Jupiter Energy Limited Annual Report 2017

Plain-text annual report

ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2017 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CORPORATE INFORMATION Jupiter Energy Limited ABN 65 084 918 481 Directors Geoffrey Gander (Executive Chairman/Chief Executive Officer) Baltabek Kuandykov (Non-Executive Director) Scott Mison (Executive Director) Alexey Kruzhkov (Non-Executive Director) Alexander Kuzev (Non-Executive Director) Group Secretary Scott Mison Registered Office & Principal Place of Business Ground Floor, 10 Outram Street 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 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 Stock Exchange Listing Jupiter Energy Limited shares are listed on the Australian Securities Exchange under the code JPR and on the Kazakh Stock Exchange (KASE) under the code AU_JPRL. ii JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT Contents of Financial Report Chairman’s Letter ................................................................................................................................................ 1 Directors' Report ................................................................................................................................................. 2 Remuneration Report ....................................................................................................................................... 12 Corporate Governance Statement .................................................................................................................... 20 Auditor Independence Declaration ................................................................................................................... 27 Consolidated Jupiter Energy Limited Financial Statements Consolidated Statement of Comprehensive Income ...................................................................................... 29 Consolidated Statement of Financial Position ............................................................................................... 30 Consolidated Statement of Cash Flows ......................................................................................................... 31 Consolidated Statement of Changes in Equity ............................................................................................. 32 Notes to the Consolidated Financial Statements .............................................................................................. 33 Directors' Declaration ........................................................................................................................................ 67 Independent Audit Report to the members of Jupiter Energy Limited ............................................................... 68 ASX Additional Information ................................................................................................................................ 73 ii JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CHAIRMAN’S LETTER Dear Shareholder, I am pleased to present the 2017 Annual Report for Jupiter Energy Limited (“Jupiter Energy” or “the Group”). The past year has been another difficult one for the Group. The global decline in the price of oil and the flow on effect to Kazakh domestic oil prices continued to make Jupiter’s ability to produce oil on a cashflow positive basis impossible. This resulted in all the operational wells located on our permit area remaining shut in for the entire financial year. In addition, continued funding constraints meant that there was also no new drilling carried out during the same period. As a result of this inactivity, the Group operated on a “Care & Maintenance” basis throughout the year and continued to be supported by its major shareholder with debt funding being provided as required. Despite operational inactivity, there was progress made on several fronts with regards the granting of regulatory approvals from the Kazakh authorities. Jupiter Energy announced on 19 September 2016 that it had been successful in extending its Exploration Licence for a further three years (to 29 December 2019). On 10 July 2017 the Company announced that its’ Trial Production Licences for the Akkar East and West Zhetybai oilfields had also been renewed (to 29 December 2019) and with the recent improvement in Kazakh domestic oil prices, the Company is now planning to return to production during the 4th quarter of the 2017 calendar year. Another major milestone achieved during the year was the resolution of the Akkar North (East Block) reserves division. The split of reserves had been the matter of an ongoing dispute with Jupiter’s neighbour but the Company was able to announce on 28 April 2017 that the State Reserves associated with the Akkar North (East Block) area had been confirmed as belonging to Jupiter. This resolution now allows the Company to submit the required documentation to seek approval to return the J-50 well to Trial Production. The Board remains confident in the prospectivity of the licence area and furthermore that the two new oilfields that have already been discovered on our permit area can be commercially developed into significant producers. I therefore look towards 2018 with renewed confidence and may I take this opportunity to thank all our employees and shareholders for their continued support over the past twelve months and encourage shareholders to attend the Annual General Meeting to be held in Perth on 10 November 2017. Sincerely Geoff Gander Chairman/CEO 1 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT Your Directors submit their report for the year ended 30 June 2017. DIRECTORS The names and details of the Group’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 (54) B.COM Executive Chairman/CEO Appointed 27 January 2005 Baltabek Kuandykov (69) Non-Executive Director Appointed 5 October 2010 Scott Adrian Mison (41) B.Bus, CA, ACSA Executive Director Appointed 31 January 2011 Company Secretary Appointed 29 May 2007 Mr Gander graduated from the University of Western Australia in 1984 where he completed a Bachelor of Commerce Degree. Mr Gander was involved in the identification and purchase of the Block 31 licence in Kazakhstan and has driven the development of the business there since 2007. He is currently responsible for the overall Operational Leadership of the Company as well as Investor Relations and Group Corporate Development. Other Current Directorships of Listed Companies Zyber Holdings Limited (ASX) 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 None Former Directorships of Listed Companies in last three years None Mr Mison holds a Bachelor of Business degree, is a Member of the Institute of Chartered Accountants in Australia and Chartered Secretaries Australia. Mr Mison has over 18 years' experience in finance and corporate compliance within Australia, UK, Central Asia and USA. He is also CFO / Company Secretary of Rift Valley Resources Ltd and Interim CEO / Director of Longford Resources Ltd. Mr Mison is also a board member of Rebound WA inc. (formerly Wheelchair Sports WA Inc.) a not for profit organisation. Other Current Directorships of Listed Companies: Longford Resources Limited Former Directorships of Listed Companies in last three years: 1-Page Limited 2 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) Alexey Kruzhkov (50) Non-Executive Director Appointed 29 August 2016 Alexander Kuzev (52) Non-Executive Director Appointed 12 September 2017 Mr Kruzhkov holds an Engineering Degree and an MBA and has over 10 years’ experience working in the investment industry, focusing primarily on organisations involved in Oil & Gas, Mining and Real Estate. He has served as a Director on the Boards of companies listed in Canada and Norway. He is a board member and part of the of the executive team of Waterford Investment and Finance Limited and resides in Cyprus. He holds British and Russian citizenships. Other Current Directorships of Listed Companies None Former Directorships of Listed Companies in last three years None Mr Kuzev is an oil industry professional with over 27 years of experience. Most of Alexander’s career has been spent working in the Former Soviet Union (FSU) with much of that time responsible for the overall management of field operations with a focus on production sustainability, technology and field maintenance. He has worked with a range of oil and gas companies including Schlumberger and Gazprom Drilling. Alexander brings an important technical skill set to the Jupiter Energy Board as well as in country experience, having been involved with various Kazakhstan based oil and gas operations since the late 1990’s. Other Current Directorships of Listed Companies None 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 of Jupiter Energy Limited were: Director G Gander B Kuandykov S Mison A Kruzhkov A Kuzev Number of ordinary shares 811,112 - 391,238 - - 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 and KASE announcement without delay. Any changes in Directors’ shareholdings are also confirmed at each Board meeting. 3 JUPITER ENERGY LIMITED – 2017 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’s consolidated financial report incorporates 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 10 employees as at 30 June 2017 (2016: 5 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 $8,076,857 (2016: $10,474,870). Review of Financial Condition At the end of the 2017 financial year, cash resources were $397,109 (2016: $663,446). These accounts have been prepared on a going concern basis, predicated on the Group’s ability to raise additional cash in order to finance its proposed work program and general and administrative costs for the next 12 months. The Board is currently progressing a number of financing options including seeking the requisite waivers for an equity raising and/or the issue of debt finance. Assets increased to $49,200,046 (2016: $47,557,046) and equity decreased to $(3,584,203) (2016: $3,711,245). CAPITAL RAISING / CAPITAL STRUCTURE Funding and Capital Management: As at 30 June 2017, the Group had 153,377,693 listed shares trading under the ASX ticker "JPR", and the KASE ticker “AU_JPRL”. On 29 August 2017, the Company delisted from London’s Alternative Investment Market (AIM). In the 2016 year Waterford agreed to put in place a Framework Funding Agreement that made a further US$5,000,000 (including accrued interest) available to the Group by way of a new US$5,000,000 (A$6,739,550) Promissory Note (“the 2016 Funding Agreement”). The key terms of the 2016 Framework Agreement are: • Effective 24 May 2016 • Drawdowns will roll into a Promissory Note • Promissory Note is repayable on 1 July 2018 • • Interest rate of 15% pa Interest will accrue and be repayable with principal 4 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) • Lender can elect to be repaid if there is a change of control in Jupiter Energy Limited or Jupiter Energy Pte Ltd or there is a change in control in contract 2275 covering the Block 31 Licence As at 30 June 2017, the Group had drawn down US$3,808,733 (A$4,976,831) (including accrued interest) under the 2016 Funding Agreement. This means that a further $US1,191,267 (including accrued interest) (A$1,554,365) is still available under this agreement. During the financial year the Group was granted a range of approvals that positioned it to return to domestic production. As a result, major shareholder and debtholder Waterford Petroleum Limited (“Waterford”) and debt holder Midocean Holdings Limited (“Midocean”) (together “the Lenders”) agreed to provide up to a total of a further US$5,000,000 (including accrued interest), in the amounts of up to US$4,900,000 and US$100,000, respectively under a new Funding Agreement signed on 28 July 2017 (the “2017 Funding Agreement”). The 2017 Funding Agreement is similar to the 2016 Funding Agreement with the addition of one new condition. This condition relates to the payment of a bonus to the Lenders should all or part of the permit area be sold during the term of the 2017 Funding Agreement. A summary of the terms of the 2017 Funding Agreement is as follows: • Unsecured • Effective 31 July 2017 • Repayable on 31 July 2019 (or such later date agreed by the parties in writing) • • • (the “Repayment Date”) Interest rate of 15% pa Interest will accrue and be repayable with principal Lenders can elect to be repaid if there is a change of control in Jupiter Energy Limited or Jupiter Energy Pte Ltd or there is a change in control in contract 2275 covering the Block 31 Licence • Bonus will be payable to the Lenders equivalent to 5% of the sale price of contract 2275 in the event that the contract is assigned, transferred or sold to a 3rd party during the period of the facility The bonus would equate to 5% of the value of the consideration received by the Company if Jupiter or Contract 2275 is assigned, transferred or sold to a third party prior to the Repayment Date and will be payable in cash, shares or a combination of both, at the absolute discretion of the Lenders subject to all relevant Australian and Kazakh regulatory bodies (if required), including pursuant to the ASX Listing Rules, KASE Listing Rules and the Corporations Act. The bonus amount payable to each of the Lenders will be calculated on the basis of the proportion of debt funding provided by each as measured against the total funding provided under the 2017 Funding Agreement. The 2017 Funding Agreement will fund the Group’s operations whilst it continues to finalise long term funding arrangements for the development of its Block 31 licence area in Kazakhstan. In terms of drawdowns, the Group will still request monthly drawdowns against the maximum US$5,000,000 amount and the drawdowns will be based on an agreed Operations budget, with the budget reflecting revenues and expenses associated with the planned return to domestic production during the 4th quarter of calendar 2017. Based on management forecasts, the Group has sufficient working capital, including its access to the remaining funding under 2017 Funding Agreement, until April 2018. The Group continues to seek a longer term funding package that will enable the commencement of the 2018-2019 Work Program and for on-going working capital. 5 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) The Group is still reviewing its ongoing funding requirements from April 2018 and beyond, to enable Jupiter to carry out its 2018-2019 Work Program and develop Block 31 to the stage where export oil sales are being achieved and further development of the field is self-funding. In addition, the Group may look to take on additional exploration acreage. Funding options may include the further issue of new equity, reserve based debt, convertible debt or a combination of these and other funding instruments. Once the appropriate funding has been secured, the further development of both the Akkar East and West Zhetybai fields, and in particular the possibility of building the topside infrastructure on Akkar East including a processing facility and gas separation plant, will be accelerated. Summary of share options on issue: At the date of this report, there were no share options on issue. OPERATING REVIEW This section provides details on the operations for the period from 1 July 2016 to 30 June 2017 (“the financial year”). Events that occurred post 30 June 2017 are covered in the “Subsequent Events” section. Review of Operations: The financial year saw little operational progress with restricted funding, uneconomic domestic oil prices and delays in the granting of regulatory approvals all negatively impacting the further development of the Block 31 licence area. Production Report/Status of Well Licences: The Group ceased production of domestic oil in February 2015 due to the decline in world oil prices and that situation did not change during the financial year. All the company wells were shut in during the entire Review Period. Due a recent improvement in domestic oil pricing and with all the required approvals now in place, the Group is planning to recommence production during the 4th quarter of calendar 2017 but is unable to give any guarantee that this will occur in that timeframe. Production – Akkar East (J-51, J-52, J-53 and Well 19): During the financial year, no oil was produced from the Akkar East J-51 and J-52 wells under their respective Trial Production Licences (TPL’s). These two wells are located on the northern section of the permit and are part of the Akkar East oilfield. The J-53 well, which is also located on the Akkar East oilfield, was shut in for the entire financial year, awaiting further remedial work before potentially coming back onto production. This work will be carried out when the appropriate funding and approvals are in place. Well 19, which is also located on the Akkar East oilfield, awaits a completion and testing program before it goes onto production. Further work on Well 19, including an acid stimulation, will most likely take place during October 2017 and it should be ready to produce oil during November 2017. No oil was produced from Well 19 during the financial year. 6 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) Production – Akkar North [East Block] (J-50 well): The Group advised shareholders on 28 November 2014 that the application to extend the TPL for well J-50 located on the Akkar North (East Block) was being held by the Kazakh Committee of Geology pending resolution of the allocation of reserves associated with the well. The J-50 well has been shut in since 29 December 2014 (the date at which the last Trial Production licence expired). The underlying issue delaying the TPL renewal was the demand by the Committee of Geology that Jupiter Energy reach agreement with its neighbour MangistauMunaiGas (MMG) over the division of reserves associated with both companies’ share of the Akkar North accumulation. Jupiter Energy was in dialogue with MMG on this issue for some time but was unable to reach formal agreement with MMG with respect to the division of Akkar North reserves or another form of commercial settlement of the matter. After ongoing discussions, the Group announced on 28 April 2017 that it had been successful with its ownership claim over these reserves and with this having being achieved the requisite applications for a Trial Production Licence for the J-50 well will now be submitted for approval by the relevant Kazakh authorities. Extension of Trial Production Licences – Akkar East oilfield (J-51, J-52, J-53 and Well 19): During the financial year, the Group was granted extensions to the TPL’s on the Akkar East oilfield for the J-51, J-52, J-53 and Well 19 wells and these extensions will now run until 29 December 2019. The Group also received its emission permits for these wells for the 2017 calendar year, meaning that the wells had all the required approvals to operate under Trial Production during 2017. The current plan is to return the J-51, J-52 and Well 19 wells during the 4th quarter of calendar year 2017. Status of West Zhetybai Wells (J-55, 58, 59): J-58 and J-59 both had their respective 2017-2019 TPL’s approved during the year. The wells are both currently suspended due to the low domestic oil prices. It should be noted that in order to get the J-58 and J-59 wells ready for Trial Production, the appropriate surface production infrastructure must be put in place for both the wells. This equipment will need to be purchased and it is expected this will be carried out during the first half of calendar year 2018. When funding is in place and domestic oil prices have recovered, the forward plan is for the J-58 well to be put on production from the T2B horizon, and J-59 will be used to test the potential of the shallow Jurassic horizon discovered during the drilling of the well, before being completed for production from the T2B horizon. This work is scheduled to occur early in calendar year 2018. Further remedial work will need to be carried out on J-55 to determine if commercial production can be established from this well and this work will require the requisite funding and separate approvals from the relevant Kazakh authorities. Drilling Report: No drilling activity took place during the year. Oil Production and Revenues: There was no oil production during the year. No oil was produced during the 2015/16 Financial Year. 7 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) Revenues from oil sales in this financial year amounted to $A NIL (2015/16 Financial Year: $ NIL). Corporate Restructure: As a result of the ceasing of domestic oil production, the Group restructured its Aktau operations with a significant reduction in staff in early 2015. Limited staff numbers remained in place during the financial year. Restaffing Operations: 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 building of such a team since 2010 has been a majority priority. Unfortunately a number of staff were made redundant as a result of the shutdown of field operations in February 2015 and others were offered part time roles at that time. Reductions in staff continued during the financial year. Now that the Group is ready to resume trial production, these positions are again be filled with past employees given priority to apply for roles. The Board is confident that the Group will be well prepared for continued growth when production recommences during the 4th quarter calendar 2017. 2017 Annual General Meeting: The 2017 AGM will be held in Perth on 10 November 2017 and all shareholders are encouraged to attend. A Notice of Meeting outlining business to be covered at the 2017 AGM will be mailed to shareholders in early October 2017. The 2016 Annual General Meeting (AGM) was held in Perth on Friday 04 November 2016 and all Resolutions were passed. Directors Remuneration: Directors have deferred their Directors’ Fees since February 2015 and will continue to do so until such time that the Group has an improved cashflow position. Subsequent Events: On 10 July 2017 the Company announced that the Kazakh Ministry of Energy had signed Addendum 8 to Contract 2275 thereby approving Jupiter’s three year Work Program (2017-2019) that supports the 3 year Exploration Licence Extension that was granted by the Ministry of Energy during the 4th quarter of 2016. As part of the signing of Addendum 8, the Ministry of Energy also approved Trial Production Licences extensions for the Akkar East and West Zhetybai oilfields for the period to 29 December 2019. The approval of the Trial Production Licences enables the Company to recommence oil production as soon as is practical and it is expected that initial production will be from wells J-51, J-52 and Well 19 which are all located on the Akkar East oilfield. The current expectation is that oil production will recommence during the 4th Quarter of 2017. 8 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT DIRECTORS’ REPORT (continued) On 10 July 2017 the Company also announced the cancellation of admission of Depository Interests over Ordinary Shares trading on AIM. The Company was originally dual listed on the AIM market of the London Stock Exchange in 2011 as a means of accessing capital from the UK and European equity markets. During the financial year, the Board reviewed the Company’s AIM listing and concluded that these benefits of listing have not been realised, due to a range of reasons. Given the Company's shareholder base is predominantly Australian, the relatively low volume of trading in shares on AIM and the Company’s current cash position, the Board concluded that the costs incurred in maintaining a secondary listing on AIM, exceeded the benefits obtained from the listing. On this basis, the Board considered it in the best interests of the Company and all shareholders to seek a cancellation of its depository interests (“DIs”) over ordinary shares (“Ordinary Shares”) from trading on AIM (the “Cancellation”). The Cancellation was not subject to shareholder approval however the Board discussed this issue with Jupiter’s three major shareholders being Waterford Petroleum Limited, Arrow Business Limited and Central Asian Oil Holdings Limited and each entity gave their unequivocal support in respect of the Cancellation. As a result the Company proceeded with the Cancellation and the last trading day in DIs on AIM was 25 August 2017 and cancellation was effective at 7.00 a.m. on 29 August 2017 (the “Cancellation Date”). Following the cancellation of admission of the Company's Ordinary Shares on AIM, the DIs which had been trading on AIM were cancelled and holding statements were issued to current DI holders. The Company continues to maintain its listing on the Australian Stock Exchange (ASX) and shareholders wishing to trade the Company’s Ordinary Shares after the Cancellation Date have been able to do so on the ASX. Summary: During the 2016/17 Financial Year the Group continued to endure a difficult operating environment in Kazakhstan. However there was progress with the Company being able to successfully be granted a three year extension of its Exploration Licence (to December 2019), get approval to return its wells on the Akkar East and West Zhetybai fields to Trial Production and also get confirmation from the Kazakh authorities that it was the legal owner of the oil reserves that form part of the Akkar North (East Block) accumulation. That all said, the dramatic fall in global oil prices has also had a material impact on the willingness of the equity markets to fund junior explorers and therefore the ability to raise the required equity to fund the Block 31 development in the current market environment remains uncertain. The major shareholder (Waterford Petroleum Limited) continues to be the cornerstone debt funder for the Company with a further US$10,000,000 in debt funding provided to the Company over the past 12 months to fund operations and enable a planned return to domestic production during the 4th quarter of calendar 2017. Frustrations aside, since acquiring an exploration permit in 2008, independent reserve reports continue to confirm that Jupiter has now discovered two sizeable oilfields with significant reserves and resources. In addition, oil production has moved from zero at the beginning of 2011 to over 230,000 barrels for calendar year 2014, with 2014 calendar year revenues reaching A$8,750,000 (US$7,568,000). The goal of developing Jupiter Energy into a full cycle E&P Group with a meaningful production profile and sizeable 2P reserves base remains the key objective for the Board and Management and the Group remains confident of continuing to make progress towards achieving this goal during the period 2017-2019. 9 JUPITER ENERGY LIMITED – 2017 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 financial year. 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 the Kazakh Stock Exchange (KASE), it is subject to the continuous disclosure requirements of the ASX Listing Rules and the KASE 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. 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 Group is committed to a locally developed environmental monitoring program. This monitoring program will continue to expand as and when new regulations are implemented and adopted in Kazakhstan. HEALTH & SAFETY The Group 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 Group with compliance under this policy. The Group 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. 10 JUPITER ENERGY LIMITED – 2017 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 4 4 4 4 4 4 4 4 Current Directors G Gander B Kuandykov S Mison A Kruzhkov 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 Alexey Glebov, PhD, with over 33 years' oil & gas industry experience, is the qualified person who has reviewed and approved the technical information contained in this report. Alexey PhD’s in technical science (1992) and geology science (2006), an Honors Degree in Geology and Geophysics (1984) from Novosibirsk State University and a Gold Medal (1985) from USSR Academy of Sciences. He is a member since 2001 of the European Association of Geoscientists & Engineers (EAGE #M2001-097) and was made an Honorary Oilman in 2011 by the Ministry of Energy of the Russian Federation. Alexey Glebov is qualified in accordance with ASX Listing Rule 5.41. 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 Group 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 Group. 11 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT REMUNERATION REPORT (Audited) This remuneration report outlines the Director and executive remuneration arrangements of 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 Group, directly or indirectly, including any Director (whether executive or otherwise) of the parent Company, and includes the two executives in the Group. For the purposes of this report, the term 'executive' encompasses the chief executive, senior executives, general managers and secretaries of the Group. Details of key management personnel (i) Directors Geoff Gander Alexey Kruzhkov Baltabek Kuandykov Scott Mison Alexander Kuzev Chairman / CEO (Executive) Director (Non-Executive) Director (Non-Executive) Director / CFO / Company Secretary (Executive) Director (Non-Executive) (Appointed 12 September 2017) Alexey Kruzhkov was appointed to the board on 29 August 2016. 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 – with a focus to 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 Group, 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 Group 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 Group does not have a remuneration committee. The Board is of the opinion that due to the size of the Group, 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 Group's performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. 12 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) The executive Directors receive a superannuation guarantee contribution as required by the government which is currently 9.5%, and do not receive any other retirement benefits. The remuneration paid to Directors and executives is valued at the cost to the Group and expensed. Remuneration Structure Non-Executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Group 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 Group. Non-executive Directors are also encouraged to hold shares in the company. Each Director receives a fee for being a Director of the Group. 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 Group, business unit and individual performance; align the interests of executives with those of shareholders; link reward with the strategic goals and performance of the Group; and ensure total remuneration is competitive by market standards. 13 JUPITER ENERGY LIMITED – 2017 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 Group who have contributed to the success of the Group 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 Group and improve the performance of the Group; and attract persons of experience and ability to employment with the Group and foster and promote loyalty between the Group 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. There were no performance rights issued during the current financial year or prior financial year. Group Performance Due to the current embryonic stage of the Group’s growth it is not appropriate at this time to evaluate the Group’s financial performance using generally accepted measures such as EBITDA and profitability; this assessment will be developed over the next few years. 14 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) The following information provides a summary of Jupiter Energy’s financial performance for the last five years: Revenue Loss before income tax Earnings per share (cents) Last share price at Balance Date Market capitalization 2017 $ 2016 $ 2015 $ - (8,076,857) (5.27) 0.25 38.3m - (10,474,870) (6.81) 0.25 38.3m 3,896,359 (10,982,261) (7.16) 0.25 38.3m 2014 $ 7,586,442 (2,547,271) (1.66) 0.40 61.4m 2013 $ 5,778,057 (4,885,829) (3.25) 0.55 82.7m 15 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives Table 1: Remuneration for the year ended 30 June 2017 Short-term benefits Post-employment benefits Share-based payment Cash salary and Consulting fees $ Cash bonus $ Other $ Super- annuation $ Performance Rights $ Total $ Remuneration consisting of Performance Rights % Performance related % 52,961* 211,805* 264,766 305,410* 108,000* 413,410 678,176 - - - - - - - - - - 142,972 - 142,972 142,972 - - - 40,000 - 40,000 40,000 - - - - - - - 52,961 211,805 264,766 488,382 108,000 596,382 861,147 - - - - - - Name Non-executive director A Kruzhkov (a) B Kuandykov (b) Total non-executive directors Executive directors G Gander (c) S Mison (d) Total executives Totals *Directors fees from February 2015 have been deferred until such time that at least US$5,000,000 in new equity is raised or alternatively the Group sells the Block 31 licence and receives the funds associated with that sale. (a): Appointed 26 August 2016. Directors Fees of US$40,000 (A$52,961) have been deferred. (b): Fees relate to Non Executive Director fee of US$40,000 (A$52,961) and Consulting Fees of US$120,000 (A$158,844). Director fees of US$40,000 (A$52,961) have been deferred. During the year, further consulting fees of A$222,084 (2016: A$40,599) 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. (c): Directors Fees of A$40,000 have been deferred. Other of A$142,972 relates to living expenses covering cost of apartment/office in London as per service agreement. During the year, consulting fees of $189,000 (2016: $211,000) were accrued and paid under normal terms and conditions to Symdean Pty Ltd, of which Mr Gander is a director for his role as CEO. (d): Fees relate to CFO / Company Secretary (A$78,000) and Director Fees (A$30,000). The Directors fees of A$30,000 have been deferred. Table 2: Remuneration for the year ended 30 June 2016 Short-term benefits Post-employment benefits Share-based payment Name Non-executive director A Beardsall (a) B Kuandykov (b) Total non-executive directors Executive directors G Gander (c) S Mison (d) Total executives Totals Cash salary and Consulting fees $ Cash bonus $ Other $ Super- annuation $ Performance Rights $ Total $ Remuneration consisting of Performance Rights % Performance related % 36,667* 122,223* 158,890 372,251* 108,000* 480,251 639,141 - - - - - - - - - - 163,106 - 163,106 163,106 - - - 40,333 - 40,333 40,333 - - - - - - - - - - 36,667 122,223 158,890 575,690 108,000 683,690 842,580 *Directors fees from February 2015 have been deferred until such time that at least US$5,000,000 in new equity is raised or alternatively the Group sells the Block 31 licence and receives the funds associated with that sale. (a): Resigned 31 May 2016. Directors Fees of A$36,667 have been deferred. (b): Fees relate to Non Executive Director fee of US$40,000 (A$54,787) and Consulting Fees from 1 February 2016 to 30 June 2016 of US$50,000 (A$67,436). Director fees of US$40,000 (A$54,787) have been deferred. During the year, further consulting fees of A$40,599 (2015: A$144,096) 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. (c): Directors Fees of A$40,000 have been deferred. Other of A$163,106 relates to living expenses covering cost of apartment/office in London as per service agreement. (d): Fees relate to CFO / Company Secretary (A$78,000) and Director Fees (A$30,000). The Directors fees of A$30,000 have been deferred. 16 - - - - - - - - - - JUPITER ENERGY LIMITED – 2017 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 2017 During the 2017 and 2016 year, there were no options granted. No options, listed or unlisted, were exercised during the year. Shares issued on Exercise of Compensation Options There were no shares issued on the exercise of compensation options during the financial years ended 30 June 2017 or 30 June 2016. Performance Rights During the 2017 and 2016 year, there were no performance rights granted. Compensation Performance Rights: Granted and vested during the year ended 30 June 2017 During the 2017 and 2016 year, there were no performance rights vested and no additional performance rights were granted. 17 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT REMUNERATION REPORT (Audited) (continued) Details of remuneration (Audited) Remuneration of Directors and Executives (continued) Shareholdings 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: 2017 Directors G Gander A Kruzhkov* B Kuandykov S Mison Balance 1 July 2016 Granted as Remuneration On Exercise of Options Net Change Other Balance 30 June 2017 811,112 - - 391,238 - - - - - - - - - - - - 811,112 - - 391,238 *Mr Kruzhkov was appointed on 29 August 2016 2016 Directors G Gander A Beardsall B Kuandykov S Mison Balance 1 July 2015 Granted as Remuneration On Exercise of Options Net Change Other Balance 30 June 2016 3,147,224 1,250,000 - 391,238 - - - - - - - - (2,336,112) - - - 811,112 1,250,000* - 391,238 *Mr Beardsall resigned on 31 May 2016. This was the balance at time of resignation. Performance Rights Holdings There were no performance rights held by, granted to or exercised by Key Management Personnel during the financial years ended 30 June 2017 or 30 June 2016. Option Holdings There were no options held by, granted to or exercised by Key Management Personnel during the financial years ended 30 June 2017 or 30 June 2016. 18 JUPITER ENERGY LIMITED – 2017 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 – 8 September 2017) Base Terms • This agreement was effective from 8 September 2017 and has no set term. • Base Salary of GBP200,000 (A$340,000) including Director Fees and the current Superannuation Levy of 9.5%. • Mr Gander will be paid a Bonus of $US350,000 or 0.5% (whichever is greater) of the value of the consideration received by the Group if the Company or Contract 2275 is assigned, transferred or sold to a third party during the term of the Agreement. • Director fees of A$3,333 per month (included in Base Salary figure above), deferred until such time that at least US$5,000,000 in new equity is raised or alternatively the Group sells the Block 31 licence and receives the funds associated with that sale. The termination provisions are as follows: Contractor - initiated termination with reason or for Contractor incapacitation Company - initiated termination without reason Company – initiated termination for serious misconduct Contractor – initiated termination without reason Contractor – initiated termination with reason Notice period Payment in lieu of notice 1 month 12 months 12 months 12 months None None 12 months 12 months 30 days 12 months Scott Mison, CFO / Company Secretary / Executive Director (Effective – 1 June 2015) Base Terms • This agreement is effective from 1 June 2015. The term is on a rolling month basis. • CFO / Company Secretary Fees of $6,500 per month. • Director fees of $2,500 per month, deferred until such time that at least US$5,000,000 in new equity is raised or alternatively the Group sells the Block 31 licence and receives the funds associated with that sale. The termination provisions are as follows: Contractor - initiated termination with reason Contractor - initiated termination without reason Termination for serious misconduct Contractor – initiated termination Notice period Payment in lieu of notice 1 or 3 months 1 or 3 months 3 months 3 months None 1 or 3 months None None End of Remuneration Report (Audited) 19 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Group has entered into Deeds of Indemnity with the Directors, indemnifying them against certain liabilities and costs to the extent permitted by law. The Group has also agreed to pay a premium in respect of a contract insuring the Directors and Officers of the Group 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. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Group has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 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 Group’s corporate governance statement is included on page 21 of this annual report. AUDITOR INDEPENDENCE The Directors received the declaration included on page 27 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 29 September 2017 20 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Jupiter Energy 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 Energy on behalf of the shareholders by whom they are elected and to whom they are accountable. The Group’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. Act ethically and responsibly Principle 4. Safeguard integrity in corporate 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 Group’s securities, the management of risk, and a Code of Conduct. Jupiter Energy’s corporate governance practices were in place throughout the year ended 30 June 2017. 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 Group. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Group. 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 Group and monitor progress of those strategies; • Establish policies appropriate for the Group; • Monitor the performance of the Group, 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 Group; and • Take responsibility for corporate governance. 21 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Composition of the Board To add value to the Group 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 Group 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 Group as a minimum of three up to a maximum of ten. The preferred skills and experiences for a Director of the Group include: • Exploration for oil and gas accumulations; • Development and production operations of hydrocarbon accumulations; • Financing of operations; • Business Development; and • Public Group 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 Group, 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 Group in the last 3 years; • Must not have been in an advisory capacity to the Group in the last 3 years; • Must not be a significant customer or supplier for the Group; • 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 Group and is not considered to be independent. However, his experience and knowledge of the Group 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 Group. His oil industry experience, especially within Kazakhstan, makes his contribution to the Board significant. Mr. Scott Mison is an Executive Director / CFO / Company Secretary of the Group and is not considered to be independent. However, his experience and knowledge of the Group makes his contribution to the Board such that it is appropriate for him to remain on the Board. 22 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) 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 Group’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 Group 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 Group. 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 the Company’s 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. 23 JUPITER ENERGY LIMITED – 2017 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 size of the Group, 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 Group’s financial statements for the year ended 30 June 2017 present a true and fair view, in all material aspects, of the Group’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 Company does not have a nomination committee. The Board is of the opinion that due to the size of the Group, the functions performed by a nomination committee can be adequately handled by the full Board. Remuneration Committee The Group does not have a remuneration committee. The Board is of the opinion that due to the size of the Group, the functions performed by a remuneration committee can be adequately handled by the full Board. Remuneration levels for Directors, Secretaries, Senior Executives of the Group, 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 16. 24 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) Risk Management The risks involved in oil and gas exploration Group and the specific uncertainties for the Group 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 Group 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 Group’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 Jupiter Energy Limited 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 Group 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 Group. 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 Group 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 Group is not of a sufficient size to justify measurable objectives at this stage. As at 30 June 2016, there were four women in the Groups workforce, one 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, 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. 25 JUPITER ENERGY LIMITED – 2017 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 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 Group 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 Group’s affairs including, but not limited to: the activities of the Group; • • 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 Group; • All documents that are released to the ASX 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. 26 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 As lead auditor for the audit of Jupiter Energy Limited for the year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been: a. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b. no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Jupiter Energy Limited and the entities it controlled during the financial period. Ernst & Young D A Hall Partner Perth 29 September 2017 A member firm of Ernst & Young Global Limite1 Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:019 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT Financial Statements FOR THE YEAR ENDED 30 JUNE 2017 28 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017 Revenue Cost of sales Gross profit Foreign exchange gain / (loss) Gain on extinguishment of convertible notes (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 2017 $ 2016 $ - - - - - - 17 4 1,516,992 - - (2,965,210) (1,448,218) (1,101,692) 282,672 (54) (3,635,152) (4,454,226) 19,030 20,687 (6,647,669) (6,041,331) (8,076,857) (10,474,870) 5 - - (8,076,857) (10,474,870) Other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods net of tax Foreign currency translation 781,407 (27,468,783) Total comprehensive (loss)/income for the period (7,295,450) (37,943,653) Earnings per share for loss attributable to the ordinary equity holders of the Group: Basic loss per share (cents) Diluted loss per share (cents) 24 24 (5.27) (5.27) (6.81) (6.81) The consolidated statement of comprehensive income is to be read in conjunction with the notes of the financial statements 29 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 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 Total Current Liabilities Non-current Liabilities Provisions Other financial liabilities Total Non-Current Liabilities Total Liabilities Net Asset / (Deficit) Equity Contributed equity Share based payment reserve Foreign currency translation reserve Accumulated losses Total Equity / (Deficit) Note Consolidated 2017 $ 2016 $ 6 7 8 9 7 10 11 12 13 14 16 17 18 19 19 397,109 145,139 16,489 18,352 577,089 2,845,507 15,112,180 338,386 29,930,249 396,635 48,622,957 49,200,046 663,446 24,064 67,459 17,886 772,855 2,787,367 14,976,550 417,142 28,215,402 387,732 46,784,193 47,557,048 877,359 877,359 755,133 755,133 234,680 51,672,210 51,906,890 52,784,249 154,442 42,936,226 43,090,668 43,845,801 (3,584,203) 3,711,247 85,633,935 5,764,014 (25,522,243) (69,459,909) (3,584,203) 85,633,935 5,764,014 (26,303,650) (61,383,052) 3,711,247 The consolidated statement of financial position is to be read in conjunction with the notes of the financial statements. 30 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017 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 property, plant and equipment Net Cash flows (used in) investing activities Cash flows from financing activities Proceeds from unsecured loan Net cash flows from financing activities Net (decrease) in cash held Effects of exchange rate changes Cash at beginning of the year Cash at end of the year Note Consolidated 2017 $ 2016 $ - (2,817,239) 19,030 (2,798,209) 26 - (3,478,686) 20,687 (3,457,999) (1,099,755) (279,759) (5,000) - (1,104,755) (279,759) 3,626,893 3,626,893 (276,071) 9,734 663,446 397,109 2,803,474 2,803,474 (934,284) (15,830) 1,613,560 663,446 6 The statement of cash flows is to be read in conjunction with the notes of the financial statements. 31 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 Note Contributed Equity $ Share Based Payment Reserve $ Foreign Currency Translation Reserve $ Accumulated Losses $ Total $ 85,633,935 - - - 5,764,014 - - - 1,165,133 - (27,468,783) (27,468,783) (50,908,182) (10,474,870) - (10,474,870) 41,654,900 (10,474,870) (27,468,783) (37,943,653) 19 - 85,633,935 - 5,764,014 - (26,303,650) - (61,383,052) - 3,711,247 85,633,935 - - - 5,764,014 - - - (26,303,650) - 781,407 781,407 (61,383,052) (8,076,857) - (8,076,857) 3,711,247 (8,076,857) 781,407 (7,295,450) 19 - 85,633,935 - 5,764,014 - (25,522,243) - (69,459,909) - (3,584,203) CONSOLIDATED As at 1 July 2015 Loss for the period Other comprehensive loss Total comprehensive loss Transactions by owners recorded directly in equity: Share based payments At 30 June 2016 As at 1 July 2016 Loss for the period Other comprehensive loss Total comprehensive loss Transactions by owners recorded directly in equity: Share based payments At 30 June 2017 The statements of changes in equity are to be read in conjunction with the notes of the financial statements. 32 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 1 CORPORATE INFORMATION The financial report of Jupiter Energy Limited for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 29 September 2017. Jupiter Energy Limited is a Company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange and on the Kazakh Stock Exchange. 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 11 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 Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191. Going Concern 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. As at 30 June 2017 The Group had a net liability position of ($3,584,203). However at 30 June 2017, the Group had a Framework Funding Agreement in place and at that time. At 30 June 2017 the Group had drawn down US$3,808,733 interest) that a interest) meaning (A$4,976,831)(including accrued (A$1,554,365) was still available under this agreement. further $US1,191,267 (including accrued Based on management forecasts, the Group has sufficient working capital, including its access to the remaining funding under the 2017 Funding Agreement, until April 2018. The Group is still reviewing its ongoing funding requirements from April 2018 and beyond, to enable the Group to carry out its 2018-2019 Work Program and develop Block 31 to the stage where export oil sales are being achieved and further development of the field is self-funding. Funding options may include the further issue of new equity, reserve based debt, convertible debt or a combination of these and other funding instruments. The Directors, after consultation with the major shareholders and debt providers, are confident of being able to raise the required capital, but note that financing has not been secured at the date of this report and that the recommencement of production is dependent on a recovery in the Kazakh domestic oil price which is in turn linked to an overall recovery in world oil prices. Should the Group not achieve the matters set out above, there is uncertainty whether the Group would continue as a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include adjustments relating to the recoverability or classification of the recorded assets amounts nor to the amounts or classification of liabilities that might be necessary should the Group not be able to continue as a going concern. 33 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 (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 2016, the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on 1 July 2016. Adoption of these standards and interpretations did not have any significant effect on the financial position or performance of the Group: AASB 2013-9 - Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments AASB 2015-3 - Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality AASB 2015-4 - Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent 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 2017. These are outlined in the following table. Reference Title Summary AASB 9 Financial Instruments AASB 9 (December 2014) is a new standard which replaces AASB 139. This new version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early adoption. The own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Classification and measurement AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities. The main changes are described below. Applicatio n date of standard 1 January 2018 Applica tion date for Group 1 July 2018 Impact on Group financial report is yet to The Group undertake detailed a assessment of the impact of AASB 9. However the Standard is not expected to have a material impact on the and transactions balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. 34 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT Applicatio n date of standard 1 January 2018 Applica tion date for Group 1 July 2018 Impact on Group financial report is yet to The Group undertake detailed a assessment of the impact of AASB 9. However the Standard is not expected to have a material impact on the and transactions balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. Reference Title Summary AASB 9 (continued) Financial Instruments Financial assets a. b. c. 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. that are not held Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments 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. trading for 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. Financial liabilities Changes introduced by AASB 9 in respect of financial liabilities are limited to the measurement of liabilities designated at fair value through profit or loss (FVPL) using the fair value option. 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 AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains or losses attributable to changes in the entity’s own credit risk would be recognised in OCI. These amounts recognised in OCI are not recycled to profit or loss if the liability is ever repurchased at a discount. Impairment The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. Hedge accounting Amendments to AASB 9 (December 2009 & 2010 editions and AASB 2013-9) issued in December 2013 included the new hedge to hedge accounting effectiveness risk components that can be hedged and disclosures. treatment of hedging costs, requirements, testing, including changes 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, AASB 2010-10 and AASB 2014- 1 – Part E. AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014. AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010)) from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015. 35 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT Applicatio n date of standard 1 January 2018 Applica tion date for Group 1 July 2018 Impact on Group financial report is yet to The Group undertake detailed a assessment of the impact of AASB 15. However the Standard is not expected to have a material impact on the and transactions balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. Reference Title Summary AASB 15 Revenue from Contracts with Customers AASB 15 Revenue from Contracts with Customers replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations (Interpretation 13 Customer Loyalty Programmes, Interpretation 15 Agreements for the Construction of Real Estate, Interpretation 18 Transfers of Assets from Customers, Interpretation 131 Revenue—Barter Transactions Involving Advertising Services and Interpretation 1042 Subscriber Acquisition Costs in the incorporates Telecommunications the requirements of from Contracts with Customers issued by the International Accounting Standards Board (IASB) and developed jointly with the US Financial Accounting Standards Board (FASB). Industry). AASB 15 IFRS 15 Revenue AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments).The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) contract Step 2: Identify the performance obligations in the (c) Step 3: Determine the transaction price (d) performance obligations in the contract Step 4: Allocate the transaction price to the (e) satisfies a performance obligation Step 5: Recognise revenue when (or as) the entity AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application is permitted. AASB 2014-5 incorporates the consequential amendments to a number (including Accounting Interpretations) arising from the issuance of AASB 15. Standards Australian AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15. 36 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT Applicatio n date of standard 1 January 2019 Impact on Group financial report Applica tion date for Group is yet to The Group undertake detailed a assessment of the impact of AASB 16. 1 July 2019 Reference Title Summary AASB 16 Leases The key features of AASB 16 are as follows: Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. AASB 2016-5 Classification and Measurement of Share-based Payment Transactions [Amendments to AASB 2] This standard amends to AASB 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: ► The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments ► Share-based payment transactions with a net settlement feature for withholding tax obligations A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled 1 January 2018 The group has not yet determined the financial impact of the change. 1 July 2018 37 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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 outlined in Note 28). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: § Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); § Exposure, or rights, to variable returns from its involvement with the investee; and § The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: § The contractual arrangement with the other vote holders of the investee; § Rights arising from other contractual arrangements; and § The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: § De-recognises the assets (including goodwill) and liabilities of the subsidiary; § De-recognises the carrying amount of any non-controlling interests; § De-recognises the cumulative translation differences recorded in equity; § Recognises the fair value of the consideration received; § Recognises the fair value of any investment retained; § Recognises any surplus or deficit in profit or loss; and Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. 38 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Significant accounting estimates and assumptions Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the consolidated financial statements: 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. Impairment of assets In determining the recoverable amount of assets in the absence of quoted markets, judgements are made in determining events that need to occur that affect future cash flows. In the case of the Group’s primary asset, Block 31, the over-riding assumption is that Block 31 reaches the point of export production by January 2019 For this to occur the following matters need to be resolved: Financing for construction of processing facilities and drilling of development wells - - Approval from the Government for construction of processing facilities and drilling of development wells and ultimately approving of export status. - Contracts signed for the engineering, procurement, installation and commissioning of the processing facilities and for the drilling of development wells. - An export license being granted. - An agreement reached with MangistauMunaiGas(MMG) over the division of reserves associated with the Akkar North accumulation Recognition of deferred tax assets Judgement is required in determining whether deferred tax assets are recognised in the statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require the Group to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets. Judgment is also required in respect of the application of existing tax laws in each jurisdiction. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes oil prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, and other capital management transactions). To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods. 39 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. 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 judgements, 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 profit and loss. 40 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Provision for restoration Costs of site restoration are provided over the life of the field and related facilities 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. 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 and probable hydrocarbon reserves. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining production from the field/well. 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 and probable reserves. Changes to proved and probable reserves could arise due to changes in the factors or assumptions used in estimating reserves, including: • The effect on proved and probable 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 of disposal 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. Management has assessed Block 31 as being an individual CGU, which is the lowest level for which cash inflows are largely independent. 41 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value measurement 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 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. (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 plant and equipment is derecognised upon disposal or when no further future economic benefits are expected to be derived from its use or disposal on a prospective basis. 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 profit or loss 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. Unsuccessful exploration in the area of interest is 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 to profit or loss in the year in which the decision to abandon the area is made. When a discovered oil or gas field enters the development phase or an individual well is assessed as being in production (once a trial production licence is granted) the accumulated exploration and evaluation expenditure is transferred to oil and gas properties. 42 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Oil and gas properties Oil and gas properties 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 accounted for as tangible assets and include past exploration and evaluation costs, development drilling and plant and equipment and any associated land and buildings. Producing assets The costs of oil and gas assets in production are 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 total proved and probable reserves on a unit of production basis. (h) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets (excluding goodwill) 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 of disposal 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 profit or loss. (i) Trade and other receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at amortised cost 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 the estimated costs of completion and any estimated selling costs. Cost includes those costs incurred in bringing each component of inventory to its present location and condition. 43 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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, 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 and are either subsequently measured at amortised cost or fair value through profit or loss. 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. Fair value movements are recognised in the profit or loss. (n) Share-based payment transactions Share-based compensation benefits are provided to directors and executives. 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 date. Probability factors are assigned to the vesting expense as to whether non market conditions will be met. 44 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2 (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 revenue can be measured reliably. Revenue generated during the development stage of an asset, is offset against the carrying value of the asset, rather than recognised in the profit or loss within 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. (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. 45 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (r) Other taxes Revenues, expenses and assets are recognised net of the amount of GST or VAT except: • where the GST or VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST or VAT 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 or VAT included. The net amount of GST or VAT 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 or VAT 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 or VAT 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. 46 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 (t) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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: • • 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. Restoration Costs of site restoration are provided over the life of the field or 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 based on current legal requirements and technology. In calculating the provision the future estimated costs are discounted to present value. 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. (v) Employee leave benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled wholly 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 nominal amounts based on current wage and salary rates, and include related on-costs. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. 47 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (w) Foreign currency transactions and balances (i) Functional and presentation currency Both the functional and presentation currency of Jupiter Energy Limited and each of its Australian subsidiaries are Australian dollars ($). The Singapore subsidiaries' functional currency is United States Dollars which is translated to the presentation currency of the Group, being Australian dollars ($). 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 of the Group) 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 reclassified to profit or loss (x) 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. Currently the Group has only one operating segment, being the Group. 48 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (y) 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: Financial Assets Cash and cash equivalents Net exposure Consolidated 2017 $ 2016 $ 397,109 397,109 663,446 663,446 49 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) 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 2017 $ 2016 $ 3,971 (3,971) 6,634 (6,634) 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), Great Britain Pound (GBP) and Singapore Dollars (SGD) foreign currency that is not designated in cash flow hedges: Financial Assets Cash and cash equivalents - - - USD SGD GBP Financial Liabilities Other financial liabilities Net exposure Consolidated 2017 $ 2016 $ 289,924 1,859 681 292,464 653,866 1,859 3,098 658,823 (51,672,210) (51,672,210) (51,379,746) (42,936,226) (42,936,226) (42,277,403) 50 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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, 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 2017 $ 2016 $ (2,544,166) 2, 544,166 (2,114,118) 2,114,118 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 VAT input tax credits 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, promissory notes, finance leases and hire purchase contracts. The contractual maturities of the Group’s financial assets and liabilities are shown in the table below. Undiscounted cash flows for the respective years are presented. This excludes cash and cash equivalents and current trade and other receivables. 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 2017 $ 2016 $ - - 396,635 396,635 (877,363) - (51,672,210) (52,549,573) (52,152,938) - - 387,382 387,382 (755,133) - (42,936,226) (43,691,359) (43,303,977) 51 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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 financial liabilities are carried at amortised cost, with the carrying value approximating the fair value. 4. GENERAL AND ADMINISTRATIVE EXPENSES Administration and compliance expenses Employee benefits Superannuation Consulting fees Depreciation and amortisation expenses Directors fees Legal fees Occupancy expenses Total expenses Consolidated 2017 $ 1,663,575 394,386 40,000 374,067 87,929 225,921 3,869 175,463 2,965,210 2016 $ 1,791,817 822,043 40,333 362,021 155,873 199,120 20,283 243,662 3,635,152 From February 2015 payment of director fees have been deferred until such time that at least US$5,000,000 in new equity is raised or alternatively the Group sells the Block 31 licence and receives the funds associated with that sale. 52 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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% (2016: 30%) Non-deductible expenditure: - Effect of tax rates in foreign jurisdictions - Share Based payments Interest expense - 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 Kazakhstan Losses Provision for impairment Deferred tax assets not recognized Deferred tax (income)/expense Net deferred tax recognised in Balance Sheet Consolidated 2017 $ 2016 $ (2,423,057) (3,142,461) (149,406) 1,994,301 578,162 143,528 - 1,812,399 1,186,534 - - - - - - 570,526 - - 8,867,767 689,136 - 706,926 54 - 7,111,664 910,468 - (10,127,429) - - (8,729,112) - - The Consolidated Group has tax losses of $16,629,280 (2016:$24,844,409) 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 Group 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 Group in the consolidated entity in accordance with Division 170 of the Income Tax Assessment Act 1997; (b) The relevant Group 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 Group and/or consolidated entity in realising the asset. 53 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 6. CASH AND CASH EQUIVALENTS Cash at bank and in hand Consolidated 2017 $ 397,109 397,109 2016 $ 663,446 663,446 The bank accounts are at call and pay interest at a weighted average interest rate of 0.04% at 30 June 2017 (2016: 0.04%) 7. TRADE AND OTHER RECEIVABLES Current Trade receivables Other debtors Non-current VAT receivable Consolidated 2017 $ - 145,139 145,139 2016 $ - 24,064 24,064 2,845,507 2,787,367 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 2017, the aging analysis of receivables is as follows: 2017 2016 Total 2,990,506 2,811,431 0 – 30 Days 145,139 24,064 31 – 60 days 61 - 90 days - - 90+ days 2,845,367 2,787,367 - - There are no receivables as at 30 June 2017 that are impaired (2016: nil) 8. OTHER CURRENT ASSETS Prepayment 9. INVENTORIES Raw materials Crude oil Provision of obsolete items Consolidated 2017 $ 16,489 16,489 2016 $ 67,459 67,459 18,352 - - 18,352 17,886 - - 17,886 54 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 10. OIL AND GAS PROPERTIES Cost as at 30 June 2015 Net exchange differences Cost as at 30 June 2016 Depletion and impairment as at 30 June 2015 Charge for the year Depletion and impairment as at 30 June 2016 Net book value as at 30 June 2016 Cost as at 30 June 2016 Net exchange differences Cost as at 30 June 2017 Depletion and impairment as at 30 June 2016 Charge for the year Depletion and impairment as at 30 June 2017 Net book value as at 30 June 2017 11. PLANT AND EQUIPMENT Consolidated $ 26,227,918 (9,422,479) 16,805,439 (1,828,889) - (1,828,889) 14,976,550 16,805,439 135,630 16,941,069 (1,828,889) - (1,828,889) 15,112,180 Year ended 30 June 2017 Consolidated At 1 July 2016 net of accumulated depreciation Additions Disposals Depreciation charge for the year Net exchange differences At 30 June 2017 net of accumulated depreciation At 30 June 2017 Cost Accumulated depreciation Net carrying amount At 1 July 2015 net of accumulated depreciation Additions Disposals Depreciation charge for the year Net exchange differences At 30 June 2016 net of accumulated depreciation At 30 June 2016 Cost Accumulated depreciation Net carrying amount 55 $ 417,142 6,201 (3,233) (87,929) 6,205 338,386 2,058,062 (1,719,676) 338,386 967,247 - - (155,873) (394,232) 417,142 2,055,094 (1,637,952) 417,142 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 12. EXPLORATION AND EVALUATION EXPENDITURE Exploration expenditure carried forward: Exploration and evaluation expenditure at cost Movements during the year Balance at beginning of year Expenditure incurred during the year Impairment Foreign exchange translation Balance at end of year Consolidated 2017 $ 2016 $ 29,930,249 28,215,402 28,215,402 1,099,755 - 615,092 29,930,249 44,166,103 279,759 - (16,230,460) 28,215,402 Oil sales revenue capitalised into exploration and evaluation expenditure for the year was $nil (2016 $nil). 13. OTHER FINANCIAL ASSETS Liquidation fund Other 396,635 - 396,635 387,732 - 387,732 The Group has a deposit for the purpose of a Liquidation fund in the amount of $396,635. 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. The fair value approximates the carrying value. 14. TRADE AND OTHER PAYABLES Trade creditors Accrued expenses Trade payables are non-interest-bearing and are normally settled on 30-day terms. 15. DEFERRED REVENUE As at 1 July Deferred during the year Released during the year Repaid during the year Foreign exchange translation At 30 June 451,161 426,198 877,359 652,938 102,195 755,133 - - - - - - 60,111 - - (60,111) - - The deferred revenue refers to an amount received in advance for oil sales. As at 30 June 2017, there is 0 tonnes of oil to be delivered under contracts. (2016: nil) 56 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 16. PROVISIONS Non – current Provision for rehabilitation Consolidated 2017 $ 2016 $ 234,680 234,680 154,442 154,442 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 $234,680 (2016: $154,442). The costs are denominated are Tenge. The timing of rehabilitation is likely to depend on when the field ceases to produce at economically viable rates which is currently estimated to be 2044 (2016: 2044). This will depend upon future oil and gas prices, which are inherently uncertain. The underlining rehabilitation costs are denominated in Tenge and in calculating the provision at 30 June 2017 a discount rate of 8.58% (2016: 10.37%) was used. Movements in rehabilitation provision Carrying amount at beginning of the year Unwinding of discount rate Foreign exchange translation Provision for the year Re-measurement for changes in estimates1 Carrying amount at the end of year 2017 $ 154,442 8,803 2,408 - 69,027 234,680 2016 $ 527,827 20,850 (228,195) - (166,040) 154,442 1Due to a change in the discount rate and the expected timing of when the rehabilitation activities will be undertaken. 57 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 17. OTHER FINANCIAL LIABILITIES Non-Current Promissory notes (unsecured) Promissory Notes Consolidated 2017 $ 2016 $ 51,672,210 51,672,210 42,936,226 42,936,226 During the 2016 year Waterford agreed to put in place a Framework Funding Agreement that made a further US$5,000,000 (including accrued interest) available to the Group by way of a new US$5,000,000 (A$6,739,550) Promissory Note (“the 2016 Funding Agreement”). The key terms of the 2016 Framework Agreement are: • Effective 24 May 2016 • Drawdowns will roll into a Promissory Note • Promissory Note is repayable on 1 July 2018 • • • Interest rate of 15% pa Interest will accrue and be repayable with principal Lender can elect to be repaid if there is a change of control in Jupiter Energy Limited or Jupiter Energy Pte Ltd or there is a change in control in contract 2275 covering the Block 31 Licence As at 30 June 2017, the Group had drawn down US$3,808,733 (A$4,976,831) (including accrued interest) under the 2016 Funding Agreement. This means that a further $US1,191,267 (including accrued interest) (A$1,554,365) is still available under this agreement. During the financial year The Group was granted a range of approvals that positioned it to return to domestic production. As a result, major shareholder and debtholder Waterford Petroleum Limited (“Waterford”) and debt holder Midocean Holdings Limited (“Midocean”) (together “the Lenders”) agreed to provide up to a total of a further US$5,000,000 (including accrued interest), in the amounts of up to US$4,900,000 and US$100,000, respectively under a new Funding Agreement signed on 28 July 2017 (the “2017 Funding Agreement”). The 2017 Funding Agreement is similar to the 2016 Funding Agreement with the addition of one new condition. This condition relates to the payment of a bonus to the Lenders should all or part of the permit area be sold during the term of the 2017 Funding Agreement. A summary of the terms of the 2017 Funding Agreement is as follows: • Unsecured • Effective 31 July 2017 • Repayable on 31 July 2019 (or such later date agreed by the parties in writing) (the • • • “Repayment Date”) Interest rate of 15% pa Interest will accrue and be repayable with principal Lenders can elect to be repaid if there is a change of control in Jupiter Energy Limited or Jupiter Energy Pte Ltd or there is a change in control in contract 2275 covering the Block 31 Licence • Bonus will be payable to the Lenders equivalent to 5% of the sale price of contract 2275 in the event that the contract is assigned, transferred or sold to a 3rd party during the period of the facility. No Liability has been recognized, as no sale agreement has been entered into. 58 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 18. CONTRIBUTED EQUITY Shares issued and fully paid Ordinary shares (a) Consolidated 2017 $ 2016 $ 85,633,935 85,633,935 85,633,935 85,633,935 Number Number (a) Movements in ordinary share capital: 2017 2016 Balance 30 June 2016 Balance 30 June 2017 153,377,693 153,377,693 153,377,693 153,377,693 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 2016 and none are expected to be paid in 2017. The Group is not subject to any externally imposed capital requirements. 59 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 19. RESERVES At 30 June 2015 Share based payment Foreign currency translation At 30 June 2016 Share based payment Foreign currency translation At 30 June 2017 Foreign currency translation reserve $ 1,165,133 - (27,468,783) (26,303,650) - 781,407 (25,522,243) CONSOLIDATED Share based payments reserve Total $ 5,764,014 - - 5,764,014 - - 5,764,014 $ 6,929,147 - (27,468,783) (20,539,636) - 781,407 (19,758,229) 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. 20. KEY MANAGEMENT PERSONNEL AND RELATED PARTY DISCLOSURE This note is to be read in conjunction with the Remuneration Report, which is included in the Directors Report on pages 11 to 19. (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Other Share-based payments Consolidated 2017 $ 2016 $ 678,176 40,000 142,972 - 861,148 639,141 40,333 163,106 - 842,580 (b) Transactions between the Group and other related parties Consultancy fees During the year, consulting fees of $222,084 (2016: $40,599) 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. During the year, consulting fees of $189,000 (2016: $211,000) were accrued and paid under normal terms and conditions to Symdean Pty Ltd, of which Mr Gander is a director. 60 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 As at 30 June 2017 to following director fees have been accrued to Directors: Geoff Gander Baltabek Kuandykov Scott Mison Alexey Kruzhkov $97,377 $133,997 $73,332 $52,961 21. SHARE BASED PAYMENTS Employee Share Option Plan (ESOP) and Performance Rights Plan There was no share based payments expense in the income statement for 2017 (2016: $Nil). Options No options were granted during the year ended 30 June 2017 (2016: Nil). During the year ended 30 June 2017, no options were exercised over ordinary shares (2016: Nil). 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 subject to shareholder approval. The number of performance rights on issue as at 30 June 2017 was nil. 61 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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 Mangistau 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 Amounts received or due and receivable by Ernst & Young (Kazakhstan) for: - auditing or reviewing the financial report Amounts received or due and receivable by Ernst & Young (Singapore) for: - auditing or reviewing the financial report 2017 $ 2016 $ - - - - - - 83,000 83,000 27,400 27,400 11,500 11,500 78,500 78,500 18,645 18,645 12,477 12,477 Total paid to Ernst & Young 121,900 109,622 62 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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 Group 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 2017 2016 (8,076,857) (10,474,870) Number of shares Number of shares 153,377,693 153,377,693 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these financial statements. 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 segment being related to the activities in Kazakhstan, on the basis that the operations in Australia relate to running the Corporate Head Office only. All significant Oil and Gas and Exploration and evaluation expenditure are domiciled in Kazakhstan. 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 and oil and gas properties located in Kazakhstan. 63 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 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 (Gain) / Loss on derivative Finance costs Effect of foreign exchange translation Gain on extinguishment1 Changes in assets and liabilities: Decrease/(increase) in receivables Decrease/(increase in inventories (Increase)/decrease in other current assets Increase/ (decrease) in deferred revenue Increase/ (decrease) in payables Decrease/(increase) in provisions Net cash flows from operating activities Consolidated 2017 $ (8,076,857) 2016 $ (10,474,870) 2,529 - 6,647,669 (1,445,303) - (179,215) (468) 50,971 - 122,227 80,238 (2,798,209) 155,873 54 6,041,331 969,858 (282,672) 986,236 50,651 54,650 (60,111) (525,614) (373,385) (3,457,999) 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. 64 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 27. EVENTS OCCURING AFTER THE BALANCE SHEET DATE On 10 July 2017 the Company announced that the Kazakh Ministry of Energy had signed Addendum 8 to Contract 2275 thereby approving Jupiter’s three year Work Program (2017-2019) that supports the 3 year Exploration Licence Extension that was granted by the Ministry of Energy during the 4th quarter of 2016. As part of the signing of Addendum 8, the Ministry of Energy also approved Trial Production Licences extensions for the Akkar East and West Zhetybai oilfields for the period to 29 December 2019. The approval of the Trial Production Licences enables the Company to recommence oil production as soon as is practical and it is expected that initial production will be from wells J-51, J-52 and Well 19 which are all located on the Akkar East oilfield. The current expectation is that oil production will recommence during the 4th Quarter of 2017. On 10 July 2017 the Company also announced the cancellation of admission of Depository Interests over Ordinary Shares trading on AIM. On 31 July 2017, the Company signed The 2017 Funding Agreement. The 2017 Funding Agreement is similar to the 2016 Funding Agreement with the addition of one new condition. This condition relates to the payment of a bonus to the Lenders should all or part of the permit area be sold during the term of the 2017 Funding Agreement. A summary of the terms of the 2017 Funding Agreement is as follows: • Unsecured • Effective 31 July 2017 • Repayable on 31 July 2019 (or such later date agreed by the parties in writing) (the • • • “Repayment Date”) Interest rate of 15% pa Interest will accrue and be repayable with principal Lenders can elect to be repaid if there is a change of control in Jupiter Energy Limited or Jupiter Energy Pte Ltd or there is a change in control in contract 2275 covering the Block 31 Licence • Bonus will be payable to the Lenders equivalent to 5% of the sale price of contract 2275 in the event that the contract is assigned, transferred or sold to a 3rd party during the period of the facility. No Liability has been recognized, as no sale agreement has been entered into. On 12 September 2017, Mr Alexander Kuzev was appointed to the Board as a Non-Executive Director. There have been no other significant events occurring subsequent to 30 June 2017 apart from those noted above. 65 JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 28. INFORMATION ON PARENT ENTITY (a) Information relating to Jupiter Energy Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Share based payment reserve Total shareholders’ deficit Profit or (loss) of the parent entity Total comprehensive income / (loss) of the parent entity 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 Country of incorporation Australia Australia Australia Singapore Singapore 2017 $ 357,427 48,613,559 (525,556) 2016 $ 709,903 47,592,924 (409,456) (52,197,766) (43,341,521) 85,633,935 85,633,935 (94,982,152) (95,649,352) 5,764,014 5,764,014 (3,584,203) (4,251,403) (7,831,450) (19,735,223) (7,831,450) (19,735,223) Equity Holding 2017 % 100 100 100 100 100 2016 % 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 2017 (30 June 2016: Nil) 66 JUPITER ENERGY LIMITED – 2017 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 2017 are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of its financial position as at 30 June 2017 and performance for the year ended on that date. (ii) Complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 The financial statements and notes also comply with International Financial Reporting Standards, as disclosed in note 2(b) Subject to the matter set out in Note 2(a) there are reasonable grounds to believe that the Group 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 2017. On behalf of the Board Geoff Gander Executive Chairman Perth, Western Australia 29 September 2017 67 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 audit of the financial report Opinion We have audited the financial report of Jupiter Energy Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the director’s declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 2a in the financial report, which describes the principal conditions that raise doubt about the Group’s ability to continue as a going concern. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matter described below to be the key audit matter to be communicated in our report. For the matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:020 We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying financial report. Why significant How our audit addressed the key audit matter The Group’s non-current assets comprising property, plant and equipment of $338,386, oil and gas properties of $15,112,180 and exploration and evaluation expenditure of $29,930,249 are required to be assessed for indicators of impairment in accordance with the Group’s accounting policies at each reporting date and, where impairment indicators are identified, the applicable Cash Generating Unit (CGU) is required to be tested for impairment. As at 30 June 2017, the Block 31 CGU was tested for impairment and the CGU recoverable amount was determined based on the present value of the future cash-flows expected to be derived from the CGU. As disclosed in note 2 to the financial report, the CGU recoverable amounts are highly sensitive to changes in key assumptions including long term oil prices, discount rates, operating and capital costs and reserves. The recoverability of Block 31 is also dependent on an export license being granted. No impairment was recognised for the Block 31 CGU during the year ended 30 June 2017. With respect to the Block 31 CGU, as there were indicators of impairment, we assessed the appropriateness of the recoverable amounts determined by the Group. In performing our procedures we: ► Considered the Group’s assessment of impairment indicators and considered whether all indicators of impairment had been identified; ► Assessed whether forecasted production, operating and capital expenditure used for the impairment testing were aligned to the latest life reserve statements; ► Considered whether all appropriate assets and liabilities were included in the CGU carrying values; ► Considered whether tenure over the Block 31 was current and from inquiries as to whether there had been any instances of non- compliance with the terms of the Block 31 exploration and production license which could impact whether an export license is granted; ► Involved our valuation specialists to assess the discount rates and long term oil prices with reference to market prices (where available), market research, market practice, market indices, broker consensus and historical performance; ► Performed sensitivity analysis on key assumptions to assess the impact that they have on the recoverable amount; and ► Considered whether the financial report appropriately discloses the key estimates in determining the recoverable value. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:020 Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2017 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:020 ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 12 to 19 of the directors' report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Jupiter Energy Limited for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:020 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young D A Hall Partner Perth 29 September 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DH:NL:JUPITER:020 JUPITER ENERGY LIMITED – 2017 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 28 September 2017) Substantial shareholders Waterford Petroleum Limited Arrow Business Limited Central Asian Oil Holdings Ltd Voting Rights 45,246,108 30,917,255 29,731,484 29.5% 20.2% 19.4% Each shareholder is entitled to receive notice of and attend and vote at general meetings of the Group. 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 Total holders 426 514 203 230 25 1,398 Ordinary Shares 162,140 1,343,502 1,476,472 6,228,782 144,166,797 153,377,693 The number of shareholders holding less than a marketable parcel of ordinary shares is 923. On-market buy back There is no current on-market buy back. Securities on Issue The number of shares issued by the Group are set out below: Category Ordinary Shares Number 153,377,693 70 No. of Ordinary Shares % of Issued capital JUPITER ENERGY LIMITED – 2017 ANNUAL REPORT TWENTY LARGEST SHAREHOLDERS Name of Holder HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED FISKE NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED SECURE NOMINEES LIMITED GLENNBROWN PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD MR GEOFFREY ANTHONY GANDER 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. MR ATHOL GEOFFREY JAMES 11. GOLDEN BOUNTY LIMITED 12. GLENNBROWN PTY LTD 13. MR WARREN GILMOUR + MRS CATHERINE GILMOUR 14. P H NOMINEES LIMITED 15. NATIONAL NOMINEES LIMITED 16. MR SCOTT MISON 17. SOUTHAM INVESTMENTS 2003 PTY LTD 18. MR IAN SHERWOOD LOVE + MRS ANNE MARGARET LOVE 19. DR NEIL TANUDISASTRO + MRS YANI SUTANIMAN 20. DALY SF PTY LTD 50,548,879 45,541,678 32,001,825 5,757,434 1,610,357 1,333,334 1,229,863 999,999 769,445 608,148 506,450 465,000 282,753 250,001 233,605 207,038 179,511 166,667 154,667 146,668 TOTAL 142,993,322 71 32.96 29.69 20.86 3.75 1.05 0.87 0.80 0.65 0.50 0.40 0.33 0.30 0.18 0.16 0.15 0.13 0.12 0.11 0.10 0.10 93.23

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