee. The Board is of the opinion that due to the nature and size of the Company, the functions performed by a nomination committee can be adequately handled by the full Board. Remuneration Committee The Company does not have a remuneration committee. The Board is of the opinion that due to the nature and size of the Company, the functions performed by a remuneration committee can be adequately handled by the full Board. Remuneration levels for Directors, Secretaries, Senior Executives of the Company, and relevant group Executives of the consolidated entity (“the Directors and Senior Executives”) are competitively set to attract and retain appropriately qualified and experienced Directors and Senior Executives. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: • • • the capability and experience of the Directors and Senior Executives the Directors and Senior Executives ability to control the relevant segment/s’ performance the consolidated entity’s performance including: o o the consolidated entity’s earnings the growth in share price and returns on shareholder wealth • the amount of incentives within each Directors and Senior Executives remuneration For details of remuneration paid to Directors and officers for the financial year please refer to the Directors’ Report on page 17. 26 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Risk Management The risks involved in oil and gas exploration Company and the specific uncertainties for the Company continue to be regularly monitored and the full Board of the Company meets on an annual basis to formally review such risks. All proposals reviewed by the Board include a consideration of the issues and risks of the proposal. The potential exposures, including financial, reputation, and HSE, with running the Company have been managed by the Board and senior management in Kazakhstan who together have significant broad-ranging industry experience. Additionally, it is the responsibility of the Board to assess the adequacy of the Company’s internal control systems and that its financial affairs comply with applicable laws and regulations and professional practices. The CEO and the CFO declare in writing to the Board that the financial reporting risk management and associated compliance controls have been assessed and found to be operating efficiently and effectively. This representation is made by the CEO and CFO prior to the Director’s approval of the release of the annual and six monthly accounts. This representation is made after enquiry of, and representation by, appropriate levels of management. PROMOTION OF ETHICAL AND RESPONSIBLE DECISION-MAKING Code of Conduct The goal of establishing the Company as a significant Australian-based petroleum exploration and production Company is underpinned by its core values of honesty, integrity, common sense and respect for people. The Company desires to remain a good corporate citizen and appropriately balance, protect and preserve all stakeholders’ interests. The Board has adopted a Code of Conduct for Directors and employees of the Company. The Company’s goal of achieving above average wealth creation for our shareholders should be enhanced by complying with this Code of Conduct which provides principles to which Directors and employees should be familiar and to which they are expected to adhere and advocate. It is the responsibility of the Board to ensure the Company performs under this Code and for its regular review. Diversity The Board has not adopted a separate diversity policy, however is committed to workplace diversity and recognizes the benefits arising from recruitment, development and retention of talented, diverse and motivated workforce. The Company is not of a sufficient size to justify measurable objectives at this stage. As at 30 June 2013, there were sixteen women in the Groups workforce, two of which held key executive positions. Trading in Company Securities by Directors, officers and employees Trading of shares is covered by, amongst other things, the Corporations Act, the ASX Listing Rules, the AIM Listing Rules and the KASE Listing Rules. The Board has established a Securities Trading Policy that establishes strict guidelines as to when a Director, officer or an employee can deal in Company shares. The policy prohibits trading in the Company’s securities whilst the Directors, officer or employee is in the possession of price sensitive information. For details of shares held by Directors and Officers please refer to the Directors’ Report on page 3. 27 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) SHAREHOLDER COMMUNICATION The Board aims to ensure that shareholders and the general investing community have equal access to the Company’s information. The Company has policies and procedures that are designed to ensure compliance with ASX, AIM and KASE Listing Rules disclosure requirements and to ensure accountability at a senior management level for that compliance. This disclosure policy includes processes for the identification of matters that may have material effect on the price of the Company’s securities, notifying them to the ASX and posting them on the Company’s website. The Company also has a strategy to promote effective communication with shareholders and encourage effective participation at general meetings through a policy of open disclosure to shareholders, regulatory authorities and the broader community of all material information with respect to the Company’s affairs including, but not limited to: • Company’s activities • Conflicts of interest and related party transactions; • Executive remuneration; • The grant of options and details of Share Option and Performance Rights Plans; • The process for performance evaluation of the Board, its committees, individual Directors and key managers; • The link between remuneration paid to Directors and Executives and corporate performance; and • The use of clear and concise text in all communications. following The (www.jupiterenergy.com): information is communicated to shareholders and available on the Company web site • The Annual Report and notices of meetings of shareholders; • Quarterly reports reviewing the operations, activities and financial position of the Company; • All documents that are released to the ASX, AIM and KASE are made available on the Company’s website; and • All other information on the Company’s website is updated on an ongoing basis. 28 Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Auditor’s Independence Declaration to the Directors of Jupiter Energy Limited In relation to our audit of the financial report of Jupiter Energy Limited for the financial year ended 30 June 2013, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young R J Curtin Partner Perth 27 September 2013 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation RC:DR:JUPITER:048 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 30 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Revenue Cost of sales Gross profit Other income (Loss) / gain on derivative financial instrument General and administrative costs Operating loss Finance income Finance costs Loss before tax Income tax expense Loss after income tax Note Consolidated 2013 A$ 2012 A$ 5,778,057 (4,869,004) 909,053 (694,342) (161,442) (4,499,291) (4,446,022) 1,063,086 (898,654) 164,432 131,418 761,813 (4,659,544) (3,601,881) 34,779 (474,586) 24,475 (717,696) (4,885,829) (4,295,102) - - (4,885,829) (4,295,102) 4 5 Other comprehensive income net of tax Foreign currency translation 5,816,477 1,337,981 Total comprehensive profit / (loss) for the period 930,648 (2,957,121) Earnings per share for loss attributable to the ordinary equity holders of the Company: Basic loss per share (cents) Diluted loss per share (cents) 24 24 (3.25) (3.25) (3.70) (3.70) The consolidated statement of comprehensive income is to be read in conjunction with the notes of the financial statements 31 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other current assets Inventories Total Current Assets Non-Current Assets Trade and other receivables Oil and gas properties Plant and equipment Exploration and evaluation expenditure Other financial assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Deferred revenue Other financial liabilities Derivative liability Provisions Total Current Liabilities Non-current Liabilities Provisions Other financial liabilities Derivative liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Share based payment reserve Foreign currency translation reserve Accumulated losses Total Equity Note Consolidated 2013 A$ 2012 A$ 6 7 8 9 7 10 11 12 13 14 15 17 17 16 16 17 17 18 19 19 4,131,731 1,119,496 264,717 59,087 5,575,031 3,818,391 25,908,977 1,617,097 34,710,757 460,951 66,516,173 72,091,204 2,678,639 1,642,837 3,280,160 763,177 86,574 8,451,387 452,942 8,613,730 - 9,066,672 17,518,059 395,445 527,566 460,496 53,320 1,436,827 2,401,889 14,225,282 926,336 25,014,521 292,752 42,860,780 44,297,607 1,124,623 1,192,039 - - 90,957 2,407,619 356,594 2,789,897 274,880 3,421,371 5,828,990 54,573,145 38,468,617 85,633,935 5,248,370 1,069,490 (37,378,650) 54,573,145 71,236,136 4,472,289 (4,746,987) (32,492,821) 38,468,617 The consolidated statement of financial position is to be read in conjunction with the notes of the financial statements. 32 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Interest received Net cash flows (used in) operating activities Cash flows from investing activities Payments for exploration and evaluation expenditure Payments for plant and equipment Net Cash flows (used in) investing activities Cash flows from financing activities Proceeds from issues of shares Proceeds from unsecured loan Proceeds from convertible notes Fee on issue of convertible note Transactions cost from issue of shares and convertible notes Interest paid Net cash flows from financing activities Net increase / (decrease) in cash held Effects of exchange rate changes Cash at beginning of the year Cash at end of the year 6 Note Consolidated 2013 A$ 2012 A$ 9,250,333 (11,257,385) 34,779 (1,972,273) 26 3,244,141 (5,996,508) 24,476 (2,727,891) (16,634,046) (843,706) (17, 477,752) (13,255,794) (752,218) (14,008,012) 11,613,015 5,760,840 6,189,480 (281,988) (501,217) (148,378) 22,631,752 3,181,727 554,559 395,445 4,131,731 - - 3,487,987 - (44,475) (379,091) 3,064,421 (13,671,482) 98,679 13,968,248 395,445 The statement of cash flows is to be read in conjunction with the notes of the financial statements. 33 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 Share Based Payment Reserve Issued capital A$ A$ Foreign Currency Translation Reserve A$ Accumulated Losses A$ Total A$ 71,280,610 - - - 3,922,453 - - - (6,084,968) - 1,337,981 1,337,981 (28,197,719) (4,295,102) - (4,295,102) 40,920,376 (4,295,102) 1,337,981 (2,957,121) - 549,836 - - 549,836 (44,474) 71,236,136 - 4,472,289 - (4,746,987) - (32,492,821) (44,474) 38,468,617 CONSOLIDATED As at 1 July 2011 Loss for the period Other comprehensive income Total comprehensive income Transactions by owners recorded directly in equity: Share based payments Shares issued - Costs of issue At 30 June 2012 As at 1 July 2012 Loss for the period Other comprehensive income Total comprehensive income 71,236,136 - - - 4,472,289 - - - (4,746,987) - 5,816,477 5,816,477 (32,492,821) (4,885,829) - (4,885,829) 38,468,617 (4,885,829) 5,816,478 930,649 Transactions by owners recorded directly in equity: Share based payments Shares issued - Costs of issue - 14,899,015 (501,217) 776,081 - - - - - - - - 776,081 14,899,015 (501,217) At 30 June 2013 85,633,934 5,248,370 1,069,490 (37,378,650) 54,573,145 The statements of changes in equity are to be read in conjunction with the notes of the financial statements. 34 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 1 CORPORATE INFORMATION The financial report of Jupiter Energy Limited for the year ended 30 June 2013 was authorised for issue in accordance with a resolution of the directors on 27 September 2013 Jupiter Energy Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange and on London’s AIM Market (as CDI’s). Jupiter Energy Limited is a for profit entity. The nature of the operations and principal activities of the Group are described in the Directors Report on pages 2 to 12 of this report. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis except for certain financial instruments measured at fair value. The financial report is presented in Australian dollars. The amounts contained within this report have been rounded to nearest $1 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/100. Going Concern At 30 June 2013, the Group has a net working capital deficiency of $2.8 million, which includes Promissory Notes of $3.28 million repayable on 31 December 2013. Subsequent to year end, the Group raised US$6.5m through the issue of Series B Convertible Notes with a coupon of 12% and an exercise price of $1.25 and expiring 31 September 2016. The net cash raised was US$3.5m before costs, as the Promissory Notes were converted to Convertible Notes. The consolidated financial statements have been prepared on a going concern basis with the Directors of the opinion that the Group can meet its obligations as and when they fall due. (b) Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. From 1 July 2012, the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on 1 July 2012. Adoption of these standards and interpretations did not have any significant effect on the financial position or performance of the Group AASB 2013-2 Amendments to AASB 1038 – Regulatory Capital AASB 2010-8 Amendments to Australian Accounting Standards - Deferred Tax: Recovery of Underlying Assets [AASB 112] AASB 2011-9 Amendments to Australian Accounting Standards -Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] 35 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2013. These are outlined in the following table. Reference Title Summary AASB 10 Consolidated Financial Statements AASB 12 Disclosure of Interests in Other Entities AASB 13 Fair Value Measurement AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation - Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to this and other standards via AASB 2011-7 and AASB 2012-10. AASB 12 includes all disclosures relating to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates, structured entities and subsidiaries with non-controlling interests. AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. Application date for Group 1 July 2013 Application date of standard 1 Jan 2013 Impact on Group financial report The group has not yet determined the financial impact of the change. 1 January 2013 1 January 2013 1 July 2013 1 July 2013 The group has not yet determined the financial impact of the change. The group has not yet determined the financial impact of the change. AASB 119 Employee Benefits The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. 1 January 2013 The group has not yet determined the financial impact of the change. 1 July 2013 The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. 36 Application date for Group 1 July 2013 1 July 2013 1 July 2013 1 July 2013 1 July 2013 Impact on Group financial report The group has not yet determined the financial impact of the change. The group has not yet determined the financial impact of the change. The group has not yet determined the financial impact of the change. The group has not yet determined the financial impact of the change. The group has not yet determined the financial impact of the change. JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT Application date of standard 1 January 2013 Reference Title Summary AASB 2012-2 AASB 2012-5 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of the effect or potential effect of netting arrangements, including rights of set- off associated with the entity's recognised financial assets and recognised financial liabilities, on the entity's financial position, when all the offsetting criteria of AASB 132 are not met. Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle AASB 2012-5 makes amendments resulting from the 2009- 2011 Annual Improvements Cycle. The standard addresses a range of improvements, including the following: ► Repeat application of AASB 1 is permitted (AASB 1) ► Clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements). 1 January 2013 AASB 2012-9 Amendment to AASB 1048 arising from the withdrawal of Australian Interpretation 1039 AASB 2012-9 amends AASB 1048 Interpretation of Standards to evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. 1 January 2013 AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. AASB 1053 Application of Tiers of Australian Accounting Standards This standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements: (a) (b) Tier 1: Australian Accounting Standards Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. 1 July 2013 1 July 2013 The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this standard) The Australian Government and State, Territory and Local governments (b) The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability All not-for-profit private sector entities Public sector entities other than the Australian Government and State, Territory and Local governments. (b) (c) Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11, 2012-1, 2012-7 and 2012-11. AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. 1 January 2014 The group has not yet determined the financial impact of the change. 1 July 2014 37 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT Application date of standard 1 Jan 2015 Application date for Group 1 July 2015 Impact on Group financial report The group has not yet determined the financial impact of the change. Reference Title Summary AASB 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity's business model for managing the financial assets; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: ► ► The change attributable to changes in credit risk are presented in other comprehensive income (OCI) The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Further amendments were made by AASB 2012-6 which amends the mandatory effective date to annual reporting periods beginning on or after 1 January 2015. AASB 2012-6 also modifies the relief from restating prior periods by amending AASB 7 to require additional disclosures on transition to AASB 9 in some circumstances. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. 38 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Jupiter Energy Limited and its subsidiaries as at 30 June each year ('the Group'). Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Subsidiaries and special purpose entities are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which Jupiter Energy Limited has control. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquisition. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values. (d) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black and Scholes model, trinomial and Monte Carlo using the assumptions detailed in note 21. Exploration and evaluation The Group's accounting policy for exploration and evaluation is set out in note 2(f). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves may be found. Any such, estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under the Group’s policy, management concludes that the Group is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the income statement. 39 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Provision for restoration Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. Units of production depreciation of oil and gas properties Oil and gas properties are depreciated using the units of production (UOP) method over total proved developed hydrocarbon reserves. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining production from the field. Each items’ life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the field at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. The calculation of the UOP rate of depreciation could be impacted to the extent that actual production in the future is different from current forecast production based on total proved reserves. Changes to proved reserves could arise due to changes in the factors or assumptions used in estimating reserves, including: • The effect on proved reserves of differences between actual commodity prices and commodity price assumptions Or • Unforeseen operational issues Changes are accounted for prospectively. Recoverability of oil and gas properties The Group assesses each asset or cash generating unit (CGU) (excluding goodwill, which is assessed annually regardless of indicators) every reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term oil prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, exploration potential, reserves operating performance (which includes production and sales volumes). These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs Production start date The group assesses each well to determine when the well moves into the production stage. This is when the well is substantially completed and ready for intended use. The group considers various criteria in determining the production start date, including but not limited to, results of well testing, the ability of the well to sustain ongoing production, installation of the relevant well infrastructure and receiving the relevant regulatory approvals. When the well moves into the production stage the capitalisation of certain development costs ceases and costs incurred are expensed as a production cost. It also at this point when that the well commences depreciation. Any proceeds received from oil sales prior to the production start date as part of any well testing, are capitalised to the asset. 40 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. Fair value for oil and gas assets is generally determined as the present value of estimated future cash flows arising from the continued use of the assets, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Management has assessed its CGUs as being an individual field, which is the lowest level for which cash inflows are largely independent of those of other assets. (e) Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the part is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Plant and equipment – over 3 to 10 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected to be derived from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. (f) Exploration and Evaluation Expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Costs of evaluation, seismic and unsuccessful exploration in the area of interest are expensed as incurred even if activities in this area of interest are continuing. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When a discovered oil or gas field enters the development phase the accumulated exploration and evaluation expenditure is transferred to oil and gas assets – assets in development. 41 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Oil and Gas Properties Oil and gas properties are usually single oil or gas fields being developed for future production or which are in the production phase. Where several individual oil fields are to be produced through common facilities, the individual oil field and the associated production facilities are managed and reported as a single oil and gas asset. Assets in development When the technical and commercial feasibility of an undeveloped oil or gas field has been demonstrated, the field enters its development phase. The costs of oil and gas assets in the development phase are separately accounted for as tangible assets and include past exploration and evaluation costs, development drilling and plant and equipment and any associated land and buildings. When commercial operation commences the accumulated costs are transferred to oil and gas assets – producing assets. Producing assets The costs of oil and gas assets in production are separately accounted for as tangible assets and include past exploration and evaluation costs, pre-production development costs and the ongoing costs of continuing to develop reserves for production and to expand or replace plant and equipment and any associated land and buildings. Producing assets are depreciated over proved reserves on a unit of production basis. (h) Impairment of assets At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. (i) Trade and other receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. (j) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (k) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less any estimated selling costs. Cost includes those costs incurred in bringing each component of inventory to its present location and condition. 42 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Trade and other payables Trade payables and other payables are carried at amortised costs and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (m) Financial liabilities Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments. Derivative Financial Instruments Derivatives are fair valued using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation techniques. (n) Share-based payment transactions Share-based compensation benefits are provided to directors and executives. Options The fair value of options granted to directors and executives is recognised as an employee benefit expense with a corresponding increase in contributed equity. The fair value is measured at grant date and recognised over the vesting period during which the directors and/or executives becomes entitled to the options. The fair value at grant date is determined using an option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected divided yield and the risk-free interest rate for the term of the option. Performance Rights The cost of performance rights are measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Monte Carlo methodology, which considers the incorporation of market based hurdles. Non market conditions are not factored into the fair value of the performance rights at grant. Probability factors are assigned to the vesting expense as to whether non market conditions will be met. 43 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Share-based payment transactions Share-based compensation benefits are provided to directors and executives. Options The fair value of options granted to directors and executives is recognised as an employee benefit expense with a corresponding increase in contributed equity. The fair value is measured at grant date and recognised over the vesting period during which the directors and/or executives becomes entitled to the options. The fair value at grant date is determined using an option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected divided yield and the risk-free interest rate for the term of the option. Performance Rights The cost of performance rights are measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Monte Carlo methodology, which considers the incorporation of market based hurdles. Non market conditions are not factored into the fair value of the performance rights at grant. Probability factors are assigned to the vesting expense as to whether non market conditions will be met. (o) Revenue recognition Sales revenue Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Incidental revenue generated during the development stage of an asset, is offset against the carrying value of the asset, rather than recognised in the statement of comprehensive income. Interest Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. (p) Convertible Note A Convertible Note is split into two components: a debt component and a component representing the embedded derivatives in the Convertible Note. The debt component represents the Group’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that note holders have to convert into ordinary shares in the Company. 44 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Income tax The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit adjusted for any non-assessable or disallowed items. Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (r) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (s) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 45 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: • • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (u) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Employee leave benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in provisions in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Restoration Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. 46 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (v) Foreign Currency Transactions and Balances (i) Functional and presentation currency Both the functional and presentation currency of Jupiter Energy Limited and its Australian subsidiaries are Australian dollars ($). The Singapore subsidiaries' functional currency is United States Dollars which is translated to the presentation currency. The functional currency of the Branch of the Singapore subsidiary is Tenge (see below for consolidated reporting). (ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (iii) Translation of Group Companies’ functional currency to presentation currency The results of the Singapore subsidiaries are translated into Australian Dollars (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity On consolidation, exchange differences arising from the translation of the net investment in the Singapore subsidiaries and its Branch are taken to the foreign currency translation reserve. If a Singapore subsidiary was sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the statement of comprehensive income. (w) Segments An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the Board of Directors (the chief operating decision makers) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the executive management team. Operating segments are identified based on the information provided to the chief operating decision makers, being the Board of Directors. Currently the Group has only one operating segment, being the Group. 47 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (x) Borrowing costs Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where surplus funds are available for a short term out of money borrowed specifically to finance a project, the income generated from the temporary investment of amounts is also capitalised and deducted from the total capitalised borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Even though exploration and evaluation assets can be qualifying assets, they generally do not meet the ―probable economic benefits test and also are rarely debt funded. Any related borrowing costs are therefore generally recognised in profit or loss in the period they are incurred. 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group's principal financial instruments comprise receivables, borrowings, payables, cash and short-term deposits. Risk Exposures and Responses The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews the risks identified below, including the setting of limits for trading in derivatives, hedging cover of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections. Interest rate risk The Group’s exposure to market risk for changes in interest rates is only on short term deposits and cash and cash equivalents. At balance date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk: 48 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) At balance date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk: Financial Assets Cash and cash equivalents Net exposure Consolidated 2013 $ 2012 $ 4,131,731 4,131,731 395,445 395,445 The following table summarises the sensitivity of the fair value of the financial instruments held at balance date, if interest rates had moved, with all other variables held constant, post tax profit would have been affected as follows: Post – tax gain / (loss) + 1% -1% Foreign currency risk Consolidated 2013 $ 41,317 (41,317) 2012 $ 3,954 (3,954) The Group has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other than the functional currency. At balance date, the Group had the following exposure to United States Dollars (USD), Kazakhstan Tenge (KZT), Great Britain Pound (GBP) and Singapore Dollars (SGD) foreign currency that is not designated in cash flow hedges: USD KZT SGD GBP Financial Assets Cash and cash equivalents - - - - Liquidation Fund Trade and other receivables Other debtors Financial Liabilities Trade and other payables Other financial liabilities Derivative Net exposure Consolidated 2013 $ 2012 $ 3,029,199 798,661 1,859 281,854 418,349 - - 4,529,922 341,630 - - 4,200 244,151 - - 589,981 - (11,893,890) (763,177) (12,657,067) (8,127,145) - (2,789,897) (274,880) (3,064,777) (2,474,796) 49 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) The following table summarises the sensitivity of financial instruments held at balance date to movement in the exchange rate of the Australian dollar to the United States dollar, Singapore dollar and Kazakhstan Tenge, with all other variables held constant. The 5% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 periods. Post – tax gain / (loss) +5% -5% Credit risk Consolidated 2013 $ 2012 $ (406,357) 406,357 (123,740) 123,740 Credit risk represents the loss that would be recognised if counterparties fail to perform as contracted. Part of the Group's receivables balances are represented by GST input tax credits, which are received on a quarterly basis, and deposits held in trust in respect of leases for office premises. With respect to credit risk arising from the financial assets of the Group, which comprise cash and cash equivalents and trade receivables, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Group. Liquidity Risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through use of bank overdrafts, bank loans, finance leases and hire purchase contracts. The contractual maturities of the Group’s financial liabilities are shown in the table below. Undiscounted cash flows for the respective years are presented. Financial Assets Within one year After one year but not more than five years More than five years Financial Liabilities Within one year After one year to two years More than two years Net Exposure Consolidated 2013 $ 2012 $ - 527,566 - 418,349 418,349 (3,280,160) (9,376,907) (12,657,067) (12,238,718) 2,401,889 292,752 3,222,207 (2,316,661) (3,064,777) - (5,381,438) (2,159,231) 50 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Management and the Board monitor the Group’s liquidity on the basis of expected cash flow. The information that is prepared by senior management and reviewed by the Board includes monthly and annual cash flow budgets. Fair value The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. All of the Group’s other financial liabilities are carried at amortised cost, where the carrying value approximates the fair value. The fair value of the derivative was determined using the level 2 method. Equity Price Risk The Group has exposure in equity risk through the convertible notes, which is susceptible to market price risk arising from uncertainties about future values of the Company’s share price. At the reporting date, the exposure to market price risk at fair value was $763,177. A decrease in the company’s share price by 10% could have an impact of approximately $76,318 on profit and loss or equity attributable to the Group, depending on whether the decline is significant or prolonged. An increase in the company’s share price by 10% could have an impact of approximately $76,318 on profit and loss or equity attributable to the Group, depending on whether the decline is significant or prolonged. 4. EXPENSES Administration and compliance expenses Consulting fees Depreciation and amortisation expenses Directors fees Legal fees Occupancy expenses Share based payments Foreign currency loss Total expenses Consolidated 2013 $ 2,795,630 210,989 142,201 239,450 108,405 226,536 776,081 - 4,499,291 2012 $ 2,846,275 252,673 241,723 321,147 112,022 335,868 549,836 - 4,659,544 During the year, employee benefits were $970,780. This is included in administration and compliance expenses. 51 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 5. TAXATION Prima facie income tax on operating (loss) is reconciled to the income tax benefit provided in the financial statements as follows: Prima facie income tax benefit on operating (loss) at the Australian tax rate of 30% (2012: 30%) Non deductible expenditure: - Effect of tax rates in foreign jurisdictions - Share Based payments - Administration expenses Temporary differences and tax losses not bought to account as a deferred tax asset Income tax expense Deferred Income Tax Deferred income tax at 30 June relates to the following: Consolidated Deferred tax liabilities Deferred tax assets Unrealised FX (gain) / loss Unrealised derivative (gain) / loss Share issue costs Revenue tax losses – Australia Revenue tax losses – Kazakhstan Deferred tax assets not recognised Deferred tax (income)/expense Net deferred tax recognised in Balance Sheet Consolidated 2013 $ 2012 $ (1,465,749) (1,288,531) 203,065 232,825 - 1,029,859 523,042 164,951 6,619 593,919 - - - - 213,444 48,433 145,455 6,580,747 1,655,650 (8,643,729) - - 32,989 228,544 52,136 5,910,644 1,349,193 (7,573,506) - - The Consolidated Group has tax losses of $8,643,729 (2012: $7,573,506) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. The potential deferred tax asset will only be realised if: (a) The relevant Company derives future assessable income of a nature and an amount sufficient to enable the asset to be realised, or the asset can be utilised by another Company in the consolidated entity in accordance with Division 170 of the Income Tax Assessment Act 1997; (b) The relevant Company and/or consolidated entity continues to comply with the conditions for deductibility imposed by the Law; and (c) No changes in tax legislation adversely affect the relevant Company and/or consolidated entity in realising the asset. 52 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 6. CASH ASSETS Cash at bank and in hand Consolidated 2013 $ 4,131,731 4,131,731 2012 $ 395,445 395,445 The bank accounts are at call and pay interest at a weighted average interest rate of 1.54% at 30 June 2013 (2012: 0.30%) 7. RECEIVABLES Current Trade receivables VAT receivable Other debtors Non-current VAT receivable Consolidated 2013 $ 23,222 1,084,938 11,336 1,119,496 2012 $ 23,911 492,319 11,336 527,566 3,818,391 2,401,889 The Group’s exposure to credit and currency risks is disclosed in Note 3. The majority of the non-current other debtor balance is VAT receivable which will be offset against future taxes payable on oil revenue. At 30 June, the aging analysis of receivables is as follows: 2013 2012 Total 4,937,887 2,929,455 0 – 30 Days 23,222 23,911 31 – 60 days - 150,926 61 - 90 days - 11,336 90+ days 4,914,665 2,743,282 There are no receivables as at 30 June 2013 that are impaired. 8. OTHER CURRENT ASSETS Prepayment Other 9. INVENTORIES Raw Material Crude oil Provision of obsolete items Consolidated 2013 $ 58,815 205,902 264,717 2012 $ 336,995 123,501 460,496 59,750 16,805 (17,468) 59,087 58,113 11,265 (16,058) 53,320 53 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 10. OIL AND GAS PROPERTIES Cost as at 1 July 2012 Additions Transferred from exploration and evaluation assets Disposals Net exchange differences Cost as at 30 June 2013 Depletion and impairment as at 1 July 2012 Charge for the year Provision for impairment Disposals Depletion and impairment as at 30 June 2013 Net book value as at 30 June 2013 Consolidated $ 14,323,277 - 9,782,935 - 2,493,525 26,599,737 (97,995) (592,765) - - (690,760) 25,908,977 During the year, costs associated with J51 and J53 were transferred to oil and gas properties as during the year these wells were granted a trial production licence and are producing. 11. PLANT AND EQUIPMENT Year ended 30 June 2013 At 1 July 2012 net of accumulated depreciation Additions Depreciation charge for the year Disposals Reclassifications Net exchange differences At 30 June 2013 net of accumulated depreciation At 30 June 2013 Cost Accumulated depreciation Net carrying amount Year ended 30 June 2012 At 1 July 2011 net of accumulated depreciation Additions Depreciation charge for the year Disposals Reclassifications Net exchange differences At 30 June 2012 net of accumulated depreciation At 30 June 2012 Cost Accumulated depreciation Net carrying amount 54 $ 926,336 843,706 (142,201) - - 10,745 1,617,096 2,040,995 (423,899) 1,617,096 398,851 752,218 (241,723) - - 16,990 926,336 1,254,140 (327,804) 926,336 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 12. EXPLORATION & EVALUATION EXPENDITURE Consolidated 2013 $ 2012 $ Exploration expenditure carried forward in respect of areas of interest in: Exploration and evaluation expenditure at cost 34,710,757 25,014,521 Movements during the year Balance at beginning of year Expenditure incurred during the year Reclassification to oil and gas properties Foreign exchange translation Balance at end of year 25,014,521 16,627,189 (9,782,935) 2,851,982 34,710,757 25,319,806 12,856,785 (14,241,140) 1,079,070 25,014,521 Oil sales revenue capitalised into exploration and evaluation expenditure for the year was $1,506,193 (2012: $355,535). 13. OTHER FINANCIAL ASSETS Liquidation fund Other 418,349 42,602 460,951 244,151 48,601 292,752 The Group has a deposit for the purpose of a Liquidation fund in the amount of $418,349. The deposit is to be used for land restoration when required. Under the laws of Kazakhstan, the deposit must be replenished in the amount of 1% of the annual investments. 55 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 14. PAYABLES Trade creditors Accrued expenses Other payables 15. DEFERRED REVENUE As at 1 July Deferred during the year Released during the year Foreign exchange translation At 30 June Consolidated 2013 $ 889,235 364,154 1,425,250 2,678,639 2012 $ 675,335 36,889 412,399 1,124,623 1,192,039 9,424,424 (9,093,730) 120,104 1,642,838 - 2,358,621 (1,166,582) (5,000) 1,192,039 The deferred revenue refers to an amount received in advance for oil sales. As at 30 June 2013, there is 8,546 tonnes of oil to be delivered under contracts. 16. PROVISIONS Current Annual leave Non - current Provision for rehabilitation 86,574 86,574 452,942 452,942 90,957 90,957 356,594 356,594 The Group accrues provisions for the forthcoming costs of rehabilitation of the territory. On the basis of forecasts the cost of rehabilitation of the oilfield would be $452,942. Movements in rehabilitation provision Carrying amount at beginning of the year Unwinding of discount rate Foreign exchange translation Provision for the year Carrying amount at the end of year 356,594 21,334 31,305 43,709 452,942 230,552 13,362 8,641 104,039 356,594 56 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 17. OTHER FINANCIAL LIABILITIES Current Unsecured loans Derivative liability Non-Current Convertible note Derivative liability Promissory Notes Consolidated 2013 $ 2012 $ 3,280,160 763,177 4,043,337 8,613,730 - 8,613,730 - - - 2,789,897 274,880 3,064,777 On 31 December 2012, Jupiter entered into a new unsecured loan agreement (the “Loan”) with Mobile Energy Limited. The Loan was for $US3 million via 3 Promissory Notes, each with exactly the same terms and each with a face value of $US1m. The Loan was repayable on 31 December 2013 or at such time that the Company raises additional funding of a minimum of $20 million via debt, equity or other funding. The Loan had a coupon rate of 15% per annum, payable quarterly in arrears, with the first interest payment due on 31 March 2013. On 31 May 2013, the loan was converted to Convertible Notes (Series A) on the terms as below. On 28 March 2013, Jupiter entered into a second unsecured loan agreement with Mobile Energy Limited. The Loan is for $US3 million via 3 Promissory Notes, each with exactly the same terms and each with a face value of $US1m. The Loan was repayable on 31 March 2014 or at such time that the Company raised additional funding of a minimum of $20 million via debt, equity or other funding. The Loan had a coupon rate of 15% per annum, payable quarterly in arrears, with the first interest payment due on 30 June 2013. Subsequent to year end, the Promissory Notes were converted into Convertible Notes (Series B), refer to note 27 for further details of the terms and conditions. Convertible Notes On 2 August 2012, Soyuzneftegas Capital Limited (SNG) converted convertible notes. The final conversion price was $0.40, therefore issuing 8,215,000 shares. US$9m Convertible Notes (Series A): On 31 May 2013, Jupiter issued US$9m Series A convertible notes. The key terms of the Convertible Notes are as follows: • Term: 3 years • Conversion Price: $US1.25 per share (maximum of 7.2 million shares may be issued) • Coupon Rate: 12% per annum, payable quarterly in arrears • The Convertible Notes may be redeemed by Jupiter at any time with a minimum of 12 months interest payable if the Convertible Notes are redeemed within the 1st 12 months of their Term • The issue of the Convertible Notes was carried out under Jupiter’s 15% capacity in accordance with ASX Listing Rule 7.1 The breakdown of subscriptions for the Convertible Notes were as follows: • Waterford Petroleum Limited: $US3m • SNG Investments Limited: $US2m • Midocean Holdings Limited: $US1m • Mobile Energy Limited: $US3m 57 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 17. OTHER FINANCIAL LIABILITIES (continued) The net cash proceeds of the fundraising was $US5.7m, following the repayment of US$3m of the December 2013 Promissory Notes held by Mobile Energy Limited and the payment of a fee of 3% of the proceeds of the raising ($US270,000) by the Company to Waterford Petroleum Limited for its role in arranging the funding. Subsequent to year end, the Convertible Notes (Series A) were converted into Convertible Notes (Series B), refer to note 27 for further details of the terms and conditions. Valuation of Convertible Notes The Notes have an embedded derivative in the form of a call option for the holder to convert the Notes at US$1.25 into Jupiter ordinary shares. The convertible equity feature of the Notes has been separated from the liability component of the Notes for financial reporting purposes. The call option to convert the notes into shares does not meet the definition of an equity instrument, as the exercise price is denominated in foreign currency to the company’s functional currency. The convertible call option is classified as a Derivative liability and measured at fair value through the income statement. The Derivative component of the Notes was valued using the Black Scholes option valuation methodology. The Black Scholes option valuation methodology calculates the expected benefit from acquiring the shares outright less the present value of paying the exercise price for the options at expected exercise date. 58 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 18. CONTRIBUTED EQUITY Shares issued and fully paid Ordinary shares (a) Share options (b) (a) Movements in ordinary share capital: Balance 30 June 2011 1 for 15 reconstruction Cost of issue - Rights Issue Issue of shares – share based payment * Balance 30 June 2012 Issue of shares Issue of shares – conversion of convertible notes Cost of issue Balance 30 June 2013 (b) Movements in options Balance as at 1 July 2012 1 for 15 construction Expired during the period Balance 30 June 2013 Consolidated 2013 $ 85,339,736 294,198 85,633,934 2012 $ 70,941,937 294,199 71,236,136 Number of Shares $ 1,737,934,742 (1,622,071,255) - 266,667 116,130,154 29,032,539 8,215,000 - 153,377,693 70,986,412 - (44,475) - 70,941,937 11,613,016 3,286,000 (501,217) 85,339,736 866,669 - (866,669) - - 13,000,000 (12,133,331) 866,669 Terms and conditions: Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. (c) Movement in performance rights Balance as at 1 July 2012 Cancelled during year Granted during the year Balance as at 30 June 2013 2,133,335 (200,000) 5,066,666 7,000,001 10,000,000 (10,000,000) 2,133,335 2,133,335 59 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 18. CONTRIBUTED EQUITY (continued) Capital risk management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. In order to maintain or adjust the capital structure, the entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, enter into joint ventures or sell assets. The entity does not have a defined share buy-back plan. No dividends were paid in 2012 and nil are expected to be paid in 2013. The Company is not subject to any externally imposed capital requirements. 19. RESERVES Foreign currency translation reserve CONSOLIDATED Share based payments reserve At 30 June 2012 Share based payment Foreign currency translation At 30 June 2013 $ (4,746,987) - 5,816,477 1,069,490 $ 4,472,289 776,081 - 5,248,370 Total $ (274,698) 776,081 5,816,477 6,317,860 Nature and purpose of reserves Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Share based payments reserve The share based payments plan reserve is used to record the value of equity benefits provided to eligible employees as part of their remuneration. Refer to note 21 for further details of this plan. 60 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 20. KEY MANAGEMENT PERSONNEL This note is to be read in conjunction with the Remuneration Report, which is included in the Directors Report on pages 13 to 21. (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Other Termination benefits Share-based payments Shareholdings Consolidated 2013 $ 2012 $ 954,795 16,000 158,996 - 776,081 1,905,872 947,463 48,000 119,203 - 549,836 1,664,502 The number of shares in the Company held by each Key Management Personnel of Jupiter Energy Limited during the financial year, including their personally-related entities, is set out below: 2013 Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens J Kroshus 2012 Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens H Wolski Balance 1 July 2012 Granted as Remuneration On Exercise of Options Net Change Other Balance 30 June 2013 2,551,113 1,000,000 - 312,987 - - - - - - - - Balance 1 July 2011 Granted as Remuneration On Exercise of Options 38,266,668 10,000,000 - 4,694,812 4,138,420 - - - - - - - - - - - - - - - - - - - 596,111 250,000 - 78,251 3,147,224 1,250,000 - 391,238 - - - - Net Change Other* Balance 30 June 2012 (35,715,555) (9,000,000) - (4,381,825) 2,551,113 1,000,000 - 312,987 (4,138,420) - - - *Change relates to the consolidation of shares and options which occurred during the year. 61 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 20. KEY MANAGEMENT PERSONNEL (continued) Option Holdings The number of options in the Company held by each Key Management Personnel of the consolidated entity during the financial year, including their personally-related entities, is set out below: 2013 (i) Unlisted Options Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens J Kroshus Balance at beg of period 1 July 2012 Granted as Remune- ration Options Exercised Net Change Other * Not Vested & Not Exercisable Vested & Exercisable Balance at end of period 30 June 2013 - - - 66,667 133,333 - - - - - - - - - - - - - (66,667) (133,333) - - - - - - - - - - - - - - - - - - *Change relates to the expiry of options which occurred during the year. 2012 Balance at beg of period 1 July 2011 Granted as Remune- ration Options Exercised Net Change Other ** Not Vested & Not Exercisable Vested & Exercisable Balance at end of period 30 June 2012 (ii) Unlisted Options Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens H Wolski - - - 1,000,000 2,000,000 - - - - - - - - - - - - - - - - (933,333) - - - 66,667 (1,866,667) - 133,333 - - - - - - - - - - 66,667 133,333 - **Change relates to the consolidation of shares and options which occurred during the year. 62 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 20. KEY MANAGEMENT PERSONNEL (continued) Performance Rights Holdings The number of Performance Rights in the Company held by each Director of Jupiter Energy Limited and each of the specified Executives of the consolidated entity during the financial year, including their personally-related entities, is set out below: 2013 Balance at beg of period 1 July 2012 Granted as Remune- ration Rights Exercised Net Change Other * Not Vested & Not Exercisable Vested & Exercisable Balance at end of period 30 June 2013 Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens J Kroshus 2012 Directors G Gander A Beardsall B Kuandykov S Mison Executives K Martens H Wolski 666,667 666,667 666,667 133,334 1,500,000 1,500,000 1,500,000 366,666 - - - 200,000 - - - - - - - - - - 2,166,667 2,166,667 2,166,667 500,000 2,166,667 2,166,667 2,166,667 500,000 - (200,000) - - - - - - - - - - Balance at beg of period 1 July 2011 Granted as Remune- ration Rights Exercised Net Change Other * Not Vested & Not Exercisable Vested & Exercisable Balance at end of period 30 June 2012 10,000,000 - - - 666,667 666,667 666,667 133,334 - - - - - - - - - - (10,000,000) - - - 666,667 666,667 666,667 133,334 666,667 666,667 666,667 133,334 - - - - - - - - - - - - * Relates to rights cancelled. (b) Transactions between the Group and other related parties Consultancy fees During the year, consulting fees of $115,637 (2012: $136,649) were accrued and paid under normal terms and conditions to Meridian Petroleum LLP, of which Mr. Kuandykov is a director, for the provision of geological services at normal commercial rates. 63 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 21. SHARE BASED PAYMENTS Employee Share Option Plan (ESOP) and Performance Rights Plan Included under expenses in the income statement is $776,081 (2012: $549,836), and relates, in full, to equity-settled share- based payment transactions for employees. Options The fair value of the options is estimated at the date of grant using the Black -Scholes option pricing model. No options were granted during the year ended 30 June 2013 (2012: Nil) During the year ended 30 June 2013, no options were exercised over ordinary shares (2012: Nil). The following table illustrates the number and weighted average exercise prices (WAEP) of share options issued under the ESOP: 2013 Number of Options WAEP $ Number of Options 2012 WAEP $ Outstanding at the beginning of the year Reconstruction of options (1:15) Granted Cancelled / forfeited Exercised Expired Outstanding at year end Exercisable at year end 866,669 - - - - (866,669) - - 2.08 - - - - 2.08 - - 13,000,000 (12,133,331) - - - - 866,669 866,669 0.14 - - - - - 2.08 2.08 64 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 21. SHARE BASED PAYMENTS (continued) Performance Rights The Jupiter Energy Performance Rights Plan was established whereby Jupiter Energy Limited may, at the discretion of the Jupiter Energy Limited Board, grant performance rights over unissued shares of Jupiter Energy Limited to directors, executives, employees and consultants of the consolidated entity. The rights are issued for nil consideration, will not be quoted on the ASX, cannot be transferred and are granted at the discretion of the Jupiter Energy Board. The Performance Rights Plan was approved by shareholders at the November 2009 Annual General Meeting. On 9 November 2012, 5,066,666 performance rights were approved by shareholders to directors and executives. The number of performance rights vest in proportion to the percentage increase in share price at vesting date $0.919 (minimum vesting price). For 100% of the performance rights to vest, the share price of the Company needs to reach $1.47. In respect of the Vesting Condition, the percentage increase in the Share price of the Company will be calculated by reference to the volume weighted average price of Shares in the 20 consecutive trading days immediately prior to the Vesting Date (31st December 2013). No performance rights vest if the calculated share price is less than the minimum vesting price at vesting date. The fair value of performance rights granted to directors is estimated as at the grant date using a Monte Carol simulation option pricing model taking into account the terms and conditions upon which the instruments were granted. The following table lists the inputs to the models for the period ended 30 June 2013: Performance Rights Grant date Number of performance rights Share price Exercise price Dividend Yield Expected volatility Risk-free interest rate Expected life Weighted average fair value Total amount Expensed to 30 June 2013 During the current year, no performance rights vested. 9 November 2012 5,066,666 51 cents 0 cents 0.0% 75.0% 2.72% 1.14 year 11.04 cents $559,360 $359,589 65 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 22. COMMITMENTS FOR EXPENDITURE Exploration Work Program Commitments The Group has entered into a subsoil utilisation rights for petroleum exploration and extraction in Areas 1 and 2 in Mangistauskaya Oblast in accordance with Contract No. 2272 dated 29 December 2006 with the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan. Exploration work program commitments contracted for (but not capitalised in the accounts) that are payable: - not later than one year - later than one year but not later than five years 23. AUDITORS REMUNERATION The auditor of Jupiter Energy Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young (Australia) for: - - auditing or reviewing the financial report reporting accountant services – AIM listing Amounts received or due and receivable by Ernst & Young (Kazakhstan) for: - - auditing or reviewing the financial report tax compliance Amounts received or due and receivable by Ernst & Young (Singapore) for: - auditing or reviewing the financial report 2013 $ - - - 2012 $ 4,783,196 - 4,783,196 90,293 - 90,293 49,917 - 49,917 7,876 7,876 73,511 121,025 194,536 51,569 14,725 66,294 6,966 6,966 Total paid to Ernst & Young 148,086 267,796 66 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 24. EARNINGS PER SHARE Basic earnings per share Basic earnings per share are calculated by dividing the profit / (loss) attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. The following reflects the income and data used in the basic and diluted earnings per share computations: Net loss attributable to ordinary equity holders of the Parent from continuing operations Weighted average number of ordinary shares for basic and diluted earnings per share Consolidated 2013 2012 (4,885,829) (4,295,102) Number of shares Number of shares 150,373,286 115,973,076 A share consolidation was completed on 30 August 2011. The weighted average number of ordinary shares for basic and diluted earnings per share has been adjusted retrospectively for the 2012 earnings per share. 25. SEGMENT REPORTING Identification of reportable segments The Group has identified its operating segments based on the internal reports that are used by the chief operating decision makers in assessing performance and determining the allocation of resources. The Group has identified that it has one operating segments being related to the activities in Kazakhstan, on the basis that the operations in Australia relate to running the Corporate Head Office only. Accounting policies and inter-segment transactions The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 1 to the accounts. Interest revenue is derived in Australia. Non-current assets relate to capitalised exploration and evaluation expenditure located in Kazakhstan. 67 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 26. STATEMENT OF CASHFLOWS RECONCILIATION (a) Reconciliation of operating (loss) after income tax to net cash (used in) operating activities Operating (loss) after income tax: Add/(less) non-cash items: Depreciation / Depletion Share based payments (Gain) / Loss on derivative Finance costs Effect of foreign exchange translation Other Changes in assets and liabilities: (Increase)/decrease in receivables (Increase)/decrease in inventories (Increase)/decrease in other current assets Increase/ (decrease) in deferred revenue Increase/ (decrease) in payables Increase/(decrease) in provisions Consolidated 2013 $ (4,885,829) 2012 $ (4,295,102) 734,966 776,081 161,442 474,586 711,481 - (2,008,432) (5,767) (27,580) 450,798 1,554,016 91,965 (1,972,273) 339,178 549,836 (761,813) 717,696 (114,781) 989,016 (1,518,476) (53,320) (103,671) 1,192,039 174,265 155,081 (2,727,892) For the purposes of the cash flow statement, cash includes cash on hand, at banks, and money market investments readily convertible to cash on hand, net of outstanding bank overdrafts. 68 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 27. EVENTS OCCURING AFTER THE BALANCE SHEET DATE Reserve Upgrade On 11 September 2013 the Company announced the details of three independent reserve estimations that had been carried out on the various accumulations on the Block 31 permit. Two of these reports were State Reserve Reports prepared by independent consulting firm RES. The first of these reports was the Akkar East Reserves Report and this report was prepared as part of the process of moving the Akkar East field into Full Field Development. This review of the Akkar East field was a follow on to the 2012 Preliminary Reserves report prepared by RES submitted as part of the process required to enable the J-50, J-51, J-52 and J-53 wells to be granted their respective Trial Production Licences (TPL’s). The Preliminary Reserves report was approved by the Kazakh authorities in June 2012. The second report was the Southern Extension area (known locally as West Zhetybai) Preliminary Reserves Report and this report is the first step towards the granting of TPL’s for the J-55, J-58 and J-59 wells. In summary, the Akkar East accumulation covers the area delineated by the J-51, J-52 and J-53 wells and the Oil-In-Place (OIP) for this area has been estimated at ~129 mmbbls with recoverable reserves estimated at ~32.6 mmbbls. The C1 reserves have been estimated at ~10.7 mmbbls and C2 reserves at ~21.9 mmbbls. The recoverable reserves are based on a recovery factor of 27.2%. The J-50 well is part of the Akkar North accumulation and the estimated recoverable reserves for this area are ~8.6 mmbbls (C1 - ~4 mmbbls and C2 - ~4.6 mmbbls) bringing the total recoverable reserves in the area delineated by the wells J-50, 51, 52 and 53 to ~41.2 mmbbls; C1 reserves of ~14.7 mmbbls and C2 reserves of ~26.5 mmbbls. Estimated reserves from the T31, T32 (both formerly known as the Z Sand), T2A and T2B horizons were used in these calculations. The Akkar East Reserves Report has now been submitted to the relevant authorities; the approval process is expected to take three months. The West Zhetybai accumulation covers the area delineated by the J-55, J-58 and J-59 wells and reserves have been evaluated for the T31, T32, T2A and T2B horizons. The OIP for this area has been estimated at ~232 mmbbls (from all four horizons) with recoverable reserves estimated at ~61.2 mmbbls. The C1 reserves have been estimated at ~2.3 mmbbls and C2 reserves at ~58.9 mmbbls; the recoverable reserves are based on a recovery factor of 27.2%. The higher proportion of C2 to C1 reserves indicates the need for (i) further testing of the J-55 and J-59 wells and (ii) general appraisal of the area which may include the drilling of additional wells. RES has submitted the West Zhetybai Preliminary Reserves Report to the relevant authorities; approval is expected to take three months. The third report was a Competent Persons Report (CPR) that was prepared using the Society of Petroleum Engineers Petroleum Resources Management System (PRMS) classification system; reserves are defined as those quantities of oil which are estimated to be commercially recoverable from a known accumulation from a given date forward. McDaniel & Associates (McDaniel) were engaged to complete this independent reserves audit of only the mid Triassic horizon as identified by wells J-50, J-51, J-52, J-53, J-55, J-58 and J-59. One of the underlying differences between the Kazakh State Reserves classification system and PRMS classification system is that PRMS also considers the commercial uncertainties rather than only geological attributes and therefore the lack of established commercial oil flow from the J-53, J-55 and J-59 wells resulted in the reserve calculations based primarily on production from the T2B horizon from wells J-50, J-51, J-52 and J-58. 69 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 27. EVENTS OCCURING AFTER THE BALANCE SHEET DATE (continued) The results, by reserve category, were: • Proved Reserves: 1P 9.7 mmbbls • Proved plus Probable Reserves: 2P 19.2 mmbbls • Proved plus Probable plus Possible: 3P 28.7 mmbbls As part of the work undertaken by McDaniel to establish the commercial threshold of the mid-Triassic reserves, the Net Present Value of the proved+probable reserves using a discounted cashflow model with a discount rate of 10% was calculated as $US304.6m (~$US15.9/bbl) pre-tax and $US222.5m (~$US11.6/bbl) after tax. Shareholders are encouraged to read the 11 September 2013 announcement in full as it contains more details on the differing reserve classification methodologies used by RES in preparing the State Reserve Reports and by McDaniel in preparing the CPR. In summary, the results of both independent reserve audits confirmed the prospectivity of the Block 31 permit. Capital Raising On 23 September 2013, the Company announced details regarding the issue of $US6.5million of Series B Convertible Notes, issued on 20 September 2013. The key terms of these Convertible Notes were as follows: • Term: 3 years • Conversion Price: $US1.25 per share (maximum of 5.2 million shares may be issued) • Coupon Rate: 12% per annum, with the interest accruing from and including the Issue Date until the earlier of the Conversion Date, Redemption Date or Maturity Date of the Note. • The Convertible Notes may be redeemed by Jupiter at any time with a minimum of 12 months interest payable if the Convertible Notes are redeemed within the 1st 12 months of their Term • The issue of the Convertible Notes is carried out under Jupiter’s 15% capacity in accordance with ASX Listing Rule 7.1 The breakdown of subscriptions for the Convertible Notes is as follows: • Waterford Petroleum Limited: $US1.5m • Mid Ocean Limited $US0.5m • Mobile Energy Limited: $US4m • Other Private Investors: $US0.5m The net cash proceeds of the fundraising was $US3.305m, following the repayment of $US3m of Promissory Notes held by Mobile Energy Limited and the payment of a fee of 3% of the proceeds of the raising ($US195,000) by the Company to Waterford Petroleum Limited for its role in arranging the funding. The net cash proceeds of the fundraising will be used for the following purposes: • Remedial work on J-53: ~$US150,000; • Further testing of the J-59 well: ~$US350,000 and • General working capital: ~$US2.805m. The holders of Series A Convertible Notes issued on 31 May 2013 have also agreed to convert their notes to Series B Convertible Notes, effective from 20 September 2013. 70 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 27. EVENTS OCCURING AFTER THE BALANCE SHEET DATE (continued) This means that all interest payable on the entire $US15.5m Convertible Notes now outstanding will be deferred and accrue from and including the Issue Date of the Series B Convertible Notes until the earlier of the Conversion Date, Redemption Date or Maturity Date of the Note. 28. INFORMATION ON PARENT ENTITY (a) Information relating to Jupiter Energy Ltd: Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Share based payment reserve Total shareholders’ equity Profit or (loss) of the parent entity Total comprehensive income / (loss) of the parent entity 2013 $ 3,396,958 67,645,695 (3,695,643) (13,072,550) 85,633,935 2012 $ 570,756 41,624,671 (91,277) (3,156,054) 71,236,136 (36,309,158) (37,239,808) 5,248,370 54,573,147 930,650 930,650 4,472,289 38,468,617 (2,957,121) (2,957,121) 71 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 28. INFORMATION ON PARENT ENTITY (continued) Name of Entity Jupiter Energy (Victoria) Pty Ltd Jupiter Biofuels Pty Ltd Jupiter Energy (Kazakhstan) Pty Ltd Jupiter Energy Pte. Ltd Jupiter Energy (Services) Pte. Ltd Equity Holding Country of incorporation Australia Australia Australia Singapore Singapore 2013 % 100 100 100 100 100 2012 % 100 100 100 100 100 (b) Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries There are no guarantees entered into by the parent entity. (c) Details of any contingent liabilities of the parent entity There are no contingent liabilities of the parent entity as at reporting date. (d) Details of any contractual commitments by the parent entity There are no contractual commitments by the parent entity 29. CONTINGENT LIABILITIES The Group has no contingent liabilities as at 30 June 2013 (30 June 2012: Nil) 72 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT Directors' Declaration In accordance with a resolution of the directors of Jupiter Energy Limited, I state that: 1 In the opinion of the directors: (a) the financial statements and notes of Jupiter Energy Limited for the financial year ended 30 June 2013 are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of its financial position as at 30 June 2013 and performance for the year ended on that date. (ii) Complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2011 The financial statements and notes also comply with International Financial Reporting Standards, as disclosed in note 2(a) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (b) (c) 3 This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2013. On behalf of the Board Geoff Gander Executive Chairman Perth, WA 27 September 2013 73 Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Independent auditor's report to the members of Jupiter Energy Limited Report on the financial report We have audited the accompanying financial report of Jupiter Energy Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation RC:DR:JUPITER:047 Opinion In our opinion: a. the financial report of Jupiter Energy Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity's financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the remuneration report We have audited the Remuneration Report included in the Directors' Report for the year ended 30 June 2013. 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. Opinion In our opinion, the Remuneration Report of Jupiter Energy Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. Ernst & Young R J Curtin Partner Perth 27 September 2013 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation RC:DR:JUPITER:047 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Ltd Listing Rules and not disclosed elsewhere in this report is as follows. SHAREHOLDINGS (as at 10 September 2013) Substantial shareholders WATERFORD PETROLEUM LIMITED SOYUZNEFTEGAS CAPITAL LIMITED 45,246,108 30,373,941 29.50% 19.80% Voting Rights Each shareholder is entitled to receive notice of and attend and vote at general meetings of the Company. At a general meeting, every shareholder present in person or by proxy, representative or attorney will have one vote on a show of hands and on a poll, one vote for each share held. DISTRIBUTION OF EQUITY SECURITY HOLDINGS Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Shares 210,415 1,979,342 2,667,304 13,921,088 134,599,544 153,377,693 The number of shareholders holding less than a marketable parcel of ordinary shares is 424 On-market buy back There is no current on-market buy back. Securities on Issue The number of shares and options issued by the Company are set out below: Category Ordinary Shares Performance Shares – expire 31 December 2013 Number 153,377,693 7,000,001 76 JUPITER ENERGY LIMITED – 2013 ANNUAL REPORT TWENTY LARGEST SHAREHOLDERS Name of Holder No. of Ordinary Shares % of Issued capital 3. 1. 2. 4. 5. 6. COMPUTERSHARE CLEARING PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED JP MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD VITORIA PTY LTD GLENNBROWN PTY LTD RACOVALIS SUPERANNUATION FUND PTY LTD MR ERKIN SVANBAYEV MR GEOFFREY ANTHONY GANDER 11. MR ATHOL GEOFFREY JAMES 12. MR STEPHEN JOHN KINMOND 10. 8. 7. 9. 13. GLENNBROWN PTY LTD 14. MR JASON NUTTMAN 15. 16. 17. PALS INVESTMENTS PTY LTD GAINSPELL PTY LTD ASCENT CAPITAL HOLDINGS PTY LT SILVERLIGHT HOLDINGS PTY LTD NORDCO AUSTRALIA PTY LTD MR DAMIAN RONALD GILLMAN + MRS LUCIA GILLMAN 18. 19. 20. TOTAL 93,358,648 13,130,086 5,483,262 3,313,817 2,625,990 2,377,779 1,333,334 950,000 750,000 625,000 608,148 505,041 465,000 389,541 385,000 333,334 308,334 306,450 300,000 291,667 60.87 8.56 3.58 2.16 1.71 1.55 0.87 0.62 0.49 0.41 0.40 0.33 0.30 0.25 0.25 0.22 0.20 0.20 0.20 0.19 127,840,431 83.36 77 

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