ANNUAL REPORT
2018
Contents
Chairman and Managing Director’s Review
Karoon at a Glance
Financial Year 2018 Highlights
Where We Operate
Resource Summary
Strengths and Risks
Operations Review
Corporate Sustainability Report
Directors’ Report
Auditor’s Independence Declaration
Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Securities Exchange Information
Glossary of Terms
Corporate Directory
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7
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117
Unless otherwise stated, items in
photographs shown in this annual report
are not assets of the Company.
Karoon Gas Australia LtdAnnual Report 2018 Karoon Gas Australia Ltd is a global
oil and gas exploration company
headquartered in Melbourne,
Australia, with country offices
in Brazil and Peru.
1
Karoon Gas Australia LtdAnnual Report 2018 Chairman and Managing Director’s Review 2018
Karoon has a vision of becoming a global Exploration and Production company with
material long-term oil production underpinning a highly prospective exploration portfolio.
Dear Shareholders,
It is with deep sadness and growing anticipation that we present
Karoon’s 2018 Annual Report – sadness for the tragic loss of our
Chairman, Dr David Klingner and anticipation given that Karoon is
now closer than ever to realising its vision of becoming a global
Exploration and Production (‘E&P’) company with material long-
term oil production underpinning a highly prospective exploration
portfolio.
David, who passed away on 13 August 2018 after a short illness,
was a much valued and respected member of the Karoon team.
Karoon’s Board of Directors and management share their respect
and admiration for him and are extremely grateful for his valued
contribution as Chairman of Karoon.
David spent his illustrious career working for Rio Tinto and its
affiliated companies, holding many senior executive positions in
Rio Tinto including Head of Exploration, Group Executive Coal and
Gold, and Managing Director, Kaltim Prima Coal. David’s various
other commercial and technical roles included Group Geologist
Petroleum Exploration. Following his retirement from Rio Tinto,
David had been an active Company chairman and non-executive
director with a number of companies.
The entire Karoon team expresses its condolences to Dr Klingner’s
family, friends and colleagues.
Turning to the global oil and gas environment, the 2018 financial
year was generally a more positive year for the global oil and gas
sector with oil prices rising to levels well above those seen over the
last three years due to excess supply being reduced by rising global
demand. There are promising signs that oil prices will continue
to strengthen, with the global oil industry having discovered only
4 billion barrels during 2017 while global 2017 consumption
exceeded approximately 35 billion barrels. This discrepancy left an
impressive deficit of approximately 30 billion barrels between new
discoveries in 2017 and demand during 2017. Growing demand
from emerging economies such as China and India, driven by rising
prosperity and the urbanisation of people on a vast scale, together
with OPEC compliance and discipline in reducing output, underpin
the likelihood of a higher oil price scenario going forward.
The purchase of a production asset with long-term revenue, on
acceptable terms, has been a major part of Karoon’s core goals
since 2014/15 and would enable Karoon to take considerable
advantage of improving oil prices. To this end, Karoon has spent
more than two years pursuing various production acquisition
opportunities that have come to market.
Brazil is currently the 10th largest global oil producer with an
established Exploration and Production industry producing in
excess of 3mm bopd and is very likely to become the largest FPSO
market in the world.
During the financial year Karoon made significant advancement
with progressing the appraisal and development of its light oil
discoveries in the Santos Basin, Brazil. The 2C contingent resource
estimates for these discoveries are currently 55mmbl (Echidna) and
27 mmbl (Kangaroo), potentially targeting peak production of 25k
to 28k bopd. We note that of approximately 20 global oil and gas
projects, which have been sanctioned for development during the
first half of calendar year 2018, around 50% of these projects are
expected to produce less than 50k boe per day per project.
Recognising Karoon’s geographical diversification and broader
focus on energy opportunities, the Board of Directors proposes to
change the name of the Company to Karoon Energy Limited.
Brazil
Declaration of Commerciality
During July 2017, the Board of Directors approved an innovative
development concept for Karoon’s Echidna light oil discovery that
saw the project progress to the Front End Engineering and Design
(‘FEED’) phase.
Karoon was pleased to announce during April 2018 that the
Agência Nacional do Petróleo, Gás Natural e Biocombustíveis
(‘ANP’) approved Karoon’s Declaration of Commerciality agenda
in regard to the Echidna and Kangaroo oil accumulations. As is
convention in Brazil, these assets have been renamed and they are
now known as Neon and Goiá respectively.
The ANP approval of the Declaration of Commerciality is an
important step in moving forward toward production, as it marks the
end of the Exploration Phase and the beginning of the Development
Phase.
Following the probabilistic reassessment of contingent resources,
announced 8 May 2018, and the subsequent reassessment of
the associated economics the primary focus of the Development
Plan will be on the Neon (Echidna) light oil discovery, with Goiá
(Kangaroo) forming part of Karoon’s broader southern Santos
Basin strategy.
The Development Plan is currently being prepared and Karoon has
been working with commercial tenderers to define a cost effective
and commercial risk sharing plan that can take advantage of the
continuing low price environment for vessels and equipment.
Karoon’s standing in Brazil also sees it well positioned within the
improving global environment as Brazil continues to actively and
aggressively seek to attract investment in the oil and gas sector.
It is Karoon’s intention to farm-out a portion of its interest before
proceeding with the Neon (Echidna) development.
2
Karoon Gas Australia LtdAnnual Report 2018 New Opportunities
Karoon believes that it is strategically important for the Company’s
longer term sustainability to maintain the focus on ensuring a future
pipeline of quality exploration prospects in prolific basins.
WA-314-P, Browse Basin
Reprocessing of the seismic data in the WA-314-P permit has now
been completed and Karoon is in discussions with the regulator
regarding a forward work program for the permit.
Karoon therefore participated in Brazil’s Bid Round 14 during
September 2017 and was successful in being awarded Block
S-M-1537 in the Santos Basin, which contains the Clorita Prospect
approximately 120km from Neon (Echidna). Work programme
obligations in the block are limited to seismic acquisition over a 7
year period.
Looking to the Future
With good stewardship of Karoon’s industry assets through the
recent downturn in the sector, Karoon is well positioned to thrive in
an improving oil industry environment. The outlook is now brighter
than it has been for some time for the company’s robust portfolio of
exploration and pre-development assets.
The Clorita Prospect is located in a defined hydrocarbon producing
trend including, amongst others, the Bauna and Piracaba oil fields,
and is interpreted to possess the same Oligocene reservoirs which
have excellent reservoir characteristics in those fields.
The Block S-M-1537 acreage adds to Karoon’s presence in the
Santos Basin, and potential opportunities for future synergistic
development with Neon (Echidna) are already under review.
Peru
Block Z-38, Tumbes Basin
During January 2018, Karoon announced the successful farm-out,
subject to regulatory approvals, of 35% of its 75% equity interest in
Block Z-38 in the Tumbes Basin to Tullow, a leading independent oil
and gas exploration and production company focussed on finding
and monetising oil in Africa and South America.
Karoon is excited about partnering with a proven successful
explorer such as Tullow who during 2017 had operations in 16
countries and oil production averaging 87,300 boe per day with
total revenue of approximately US$1.72bn. The farm-out followed
the extensive work completed by Karoon in recent years to better
define the block’s prospectivity. This leaves Karoon with a 40%
operated interest in the block.
Karoon is continuing to prepare for drilling operations, currently
targeting drilling during 2019/20, and has commenced farm-in
partner meetings and field operations including met-ocean data
acquisition and preliminary stakeholder engagement.
Australia
EPP46, Ceduna Sub-basin, Great Australian Bight
Karoon remains hopeful it can acquire the 2D/3D seismic data
required for permit EPP46 and is optimistic that data is available for
the permit in the coming year.
WA-482-P, Carnarvon Basin
The reprocessing of seismic data in the eastern part of the WA-
482-P permit is ongoing. This part of the permit is geographically
close to the recent Dorado discovery made by Karoon’s Joint
Venture Partner Quadrant and Carnarvon Petroleum.
Prudent Management
The Board of Directors and senior management understand that
Karoon’s operations must be sustainable in the longer term. One
aspect of sustainability is cost structure and we acted during the
financial year to reduce corporate overheads with an organisational
review that saw staff reductions in all offices, and office relocations
in South America to more cost-effective premises. It will be an
ongoing goal to continue to identify and realise further cost
reductions as the Company moves forward.
The Board of Directors of Karoon has a good breadth of skills and
experience, although we will continue to review the composition
and size of the Board to ensure we have the right capabilities
to support the delivery of our strategy for the benefit of our
shareholders. As previously announced, Karoon has commenced
an external professional search process to identify and appoint a
new independent Chairman.
Karoon has a clear strategic goal to deliver shareholder value is
hopeful that significant progress will be evident as the Board and
management continues to pursue their goal to transform Karoon
into a significant Exploration & Production (E&P) company..
While there is still much more work to be done, the Karoon team is
enthusiastic about the future of the Company and is firmly focused
on delivering on its strategic agenda for the benefit of all our
shareholders.
We would like to take this opportunity to thank the Karoon team
for their focus and commitment over the past year, and to also
sincerely thank our shareholders for their ongoing support.
Mr Peter Turnbull
Interim Non-Executive Chairman
Mr Robert Hosking
Managing Director
25 September 2018
3
Karoon Gas Australia LtdAnnual Report 2018 Karoon at a Glance
Our History
Karoon Gas Australia Ltd (’Karoon’ or ‘the Company’) was
founded during 2004, listing on the Australian Securities
Exchange during June 2004 with a market capitalisation of
$8 million and a share price of $0.20 per ordinary share.
Karoon was founded by Managing Director Mr Robert
Hosking and Director of Exploration Mr Mark Smith. The
Company was built on bold ambition, driven principally by
geology and focused on exploration opportunities with world
class potential.
Shortly after listing, Karoon made its first big strategic move
and acquired acreage in one of Australia’s emerging LNG
provinces, the Browse Basin. Over the next decade, the region
saw an unprecedented level of LNG activity. During this time
Karoon discovered the multi-TCF Poseidon gas discovery
(2009), which was subsequently sold by Karoon during
June 2014 for up to US$800 million (including outstanding
contingent milestone consideration of up to US$200 million).
During 2008 Karoon sought to broaden its exploration
portfolio and was attracted to the Santos Basin, offshore Brazil
by the basin geology at the same time as the major presalt
discoveries were being made. Karoon secured a footprint
with 5 blocks during Bid Round 9, and subsequently made
3 oil discoveries, with one light oil discovery Neon providing a
potential future limb of growth for the Company.
Over the past decade, Karoon has successfully farmed out
9 permits and blocks across Australia, Brazil and Peru, which
have been instrumental in helping to fund its exploration
programs.
Since divesting the 2 Browse Basin permits, including the
Poseidon gas discovery during June 2014, the Company
has turned its efforts and resources to furthering appraisal
and development plans for its Santos Basin assets and
potential acquisition opportunities. The Company has also
been looking to take advantage of the cyclical downturn in
the global oil market and secure a foundation production or
development asset to underpin the next decade of growth
and beyond.
Consistent with Karoon’s current geographical diversification
and broader focus on energy opportunities, the Board of
Directors proposes to change the name of the Company
to Karoon Energy Limited. The new name is subject to
shareholder approval at the 2018 Annual General Meeting.
Our Vision
The vision is to transform the Company from an exploration company into an emerging independent energy company with
material hydrocarbon production, providing a foundation for future exploration and production growth.
Our Strategy
One of the key pillars central to Karoon’s strategy is exploration
led growth. The Company looks to drive value through the
geotechnical workup of exploration and appraisal acreage to
identify prospective opportunities.
While exploration led growth is a key pillar, Karoon is also
looking to acquire a foundation production asset that will
underpin long-term sustainable growth and drive shareholder
value.
focus
in
is on acquiring high-equity
The
underexplored early stage offshore acreage within proven
petroleum systems.
interests
4
Karoon Gas Australia LtdAnnual Report 2018 5
Karoon Gas Australia LtdAnnual Report 2018 Financial Year 2018 Highlights
Farm-out of a 35% equity interest to Tullow Peru Limited in Block Z-38 Tumbes Basin, Peru.
The exploration portfolio was strengthened with the acquisition of Block S-M-1537 Santos Basin, Brazil.
Finalised the appraisal phase and entered the development and production phase at Neon
(previously named Echidna) and Goiá (previously named Kangaroo) after Final Discovery Evaluation
Report (‘RFAD’) approval from the ANP and declaration of commerciality on both light oil discoveries.
Continued the development plan FEED tendering and evaluation for Neon.
Karoon announced an updated management assessment of the net 2C contingent resources
for Santos Basin light oil discoveries, Neon and Goiá, of 82 million barrels.
Karoon announced an updated management assessment of its prospective resource inventory
with unrisked net prospective resources of 1,947 million barrels of oil (best estimate) across its exploration
Block Z-38 Tumbes Basin, Peru and exploration permit WA-482-P Northern Carnarvon Basin, Australia.
Continuation of technical evaluation, commercial and financing negotiations for the acquisition
of production opportunities.
6
Karoon Gas Australia LtdAnnual Report 2018 Where We Operate
Permit/Block
S-M-1037, S-M-1101, S-M-1102, S-M-1165 **
S-M-1537
Z-38
WA-482-P
EPP46
WA-314-P
Country
Brazil
Brazil
Peru
Basin
Santos
Santos
Tumbes
Australia Northern Carnarvon
Australia Ceduna Sub-basin
Browse
Australia
* Denotes Karoon’s operatorship of the permit/block.
Equity
Interest
100% *
100% *
40% *^
50%
100% *
100% *
Type
Oil
Oil
Oil
Oil
Oil & Gas
Oil
Phase
Development & Production
Exploration
Exploration
Exploration
Exploration
Exploration
^ During January 2018, the Group entered into a farm-out agreement with Tullow Peru Limited to reduce its Block Z-38 equity interest to 40%, subject
to conditions including regulatory approvals that are still outstanding as at the date of this Annual Report.
** During the financial year, exploration Block S-M-1166 Santos Basin, Brazil was requested to be relinquished and Karoon is currently waiting for the
decision from the ANP.
7
Block Z-38 Tumbes Basin, Peru5 BlocksSantos Basin, Brazil2 Oil discoveriesWA-482-PNorthernCarnarvon BasinWA-314-PBrowse BasinEPP46Ceduna Sub-basinKaroon Gas Australia LtdAnnual Report 2018 Resource Summary
Management Assessment of Contingent and Prospective Resources
Net Contingent Resource Volumes
Block
S-M-1037, S-M-1102 (Neon)
S-M-1101, S-M-1165 (Goiá)
Total
Country
Brazil
Brazil
Net Unrisked Prospective Resource Volumes
Basin
Santos
Santos
Equity
Interest
100%
100%
Block/Permit
Z-38
WA-482-P
Total
Country
Peru
Australia
Basin
Tumbes
Northern Carnarvon
Equity
Interest
40%
50%
Type
Oil
Oil
Type
Oil
Oil
1C
30
16
46
Low
223
445
668
mmbbls
2C
55
27
82
mmbbls
Best
549
1,398
1,947
3C
92
46
138
High
1,350
3,727
5,077
The Neon and Goiá contingent resource volume estimates were
assessed by Karoon Gas Australia Ltd’s Engineering Manager,
Mr Lino Barro and are based on seismic survey data, geological
and engineering well data and other regional geological and
engineering information. They are prepared on a probabilistic
basis in accordance with the Petroleum Resources Management
System approved by the Society of Petroleum Engineers, the
World Petroleum Council, the American Association of Petroleum
Geologists and the Society of Petroleum Evaluation Engineers.
The discovered contingent resources are categorised as contingent
because further evaluation is required to confirm commerciality.
The contingent and prospective resource volume estimates
presented were disclosed in the 8 May 2018 ASX announcement
‘Resources Update’. Karoon is not aware of any new information
or data that materially affects these resource estimates and all
material assumptions and technical parameters underpinning the
estimates in the relevant ASX announcement continue to apply and
have not materially changed.
Prospective Resources Cautionary Statement
The estimated quantities of petroleum that may potentially be
recovered by the application of a future development project
relate to undiscovered accumulations. These estimates have
both an associated risk of discovery and a risk of development.
Further exploration, appraisal and evaluation is required to
determine the existence of a significant quantity of potentially
moveable hydrocarbons. There is no certainty that any portion
of the prospective resource estimated on behalf of Karoon will
be discovered. If discovered, there is no certainty that it will be
commercially viable to produce any portion of the prospective
resources evaluated.
Forward-looking Statements
This Annual Report may contain certain ‘forward-looking statements’
with respect to the financial condition, results of operations
and business of Karoon and certain plans and objectives of the
management of Karoon. Forward-looking statements can generally
be identified by words such as ‘may’, ‘could’, ‘believes’, ‘plan’, ‘will’,
‘likely’, ‘estimates’, ‘targets’, ‘expects’, or ‘intends’ and other similar
words that involve risks and uncertainties, which may include, but
are not limited to, the outcome and effects of the subject matter
of this report. Indications of, and guidance on, future earnings
and financial position and performance are also forward-looking
statements.
forward-looking statements. Any
forward-looking statements,
opinions and estimates provided in this report necessarily involve
uncertainties, assumptions, contingencies and other factors, and
unknown risks may arise, many of which are outside the control
of Karoon. Such statements may cause the actual results or
performance of Karoon to be materially different from any future
results or performance expressed or implied by such forward-
looking statements. Forward-looking statements including, without
limitation, guidance on future plans, are provided as a general guide
only and should not be relied upon as an indication or guarantee of
future performance. Such forward-looking statements speak only
as of the date of this Annual Report.
Investors are cautioned not to place undue reliance on forward-
looking statements as actual outcomes may differ materially from
Karoon disclaims any intent or obligation to update publicly any
forward-looking statements, whether as a result of new information,
future events or results or otherwise.
8
Karoon Gas Australia LtdAnnual Report 2018 Strengths and Risks
Strengths
Specific Risks
• Extensive petroleum industry and management
experience.
• Significant acreage position
prospective petroleum systems.
in proven and
• Globally diversified portfolio of prospects.
• Proven track record of managing equity interests to
fund exploration and appraisal work programs.
• Proven track record of drilling success with a 62%
exploration and appraisal drilling success rate over
the life of the Company.
• Track record of successfully operating 2 exploration
in Brazil,
and appraisal drilling campaigns
drilling a total of 6 wells plus 2 side-tracks, with
a Total Recordable Incident Rate (‘TRIR’) of less than
1 per 200,000 man hours.
• Proven track record of monetising exploration and
appraisal assets.
• Application of leading seismic techniques and
leading edge exploration and analysis technology.
• Ability to attract and retain highly qualified and
experienced personnel in preparation for transition
into a production company.
• Demonstrated ability to create and develop strategic
partnerships with industry participants.
• Robust balance sheet
to
fund organic and
non-organic growth opportunities.
• Petroleum exploration and evaluation rely on the
interpretation of complex and uncertain data, which
might not lead to a successful outcome.
• Operating risks, such as adverse weather conditions,
mechanical
failures, equipment and personnel
availability and permitting delays, can have adverse
financial implications.
• Insurance coverage may be insufficient to cover all
risks associated with oil and gas exploration and
evaluation.
• Volatile market conditions for oil and gas may affect
the ability to obtain funding on acceptable terms.
• The business requires substantial capital investment
and maintenance expenditures, which may be
financially onerous.
• The outcome of farm-out discussions and processes
are uncertain.
• Exchange rate fluctuations in United States dollars
and Brazilian REALS.
• Social, political and geographical risks associated
with multi-national operations.
• Environmental damage associated with field
operations.
9
Karoon Gas Australia LtdAnnual Report 2018 Operations Review
For the Financial Year Ended 30 June 2018
Santos Basin,
Brazil
Santos Basin Blocks S-M-1037, S-M-1101,
S-M-1102, S-M-1165 and S-M-1537
During March 2008, Karoon was awarded 100% participation
in 5 offshore exploration blocks in the Santos Basin, located
approximately 200 km off the coast of Santa Catarina in Sao Paulo
state waters Brazil. The blocks, S-M-1037, S-M-1101, S-M-1102,
S-M-1165 and S-M-1166 (the ‘Blocks’) have an average water
depth of approximately 400 metres.
Since 2013, Karoon has successfully operated 2 drilling campaigns
making 3 oil discoveries: Neon (Echidna), Goiá (Kangaroo) and
Bilby. A total of 6 exploration and appraisal wells were drilled across
the 2 campaigns, including 2 side-tracks, with a TRIR of less than
1 per 200,000 man hours. Production tests in the Echidna-1 and
Kangaroo-2 well locations have proven deliverability from both light
oil discoveries.
Upon completion of the pre-FEED phase for the Neon and Goiá light
oil discoveries, during July 2017 the Board approved a development
concept for the Neon discovery, and FEED commenced. As
part of FEED, a formal process to request tenders for a turnkey
development solution was launched.
Following the commencement of FEED during the March quarter
2018 Karoon sought ANP approval to close the discovery appraisal
phase removing any further appraisal phase commitments (totalling
$364 million). Upon receiving the approval, the RFAD for the Blocks
was submitted to the ANP.
Alongside the RFAD, Karoon also submitted a Declaration of
Commerciality (‘DoC’) for the Neon (Echidna), Goiá (Kangaroo)
light oil discoveries which has been accepted by the ANP.
As part of this process, and according to local convention, the
Echidna and Kangaroo light oil discoveries were renamed with two
corresponding local sea life names, as each discovery straddles
two blocks. Echidna was renamed to Neon and Neon Sul, which
after annexation process is named as ‘Neon’ and Kangaroo was
renamed to Goiá and Goiá Sul, which is named as ‘Goiá’. In
addition, Block S-M-1166 (including the Bilby oil discovery) was
requested to be relinquished and two distinct areas encompassing
the Neon and Goiá light oil discoveries retained, including some
near field prospective resource opportunities.
Key Statistics
Blocks:
Equity Interest:
Operator:
Gross Acreage:
Water Depth:
Type:
Status:
S-M-1037, S-M-1101, S-M-1102, S-M-1165
100%
Karoon
175 sq km
400 metres (average)
Oil
Development and production phase
The development strategy for the Blocks, along with the detailed
development plan for Neon is expected to be submitted during
the 2019 financial year. The development strategy will outline a two
stage plan for development, sequencing the two discoveries.
The first phase of the development plans for the Neon and Goiá
discoveries are focused on the development of Neon due to the
lower reservoir complexity and good productivity. Future allocation
of any material capital expenditure to Goiá will be contingent upon
the successful development of Neon and meeting a satisfactory
economic return on investment.
Following the reassessment of the Goiá 2C contingent resource
during the financial year to 27 mmbbls and management review for
the timing of a possible Goiá development, the decision was taken
to fully impair the carrying value of the Goiá area of interest via a
non-cash impairment as at 30 June 2018. The non-cash impairment
is an accounting adjustment relating to historical book value,
resulting from the Group’s review of non-current assets as at
30 June 2018.
It should be noted that the capitalised exploration and evaluation
expenditure was impaired, it was not written-off. Therefore, the
capitalised exploration and evaluation expenditure that has suffered
impairment will be tested for possible reversal of the impairment
loss going forward.
Goiá still forms part of the broader southern Santos Basin strategy.
The Group’s primary focus, however, is on developing the Neon light
oil discovery. A future development of the Goiá light oil discovery
would be largely dependent on a successful development of the
Neon light oil discovery and associated economics.
Karoon has a highly strategic asset base in Brazil, combining
significant resources and potential synergies, which provide robust
options for growth over coming years as market conditions support.
Karoon remains in discussions with a number of parties in relation
to partnering and executing on Karoon’s broader Southern Santos
Basin growth strategy. An important step in the process is to bring
in a partner to join the project as part of the Neon Final Investment
Decision (‘FID’) process. These discussions are ongoing and
results will be made available when ready.
Acquisition of New Exploration Acreage
Broadens Strategic Footprint
Karoon was successful in securing an additional prospective
offshore Santos Basin exploration Block S-M-1537 during
Bid Round 14, awarded during September 2017. The block
lies in Santa Catarina state waters, to the south of Rio de
Janeiro, Brazil and covers 171 sq km with a water depth
of approximately 400 metres.
S-M-1537
100%
Karoon
171 sq km
400 metres
Oil
Exploration phase
10
Karoon Gas Australia LtdAnnual Report 2018
Brazil
Map Area
South America
São Jose dos Campos
‘
São Paulo
Santos
Rio de Janerio
Mexilhão Area
Belmonte
Cedro
Mexilhão
Libra
Franco
Merluza
Vampira
Guajamá
Piracucá
Neon
Goiá
Corcovado
Panoramix
Lagosta
Mato do Gat
Parati
Macunaima
Iara Entorno
Cernambi
Carcara
Lula
Jupiter
Bigua
Abarè Oeste
Caramba
Sapinhoa
Bauna
Tubarao
Estrela do Mar
Coral
Piracaba
Caravela Sul
Cavalo Marinho
Clorita
S-M-1537
Petróbras Asset Sale
Bauna
Legend
Oil and gas field
Oil field
Gas field
Prospect
Oil pipeline
Gas pipeline
Gas pipeline planned/
under construction
Karoon Blocks
Florianopolis
NORTH
200km
The acquisition is part of a broader southern Santos Basin strategy,
whereby Karoon utilised its existing knowledge base of the Santos
Basin to identify interesting opportunities. Karoon has a significant
competitive advantage in the evaluation of new opportunities in the
southern part of the Santos Basin, gained from over a decade of
technical and operational experience in the area.
The FEED work program once complete, will allow the Board
of Directors to make a FID and finalise any development timing.
The proposed development concept consists of a
floating production, storage and off-loading
2 extended horizontal production wells and 1 gas injection well.
leased
facility with
Karoon considers that this acreage has significant potential to
further expand the existing contingent and prospective resource
portfolio in Brazil, building on a Santos Basin potential production
hub concept from which Karoon would benefit from operational and
logistical synergies.
The block lies in an existing oil and gas producing province
approximately 100 kilometres south of Karoon’s existing Santos
Basin Blocks. The block’s main prospect, Clorita, has been
mapped to contain reservoirs comprising Oligocene turbidite sands
with high porosity and permeability as seen in the producing Baúna
and Piracaba oil fields and has the potential for hundreds of millions
of barrels of oil. Seismic analysis shows encouraging Amplitude
versus Offset (‘AVO’) anomalies supportive of the presence of
trapped oil. More geoscience work is required to define the target
size and risk ahead of future operational decisions.
Karoon’s intention is to contract an Engineering Procurement
Construction Installation work package for the Neon development.
Karoon is working with the parties involved in the tender process to
optimise their proposals.
Any FID will follow completion of development planning and the
ANP approvals process.
An additional near-field prospect, Joey has been identified in close
proximity to Goiá. This prospect is in a favourable location and may
provide a target for later drilling as a potential low-cost resource
addition.
The exploration phase for Block S-M-1537 is seven years. The
minimum work program consists of seismic acquisition and
geological studies.
Forward Work Program
Equity Interest
Based on the robust production test results and lower reservoir
complexity, the Neon light oil discovery was prioritised for further
development planning. Following the positive results from the
pre-FEED work including reservoir modelling, production scenario
analysis, well construction feasibility studies and development
optimisation analysis, the decision was made during the financial
year to progress Neon to FEED.
11
Equity interest of Karoon in Blocks S-M-1037, S-M-1101, S-M-1102,
S-M-1165 and S-M-1537 is:
Karoon Petróleo & Gas Ltda. (Operator)
100%
Karoon Gas Australia LtdAnnual Report 2018 Operations Review (continued)
For the Financial Year Ended 30 June 2018
Tumbes Basin,
Peru
Tumbes Basin Block Z-38
During January 2008, Karoon signed a farm-in agreement to
acquire a 20% participating equity interest in offshore Block Z-38,
located in the Tumbes Basin, 10 km off the northwest coast of Peru.
The block covers an area of 4,750 sq km. Karoon was approved
as Operator during October 2009 and subsequently increased its
equity interest to 75%, subject to completion of farm-in obligations
with Pitkin Petroleum.
The Tumbes Basin is located north of and adjacent to the Talara
Basin, a prolific oil and gas basin discovered in the late 1800’s,
which has produced over 1.7 billion barrels of oil to date.
During January 2018, Karoon successfully completed the farm-
out of a 35% equity interest to Tullow Peru Limited, a subsidiary of
Tullow. The farm-out remains subject to the satisfaction of certain
licencing conditions and regulatory approvals. Karoon is working
with the regulators and Tullow to obtain the relevant regulatory
approvals for its entry into the block.
Pursuant to the farm-out agreement, Tullow will fund 43.75% of
the cost of the first exploration well, capped at a total well cost
of US$27.5 million (at 100%), beyond which Tullow will pay its
35% share. Tullow will also pay US$2 million in back costs upon
completion, along with a further US$7 million payable upon
declaration of a commercial discovery and submission of a
development plan to Perupetro (the Peruvian oil and gas reulator).
Following completion of the farm-out well, Tullow will have an option
to assume operatorship of the block.
Historically, there has been little exploration in the offshore portion
of the Talara or Tumbes Basins, particularly in water depths over
120 metres. Karoon has conducted several geological studies
across the block including a drop core survey recovering sea floor
samples to surface, the acquisition of a 1,500 sq km 3D marine
seismic survey (2011), and quantitative inversion analysis of
seismic data.
Key Statistics
Block:
Equity Interest:
Operator:
Gross Acreage:
Water Depth:
Type:
Status:
Z-38
40%*
Karoon
4,750 sq km
300 to 3,000 metres
Oil
Exploration phase
Hydrocarbons recovered from seabed drop core surveys within
the block contain biomarkers which match the marine source rock
(Oligocene Heath Formation) for the Tumbes basin edge fields
and the giant onshore oil fields of the Talara Basin. This evidence
suggests the prospects in Karoon’s block are accessing these
same source rocks.
Studies to date characterise the geological setting as an active
Oligocene-Miocene pull-apart system which is similar in dimension,
process and age to the prolific San Joaquin Basin, California
which has produced over 12 billion barrels of oil and 3.5 TCF gas
to date. The Oligocene Heath Formation is similar in setting and
characteristics to the San Joaquin Miocene Monterey Formation
source rock.
Karoon’s prospects lie in the undrilled Block Z-38 basin centre,
approximately 40 km from the Tumbes Basin edge fields. As in the
San Joaquin Basin, it is believed reservoir quality will improve with
an increase in sediment transport distance. Recent quantitative
interpretation of seismic data is encouraging, and numerous large
prospects have been identified. Amplitude anomalies observed
support the potential presence of trapped hydrocarbons.
During September 2018, Block Z-38 came out of force majeure.
The joint operation has 22 months in which to fulfil its work
commitments.
Geological and Geophysical Work Program
The advanced geophysical and AVO studies completed during
the financial year using existing 3D seismic data identified several
additional younger and shallower prospects in the La Cruz
Formation and Mal Pelo Formation levels. The result of this analysis
is encouraging and indicates a clear distinction between water, oil
and gas signatures in the shallower reservoirs.
These new shallower prospects have good quality seismic
attributes, some aligning to depth contours which may indicate oil-
water contacts.
Following completion of the above studies along with detailed
geological interpretation of regional wells and fields, seismic
interpretation and geophysical analysis the prospective resources
for the block were updated.
total net prospective
The
is 549 mmbbls (net to Karoon, at completion of farm-out).
resource volume best estimate
12
Karoon Gas Australia LtdAnnual Report 2018 Tumbes Basin offshore oil and gas fields
Amistad
Ecuador Maritime Boundary
Peru Maritime Boundary
Albacora
Tumbes
Corvina
Caleta La Cruz
Zorritos & Cope
Block Z-38
Peru Bank
Liquid hydrocarbon indications in seabed cores
comparable with oils in existing fields.
Marina
Oil
Kitchen
Legend
Gas pipeline
Oil field
Gas field
Prospect
Basin depocentre
Drop core oil recovery
Proposed well location
3D Seismic Survey Area
Karoon Block
Carpitas
&
Punta Brava
Map Area
Peru
Máncora
South America
Pena Negra
Talara Basin Oil & Gas Fields
have produced over
1.7bn bbls to date
NORTH
30km
Forward Work Program
Equity Interests
The current plan is to drill at least 1 exploration well in the initial
drilling campaign. Approvals and long lead items are in place
for the drilling program and the preliminary well location (Marina
Prospect) has been selected.
Equity interests of the participants in Block Z-38 are:
KEI (Peru Z38) Pty Ltd, Sucursal del Peru (Operator)
Tullow Peru Limited
Pitkin Petroleum Peru Z-38 SRL
40%*
35%
25%
The Marina-1 exploration well location was reviewed and the well
path amended to incorporate the additional younger reservoir
targets identified, La Cruz Formation and Mal Pelo Formation into
the well plan, along with the Tumbes Formation.
* Tullow Peru Limited’s equity interest is subject to satisfying certain farm-out
conditions including regulatory approvals that are still outstanding as at the
date of this Annual Report. Karoon’s farm-in obligations to Pitkin Petroleum
Peru Z-38 SRL are also still to be completed.
The Marina-1 exploration well is an exciting high impact exploration
target, with a gross prospective best estimate resource of 256
mmbbls (net 102 mmbbls to Karoon).
13
Karoon Gas Australia LtdAnnual Report 2018 Operations Review (continued)
For the Financial Year Ended 30 June 2018
Northern Carnarvon
Basin, Australia
Northern Carnarvon Basin Exploration Permit
WA-482-P
During September 2012, Karoon acquired a 100% equity interest
in exploration permit WA-482-P in the Northern Carnarvon Basin.
The permit is located approximately 300 km offshore, from the
Western Australian Coast in water depths ranging from 400 to 2,000
metres. The exploration permit covers a large area of 13,539 sq km.
Karoon farmed out a 50% equity interest and operatorship
in WA-482-P to Apache Northwest Pty Ltd, now part of Quadrant
Energy Australia Limited, during May 2014. Following
the
farm-out, the Levitt-1 exploration well was drilled but discovered
water bearing reservoirs.
While the exploration permit is in a relatively underexplored part
of the Basin, the Carnarvon Basin is one of Australia’s largest and
most prolific oil and gas regions. The permit covers a large area
and a successful exploration result could open new exploration
plays in the Basin.
Following the acquisition of the Capreolus 3D marine seismic survey
data the joint operation now has a high quality 3D data set covering
approximately 82% of the permit area. The seismic interpretation
work was completed during the financial year, which allowed
Karoon to better define, risk and rank 10 significant prospects.
During the financial year, Karoon also announced updated
prospective resources for the permit. The net unrisked prospective
resource volume best estimate was assessed to be 1,398 mmbbls.
Karoon is encouraged by the recent nearby Dorado oil discovery.
The Triassic source rocks that underlie the Dorado, Phoenix and
Roc oil and gas discoveries are also interpreted beneath WA-482-P.
Karoon is working to understand the implications of Dorado-1 on
the prospectivity of WA-482-P.
Forward Work Program
The Year 6 exploration well commitment was replaced with
400 sq km full waveform inversion pre-stack depth migration
seismic reprocessing, Quantitative Interpretation/Inversion studies
on the reprocessed seismic, fault seal analysis and geological and
geophysical (‘G&G’) studies including seismic interpretation.
Subsequent to the end of the financial year, the Operator received
regulatory approval for a 6 month suspension and extension of the
Year 6 work program. The current Year 6 work program now expires
during the March quarter 2019.
Karoon will assess its forward plans for the exploration permit
once the Year 6 work program results have been received from the
Operator and evaluated.
Equity Interests
Equity interests of the participants in WA-482-P are:
Karoon Gas (FPSO) Pty Ltd
Quadrant Northwest Pty Ltd (Operator)
50%
50%
Key Statistics
Permit:
Equity Interest:
Operator:
Gross Acreage:
Water Depth:
Type:
Status:
WA-482-P
50%
Quadrant Northwest Pty Ltd (50% equity interest)
13,539 sq km
400 to 2,000 metres
Oil
Exploration phase
14
Karoon Gas Australia LtdAnnual Report 2018 Australia
Australia
LEGEND
LEGEND
Oil field
Oil field
Gas field
Gas field
Karoon leads
Karoon leads
Gas pipeline
Gas pipeline
3D Seismic survey area
3D Seismic survey area
Karoon permit
Karoon permit
WA-482-P
WA-482-P
Levitt-1
Levitt-1
NORTHERN CARNARVON BASIN
NORTHERN CARNARVON BASIN
Mutineer/Pitcairn
Mutineer/Pitcairn
Exeter
Exeter
Perseus
Perseus
Angel
Angel
Amulet
Amulet
Io/Jansz
Io/Jansz
Goodwyn
Goodwyn
Urania
Urania
Legendre
Legendre
Repro/QJ focus area
Repro/QJ focus area
Phoenix South-3
Phoenix South-3
Phoenix South-3
Phoenix South-3
Appraisal well
Appraisal well
Appraisal well
Appraisal well
(April 2018)
(April 2018)
(April 2018)
(April 2018)
Phoenix
Phoenix
Dorado-1
Dorado-1
Dorado-1
Dorado-1
Oil discovery
Oil discovery
Oil discovery
Oil discovery
(July 2018)
(July 2018)
(July 2018)
(July 2018)
Sage
Sage
Reindeer
Reindeer
Corvus
Corvus
Wandoo
Wandoo
Campbell Chamois
Campbell Chamois
Oryx
Oryx
Stag
Stag
Port Hedland
Port Hedland
Bambra
Bambra
Dampier
Dampier
Barrow
Barrow
Narvik
Narvik
Karratha
Karratha
Maenad
Maenad
Gorgon
Gorgon
Spar
Spar
Woollybutt
Woollybutt
Western Australia
Western Australia
NORTH
NORTH
100km
100km
15
Karoon Gas Australia LtdAnnual Report 2018 Operations Review (continued)
For the Financial Year Ended 30 June 2018
Ceduna Sub-basin,
Great Australian Bight,
Australia
Historically, 4 exploration wells have been drilled across the
Ceduna Sub-basin (12 across the GAB) based on 2D seismic
data, predominantly targeting the shallower, flanking depocentres
in shallow waters near the Sub-basin margin. The sedimentary
succession thickens into the central to outer areas of the Sub-basin,
which remain largely untested, and it is these areas which are the
focus for the current exploration programs.
Ceduna Sub-basin Exploration Permit EPP46
Karoon was awarded exploration permit EPP46 during
October 2016. The permit covers 17,649 sq km in one of Australia’s
most prospective frontier oil exploration provinces, the Ceduna
Sub-basin, offshore South Australia. The geology, potential target
size and surrounding exploration activity make it an exciting high
impact opportunity broadening Karoon’s exploration portfolio.
Since 2011, GAB exploration permits have been held by Murphy
Oil, Santos, Chevron, BP and Equinor (formerly Statoil) with over
42,000 sq km of 3D seismic being acquired during that time. During
June 2017, BP exited the GAB with Equinor becoming Operator
and 100% owner of 2 exploration permits at that time. Equinor has
re-affirmed its commitment to drilling the Stromlo-1 exploration
well prior to the end of the initial permit term, which falls during
April 2020.
The Ceduna Sub-basin is part of the Great Australian Bight (‘GAB’)
and hosts one of the world’s last underexplored Cretaceous basins.
The Sub-basin is the major depocentre of the GAB and hosts a
massive Cretaceous delta system, analogous to some of the great
petroleum provinces around the world.
Historical geoscience studies, seismic surveys and exploration
drilling all support the presence of a working petroleum system
over the Ceduna Sub-basin, evidenced by organic rich Turonian
source rocks recovered from samples off the seafloor, previous well
results demonstrating sandstone reservoirs, historical 2D seismic
demonstrating structure and amplitude support, and known natural
oil and gas seafloor seeps.
Should the Stromlo-1 exploration well successfully establish
a viable petroleum system in the GAB this would materially
de-risk the prospectivity of the entire Ceduna Sub-basin and prove
transformational for EPP46.
Drilling of Stromlo-1 remains subject to regulatory approvals. To
progress with its plans Equinor must produce an Environment
Plan (‘EP’) which is acceptable to the National Offshore Petroleum
Safety and Environmental Management Authority (‘NOPSEMA’).
EPs must identify all impacts and risks associated with the activity
and demonstrate these risks have been reduced to as low as
reasonably practicable. EPs must also include an Oil Pollution
Emergence Plan and demonstrate appropriate consultation with
stakeholders.
Key Statistics
Permit:
Equity Interest:
Operator:
Gross Acreage:
Water Depth:
Type:
Status:
EPP46
100%
Karoon
17,649 sq km
1,300 metres (average)
Oil and gas
Exploration phase
16
Karoon Gas Australia LtdAnnual Report 2018 W.A. S.A.
Australia
Australia
Ceduna
EYRE
SUB - BASIN
Potoroo-1
CEDUNA
SUB - BASIN
Gnarlyknots-1, 1A
LEGEND
Karoon permit
Bight combined 3D survey
Lightning 3D survey (Approved June 2014)
Dry well
Oil show
NORTH
200km
Port Lincoln
Platypus-1
Greenly-1
EPP46
Kangaroo
Is.
DUNTROON
SUB - BASIN
During the financial year, oil and gas exploration of the GAB was
the subject of a Commonwealth Senate enquiry. Whilst the enquiry
concluded with no change to the existing regulatory framework, the
process highlighted the challenges of undertaking exploration in
the GAB and the concerns of other stakeholders whose interests
must also be considered by NOPSEMA when assessing EPs.
Forward Work Program
Karoon’s initial 3 year firm commitment term consists of the
acquisition or licencing of 2D and 3D marine seismic surveys
and G&G studies. This includes obtaining 5,000 km of 2D and
2,500 sq km of 3D marine seismic data, processed to pre-stack
depth migration, with 550 km of 2D seismic reprocessing and
gravity and magnetics surveys to be acquired simultaneously.
It is likely Karoon will participate in a multi-client marine seismic
acquisition, where operations will be undertaken by an expert third
party contractor allowing Karoon to licence the data.
regional
Karoon has engaged with potential contractors,
communities and other stakeholders in preparation for the marine
seismic acquisition. However, any new marine seismic acquisition
within EPP46 will require an EP which is acceptable to NOPSEMA
and the timing is therefore dependent upon this approval.
Equity Interest
Equity interest of Karoon in EPP46 is:
Karoon Gas Browse Basin Pty Ltd (Operator)
100%
17
Karoon Gas Australia LtdAnnual Report 2018 Operations Review (continued)
For the Financial Year Ended 30 June 2018
Browse Basin,
Australia
Browse Basin Exploration Permit WA-314-P
From 2004 to 2014, the Browse Basin formed the cornerstone
of Karoon’s exploration efforts. Karoon farmed out a 60% equity
interest (including operatorship) in its original exploration permits
to ConocoPhillips during 2006, with the joint operation making the
multi-TCF Poseidon gas discovery during 2009. During June 2014,
Karoon sold its 40% equity interest in Poseidon (exploration permits
WA-315-P and WA-398-P) for up to US$800 million. As at the end
of the financial year, a contingent milestone consideration of up to
US$200 million remained outstanding.
Karoon has retained a 100% equity interest in exploration permit
WA-314-P (acquired during 2004), located approximately 350 km
offshore from the northern part of the Western Australian coast.
Forward Work Program
Over the past 24 months Karoon has focused the work program on
the Elvie Prospect, a significant target interpreted to be oil prone.
The work involved the acquisition, processing and interpretation
of the Kraken 3D marine seismic survey data along with thermal
maturation modelling.
During the financial year, interpretation of the reprocessed seismic
data was completed, which provided better definition and re-risking
of the Elvie Prospect. The results of this work determined the risking
on the Elvie Prospect was too high to pursue any further exploration
work on the target.
Further analysis of reprocessed 2D seismic data over the permit,
however, has highlighted Montara Formation level prospectivity.
Preparations have commenced to engage potential interested
parties in the permit.
A decision on whether to proceed into the next period will be made
during the next few months. The current 3 year exploration period
expires during October 2018.
Equity Interest
Equity interest of Karoon in WA-314-P is:
Karoon Gas Browse Basin Pty Ltd (Operator)
100%
Key Statistics
Permit:
Equity Interest:
Operator:
Gross Acreage:
Water Depth:
Type:
Status:
WA-314-P
100%
Karoon
998 sq km
500 metres (average)
Oil
Exploration phase
18
Karoon Gas Australia LtdAnnual Report 2018 Ally
Grace-1
WA-314-P
Gaia
Kontiki-1
Poseidon
Proteus-1
Argus
Crown-1
Australia
Legend
Oil field
Gas field
Karoon leads
Gas pipeline
Karoon permit
Laminaria Corallina
Bayu/Undan
Torosa
Swan
Skua
Jabiru / Challis
Cassini
BONAPARTE BASIN
BROWSE BASIN
Montara
Crux
Prometheus/Rubicon
Darwin
LNG Plant
Petrel
Argus
Echuca Shoals
Ichthys
Prelude FLNG
Burnside
Poseidon
Torosa
Brecknock
Calliance
Frigate
Tern
Blacktip
Wyndam
Kununurra
NORTH
10km
Derby
Broome
Western Australia
Northern Territory
Halls Creek
250km
19
Karoon Gas Australia LtdAnnual Report 2018 Corporate Sustainability Report
For the Financial Year Ended 30 June 2018
Karoon has demonstrated its ongoing
commitment to sustainability through the
application of environmental, social and
governance principles in decision making
at all levels of the organisation.
Highlights of the financial year included:
• formal review and approval of Karoon’s new Operating
Management System (‘OMS’) by the Risk and Governance
Committee;
• the ongoing commitment to social and environmental projects
in South America and Australia;
• internal environmental education programs to inform employees
and provide tools to help them reduce their carbon footprint; and
• applying Karoon’s strategic planning and risk management
principles and practices to the identification and investigation
of potential assets for acquisition, as well as the development
planning for Neon.
A summary of Karoon’s sustainability approach and achievements
in the key areas of Health, Safety, Security and Environment
(‘HSSE’), Respect for Communities, Climate Change, People and
Culture is provided below.
Philosophy and Management
to sustainability and ESG principles
Karoon’s approach
is
developed and implemented through its broader risk management
framework, overseen by the Risk and Governance Committee of the
Board of Directors.
Karoon’s Risk Management Team maintains a Corporate Risk
Register, which assists strategic decision making and helps focus
Karoon’s sustainability efforts. Karoon updates its Corporate
Risk Register regularly to ensure its risk mitigation strategies are
appropriate. The Risk and Governance Committee reviews the
register at least annually to ensure risks have been assessed, and
reflect the Board of Directors’ risk appetite and adequate controls
have been identified.
“Karoon’s first priority is always the
health and safety of its people and
those in the local communities where
it operates.”
Health, Safety, Security and Environment
Karoon’s first priority is always the health and safety of its people
and those in the local communities where it operates. The HSSE
team has actively engaged all staff throughout the financial year
to ensure this message is understood. Education and training
programs have included both internal and external workshops and
specific programs such as First Aid training.
As there were no drilling programs during the 2018 financial year,
the HSSE metrics for the financial year were all zero.
20
Karoon Gas Australia LtdAnnual Report 2018 Respect for Communities
Karoon recognises the importance of operating responsibly
to protect the health and safety of its people and those in the
communities where it operates. For several years, Karoon’s social
and environmental team has been actively working to ensure local
communities have been kept well informed of Karoon’s activities
and are provided with opportunities to advance education and
health care in communities where it is most needed.
Karoon’s primary focus during the financial year was Peru, as
preparations continue for the planned Peru drilling campaign.
Karoon’s community engagement extends to a number of different
social and environmental programs, which it is proud to support.
These programs have been successfully
implemented over
a number of years and are ongoing. They have provided tangible
long-term benefits
in healthcare, education, environmental
stewardship and economic independence.
During the financial year, Karoon continued to support communities
through:
• the Mutumbi Project providing business skills and assistance to
women establishing an artisan jewellery business in the Tumbes
region in Peru;
• Tumpis Project providing tertiary education scholarships and
support to students in Peru;
• sponsorship of community cultural events such as ‘Fisherman’s
Day’ celebrations in Peru;
• donations of school materials, food supplies, cleaning products
and hygiene products to children’s shelters and care centres
in Brazil;
• university sponsorships in both Brazil and Australia; and
• sponsorship of the Great Australian Bight Right Whale Study
in Australia.
21
Karoon Gas Australia LtdAnnual Report 2018 Corporate Sustainability Report (continued)
For the Financial Year Ended 30 June 2018
The financial year also saw Karoon’s first participation in the
‘Junior Achievement’ (‘JA’) volunteer program. The JA program
was first established in the US during 1919 and now operates in
more than 120 countries worldwide. The program aims to foster
an entrepreneurial spirit in young people by connecting industry
professionals with local schools. Eight Karoon volunteers with
qualifications and expertise in a range of areas, from drilling, finance
and HSSE, visited 3 different schools speaking with more than
100 students. The volunteers participated in the ‘Connected with
Tomorrow’ JA program using guided discussions, written exercises
and small group exercises to help students reflect on their future
potential and prepare for entering the workforce.
Karoon is proud to be able to sponsor these and other programs.
Further details of Karoon’s social and environmental projects
in Brazil and Peru are available at the Karoon Brazil website
www.karoon.com.br. Details of the GABRWS can be found
at www.gabrightwhales.com.
Climate Change
Karoon’s climate change reporting is aligned to the four core
elements of disclosure recommended in the Task Force on Climate-
related Financial Disclosures Report, namely governance, strategy,
risk management, and metrics and targets.
Governance
The highest level of responsibility for Climate Change within Karoon
is delegated by the Board of Directors to the Risk and Governance
Committee. The Risk and Governance Committee is responsible for
a range of risk and governance matters, including identifying material
exposures to economic, environmental and social sustainability
risks. This Committee is supported by the Risk Management Team,
which involves senior management from different areas of the
organisation, including the Sustainability Manager.
Strategy
Karoon views energy as an imperative for economic and social
development but also acknowledges that an energy transition
to low carbon fuels and renewable energy sources is underway
to reduce the impacts of climate change. As an oil and gas
company, successfully identifying and managing these challenges
is paramount and necessary for the long-term success and
sustainability of Karoon’s business.
Karoon is committed to investing in world-class assets, which it
assesses through a rigorous due diligence process. This process
incorporates an awareness of the future low carbon economy
and how to manage resources to join this economy in the short
to medium-term. While Karoon understands the increasing need
for a transitional fuel that will be less emission intensive than fuels
such as coal and oil, a final asset purchase will also be influenced
by market availability.
Risk Management
High level climate-related risks are identified and assessed using
Karoon’s Corporate Risk Matrix, which includes several measures
of consequence relating to environmental, safety, financial and
reputational impacts.
More detailed operational risks
to
operational climate change impacts, are assessed using the
Karoon HSSE Risk Matrix, and each operated activity risk must
be addressed and reduced to an acceptable level of risk before
operations commence.
those relating
including
Metrics and Targets
Karoon’s Scope 1 emissions for the 2018 financial year were
45 tonnes of carbon dioxide equivalent and Scope 2 were
182 tonnes of carbon dioxide equivalent. Scope 1 emissions were
from transport fuels used by fleet cars, while Scope 2 emissions
were from electricity consumed at office locations. Karoon did not
have any emissions from exploration activities during the 2018
financial year.
Karoon reduces its corporate emissions through low carbon energy
purchases to its Australian offices, using GreenPower for a portion
of electricity.
to monitor
Karoon will continue
its emissions. Karoon’s
administration emissions have decreased by 10% since 2014/15,
however, given the scale of these emissions compared to
exploration/operation emissions, Karoon does not believe setting a
target over administration activities alone is sufficiently meaningful.
Karoon will establish an appropriate basis for an emissions target
once it commences significant exploration and/or other operational
activities, which may impact the environment.
22
Karoon Gas Australia LtdAnnual Report 2018 Diversity
Karoon has a robust Diversity Policy, applicable across all offices in
all jurisdictions, and is committed to promoting a culture of diversity
and acceptance. Karoon has been reporting regularly on gender
diversity through its Corporate Governance Statement, which has
consistently shown that female employees make up more than 40%
of all employees across all Karoon offices and that more than 20%
of senior executives are female across the Group.
“The financial year saw Karoon’s
‘Junior
first participation
Achievement’ volunteer program.”
the
in
People and Culture
Staff Engagement and Education
Karoon’s Social and HSSE teams, based in South America, actively
sought to educate and encourage Karoon employees to consider
ways to change their behaviour, both in the workplace and at home,
to be more environmentally sustainable.
Members of
the Karoon Sustainability Committee gave
presentations to employees in both Australia and South America
for World Environment Day, which Karoon celebrates each year as
part of Karoon Environment Week. This year, all employees were
encouraged to adopt the 2018 ‘Beat the Plastic’ theme.
Across the Group, Karoon employees were also provided with
training in other areas such as the Anti-bribery and Corruption
Policy and Karoon’s Code of Conduct. In depth workshops were
conducted as part of an on-going program in South America to
provide additional training in line with Karoon’s updated Human
Resources policies, which cover topics ranging from Discrimination
and Harassment
to Computer Usage and Performance
Management.
23
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report
The Board of Directors submits its Directors’ Report on Karoon Gas Australia Ltd (the ‘Company’) and its subsidiaries (the ‘Group’) for
the financial year ended 30 June 2018 (the ‘financial year’).
Board of Directors
Under the Company’s Constitution, the minimum number of Directors that may comprise the Board of Directors is currently 3 and
the maximum number of Directors is 10. Directors are elected and re-elected at annual general meetings of the Company.
The names of the Directors of the Company during the financial year and up to the date of this Directors’ Report are set out below:
Mr Peter Turnbull
B. Commerce, LLB, FGIA, FAICD
Independent Interim Non-Executive Chairman
Appointed Interim Chairman on 15 August 2018, previously Non-Executive Director since 6 June 2014.
Peter is an ASX experienced independent non-executive director and chair with significant exposure to the
global mining, energy and technology sectors.
Peter brings to the board significant legal, risk and commercial experience gained from working with boards
and management to conceive, fund, structure and complete corporate transactions and to prioritise and
maximise the value of organic growth strategies for shareholders.
Peter also has significant regulatory and public policy experience from prior executive roles including as a
Director of the Securities & Futures Commission of Hong Kong. Currently, Peter is an Executive Committee
member of several global organisations which promote good governance and is a regular contributor and
speaker in Australia and overseas on corporate governance issues and is a former President and Life Member
of the Governance Institute of Australia.
Peter’s senior executive roles over 30 years involved significant experience in very large publicly listed
organisations with global operations, particularly South East Asia, Europe and the USA. Peter’s executive
experience included over a decade in energy markets and the resources sector including as Company
Secretary of Newcrest Mining Limited, Company Secretary and General Counsel of BTR Nylex Limited and
General Manager, Legal and Corporate Affairs with Energex Limited.
Current directorships of other listed companies include: Metallica Minerals Limited (appointed Chair
on 12 December 2016) and Calix Limited, Chair since ASX listing on 20 July 2018.
Chairman of the Remuneration Committee.
Chairman of the Risk and Governance Committee.
Member of the Audit Committee and Nomination Committee.
24
Karoon Gas Australia LtdAnnual Report 2018 Dr David Klingner
BSc. (Hons), PhD, FAusIMM
Independent Non-Executive Chairman
Appointed 19 December 2014, ceased to be a Director on 13 August 2018.
David had over a decade of Australian and international boardroom experience and worked in the natural
resources industry for 50 years. David spent his career working for Rio Tinto and its affiliated companies,
holding many senior executive positions including Head of Exploration, Group Executive Coal and Gold,
Managing Director Kaltim Prima Coal. David’s various other commercial and technical roles included Group
Geologist Petroleum Exploration. Since 2004, David was an active company chairman and corporate director.
David brought considerable global project development and stakeholder management expertise to the Board of
Directors of Karoon across the resources industry. He had experience in navigating complex and difficult social
and fiscal environments as well as chairing several companies through the modern governance landscape
both in Australia and North America. In addition, David had significant exploration experience worldwide,
including South America.
David held a Bachelor of Science degree in Geology (Hons) from the University of Queensland and a PhD from
the University of Melbourne. He was a fellow of the Australian Institute of Mining and Metallurgy and a member
of the Prospectors and Developers Association of Canada and the Institute of Corporate Directors.
Past directorships of other listed companies included: former Chairman of Turquoise Hill Resources Ltd
(formerly Ivanhoe Mines Ltd TSE: IVN), a TSX and NYSX listed company (TRQ: TSX, NYSE & NASDAQ.
Resigned 1 January 2015), former Chairman of Codan Limited (ASX: CDA. Resigned 18 February 2015) and
former Chairman of Energy Resources of Australia Ltd (ASX: ERA. Resigned 8 February 2013).
He was a member of the Remuneration Committee, Risk and Governance Committee.
Mr Robert Hosking
Managing Director
Appointed 11 November 2003.
Robert is the founding Director of the Company and has more than 35 years of commercial experience in the
management of several companies. Robert has been involved in the oil and gas industry for more than 20 years
and was a founding director/shareholder of Nexus Energy Limited.
Robert also has a background of more than 18 years commercial experience in the steel industry.
He jointly owned and managed businesses involved in the trans global sourcing, shipping and distribution of
steel-related products, with particular expertise gained in Europe and the Asia/Pacific Rim.
Mr Mark Smith
Dip. App. Geol, Bsc. (Geology)
Executive Director and Exploration Director
Appointed 20 November 2003.
Mark has more than 30 years’ experience as a geologist and exploration manager in petroleum exploration and
development in Australia, South East Asia, North and South America. His early experience was gained while
working with BHP Petroleum. Mark has been directly involved with 16 economic oil and gas discoveries.
Mark has geoscience skills in regional basin and tectonic studies, petroleum systems fairway assessments,
prospect evaluations, risking and volumetrics, fault seal prediction and well-site operations. His management
skills cover general and human resources management, acreage evaluation and acquisition projects, farm-ins/
farm-outs, well site operations management and management of onshore and offshore drilling operations.
25
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Ms Luciana Bastos de Freitas Rachid
B Chem Eng. Post Grad Degree Corporate Finance
Independent Non-Executive Director
Appointed 26 August 2016.
Luciana has over 35 years’ experience in the oil and gas industry in both technical and senior leadership
roles in Brazil, including 20 years in the Exploration and Production Division of Petróbras. During this time she
worked in senior management roles, starting as a process engineer and completing her time in the corporate
management team.
Luciana also has a number of years’ experience serving on Boards in Brazil. She has represented Petróbras as
Chairperson of Transportadora Brasileira Gasoduto Bolívia-Brasil SA, and Gás Brasiliano Distribuidora SA as
well as a Director of Transportadora Associada de Gás, Companhia de Gás de Minas Gerais and Companhia
Paranaense de Gás.
Luciana’s technical experience covers a variety of project evaluation, development and management roles
including Marlim Leste Asset Manager, the design of the first offshore platforms in the Campos Basin, the
production, handling and processing of natural gas onshore and offshore, the coordination of the Petróbras
E&P Deepwater Strategic Project and a variety of technical and economic feasibility studies on major projects
including participation in the first Petróbras project finance deals.
Luciana has also held positions in the Petróbras financial team including Executive Manager of Investor
Relations, Executive Manager of Financial Planning and Risk Management. In the Gas & Energy Division she
served as General Manager of Marketing and Trading, Executive Manager of Corporate Affairs, Executive
Manager for Logistics and Investments in Natural Gas and Chief Executive Officer of Transportadora Brasileira
Gasoduto Bolivia-Brasil SA and most recently Chief Executive Officer of Transportadora Associada de Gás SA.
Member of the Nomination Committee, Risk and Governance Committee.
Mr Geoff Atkins
FIE Aust. CP Eng.
Independent Non-Executive Director
Appointed 22 February 2005.
Geoff has over 45 years’ experience in investigation, planning, design, documentation and project management
of numerous significant port, harbour and maritime projects. These include container terminals, LNG jetties, oil
and gas wharves, heavy lift facilities, cement, coal, bauxite, iron ore and other bulk terminals, shipping logistics
and naval bases.
Geoff has gained substantial overseas experience completing marine projects in Indonesia, Malaysia, Thailand,
Vietnam, Sri Lanka, India, South Africa, Namibia, New Zealand and the United Kingdom. LNG, oil, gas, bulk
ports and other large maritime infrastructure projects that Geoff has been involved in have included the design
of Woodside Petroleum Limited’s LNG jetty, tender design of ConocoPhillips’ Darwin LNG jetty and concept
designs for the Sunrise LNG jetty. Geoff has also been involved in investigations of proposed LNG marine
terminals in Taiwan, Iran and Israel for BHP Petroleum and the West Kingfish and Cobia oil drilling platforms for
ESSO/BHP in Bass Strait.
Chairman of the Nomination Committee.
Member of the Audit Committee, and a Member of the Remuneration Committee from 15 August 2018.
26
Karoon Gas Australia LtdAnnual Report 2018 Mr Clark Davey
B. Commerce, FTIA, MAICD
Independent Non-Executive Director
Appointed 1 October 2010.
Clark is a professional independent Company Director with over 40 years of experience in the natural resources
industry as a taxation and strategy advisor. Clark was a partner at Price Waterhouse and PricewaterhouseCoopers
for a number of years with an oil and gas and natural resources specialty holding industry leadership roles in
both firms. Clark is a member of the Taxation Institute of Australia and the Australian Institute of Company
Directors.
The wealth of taxation and business advisory experience Clark brings to Karoon includes input on international
company tax, Australian and overseas resource and indirect taxation and oversight of accounting, governance
and capital management procedures. Clark has advised many companies with both tax and management of
joint venture interests as well as merger and acquisition transactions. He has also assisted both listed and
unlisted companies expand their resource industry interests internationally.
Current directorships of other listed companies include Redflex Holdings Limited (appointed 6 January 2015).
Clark is Chairman of the Audit Committee.
Member of the Nomination Committee, Remuneration Committee, Risk and Governance Committee.
Mr Jose Coutinho Barbosa
Bsc. (Geology), Msc. (Geophysics)
Non-Executive Director
Appointed 31 August 2011.
Jose Coutinho spent 38 years with Petróbras, beginning his career in a number of technical and management
positions, culminating in his appointment as Acting President and CEO of Petróbras, one of the world’s largest
petroleum exploration and production companies.
Earlier in his career, Jose Coutinho was Executive Vice-President and CEO of Petróbras Internacional SA
(otherwise known as Braspetro) and was Managing Director for Exploration and Production of Petróbras until
his retirement during February 2003. Since then, he has managed his own independent consulting firm, Net
Pay Óleo & Gás Consultoria Ltda, headquartered in Rio de Janeiro, Brazil, operating in areas of the petroleum
industry. Jose Coutinho brings knowledge and experience to the Company, including experience with geology,
exploration and production and local knowledge of the oil and gas industry in Brazil and internationally.
Current and past directorships of other listed companies include Lupatech SA (director from 24 March 2008
to 29 April 2011 and re-appointed 4 May 2012. Resigned 28 March 2014).
Jose Coutinho is also the Temasek Representative Director on the Board of Directors of Odebrecht Oleo e Gas
(unlisted).
Company Secretary
Mr Scott Hosking
B. Commerce
Appointed on 10 March 2006.
Scott has a significant international financial and commercial management background and has been involved
with several commercial ventures over the past 20 years with experience in international trade, finance and
corporate management. He has previously held support positions to Company Secretaries of Australian
listed companies, worked as part of the finance and management teams of private international resource and
industrial enterprises and was involved in the listing of the Company.
27
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Meetings
The number of Directors’ meetings (including meetings of committees of Directors) and attendance by each Director of the Company during
the financial year were:
Board Meetings
Audit Committee
Meetings
Remuneration
Committee
Meetings
Nomination
Committee
Meetings
Director
Dr David Klingner
Mr Robert Hosking
Mr Mark Smith
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho Barbosa
A
11
11
11
11
11
11
11
11
B
10
11
10
11
11
11
11
10
A
-
-
-
-
4
4
4
-
B
-
-
-
-
4
4
4
-
A
5
-
-
-
-
5
5
-
B
4
-
-
-
-
5
5
-
A. The number of meetings held during the time the Director held office during the financial year.
B. The number of meetings attended during the time the Director held office during the financial year.
A
-
-
-
2
2
2
2
-
B
-
-
-
2
2
2
2
-
Risk and
Governance
Committee
Meetings
A
7
-
-
7
-
7
7
-
B
6
-
-
7
-
7
7
-
Directors’ Interests in the Company’s Shares, Share Options and Performance Rights
As at the date of this Directors’ Report, the Directors held the following number of ordinary shares, share options and performance rights
over unissued ordinary shares in the Company:
Director
Mr Robert Hosking
Mr Mark Smith
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho Barbosa
Principal Activities
Ordinary Shares,
Fully Paid
11,983,363
2,870,938
-
696,784
24,294
41,000
-
Unlisted
Share Options
997,548
997,548
-
-
-
-
-
Unlisted
Performance
Rights
524,166
524,166
-
-
-
-
-
The principal activity of the Group during the course of the financial year continued to be investment in hydrocarbon exploration and
evaluation in Australia, Brazil and Peru.
Significant Changes in State of Affairs
There was no significant change in the state of affairs of the Company during the financial year.
Results
The consolidated result of the Group for the financial year was a loss after tax income of $181,777,789 (2017: $81,527,513).
The loss for the financial year included:
• the full impairment of the carrying amounts of Brazil Santos Basin Blocks S-M-1101 and S-M-1165 capitalised exploration and evaluation
expenditure of $140,002,177, including the Goiá (Kangaroo) light oil discovery, following the probabilistic reassessment of its contingent
resources at the 2C level to 27 mmbbls during May 2018, re-assessment of its associated economics, and the primary focus on developing
the Neon (Echidna) light oil discovery (2017: $21,638,168, full impairment of Brazil Santos Basin Block S-M-1166);
• the full impairment of the carrying amount of WA-314-P capitalised exploration and evaluation expenditure of $11,500,937, as active and
significant exploration and evaluation activities in relation to the permit are no longer continuing at the present time;
• the partial write-off of the carrying amount of non-current capitalised exploration and evaluation expenditure associated with Block Z-38
of $5,892,079 (2017: $9,791,031, full write-off of Block 144 and Brazil Santos Basin drilling rig mobilisation costs), as the liquid mud plant
was demobilised during the financial year, as more cost effective alternatives were considered whilst the block was in force majeure;
28
Karoon Gas Australia LtdAnnual Report 2018 • write-down of the carrying value of inventory to net realisable value of $6,679,549 (2017: $1,326,811), predominantly resulting from
potential well design specifications and number of wells being considered as part of the ongoing Neon and Goiá work and the potential
future development of the Neon light oil discovery, which is distinct from inventory requirements for exploration drilling; and
• net employee benefits expense of $11,339,308 (2017: $12,651,679), which included share-based payments expense of $4,409,889
(2017: $3,797,668).
The financial year also included exploration and evaluation expenditure expensed of $5,569,500 (2017: $3,067,253) from reviewing new
exploration opportunities predominantly in Australia and Brazil and $7,285,306 (2017: $4,526,430) on business development and other
project activities that included internal time allocation of employees and consultants and associated office charges, geotechnical data and
external advice relating to due diligence reviews on potential asset acquisitions.
Partially offsetting the loss for the financial year was net foreign currency gains of $12,993,578 (2017: $13,909,734 net foreign currency
losses), interest income of $710,652 (2017: $858,356) and tax income of $2,278,808 (2017: tax income of $10,200,335) relating largely to
the de-recognition of a deferred tax liability in relation to capitalised Australian exploration and evaluation expenditure that was impaired
during the financial year.
The net foreign currency gains were almost entirely attributable to the appreciation in the United States dollar against the Australian dollar
(from AUD1: USD0.7692 as at 30 June 2017 to AUD1:USD0.7391 as at 30 June 2018) on cash assets and security deposits held in United
States dollars by the Group during the financial year.
Cash Flows
Operating activities resulted in a cash outflow for the financial year of $25,293,170 (2017: $38,257,337), predominantly for payments
to suppliers and employees. Cash outflow from investing activities for the financial year was $28,215,446 (2017: $50,947,053) relating
principally to the payment for exploration and evaluation expenditure in Australia, Brazil and Peru. Cash outflow from financing activities for
the financial year was $64,290 related to payments for the finance lease in Brazil (2017: $738,837, share buy-back and payments for finance
lease in Brazil).
The positive effect of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies, primarily in United
States dollars, for the financial year was $12,076,432 (2017: $14,577,712).
Financial Position
At the end of June 2018, the Group had a cash and cash equivalents balance of $333,572,953 (30 June 2017: $375,069,427).
The Group’s working capital, being current assets less current liabilities, decreased from $366,574,781 as at 30 June 2017 to $329,000,556
as at 30 June 2018 predominantly as a result of expenditure on exploration and evaluation assets; and a new security deposit for Brazil
(guarantee bond for Block S-M-1537); partially offset by the appreciation in the United States dollar against the Australian dollar on cash
assets and security deposits held in United States dollars during the financial year.
During the financial year, total assets decreased from $806,569,836 to $594,920,565, total liabilities decreased from $47,677,671 to
$39,694,851 and total equity decreased by $203,666,451 to $555,225,714. The major changes in the consolidated statement of financial
position were largely due to the following:
• exploration and evaluation expenditure in Australia, Brazil and Peru, including the acquisition of a 100% equity interest in Block S-M-1537;
• full impairment of capitalised exploration and evaluation expenditure associated with WA-314-P;
• full impairment of capitalised exploration and evaluation expenditure associated with Blocks S-M-1101 and S-M-1165;
• write-down of inventory to net realisable value;
• the negative movement in the foreign currency translation reserve as a result of the depreciation of the Brazilian REAL against
the Australian dollar; and
• appreciation in the United States dollar against the Australian dollar (from AUD1:USD0.7692 as at 30 June 2017 to AUD1:USD0.7391
as at 30 June 2018) on cash assets and security deposits held in United States dollars.
There was no change in contributed equity of the Company during the financial year.
Exploration and evaluation expenditure of $19,175,698 was incurred during the financial year, with major expenditure in the following
operating segments:
• Brazil, the Group acquired a 100% equity interest in Block S-M-1537 and also began work for FEED for the Neon light oil discovery,
at a total cost of $14,669,756; and
• Peru, the Group continued with drill planning and logistics, geological and geophysical studies, at a total cost of $3,697,673.
29
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Review of Operations
Information on the operations of the Group is set out in the Operations Review on pages 10 to 19 of this Annual Report.
Business Strategies and Prospects, Likely Developments and Expected Results of Operations
The Operations Review sets out information on the business strategies and prospects for future financial years, refers to likely developments
in operations and the expected results of those operations in future financial years. Information in the Operations Review is provided to
enable shareholders to make an informed assessment about the business strategies and prospects for future financial years of the Group.
Details that could give rise to likely material detriment to Karoon, for example, information that is confidential, commercially sensitive or could
give a third party a commercial advantage has not been included. Other than the matters included in this Directors’ Report or elsewhere
in this Annual Report, information about other likely developments in the Group’s operations and the expected results of those operations
have not been included.
Dividends
No dividend has been paid or declared by the Company to shareholders since the end of the previous financial year. The Company intends
to pay future dividends during financial periods when appropriate to do so.
Share Options and Performance Rights
As at the date of this Directors’ Report, the details of share options over unissued ordinary shares in the Company were as follows:
Type of Share Option
ESOP options
ESOP options
ESOP options
ESOP options
ESOP options
ESOP options
ESOP options
Total ESOP options
Grant Date
30 November 2016
2 December 2016
2 December 2016
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Date of Expiry
30 June 2020
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
Exercise Price
Per Share
Option
$1.82
$1.82
$1.82
$1.73
$1.73
$1.73
$1.77
Number of
Share Options
1,100,476
846,752
503,685
1,547,619
421,647
59,709
1,148,344
5,628,232
As at the date of this Directors’ Report, the details of performance rights over unissued ordinary shares in the Company were as follows:
Type
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Performance rights
Total performance rights
Grant Date
30 November 2016
2 December 2016
30 November 2016
2 December 2016
2 December 2016
16 November 2017
6 October 2017
9 November 2017
14 November 2017
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Date of Expiry
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
Exercise Price
Per Performance Right
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
Number of
Performance Rights
646,845
444,327
636,546
385,516
362,289
257,010
506,311
169,587
17,583
724,883
233,755
21,100
405,806
4,811,558
For details of share options and performance rights issued to Directors and other key management personnel of the Group as remuneration,
refer to the Remuneration Report in this Directors’ Report.
30
Karoon Gas Australia LtdAnnual Report 2018 No fully paid ordinary shares have been issued since 1 July 2018.
Information relating to the Company’s PRP and share options, including details of performance rights and share options granted, exercised,
vested and converted, cancelled, cash-settled, forfeited and expired during the financial year and performance rights and share options
outstanding at the end of the financial year, is set out in Note 27 of the consolidated financial statements.
No share option or performance right holder has any right under the share options or performance rights to participate in any other share
issue of the Company or any other entity.
Indemnification of Directors, Officers and External Auditor
An indemnity agreement has been entered into between an insurance company and the Directors of the Company named earlier in this
Directors’ Report and with the full-time executive officers, directors and secretaries of all Australian subsidiaries. Under this agreement, the
insurance company has agreed to indemnify these Directors, full-time executive officers, directors and secretaries against any claim or for
any expenses or costs which may arise as a result of work performed in their respective capacities. The contract of insurance prohibits
disclosure of the nature of the liability and the amount of the premium.
As approved by shareholders at the 2009 Annual General Meeting, the Company will continue to pay those Director insurance premiums for
a period of ten years following termination of their directorships of the Company and will provide each Director with access, upon ceasing
for any reason to be a Director of the Company and for a period of ten years following cessation, to any Company records which are either
prepared or provided to the Director during the time period they were a Director of the Company.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed
to indemnify an officer or external auditor of the Company or of any related body corporate against a liability incurred as such by an officer
or external auditor.
Proceedings on Behalf of the Company
No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company,
or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all
or part of those proceedings.
The Company was not a party to any such proceeding during the financial year.
Corporate Governance
In recognising the need for the highest standards of corporate governance in order to drive performance and accountability, the Directors
support the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Company’s Corporate
Governance Statement can be found under the Governance tab on the Company’s website at www.karoongas.com.au.
Environmental Regulation
The Company and its subsidiaries are subject to a range of relevant Commonwealth, State and International environmental laws.
The Board of Directors believes the Company has adequate systems in place for managing its environmental obligations and is not aware
of any breach of those environmental obligations as they apply to the Company and/or Group. No circumstances arose during the financial
year that required an incident to be reported by the Company and/or Group under environmental legislation.
31
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Greenhouse Gas Emissions and Reporting Requirements
Relevant entities are required to report greenhouse gas emissions, energy consumption and energy under the National Greenhouse and
Energy Reporting Scheme. The Group was not required to register and report greenhouse gas emissions, energy consumption or energy
production under the scheme for this financial year, as it did not meet the relevant thresholds for the relevant period. However, the Group’s
global carbon footprint during the financial year was 227 tonnes of carbon dioxide equivalent based on equity share and including scope 1
and scope 2 emissions (2017: 227 tonnes).
As there was no exploration activity during this financial year, the total emissions are purely from the administration of global offices and
Karoon vehicles.
The Company continues to seek cost-effective, reliable and environmentally efficient methods for addressing future greenhouse
gas emissions and energy consumption. Further details of Karoon’s approach to Climate Change challenges can be found in the
Sustainability Report.
Non-audit Services
The Company may decide to engage its external auditor, PricewaterhouseCoopers, on assignments additional to its statutory audit duties
where the external auditor’s expertise and experience with the Company and/or Group are important.
Details of the amounts paid or payable to the external auditor for audit and non-audit services provided during the financial year are set out
in Note 7 of the consolidated financial statements.
The Board of Directors has considered the position and, in accordance with written advice received from the Audit Committee, is satisfied
that the provision of non-audit services is compatible with the general standard of independence for external auditors imposed by the
Corporations Act 2001. The Board of Directors is satisfied that the provision of non-audit services by the external auditor did not compromise
the external auditor independence requirements of the Corporations Act 2001 for the following reasons:
(a) all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity
of the external auditor; and
(b) none of the services undermine the general principles relating to external auditor independence as set out in APES 110 ‘Code of Ethics
for Professional Accountants’, including reviewing or auditing the external auditor’s own work, acting in a management or a decision
making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and reward.
External Auditor’s Independence Declaration
A copy of the external Auditor’s Independence Declaration for the financial year, as required under Section 307C of the Corporations Act
2001, is set out on page 61 of this Annual Report.
No officer of the Company has previously belonged to an audit practice auditing the Company during the financial year.
Matters Arising Subsequent to the End of the Financial Year
Other than the matters disclosed in Note 30 of the consolidated financial statements, no other matter or circumstance has arisen since
30 June 2018 that has significantly affected, or may significantly affect:
(a) the Group’s operations in future financial years;
(b) the results of those operations in future financial years; or
(c) the Group’s state of affairs in future financial years.
32
Karoon Gas Australia LtdAnnual Report 2018 Remuneration Report (Audited)
25 September 2018
Dear Shareholders,
On behalf of the Board of Directors and the Remuneration Committee, I am pleased to present to you Karoon’s Remuneration Report
for the financial year ended 30 June 2018.
1. Overview
Firstly, I note the sad passing of Karoon’s Chairman, Dr David Klingner on 13 August 2018. David will be missed by all, he was an integral
and much valued and respected member of the Karoon team. David was also a member of various Karoon Board committees, including
the Remuneration Committee. To ensure appropriate composition and experience going forward, Mr Geoff Atkins has now joined the
Remuneration Committee as a member.
At the Annual General Meeting held on 9 November 2017, Karoon received a first “strike” in relation to the vote on the 2017 Remuneration
Report notwithstanding there had been no material issues raised with us prior to the Annual General Meeting and with all independent proxy
advisory services recommending a “yes” vote in relation to the 2017 Remuneration Report. Nonetheless, the Board takes seriously and
fully accepts the shareholder vote. We also accept the fundamental need to align internal executive remuneration structures and tangible
year-to-year strategic progress with the share price movement over time so that remuneration outcomes are reflective of the shareholder
experience as investors in Karoon.
Our aim is to ensure that executive performance outcomes are aligned with building asset value, preserving and prioritising available capital
and securing long-term cash flow as soon as possible in order to support share price growth for our shareholders over time.
During the 2017/2018 year we have reviewed all of our remuneration structures and policies and have made improvements wherever
possible. Further details of these changes and the remuneration settings for the 2018/2019 year are included below.
2. Remuneration Guiding Principles and Shareholder Alignment
Karoon’s overall guiding principles and framework for its remuneration strategies have not changed and are summarised as follows:
• Safety, culture and ethics – ensuring that clear vesting gateways exist based on appropriate safety outcomes and the ethical management
of the business being achieved;
• Shareholder value is paramount:
– remuneration outcomes (particularly incentive-based outcomes) are designed to take account of share price movements across the
reporting period and therefore the value delivered to shareholders; and
– a close alignment is created between operational performance, reward and sustained growth in shareholder value. This is done through
achieving robust company building milestones year-on-year (via the Short-term Incentive (‘STI’) Plan) and through aiming to outperform
a select group of 19 industry peer companies in the longer term (via the Long-term Incentive (‘LTI’) Plan);
• People:
– our remuneration structures are designed to attract, motivate and retain the best people whilst remunerating them reasonably and
competitively; and
– we encourage our people to hold equity in the Company which builds a culture of viewing management decisions as an owner thereby
helping to further align executives and shareholder’s interests;
• Transparency – remuneration measures, outcomes and reporting are as simple and transparent as possible for shareholders and other
stakeholders; and
• Longer term focus – we aim to ensure that key decision making is always appropriately longer term in its nature and focus.
33
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
3. Remuneration Review and Outcomes
As noted above, Karoon has reviewed its remuneration policies and practices during the 2017/2018 year. We do not believe that fundamental
change to our overall structure is required at this stage as Karoon’s structure only provides essential rewards when building blocks are
achieved and/or when market performance is good on a relative and now absolute basis. We have always endeavoured to take a relatively
conservative and market sensitive approach to remuneration levels (as is evidenced by ongoing industry peer group benchmarking).
However, improvements can always be made to policy and procedure and the following policies will be implemented for the 2018/2019
year ahead:
• Executive salaries – there will be no increase to key management personnel (‘KMP’) fixed remuneration for the 2018/2019 year.
Cash remuneration for KMP’s has remained fixed for some 4 years and is below many of our comparable peers, meaning that the
importance of, and reliance on STI and LTI outcomes is heightened thus further aligning shareholders and executive management
outcomes;
• Board fees:
– there will be no increase in the base Board fee paid to Non-Executive Directors for the 2018/2019 year (Board fees have remained
unchanged since 2013); and
– options are being investigated to enable Non-Executive Directors to sacrifice cash-based Board fees for equity at prevailing prices so
as to encourage further share ownership by the Board. The Board will also consider a minimum shareholding policy requirement for
the future;
• 2017/2018 STI and LTI Outcomes:
– 8.33% of the 2017/2018 STI allocated to Company-wide Operational Objectives has been awarded by the Board. Whilst considerable
strategic progress has been made during the financial year, the majority of the STI hurdles were based on achieving final binding
legal terms in relation to an acquisition (a position which has not yet been reached) and achieving FID for the Santos Basin Neon
development – hence, only a small proportion of the STI has been achieved. For employees who are not Executive Directors, a
component of their STI Role-specific Objectives may be payable depending on individual performance as outlined in the Remuneration
Report; and
– no LTI will be awarded for the 2017/2018 year as Karoon did not achieve a satisfactory level of share price performance against its
industry peer group over the previous 3 year period;
• 2018/2019 STI and LTI:
– The STI hurdles for 2018/2019 have been targeted so as to support a production acquisition and completion of appraisal and
development in the Santos Basin; and
– an Absolute Total Shareholder Return (‘TSR’) gateway of 10% has been included for the first time in the LTI design; and
• Medium-term STI and LTI – we are investigating a new combined medium-term Employee Incentive Scheme as is operated by a number
of other listed companies in our industry. Such a scheme would blend the STI and LTI together, making it simpler in nature and allow a
holistic approach to specific strategic goals and overall market performance over a 3 year period. This would help forge an even closer
link between shareholder (share price) experience and the incentives vested to the executive management team.
34
Karoon Gas Australia LtdAnnual Report 2018 4. 2018/2019 Strategic Progress
Our strategic goals looking forward have not changed and are:
• acquisition – finalise the acquisition of a production asset with long-term revenue;
• Santos Basin – finalise the elements necessary to consider a FID for the development of the Santos Basin discoveries in Brazil;
• Tumbes Basin – progress exploration in the highly prospective Tumbes Basin in Peru; and
• costs – continue to reduce corporate and other costs without detracting from the preceding strategies.
The 2018/2019 STI and LTI performance hurdles reflect these goals.
5. Summary
Over the financial year, on the ground we have made good operational progress with our appraisal and development phase campaign in
Brazil, as well as with our due diligence around a production acquisition. We have also reduced the costs of operating the business by
reducing our overall operating footprint (through office moves and staff reductions in Australia and overseas, better use of technology and
streamlining of workstream management).
In summary, our corporate strategy and all remuneration related targets are designed and managed to improve shareholder value into the
future. In these circumstances, the Board and Remuneration Committee have exercised considerable restraint by directing that there be
no changes to salaries and base Director fees again for the 2018/2019 year ahead, by approving the minimum possible STI outcome and
confirming no LTI outcome will be vested for the period.
As always, we will continue to engage with our shareholders, proxy advisors and our own remuneration advisors in an effort to seek
feedback to help us continue to improve our remuneration framework design, outcomes, transparency and disclosures.
Mr Peter Turnbull
Chairman, Remuneration Committee
25 September 2018
35
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Contents
Section 1.
Section 2.
Section 3.
Section 4.
Section 5.
Introduction
Remuneration Committee Oversight
Executive Remuneration
A. Executive Remuneration Framework for the Financial Year Ended 30 June 2018
B. Executive Remuneration Outcomes
C. Executive Remuneration for the Financial Year Ending 30 June 2019
D. Executive Agreements
Independent Non-Executive Chairman and Non-Executive Directors
Statutory and Share-based Reporting
Page 36
Page 37
Page 38
Page 49
Page 50
Section 1. Introduction
The Board of Directors is pleased to provide Karoon’s Remuneration Report, which details the remuneration for its KMP, defined as those
persons having the authority and responsibility for planning, directing and controlling, directly or indirectly, the activities of the Group.
For the financial year ended 30 June 2018, KMP disclosed in the Remuneration Report are as follows:
Name
Executive Directors
Mr Robert Hosking
Mr Mark Smith
Non-Executive Chairman
Dr David Klingner
Non-Executive Directors
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho Barbosa
Other KMP
Mr Edward Munks
Mr Scott Hosking
Mr Tim Hosking
Position
Managing Director
Executive Director and Exploration Director
Independent Non-Executive Chairman
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Term as KMP
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Chief Operating Officer
Company Secretary (Company) and Chief Financial Officer (Group)
South American General Manager and Chief Executive Officer Brazil
Full financial year
Full financial year
Full financial year
For the purposes of the Remuneration Report, the term ‘executive’ refers to the Managing Director, the Executive Director/Exploration
Director and other KMP of the Group.
The Remuneration Report for the financial year ended 30 June 2018 outlines the remuneration arrangements of KMP of the Group in
accordance with the requirements of the Corporations Act 2001 and its regulations. The information provided in this Remuneration Report
has been audited by Karoon’s external auditor, as required by Section 308(3C) of the Corporations Act 2001. The Remuneration Report
forms part of this Directors’ Report.
36
Karoon Gas Australia LtdAnnual Report 2018 Section 2. Remuneration Committee Oversight
To assist in ensuring good remuneration governance at Karoon, the Board of Directors has in place a Remuneration Committee that
provides oversight and recommendations on all aspects of the remuneration arrangements for executives and Non-Executive Directors.
The Remuneration Committee currently consists solely of independent Non-Executive Directors and is responsible for reviewing and making
recommendations to the Board of Directors regarding:
• the quantum of executive remuneration;
• the executive remuneration framework, including the operation of and performance-based outcomes under Karoon’s share-based
incentive schemes;
• the recruitment, retention and termination policies and procedures for executives; and
• related party remuneration.
The Board of Directors, assisted by the Remuneration Committee, conducts annual remuneration reviews for its Non-Executive Chairman,
Non-Executive Directors, executives and employees, to ensure that remuneration remains market competitive, fair and aligned with both
market practice and the best interests of shareholders.
Further information on the role and responsibilities of the Remuneration Committee is contained in the Remuneration Committee Charter,
which can be found under the Governance tab on Karoon’s website at www.karoongas.com.au.
Use of Independent Remuneration Consultants
During the financial year ended 30 June 2018, the Chairman of the Remuneration Committee re-engaged Egan Associates as its
independent Remuneration Consultant. The Remuneration Consultant reported directly to the Remuneration Committee. In selecting
the Remuneration Consultant, the Remuneration Committee considered potential conflicts of interest and required the Remuneration
Consultant’s independence from management as part of Egan Associates’ terms of engagement. Egan Associates was asked to provide
a recommendation in relation to testing the performance milestones under the 2016 LTI conditions, which were tested during July 2018.
The recommendation was provided to, and discussed directly with, the Chairman of the Remuneration Committee.
2017 Remuneration Report Vote
At Karoon’s 2017 Annual General Meeting, Karoon’s 2017 Remuneration Report received a 70.34% vote FOR. Feedback on the 2017
Remuneration Report was not received during the 2017 Annual General Meeting. However, Karoon sought and received feedback from
institutional and retail shareholders and proxy advisory organisations during the financial year ended 30 June 2018. Views expressed
during these meetings have contributed to decision making by the Remuneration Committee on Karoon’s 2018 reward practices, the
setting of incentive hurdles being developed for application during the financial year ending 30 June 2019 and beyond. In reviewing reward
arrangements, assessing industry practice and the availability of global talent, the Board of Directors acknowledges that today, given the
nature of Karoon’s challenges and opportunities, it is fortunate to have a team of highly experienced and internationally regarded executives
who have a track record of success and who can execute the next value creating opportunities for Karoon.
The Board of Directors and Remuneration Committee have continued to address shareholder and proxy advisor views and suggestions
and, as a result, make the following points in relation to Karoon’s executive remuneration framework:
• in recognition of current oil and gas industry market conditions, country base salary for Non-Executive Directors and executives did not
increase for the financial year ended 30 June 2018;
• performance conditions for executives will be based on an up-to-date list of Company-wide Operational Objectives and in some instances,
Role-specific Objectives, in order to focus executives on the achievement of value-adding operational progress as well as a value-adding
asset acquisition in the short-term and relative Company performance in the long-term;
• safety will again be used as a gateway measure, and negative discretion based on poor Anti-bribery and Corruption Policy implementation
and outcomes will also continue to be used to modify short-term incentives;
• an Absolute TSR gateway has been introduced for long-term incentives to ensure LTI are paid only when shareholders see positive
returns; and
• having due regard to market conditions, no LTI will vest as part of the 2016 LTI testing.
Share Trading Policy
The trading of ordinary shares issued to Non-Executive Directors and executives under any of Karoon’s share-based remuneration schemes
is subject to, and conditional upon, compliance with Karoon’s Share Trading Policy.
Under Karoon’s Share Trading Policy, an individual may not limit his or her exposure to risk in relation to securities (including unlisted share
options and performance rights). Directors and executives are prohibited from entering into any hedging arrangements over unvested share
options or performance rights under Karoon’s share-based remuneration schemes. Any employee or Director wishing to trade in Karoon
securities must consult the Chairman or Company Secretary to gain approval to trade and ensure that trading restrictions are not in force.
All trades by Directors and executives during the financial year were conducted in compliance with Karoon’s Share Trading Policy.
Karoon’s Share Trading Policy can be found under the Governance tab on Karoon’s website at www.karoongas.com.au.
37
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration
The Board of Directors and the Remuneration Committee have developed a remuneration policy that ensures executive remuneration
supports the current business strategy and needs of the business. In particular, the decision to use performance tested share-based
grants for its incentive plans reflects the Board of Directors’ belief that this best aligns executive and shareholder interests in the short and
long-term. Karoon’s success is measured by its ability to acquire, assess and confirm new hydrocarbon discoveries, along with its ability
to allocate capital to the highest value creating activities.
In designing Karoon’s variable or ‘At Risk’ remuneration plans, and to incentivise executives, the Remuneration Committee and the
Board of Directors have linked variable remuneration directly to Karoon’s operational performance in the short-term and to relative market
performance in the long-term. This is considered appropriate to create performance-based rewards that are tailored to each phase
of Karoon’s operations, the lifecycle of its assets and how it delivers on its business strategy.
Broadly, the objectives of Karoon’s executive remuneration framework are to ensure:
• remuneration is reasonable and competitive in order to attract, retain and motivate talented and high calibre executives capable
of managing Karoon’s diverse international operations;
• remuneration is set at a level acceptable to shareholders, has regard to Karoon’s performance and rewards individual capability
and experience;
• remuneration structures create sufficient alignment between performance, reward and sustained growth in shareholder value;
• remuneration outcomes provide recognition of contribution to overall long-term growth in the value of Karoon’s asset portfolio and are
transparent to both participants and shareholders;
• the remuneration framework assists in facilitating prudent capital management through the use of share-based remuneration; and
• remuneration incentivises the best possible health and safety outcomes, along with best practice in preventing bribery and/or corruption.
Specifically the short and long-term Incentive regime works to:
• set ambitious Company goals on a rolling short-term basis;
• incentivise positive returns and outperformance against an industry peer group of companies;
• reward long-term value creation and ensure executive retention by applying a 1 year deferral of STI vesting after performance conditions
are achieved and measuring LTI outcomes over a 3 year testing period;
• link executive incentives to the shareholder experience; and
• allow for the exercise of appropriate restraint in relation to salary levels and only vest incentives after having regard to market conditions
and where considered appropriate, exercise negative discretion to reduce respective incentive awards.
38
Karoon Gas Australia LtdAnnual Report 2018 A. Executive Remuneration Framework for the Financial Year Ended 30 June 2018
The following table summarises the remuneration outcome mix for executives for the financial year ended 30 June 2018, based on maximum
achievement of incentive plan outcomes:
Remuneration Mix
Other KMP
Executive Directors
0%
20%
40%
60%
80%
100%
Fixed
‘At Risk’ STI
‘At Risk’ LTI
Fixed Remuneration
Fixed remuneration consists of cash salary, superannuation contributions and any salary sacrifice items or non-monetary benefits (including
health insurance, motor vehicles, expatriate travel, certain membership and associated fringe benefits tax, depending on each individual’s
respective employment arrangements).
Fixed remuneration is reviewed annually by the Remuneration Committee. Broadly, fixed remuneration is positioned within a range that
references the median of the relevant market for each role. In recognition of the current oil and gas industry market conditions, country base
salary for Executive Directors and other KMP did not increase for the financial year ended 30 June 2018.
The level of cash salary for each executive is determined considering:
• the individual’s personal performance;
• the size and complexity of the executive’s role;
• the individual’s level of skill and experience;
• the employment location and labour market conditions at that location;
• the individual’s overall contribution to the success of the business; and
• overall industry and global market conditions.
39
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration continued
A. Executive Remuneration Framework for the Financial Year Ended 30 June 2018 continued
Superannuation
The Australian executives of the Company received statutory superannuation contributions of 9.5% of cash remuneration, up to the maximum
statutory contribution. Individuals may choose to sacrifice part of their salary to increase payments towards superannuation. The Australian
executives of Karoon do not receive any other retirement benefits.
Social Security and Indemnity Fund Contributions
Karoon’s Brazilian based executive is subject to specific Brazilian employment regulations, whereby the Group is required to contribute
27.3% of Brazilian cash compensation as social security to fund Government pensions paid in retirement. The executive upon retirement will
only be entitled to a portion of this contribution. A further 8% of his cash remuneration is required to be contributed to a Federal Severance
Indemnity Fund (‘FGTS’). In the situation of unfair dismissal without just cause, the Group would have to pay a fine equivalent to 50% of the
accumulated balance of the individual’s FGTS account.
‘At Risk’ Remuneration
Karoon aims to align the interests of executives with those of shareholders by having a significant proportion of executive remuneration
‘At Risk’. ‘At Risk’ remuneration represents the proportion of remuneration that requires pre-determined performance conditions to be
met before the remuneration is vested to the executive. Annually, the Remuneration Committee reviews the operational goals and targets,
looking broadly at where the building blocks for long-term value exist, then sets performance conditions that generate a link between
operating performance, remuneration received and value created for shareholders.
All executives received grants of share options and performance rights during the financial year ended 30 June 2018, under the Karoon
Gas Australia 2016 Employee Share Option Plan (‘2016 ESOP’) and 2016 Performance Rights Plan (‘2016 PRP’), both approved at the 2016
Annual General Meeting.
STI Plan
Executives have the opportunity to earn an annual incentive award through the STI Plan. The percentage of salary allocated to STI remains
’At Risk’ until the performance conditions are tested, if the performance conditions are not met this portion of remuneration is not vested and
lapses. The key features of the 2016 PRP award for the financial year ended 30 June 2018 (‘FY18 award’) are outlined in the table below:
Participation
All executives.
STI Opportunity
Participation in the STI Plan is at the discretion of the Board of Directors on the recommendation of the Remuneration
Committee. No employee has a contractual right to receive performance rights.
The STI opportunity level of each executive is a pre-determined proportion of an executives’ total remuneration.
The quantum of performance rights received is determined by dividing the STI opportunity for each employee by
Karoon’s weighted average share price in the 20 trading day period leading up to the first day of the performance
period.
The STI opportunity available to an executive is between 15%-30% of total remuneration.
Form of Award
The Remuneration Committee calculates the incentive value and establishes a maximum number of performance
rights ’At Risk’ at the beginning of the period.
Executives receive performance rights.
Each performance right provides the participant with the right to receive one fully paid ordinary share in Karoon, or its
equivalent value, for no consideration. Under the rules of the PRP, ordinary shares issued as a result of the exercise
of vested and converted performance rights may be issued as new ordinary shares, ordinary shares acquired on-
market or an equivalent value in cash at Karoon’s discretion.
1 year.
Vested performance rights are subject to a deferral period of 12 months, being the continuation of employment with
Karoon, immediately following the satisfaction of performance conditions.
Performance
Period
Deferral Period
40
Karoon Gas Australia LtdAnnual Report 2018 Performance
Conditions
As part of the 2018 remuneration review, for the financial year ended 30 June 2018 the Remuneration Committee set
out the FY18 award for short-term incentives based on a mix of the following performance hurdles:
Executive Directors
Other KMP
Company-wide Operational
Objectives
100%
80%
Role-specific
Objectives
Nil%
20%
Company-wide Operational Objectives
Company-wide Operational Objectives were set by the Remuneration Committee at the beginning of the performance
period.
The Company-wide Operational Objectives included strategic and operational targets, along with cost management
goals.
Role-specific Objectives
Role-specific Objectives were set at the beginning of the performance period and related directly to the individual’s
specific portfolio of responsibility.
Role-specific Objectives to vest in accordance with pre-approved performance levels to be applied as part of the
individual performance review process.
All short-term performance outcomes are tempered by both a gateway for safety outcomes and a clawback (negative
discretion) provision in relation to bribery and/or corruption issues.
Grant Date
Further details on the performance conditions, targets and outcomes for the FY18 award are outlined below in the
STI outcomes within Section 3B on page 44.
Maximum amount of performance rights available were determined following finalisation of the 30 June 2017
audited accounts and remained ’At Risk’ until tested during July 2018 and retention conditions are met 1 July 2019.
Grant date occurs following the offer and acceptance of performance rights. However, any performance
rights offered and accepted by the Executive Directors will be subject to shareholder approval at the next
Annual General Meeting.
Unvested performance rights will lapse upon cessation of employment with Karoon, subject to the discretion of the
Remuneration Committee depending on the nature and circumstances of the termination.
Termination of
Employment
Change of Control Upon a change of control, the Board of Directors may determine that a portion of the individual’s unvested
Link Between
Performance and
Reward
performance rights will vest based on pro-rata achievement of the performance conditions.
The STI framework is based on a set of ambitious Company building goals, granted on a rolling short-term basis.
Linking outcomes to operational performance develops an essential alignment between Karoon’s year-to-year
inherent value growth and rewards those who establish that value only when the goals are met. The Remuneration
Committee annually reviews and recommends operational performance metrics, including safety and Anti-bribery
and Corruption Policy compliance, which demonstrate a clear pathway toward value creation.
In setting objectives for the performance period, the Remuneration Committee assesses the goals for the performance
period in light of the long-term strategic building blocks and upcoming key value drivers within Karoon’s operations,
allowing for transparent measurement of performance against these objectives.
The Remuneration Committee recognises the risks associated with offshore drilling and considers safety paramount
to its operations. Safety will continue to be used as a gateway for vesting conditions.
41
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration continued
A. Executive Remuneration Framework for the Financial Year Ended 30 June 2018 continued
LTI Plan
LTI issues of share options and performance rights to executives aim to reward long-term performance and superior shareholder returns.
Share options and performance rights will only vest if the pre-determined performance conditions are achieved, and the individual remains
employed by Karoon for the duration of the performance period.
Share options granted have a 30% premium to the share price at the beginning of the performance period, providing an additional absolute
performance measure before ESOP options have a value.
The key features of the 2016 ESOP and 2016 PRP grant for the financial year ended 30 June 2018 (‘FY18 grant’) are outlined in the table
below:
Participation
All executives.
LTI Opportunity
Form of Grant
Participation in the ESOP and PRP plans is at the discretion of the Board of Directors on the recommendation of the
Remuneration Committee. No executive has a contractual right to receive a FY18 grant under the respective plan.
The LTI opportunity level of each executive is a pre-determined proportion of an employees’ total remuneration, as
outlined above in Section 3A on page 39.
The quantum of ESOP options and PRP performance rights received is determined by dividing the LTI opportunity
for each executive by the fair value of ESOP options under the ESOP, using the Black-Scholes option pricing model
and dividing by the 20 day weighted average share price at the beginning of the test period for the PRP performance
rights.
Each ESOP option provides the participant with the right to acquire one fully paid ordinary share in Karoon at the
exercise price determined upon grant, subject to the achievement of the relevant performance conditions, or its
equivalent value in cash at Karoon’s discretion, for no consideration.
Each PRP performance right provides the participant with the right to receive one fully paid ordinary share in Karoon,
or its equivalent value in cash at Karoon’s discretion, for no consideration.
The LTI opportunity available to an executive is between 15% and 30% of total remuneration.
3 years.
For the financial year ended 30 June 2018, Karoon’s relative TSR performance was measured against an extensive
industry peer group as outlined below in Section 3C on page 47.
Vesting occurs in accordance with the pre-approved schedule of relative performance:
Performance
Period
Performance
Conditions
Performance Against Industry Peer Group
Less than 50th percentile
At 50th percentile
Between 50th and
75th percentile
At or above 75th percentile
At 100% percentile
Proportion of ESOP Options and/or PRP
Performance Rights Vesting
Nil%
50%
50% plus 2% for each additional percentile
ranking above the 50th percentile
100%
120%
In the event of delisting, merger or acquisition of any of the above industry peer group companies, the Remuneration
Committee will apply its discretion to assess the relative performance of that entity by normalising its performance
over the testing period in the case of delisting or substituting the performance of the new entity from the day of
acquisition in the case of merger or acquisition.
42
Karoon Gas Australia LtdAnnual Report 2018 Grant Date
Exercise Period
Termination of
Employment
ESOP options and PRP performance rights were granted during the financial year ended 30 June 2018, following
finalisation of the 30 June 2017 audited accounts.
ESOP options and PRP performance rights will remain exercisable for a period of 1 year following vesting, provided
the individual remains an employee of Karoon during this period.
Unvested (and unexercised) ESOP options and unvested (and unconverted) PRP performance rights will lapse upon
cessation of employment with Karoon, subject to the discretion of the Remuneration Committee depending on the
nature and circumstances of the termination.
Change of Control Upon a change of control, the Board of Directors may determine that a portion of the individual’s unvested ESOP
Link Between
Performance and
Reward
options and PRP performance rights will vest, based on pro-rata achievement of the performance conditions.
The Board of Directors and Remuneration Committee consider it important to link remuneration to share price
performance relative to Karoon’s industry peer group companies over the long-term, in order to align executive
reward with increases in shareholder value. In the case where performance does not reach the 50th percentile, no
incentive will be paid. A portion of the LTI is delivered in ‘premium’ priced ESOP options, ESOP options granted have
a 30% premium to the trading share price at the beginning of the performance period.
B. Executive Remuneration Outcomes
Relationship between the Executive Remuneration Framework and Company Performance
Karoon has a transparent performance-based remuneration structure in place that provides a direct link between Company performance
and remuneration in the short and long-term. As part of this structure, executive rewards are directly linked to operational, safety and
financial performance metrics along with relative market performance. ‘At Risk’ remuneration is only awarded if pre-determined Company
building milestones are achieved.
Karoon sets ESOP option exercise prices at a level that provides for an inherent 30% premium to the market prices at the time of offer. This
premium ensures a simple share price accretion hurdle of 10% per year over the 3 year testing period is achieved before LTI ESOP options
achieve a value and are exercisable and therefore provide a connection between incentive and shareholder value.
Whilst Karoon has continued to build strong sustainable building blocks through its continued development of its Santos Basin assets, the
farming out of its Peruvian acreage and the potential acquisition of a production asset, some of these accomplishments were not sufficiently
complete for shareholders to benefit and Karoon has not created value for shareholders through share price appreciation during the
financial year ended 30 June 2018. This has resulted in only partial vesting of incentives for executives being 8.33% of the Company-wide
Operational Objectives under the STI and 0% of the LTI pool. Incentives that vested related to the farm-out to Tullow of a 35% equity interest
in the Tumbes Basin Block Z-38, Peru.
43
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration continued
B. Executive Remuneration Outcomes continued
Performance Hurdles and STI Outcomes for the Financial Year Ended 30 June 2018
The table below outlines the STI performance hurdles and actual achievements for the financial year ended 30 June 2018:
Criteria
Safety
Acquisition Strategy
Operational
Hurdle
TRIR of < 2 required for any award to proceed.
To acquire an interest in a production and/or near-term
development asset by:
• completion of legally binding terms for a value-accretive
asset acquisition as judged by an increase in the Karoon
share price of not less than 20%, sustained for a period of
not less than 30 days following the ASX announcement of
the transaction; and
• the asset acquisition should provide accretive (positive)
cash flow within a reasonable commercial period after
acquisition, to be determined by the Board of Directors at
its discretion.
Brazil (Santos Basin):
• complete the FEED stage for the Echidna light oil discovery
in Brazil; or
• attract a strategic partner who will jointly proceed to FID on
the Echidna light oil discovery.
Asset Management
Completion of key farm-outs in Australia, Brazil and Peru.
Cost Control and Capital
Preservation
Reduction of variable administration and operating costs by
20% for the financial year ended 30 June 2018.
(Note: Board of Directors’ discretion maybe applied resulting
from the achievement of one or more of the above objectives
that significantly alter the overall cost profile of the Group.)
Anti-bribery and
Corruption
Negative discretion will be applied based on management’s
implementation and enforcement of the Anti-bribery and
Corruption Policy.
Award Percentage
‘At Risk’
Gateway
Short-term Incentive
Outcomes
TRIR 0.00
40% An asset acquisition was
not completed during
the financial year ended
30 June 2018.
0%
25%
As at 30 June 2018,
Echidna FEED work and
a strategic partnership
are both incomplete.
0%
25%
10%
Block Z-38, Peru
farm-out to Tullow.
8.33%
Total cost reduction
targets were not met due
to additional workload
associated with new
venture activities, which
were incomplete at the
test date.
0%
Clawback No incidence of bribery
or corruption.
As outlined above, based on actual results, a total of 8.33% of the available STI opportunity vested to Executive Directors against the
performance targets. For other KMP, a total of 26.66% of the available STI opportunity vested to executives based on actual results against
the Company-wide Operational and Role-specific Objective performance targets.
The resulting STI performance rights have a 1 year retention period ending 30 June 2019 before they become exercisable and convertible
into fully paid ordinary shares or paid for the equivalent value in cash. These STI performance rights expire on 30 June 2020.
LTI Outcomes
LTI’s tested during the financial year are settled in ESOP options with an exercise price of $3.04, and were granted during the 2016 financial
year under the Karoon Gas Australia 2012 Employee Share Option Plan. As that grant had a 3 year performance period, performance
against the relevant conditions was tested at the completion of the financial year ended 30 June 2018.
The performance condition was Karoon’s relative TSR when compared with its industry peer group over the period from 1 July 2015
to 30 June 2018. Karoon did not achieve the minimum 50th percentile required to vest the LTI’s and therefore 0% of the LTI will vest.
Voluntary Information: 2018 ‘Remuneration Received’
The amounts disclosed below reflect the actual benefits received by each executive during the financial year ended 30 June 2018.
The amounts disclosed below include the actual value of any equity-settled and/or cash-settled award received from STI and/or LTI.
44
Karoon Gas Australia LtdAnnual Report 2018 The amounts disclosed in the table below are not the same as the statutory remuneration expensed in relation to each executive in
accordance with Australian Accounting Standards shown in the statutory table in Section 5 of the Remuneration Report. The remuneration
values disclosed below have been determined as follows:
Fixed Remuneration
Fixed remuneration includes cash salary and fees, non-monetary benefits, superannuation contributions and paid long service leave.
Fixed remuneration excludes any accruals of annual or long service leave.
Short-term Incentives
Includes the equity-settled and/or cash-settled award received from STI incentives by executives. The value of STI equity-settled and cash-
settled awards received reflects the amounts disclosed to the relevant tax authorities during the financial year ended 30 June 2018.
Long-term Incentives
Includes the equity-settled and/or cash-settled award received from LTI incentives by executives. The value of LTI equity-settled awards and
cash-settled awards received reflects the amounts disclosed to the relevant tax authorities during the financial year ended 30 June 2018.
Name
Executive Directors
Mr Robert Hosking
Mr Mark Smith
Other key management personnel (Group)
Mr Scott Hosking
Mr Tim Hosking
Mr Edward Munks
Fixed
Remuneration
$
Short-term
Incentives
$
Long-term
Incentives
$
Total Remuneration
Received
$
696,216
622,797
456,911
484,832
545,645
119,457
142,714
-
-
91,460
-
-
-
-
-
815,673
765,511
456,911
484,832
637,105
The Board of Directors believes that ‘remuneration received’ is more relevant to shareholders for the following reasons:
• the statutory remuneration expensed through share-based payments (ESOP options and/or PRP performance rights) is based on historic
cost and does not reflect the value of equity-settled and/or cash-settled amounts when they are actually received;
• the statutory remuneration shows benefits before they are actually received by executives;
• where ESOP options or PRP performance rights do not vest because a market-based performance condition is not satisfied (for example,
an increase in Karoon’s share price), Karoon must still recognise the full amount of the share-based payments expense even though the
executives will never receive any benefits; and
• share-based payment awards are treated differently under Australian Accounting Standards depending on whether the performance
conditions are market conditions (no reversal of share-based payments expense) or non-market conditions (reversal of share-based
payments expense when ESOP options or PRP performance rights fail to vest), even though the benefit received by the executive is the
same ($Nil where the ESOP option or PRP performance right fail to vest).
The information in this section has been audited together with the rest of the Remuneration Report.
C. Executive Remuneration for the Financial Year Ending 30 June 2019
As part of the annual review of remuneration arrangements conducted on behalf of the Board of Directors, the Remuneration Committee
makes the following points for the financial year ending 30 June 2019:
• no change to country base salary or overall remuneration structure has been made for executives for the financial year ending
30 June 2019;
• STI will be delivered to executives in the form of ‘At Risk’ performance rights, to be tested against appropriate Company-wide Operational
Objectives and in some instances, Role-specific Objectives. Safety performance remains a gateway, with express negative discretion
to be applied by the Board of Directors to modify STI outcomes resulting from Anti-bribery and Corruption Policy implementation and
enforcement issues; and
• LTI will be delivered via a mix of ESOP options and/or PRP performance rights, to be again tested using relative TSR performance
conditions and the requirement that the Absolute TSR gateway must provide for a 10% per annum accretion during the performance
period as a gateway to incentives vesting.
These refinements also reflect general feedback received from institutional shareholders, retail shareholders, industry funds and proxy
advisory organisations following the 2017 Annual General Meeting.
45
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration continued
100%
80%
60%
40%
20%
0%
STI Performance Mix
Financial Year Ending 30 June 2019
Executive Directors
Other KMP
Asset
Acquisitions
Cost
Structure
Development
& Operations
Role-specific
Objectives
C. Executive Remuneration for the Financial Year Ending 30 June 2019 continued
‘At Risk’ Remuneration
Short-term incentives
The STI performance hurdles for the performance period from 1 July 2018 to 30 June 2019 are outlined in the table below. Vesting under
each objective will occur upon satisfaction of the Company-wide Operational Objectives, and in some cases Role-specific Objectives.
Gateway
Karoon operates in a high-risk industry where Health, Safety, Security and Environment Management System procedures are paramount
and therefore a TRIR of < 2 is required for any grant to proceed.
Clawback
Karoon has zero tolerance for bribery and/or corruption and therefore negative discretion will be applied based on any incidence of bribery
or corruption, and management’s implementation and enforcement of the Anti-bribery and Corruption Policy.
Company-wide Operational Objectives
For the performance period from 1 July 2018 to 30 June 2019, the Company-wide Operational Objectives are outlined in the table below.
Vesting under each objective will occur upon satisfaction of the relative performance condition.
46
Karoon Gas Australia LtdAnnual Report 2018 Criteria
Safety
Acquisition Strategy
Hurdle
TRIR of < 2 required for any award to proceed.
Revenue and sustainability:
Award Percentage
‘At Risk’
Gateway
65%
Successfully complete the acquisition of a production (or near-production) asset
as evidenced by:
• execution of a legally binding sale and purchase agreement; and
• value-accretion in the Karoon share price of not less than 20%, sustained
for a period of not less than 30 days following the ASX announcement of the
transaction.
Karoon’s discovered resources:
25%
Successfully progress the southern Santos Basin Strategy in Brazil to define
development and production options as evidenced by:
• FEED – completing the development application stage for the Neon light oil
discovery in Brazil;
• strategic partner – reaching binding legal terms to introduce a strategic partner,
who will jointly proceed to FID on the Neon light oil discovery; or
• acquisition – reaching binding terms to purchase a production asset in the Santos
Basin which is complementary to the Neon light oil discovery and southern
Santos Basin Strategy.
The budgeted corporate cost structure for the financial year ending 30 June 2019
is lowered by 10% or more (this measure relates to corporate costs only not
operational, appraisal, due diligence or development costs).
Negative discretion will be applied, if necessary, by the Board of Directors should any
material event which constitutes a breach of Karoon’s Anti-bribery and Corruption
Policy occur.
10%
Clawback
Development and
Operations
Cost Structure
Anti-bribery and
Corruption
Role-specific Objectives
Role-specific Objectives are set at the beginning of the performance period and relate directly to the individual’s specific area of responsibility.
Long-term Incentive
The LTI performance hurdle for the period commencing 1 July 2018 and ending 30 June 2021 will be relative TSR performance as assessed
against a list of closely comparable and representative industry peer group companies, whose business models and/or regions of operations
are similar to those of Karoon.
Gateway
Karoon believes in a direct relationship between incentives and the shareholder experience over the long-term, in respect of this,
an Absolute TSR gateway of 10% per annum has now been introduced.
For the period commencing 1 July 2018 and ending 30 June 2021, the refined list of industry peer group companies will be as follows:
Australian Market Peers
Australis Oil and Gas Limited
Beach Energy Limited
Carnarvon Petroleum Limited
FAR Limited
Horizon Oil Limited
Oil Search Limited
Santos Limited
Senex Energy Limited
Woodside Petroleum Limited
Global Peers
Cairn Energy plc
GeoPark Limited
Gran Tierra Energy Inc
Kosmos Energy Ltd
Ophir Energy plc
New Zealand Oil & Gas Ltd
QGEP Participacoes SA
Premier Oil plc
SOCO International plc
Tullow Oil plc
Vesting consideration details for the industry peer group companies is outlined in the LTI Plan table above on page 43.
Vesting outcomes will be determined in accordance with the LTI Plan table above on page 43.
47
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 3. Executive Remuneration continued
D. Executive Agreements
Remuneration and other terms of employment for the executives are formalised in employment agreements. Each of these agreements may
provide for the provision of benefits such as health insurance, motor vehicles, one expatriate business class flight for an executive and his
family, and participation, when eligible, in the Company’s PRP and ESOP. Other major provisions of the agreements relating to remuneration
are set out below.
Termination payments for executives, if any, are agreed by the Remuneration Committee in advance of employment and stated in the
relevant employment agreements. Upon retirement, executives are paid employee benefit entitlements accrued to the date of retirement.
Details of existing employment agreements between the Company and the Executive Directors and other key management personnel are
as follows:
Term
Name
Executive Directors
Mr Robert
Hosking
From 1 May
2011, ongoing
Expiry
Ongoing
Notice/
Termination
Period
In writing
six months
Mr Mark Smith
From 1 May
2011, ongoing
Ongoing
In writing
six months
Other key management personnel
Mr Scott
Hosking
Ongoing
Ongoing
Mr Tim Hosking From 1
Ongoing
December
2010, ongoing
From 1 January
2011, ongoing
Ongoing
Mr Edward
Munks
In writing
six months
In writing
one month
In writing
six months
Termination Payments
Share Option
Eligible
Performance
Right Eligible
Fundamental change upon a
change of control: one year, two
weeks’ salary for each year of
service
Fundamental change upon a
change of control: one year, two
weeks’ salary for each year of
service
Fundamental change upon a
change of control: one year, two
weeks’ salary for each year of
service
Fundamental change upon a
change of control: one year
Redundancy: one year
Fundamental change upon a
change of control: one year
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
The employment agreements of executives are on a continuing basis, the terms of which are not expected to change in the immediate
future.
48
Karoon Gas Australia LtdAnnual Report 2018 Section 4. Independent Non-Executive Chairman and Non-Executive Directors
Fees and payments to the independent Non-Executive Chairman and other Non-Executive Directors reflect the demands, which are placed
on, and the responsibilities of the Directors of Karoon. The Company reviews independent Non-Executive Chairman and other Non-Executive
Director remuneration annually and assesses the change to the Company’s activities and overall responsibilities of each Non-Executive
Director.
There have been no changes to Non-Executive Directors’ base or Committee member fees for the financial year ended 30 June 2018 or for
the period ending 30 June 2019. The table at the end of this section provides a summary of Karoon’s Non-Executive Director fee policy for
the financial year.
Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically approved by shareholders.
The maximum aggregate amount, including superannuation contribution, that may be paid to Non-Executive Directors of the Company as
remuneration for their services per annum is $1,200,000, as approved by shareholders at the Company’s 2015 Annual General Meeting.
Superannuation contributions are paid, in accordance with Australian superannuation guarantee legislation, on Directors’ fees paid to
Australian resident Non-Executive Directors.
Share-based Remuneration
Non-Executive Directors do not ordinarily receive performance-related remuneration. The Company has determined that it will not grant
bonus or incentive related share-based remuneration to Non-Executive Directors. Non-Executive Directors will continue to be encouraged
to purchase ordinary shares in the Company on-market.
Retirement Allowance for Directors
Karoon does not provide any Non-Executive Director with a retirement allowance.
Non-Executive Director Fees for the Financial Year Ending 30 June 2019
No changes will be made to the base or relevant Committee fee structure for the financial year ending 30 June 2019.
Non-Executive Directors’ fees for the financial year ended 30 June 2018 and financial year ending 30 June 2019 (excluding superannuation
contribution) are outlined in the following table:
Base fee:
Non-Executive Chairman *
Non-Executive Directors
Committee member fees:
Audit Committee
Chairman
Member
Nomination Committee
Chairman
Member
Remuneration Committee
Chairman
Member
Risk and Governance Committee
Chairman
Member
* Non-Executive Chairman’s base fee includes compensation for appointment to relevant committees.
$220,000
$100,000
$20,000
$15,000
$15,000
$12,000
$15,000
$12,000
$15,000
$12,000
49
Karoon Gas Australia LtdAnnual Report 2018
Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting
Details of the Remuneration of the Directors and Other Key Management Personnel
Details of the remuneration of the Directors and other key management personnel of the Group for the financial year and previous financial
year are set out in the following tables:
Financial Year
Ended 30 June
2018
Name
Executive
Directors
Mr Robert
Hosking
Mr Mark Smith
Non-Executive
Directors
Dr David Klingner
Ms Luciana
Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho
Barbosa
Total Directors’
remuneration
Other key
management
personnel
(Group)
Mr Scott Hosking
Mr Tim Hosking
Mr Edward Munks
Total other key
management
personnel
remuneration
(Group)
Total key
management
personnel
remuneration
(Group)
Short-term Benefits
Post-employment Benefits
Long-
term
Benefits
Share-based
Payments
Expense
Cash
Salary
and Fees
$
Non-
monetary
Benefits
$
Superannuation
Contributions
$
Social
Security
and Indemnity
Fund
Contributions
$
Long
Service
Leave
$
Share
Options/
Performance
Rights**
$
Remuneration
Consisting
of Share
Options and
Performance
Rights*
$
Total
Remun
-eration
$
576,626
585,853
99,541
16,895
220,000
124,000
142,000
156,000
157,000
100,000
-
-
-
-
-
-
20,049
20,049
20,049
-
13,490
14,820
14,915
-
2,061,479
116,436
103,372
-
-
-
-
-
-
-
-
-
16,374
4,874
564,688
564,688
44.2% 1,277,278
47.4% 1,192,359
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
240,049
124,000
155,490
170,820
171,915
100,000
21,248
1,129,376
3,431,911
418,000
408,100
522,500
18,862
50,335
3,096
20,049
-
20,049
-
58,453
-
5,238
-
13,031
86,157
70,650
334,933
15.7% 548,306
12.0% 587,538
37.5% 893,609
1,348,600
72,293
40,098
58,453
18,269
491,740
2,029,453
3,410,079
188,729
143,470
58,453
39,517
1,621,116
5,461,364
*
**
The percentage of total remuneration consisting of share options and performance rights, based on the value of share options and performance rights
expensed in the consolidated statement of profit or loss and other comprehensive income during the financial year.
Includes non-cash share-based payments expense of $34,223 relating to 2018 STI performance rights yet to be granted to Executive Directors, which
were subject to achievement of performance hurdles from 1 July 2017 to 30 June 2018. The share-based payments expense was based on the
achievement of 8.33% of the executive’s performance hurdles and an estimation of fair value at grant date, with a vesting period of 1 July 2017 to
30 June 2019. The grant of 2018 STI performance rights for each of the Executive Directors is subject to shareholder approval at the 2018 Annual General
Meeting.
50
Karoon Gas Australia LtdAnnual Report 2018 Financial Year
Ended 30 June
2017
Name
Executive
Directors
Mr Robert
Hosking
Mr Mark Smith
Non-Executive
Directors
Dr David Klingner
Ms Luciana
Rachid
(appointed 26
August 2016)
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Bernard
Wheelahan
(resigned 30
November 2016)
Mr Jose Coutinho
Barbosa
Total Directors’
remuneration
Other key
management
personnel
(Group)
Mr Scott Hosking
Mr Tim Hosking
Mr Edward Munks
Total other key
management
personnel
remuneration
(Group)
Total key
management
personnel
remuneration
(Group)
Short-term Benefits
Post-employment Benefits
Long-
term
Benefits
Share-based
Payments
Expense
Cash
Salary
and Fees
$
Non-
monetary
Benefits
$
Superannuation
Contributions
$
Social
Security
and Indemnity
Fund
Contributions
$
Long
Service
Leave
$
Share
Options/
Performance
Rights**
$
Remuneration
Consisting
of Share
Options and
Performance
Rights*
$
Total
Remun
-eration
$
599,691
579,702
96,801
18,529
220,000
105,241
142,000
156,000
157,000
51,667
100,000
-
-
-
-
-
-
-
19,616
19,616
19,616
-
13,490
14,820
14,915
4,908
-
2,111,301
115,330
106,981
-
-
-
-
-
-
-
-
-
-
11,800
18,234
521,917
521,917
41.8% 1,249,825
45.1% 1,157,998
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
239,616
105,241
155,490
170,820
171,915
56,575
100,000
30,034
1,043,834
3,407,480
418,000
452,807
522,500
21,072
70,922
3,042
19,616
-
19,616
-
41,409
-
4,265
-
9,961
158,305
141,370
367,831
25.5% 621,258
20.0% 706,508
39.9% 922,950
1,393,307
95,036
39,232
41,409
14,226
667,506
2,250,716
3,504,608
210,366
146,213
41,409
44,260
1,711,340
5,658,196
*
**
The percentage of total remuneration consisting of share options and performance rights, based on the value of share options and performance rights
expensed in the consolidated statement of profit or loss and other comprehensive income during the financial year.
Included non-cash share-based payments expense of $167,057 relating to 2017 STI performance rights yet to be granted to Executive Directors,
which were subject to achievement of performance hurdles from 1 July 2016 to 30 June 2017. The share-based payments expense was based on the
achievement of 40% of the executive’s performance hurdles and an estimation of fair value at grant date, with a vesting period of 1 July 2016 to 30 June
2018. The grant of 2017 STI performance rights for each of the Executive Directors was subsequently approved by shareholders at the 2017 Annual
General Meeting.
51
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting continued
Details of the Remuneration of the Directors and Other Key Management Personnel continued
The amounts disclosed for the remuneration of Directors and other key management personnel include the assessed fair values of share
options and performance rights granted during the financial year, at the date they were granted. The value attributable to share options and
performance rights is allocated to particular financial periods in accordance with AASB 2 ‘Share-based Payment’, which requires the value
of a share option and performance right at grant date to be allocated equally over the period from grant date to vesting date, adjusted for
not meeting the vesting condition. For share options and performance rights that vest immediately, the value is disclosed as remuneration
immediately, in accordance with the accounting policy described in Note 1(p) of the consolidated financial statements.
Fair value of share options is assessed under the Black-Scholes option pricing model. The Black-Scholes option pricing model takes into
account the exercise price, the term of the share option, the share price at grant date and expected price volatility of the underlying share,
the expected dividend yield and the risk-free interest rate for the term of the share option.
Fair values of performance rights were based on the Company’s closing share price at grant date.
The relative percentage proportions of remuneration that are linked to performance conditions, those that are not and those that are fixed
are as follows:
Name
Executive Directors
Mr Robert Hosking
Mr Mark Smith
Non-Executive Directors
Dr David Klingner
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Bernard Wheelahan
(resigned 30 November 2016)
Mr Jose Coutinho Barbosa
Other key management
personnel (Group)
Mr Scott Hosking
Mr Tim Hosking
Mr Edward Munks
Related to Performance Conditions
Fixed
Remuneration
2017
2018
STI
(Performance
Rights)
2017
2018
LTI
(Performance
Rights)
2017
2018
LTI (Share
Options)
2017
2018
Remuneration
Consisting of
Share Options^
2017
2018
55.7% 58.3%
52.6% 55.0%
8.5% 13.8% 18.5%
9.1% 14.9% 19.8%
8.6% 17.3% 19.3% 17.3% 19.3%
9.3% 18.5% 20.8% 18.5% 20.8%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.7%
9.2% 10.0%
84.3% 74.5%
88.0% 80.0%
3.1%
8.5%
8.4%
62.5% 60.1% 11.5% 14.5% 19.2%
7.6%
5.4%
9.1%
7.9%
0.8%
0.5%
6.1%
6.8% 16.3%
7.9%
0.8%
0.5%
6.1%
6.8% 16.3%
^ The percentage of total remuneration consisting of share options, based on the value of share options expensed in the consolidated statement of profit
or loss and other comprehensive income during the financial year and previous financial year.
Further information on share options and performance rights is set out in Note 27 of the consolidated financial statements.
Amounts disclosed for remuneration of Directors and other key management personnel exclude insurance premiums paid by the Company
in respect of directors’ and officers’ liability insurance contracts, as the contracts do not specify premiums paid in respect of individual
Directors and officers. Information relating to insurance contracts is set out in this Directors’ Report.
52
Karoon Gas Australia LtdAnnual Report 2018 Share-based Remuneration
The lowest exercise price of any share option on issuance is currently $1.73 and the highest exercise price is $1.82. There is currently
5,628,232 share options (5,628,232 remain unvested) and 4,811,558 performance rights issued under the 2016 or 2012 ESOPs and 2016 or
2012 PRPs respectively, representing approximately 4.25% of the Company’s total number of ordinary shares issued.
The terms and conditions of each grant of share options and performance rights over unissued ordinary shares in the Company affecting
remuneration in the current or a future financial year are as follows:
Date Vested
and Exercisable Expiry Date
Exercise Price
Per Share
Option or
Performance
Right
Fair Value Per
Share Option
or Performance
Right at Grant
Date
1 July 2018
1 July 2018
1 July 2019
1 July 2019
1 July 2020
1 July 2020
1 July 2020
1 July 2020
1 July 2018
1 July 2018
1 July 2018
1 July 2018
1 July 2019
1 July 2019
1 July 2018
1 July 2019
1 July 2019
1 July 2019
1 July 2020
1 July 2020
1 July 2020
1 July 2020
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2019
30 June 2019
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
$3.04
$3.04
$1.82
$1.82
$1.73
$1.73
$1.73
$1.77
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$0.660
$0.480
$0.690
$0.780
$0.354
$0.361
$0.431
$0.353
$2.080
$1.775
$1.860
$1.965
$1.860
$1.965
$1.360
$1.285
$1.360
$1.475
$1.285
$1.215
$1.475
$1.360
Grant Date
ESOP options
9 October 2015
30 October 2015
30 November 2016
2 December 2016
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Performance rights
9 October 2015
30 October 2015
30 November 2016
2 December 2016
30 November 2016
2 December 2016
16 November 2017
6 October 2017
9 November 2017
14 November 2017
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Share options and performance rights are granted for no consideration.
Share options and performance rights granted carry no dividend or voting rights.
%
Vested
Performance Condition
Achieved
0% Performance condition not met
0% Performance condition not met
To be determined
To be determined
To be determined
To be determined
To be determined
To be determined
-
-
-
-
-
-
0% Performance condition not met
0% Performance condition not met
2017 Performance condition
2017 Performance condition
To be determined
To be determined
2017 Performance condition
38%
44%
42%
To be determined
To be determined
To be determined
To be determined
47%
55%
-
-
40%
-
-
-
-
-
-
-
53
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting continued
Number of Share Options and Performance Rights Provided as Remuneration During the Financial Year
Details of share options and performance rights over unissued ordinary shares in the Company provided as remuneration to each Director
and each of the other key management personnel, including their personally related parties, are set out below:
Number
of Share
Options and
Performance
Rights Granted
During
Financial Year
Fair Value
Per Share
Options and
Performance
Rights at Grant
Date*
Value of Share
Options and
Performance
Rights at Grant
Date*
Number
of Share
Options and
Performance
Rights Vested
During
Financial Year
Number
of Share
Options and
Performance
Rights
Forfeited
Value of Share
Options and
Performance
Rights
Forfeited**
574,172
128,505
202,903
574,172
128,505
202,903
18,100
21,321
14,925
222,340
157,143
78,571
238,068
168,258
84,129
166,755
196,429
137,500
$0.353
$1.360
$1.360
$0.353
$1.360
$1.360
$0.361
$1.360
$1.215
$0.354
$1.285
$1.285
$0.354
$1.285
$1.285
$0.354
$1.285
$1.285
$202,683
$174,767
$275,948
$202,683
$174,767
$275,948
$6,534
$28,997
$18,134
$78,708
$201,929
$100,964
$84,276
$216,212
$108,106
$59,031
$252,411
$176,688
-
105,714
-
-
105,714
-
424,310
-
-
424,310
-
-
$490,078
-
-
$490,078
-
-
-
-
-
-
-
-
-
-
-
-
71,453
-
-
7,830
-
-
$9,044
-
197,170
79,122
-
173,561
76,613
-
246,462
98,902
-
$227,731
$91,386
-
$200,463
$88,488
-
$284,664
$114,232
-
1,793,607
1,521,092
$633,915
$2,004,871
-
282,881
1,465,813
262,467
$1,693,014
$303,150
Name
Executive Directors
Mr Robert Hosking
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Mr Mark Smith
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Non-Executive Director
Mr Jose Coutinho Barbosa
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Other key management
personnel (Group)
Mr Scott Hosking
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Mr Tim Hosking
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Mr Edward Munks
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Total key management
personnel
– Share options
– Performance rights
*
The value at grant date, calculated in accordance with AASB 2, of share options and performance rights granted during the financial year as part of their
remuneration.
** The value of share options and performance rights forfeited during the financial year because a vesting condition was not satisfied was determined at the
time of forfeit (24 August 2017), but assuming the condition was satisfied, based on the intrinsic value of the share options or performance rights at that
date.
54
Karoon Gas Australia LtdAnnual Report 2018 No share options or performance rights over unissued ordinary shares in the Company, held by any Director or other key management
personnel, lapsed during the financial year, except for 1,465,813 share options and 262,467 performance rights that were forfeited by
Directors and other key management personnel.
Shares Issued on the Exercise of Share Options Provided as Remuneration
No share options were exercised by any Director or other key management personnel, including their personally related parties, during the
financial year.
Shares Issued on the Conversion of Performance Rights Provided as Remuneration
Details of fully paid ordinary shares in the Company issued, as a result of the exercise and conversion of remuneration performance rights
to each Director and other key management personnel, during the financial year, including their personally related parties, are set out below:
Name
Executive Directors
Mr Robert Hosking
Mr Mark Smith
Other key management personnel (Group)
Mr Edward Munks
Date of
Conversion of
Performance
Rights
29 June 2018
31 July 2017
28 July 2017
Number of
Ordinary Shares
Issued
Value
at Conversion
Date*
Amount Paid
Per Performance
Right
105,714
105,714
71,453
282,881
$119,457
$142,714
$91,460
$353,631
$-
$-
$-
* The value at conversion date of performance rights that were granted as part of their remuneration and were converted during the financial year has been
determined as the intrinsic value of the performance rights at that date.
No amounts are unpaid on any ordinary shares issued on the conversion of the above remuneration performance rights.
Cash-settled Payments on the Cancellation of Performance Rights Provided as Remuneration
Details of cash-settled payments by the Company, as a result of the cancellation of remuneration performance rights to each Director
and other key management personnel during the financial year, including their personally related parties, are set out below:
Name
Other key management personnel (Group)
Mr Scott Hosking
Mr Tim Hosking
Date of
Cancellation of
Performance
Rights
25 June 2018
25 June 2018
Number of
Performance
Rights Cancelled
Cash-settled
Payment Value *
Amount Paid
Per Performance
Right
57,162
55,350
112,512
$62,372
$60,395
$122,767
$-
$-
* The cash-settled value of performance rights that were granted as part of their remuneration and were cancelled during the financial year was determined
based on a ten day volume weighed average Company share price.
55
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting continued
Details of Remuneration – Share Options and Performance Rights
For each grant of share options or performance rights in current or previous financial years which resulted in a share-based payment
expense to Directors and other key management personnel, the percentage of the grant that vested and percentage that was forfeited
because the individual did not meet the service and/or pre-determined performance conditions is set out below:
Name
Executive Directors
Mr Robert Hosking
– ESOP options
– Performance rights (LTI)
– ESOP options
– Performance rights (LTI)
– Performance rights (STI)
– ESOP options
– Performance rights (LTI)
Mr Mark Smith
– ESOP options
– Performance rights (LTI)
– ESOP options
– Performance rights (LTI)
– Performance rights (STI)
– ESOP options
– Performance rights (LTI)
Financial Year
End Granted
Vested
%
Forfeited
%
Financial Years
in Which Share
Options or
Performance
Rights May Vest
Maximum Total
Value of Grant
Yet to Vest
30 June 2016
30 June 2016
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2018
30 June 2016
30 June 2016
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2019
30 June 2021
30 June 2021
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2019
30 June 2021
30 June 2021
$-
$-
$128,093
$146,919
$-
$154,445
$210,274
$-
$-
$128,093
$146,919
$-
$154,445
$210,274
56
Karoon Gas Australia LtdAnnual Report 2018 Name
Financial Year
End Granted
Vested
%
Forfeited
%
Financial Years
in Which Share
Options or
Performance
Rights May Vest
Maximum Total
Value of Grant
Yet to Vest
Other key management personnel (Group)
Mr Scott Hosking
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
30 June 2016
30 June 2016
30 June 2016
30 June 2017
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2018
Mr Tim Hosking
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
Mr Edward Munks
– ESOP options
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
– ESOP options
– Performance rights (STI)
– Performance rights (LTI)
30 June 2016
30 June 2016
30 June 2016
30 June 2017
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2018
30 June 2016
30 June 2016
30 June 2017
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2018
-
64%
-
-
47%
-
-
-
-
-
64%
-
-
47%
-
-
-
-
-
-
-
47%
-
-
-
-
-
-
-
-
53%
-
-
-
-
-
-
-
-
53%
-
-
-
-
-
-
-
53%
-
-
-
-
30 June 2019
30 June 2018
30 June 2019
30 June 2020
30 June 2019
30 June 2020
30 June 2021
30 June 2020
30 June 2021
30 June 2019
30 June 2018
30 June 2019
30 June 2020
30 June 2019
30 June 2020
30 June 2021
30 June 2020
30 June 2021
30 June 2019
30 June 2019
30 June 2020
30 June 2019
30 June 2020
30 June 2021
30 June 2020
30 June 2021
$-
$-
$-
$-
$-
$43,936
$23,012
$28,127
$66,589
$-
$-
$-
$-
$-
$30,464
$22,283
$27,235
$64,479
$-
$-
$32,839
$-
$94,042
$43,136
$64,913
$129,111
No share options or performance rights will vest if the service and/or pre-determined performance conditions are not met, therefore the
minimum value of the share option or performance right yet to vest is $Nil.
The maximum value of share options and performance rights yet to vest was determined as the amount of the grant date fair value of the
share options or performance rights that is yet to be expensed in the consolidated statement of profit or loss and other comprehensive
income.
Share Options and Performance Rights over Unissued Ordinary Shares in the Company as at 30 June 2018
During the financial year 1,793,607 share options over unissued ordinary shares in the Company were issued to Directors and other key
management personnel, including their personally related parties.
During the financial year 1,521,092 performance rights over unissued ordinary shares in the Company were issued to Directors and other
key management personnel, including their personally related parties.
57
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting continued
Share Options and Performance Rights over Unissued Ordinary Shares in the Company as at 30 June 2018 continued
The movement of share options and performance rights over unissued ordinary shares in the Company held by Directors and other key
management personnel, including their personally related parties, during the financial year was as follows:
Exercised
(Share
Options)/
Vested and
Converted
(Performance
Rights)
Balance
as at
1 July
2017
Granted as
Remuneration
Share
Options or
Performance
Rights
Forfeited
Balance
as at
30 June
2018
Cash-
settled
Total
Vested and
Exercisable
as at
30 June
2018
Total
Unvested
as at
30 June
2018
Executive Directors
Mr Robert Hosking
– ESOP options
– Performance rights
Mr Mark Smith
– ESOP options
– Performance rights
1,338,595
367,702
1,338,595
367,702
574,172
331,408
574,172
331,408
-
(105,714)
-
(105,714)
Non-Executive Directors
Dr David Klingner
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho
Barbosa
– ESOP options
– Performance rights
-
-
-
-
-
-
-
-
-
-
12,140
31,321
18,100
36,246
431,730
355,606
Other key management personnel
Mr Scott Hosking
– ESOP options
– Performance rights
Mr Tim Hosking
– ESOP options
– Performance rights
Mr Edward Munks
– ESOP options
– Performance rights
471,566
466,837
464,182
315,420
222,340
235,714
238,068
252,387
166,755
333,929
-
-
-
-
-
-
-
-
-
-
-
(424,310) 1,488,457
593,396
-
(424,310) 1,488,457
593,396
-
-
-
-
-
-
-
-
-
-
-
-
(7,830)
30,240
59,737
-
(57,162)
(197,170)
(79,122)
456,900
455,036
-
(55,350)
(173,561)
(76,613)
528,689
435,844
-
-
-
-
-
-
-
-
-
-
-
-
(71,453)
-
-
(246,462)
(98,902)
391,859
630,411
Total key
management
personnel
– Share options
– Performance rights
4,056,808
1,904,588
1,793,607
1,521,092
-
(282,881)
-
(112,512)
(1,465,813) 4,384,602
(262,467) 2,767,820
All ESOP options issued during the financial year were issued under the Karoon Gas Australia 2016 Employee Share Option Plan.
All performance rights issued during the financial year were issued under the Karoon Gas Australia 2016 PRP.
58
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,488,457
593,396
1,488,457
593,396
-
-
-
-
-
30,240
59,737
456,900
455,036
528,689
435,844
391,859
630,411
4,384,602
2,767,820
Karoon Gas Australia LtdAnnual Report 2018 The number of ordinary shares held by Directors and other key management personnel, including their personally related parties, as at
30 June 2018 was as follows:
Balance as
at 1 July
2017
Received as
Remuneration
Executive Directors
Mr Robert Hosking
Mr Mark Smith
Non-Executive Directors
Dr David Klingner
Ms Luciana Rachid
Mr Geoff Atkins
Mr Clark Davey
Mr Peter Turnbull
Mr Jose Coutinho Barbosa
Other key management personnel
Mr Scott Hosking
Mr Tim Hosking
Mr Edward Munks
Total key management personnel
12,247,409
2,765,224
103,591
-
720,676
24,294
41,000
-
195,206
244,571
829,697
17,171,668
-
-
-
-
-
-
-
-
-
-
-
-
Exercised (Share
Options)/Vested
and Converted
(Performance
Rights)
105,714
105,714
-
-
-
-
-
-
-
-
71,453
282,881
Ordinary
Shares
Purchased
Ordinary
Shares
Sold
Balance as
at 30 June
2018
-
-
-
-
-
-
-
-
-
-
-
-
- 12,353,123
2,870,938
-
-
-
-
-
-
-
103,591
-
720,676
24,294
41,000
-
195,206
-
244,571
-
829,697
(71,453)
(71,453) 17,383,096
None of the ordinary shares are held nominally by any Director or any of the other key management personnel. ‘Held nominally’ refers to
the situation where the ordinary shares are in the name of the Director or other key management person, but he is not the beneficial owner.
Other Transactions with Directors and Other Key Management Personnel
A formal Related Party Protocol requires the approval by the Risk and Governance Committee and, thereafter, the Board of Directors of all
new related party transactions.
There were no new related party transactions during the financial year. The relationships described below are carried forward from the
previous financial year.
During the financial year, Mr Jose Coutinho Barbosa, a Non-Executive Director, had an interest in Net Pay Óleo & Gás Consultoria Ltda that
provided business and geology consulting services to the Group. The value of these transactions during the financial year in the Group was
$321,395 (2017: $332,210). Given Karoon’s relative size to other operators in Brazil, the consulting services provided by Net Pay Óleo & Gás
Consultoria Ltda are required for Karoon to operate within the Brazilian oil industry.
During the financial year, Ms Flavia Barbosa, the daughter of a Non-Executive Director, was employed by the Group as the in-house Legal
Counsel in Brazil. The total value of her remuneration (including share-based payments expense) during the financial year was $252,311
(2017: $242,372), which includes social security and indemnity fund contributions of $38,702 (2017: $16,535). Ms Barbosa has been an
employee of the Company since 2011, and has a comprehensive understanding of the Brazilian legal and regulatory framework.
During the financial year, Ms Marina Sayao, the wife of Mr Tim Hosking (a KMP), was employed by the Group on a part-time basis as
the Sustainability and Communications Manager South America. The total value of her remuneration (including share-based payments
expense) during the financial year was $115,488 (2017: $152,478), which includes social security and indemnity fund contributions of
$Nil (2017: $34,967). Ms Sayao is a key member of the South American operations. The Brazilian and Peruvian regulatory and business
environments require transparent and clear communication on social and environmental issues with local and federal governments.
59
Karoon Gas Australia LtdAnnual Report 2018 Directors’ Report (continued)
Remuneration Report (Audited) continued
Section 5. Statutory and Share-based Reporting continued
Loans to Directors and Other Key Management Personnel
There were no loans to Directors or other key management personnel during the financial year.
This Directors’ Report, incorporating the Remuneration Report, is made in accordance with a resolution of the Directors.
On behalf of the Directors:
Mr Peter Turnbull
Independent Interim Non-Executive Chairman
Mr Robert Hosking
Managing Director
25 September 2018
60
Karoon Gas Australia LtdAnnual Report 2018 Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Karoon Gas Australia Ltd for the financial year ended 30 June 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Karoon Gas Australia Ltd and the entities it controlled during the
financial year.
Charles Christie
Partner
PricewaterhouseCoopers
Melbourne
25 September 2018
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
61
Karoon Gas Australia LtdAnnual Report 2018
Consolidated Financial Statements
For the Financial Year Ended 30 June 2018
Karoon Gas Australia Ltd (the ‘Company’) is a public company limited by shares and is listed on the ASX. It is incorporated and domiciled
in Australia. The registered office of Karoon Gas Australia Ltd is Office 7A, 34-38 Lochiel Avenue, Mt Martha VIC 3934. The principal place
of business is Level 25, 367 Collins Street, Melbourne VIC 3000.
The consolidated financial statements are for the consolidated entity consisting the Company and its subsidiaries.
The consolidated financial statements are presented in Australian dollars.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Inventories
Significant Accounting Policies
Note 1.
Significant Accounting Estimates, Assumptions and Judgements
Note 2.
Financial Risk Management
Note 3.
Revenue
Note 4.
Expenses
Note 5.
Income Tax
Note 6.
Remuneration of External Auditors
Note 7.
Dividends
Note 8.
Note 9.
Earnings Per Share
Note 10. Cash and Cash Equivalents
Note 11. Receivables
Note 12.
Note 13. Security Deposits
Note 14. Other Assets
Note 15. Plant and Equipment
Note 16.
Note 17. Exploration and Evaluation Expenditure Carried Forward
Note 18. Trade and Other Payables
Note 19. Provisions
Note 20. Contributed Equity and Reserves Within Equity
Note 21. Subsidiaries
Note 22. Segment Information
Note 23.
Note 24. Contingent Liabilities and Contingent Assets
Note 25. Commitments
Note 26. Reconciliation to the Consolidated Statement of Cash Flows
Note 27. Share-based Payments
Note 28. Related Party Transactions
Note 29. Parent Company Financial Information
Note 30. Subsequent Events
Intangible Assets
Joint Operations
62
63
64
65
66
67
76
78
82
83
84
86
86
87
87
88
88
88
89
89
89
90
91
91
91
93
93
96
97
98
99
100
103
104
105
Karoon Gas Australia LtdAnnual Report 2018 Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the Financial Year Ended 30 June 2018
Revenue
Other income
Total revenue and other income
Business development and other project costs
Computer support
Consulting fees
Depreciation and amortisation expense
Drilling rig mobilisation expense
Employee benefits expense (net)
Exploration and evaluation expenditure expensed, impaired or written-off
Farm-out costs
Finance costs
Insurance expense
Write-down of inventory to net realisable value
Legal fees
Net foreign currency losses
Property costs
Share registry and listing fees
Telephone and communication expenses
Travel and accommodation expenses
Other expenses
Total expenses
Loss before income tax
Tax income
Loss for financial year attributable to equity holders of the Company
Other comprehensive income, net of income tax:
Items that may be reclassified subsequently to profit or loss
Exchange differences arising from the translation of financial statements of foreign subsidiaries
Other comprehensive income (loss) for financial year, net of income tax
Total comprehensive loss for financial year attributable to equity holders
of the Company, net of income tax
Loss per share attributable to equity holders of the Company:
Basic loss per ordinary share
Diluted loss per ordinary share
Consolidated
2018
$
710,652
12,993,578
13,704,230
(7,285,306)
(1,590,595)
(701,066)
(730,834)
-
(11,339,308)
(162,964,693)
(509,122)
(237,474)
(309,867)
(6,679,549)
(66,459)
-
(1,925,006)
(168,286)
(234,477)
(198,491)
(2,820,294)
(197,760,827)
(184,056,597)
2,278,808
(181,777,789)
2017
$
858,356
-
858,356
(4,526,430)
(1,669,920)
(731,292)
(1,048,998)
(16,513,578)
(12,651,679)
(34,496,452)
(418,848)
(339,322)
(354,334)
(1,326,811)
(294,799)
(13,909,734)
(2,279,177)
(182,727)
(302,819)
(597,297)
(941,987)
(92,586,204)
(91,727,848)
10,200,335
(81,527,513)
(26,064,346)
(26,064,346)
(20,215,327)
(20,215,327)
(207,842,135)
(101,742,840)
(0.7403)
(0.7403)
(0.3327)
(0.3327)
Note
4
4
5
5
5
5
5
6
9
9
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying
notes.
63
Karoon Gas Australia LtdAnnual Report 2018 Consolidated Statement of Financial Position
As at 30 June 2018
Current assets
Cash and cash equivalents
Receivables
Inventories
Security deposits
Current tax asset
Other assets
Total current assets
Non-current assets
Inventories
Plant and equipment
Intangible assets
Exploration and evaluation expenditure carried forward
Security deposits
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Accumulated losses
Share-based payments reserve
Foreign currency translation reserve
Total equity
Consolidated
2018
$
2017
$
Note
10
11
12
13
6
14
12
15
16
17
13
18
19
18
6
19
20
333,572,953
1,152,572
-
18,955
185,737
782,828
335,713,045
37,696,266
802,514
781,514
209,629,983
10,297,243
259,207,520
594,920,565
375,069,427
1,430,487
10,858
24,746
391,020
2,129,830
379,056,368
46,368,852
1,139,163
1,167,575
371,029,112
7,808,766
427,513,468
806,569,836
6,428,989
283,500
6,712,489
12,234,940
246,647
12,481,587
279,544
32,373,298
329,520
32,982,362
39,694,851
555,225,714
318,976
34,585,784
291,324
35,196,084
47,677,671
758,892,165
802,295,334
(214,726,693)
47,710,299
(80,053,226)
555,225,714
802,295,334
(32,948,904)
43,534,615
(53,988,880)
758,892,165
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
64
Karoon Gas Australia LtdAnnual Report 2018 Consolidated Statement of Changes in Equity
For the Financial Year Ended 30 June 2018
Balance as at 1 July 2016
Retained
Earnings
(Accumulated
Losses)
$
48,578,609
Consolidated
Share-based
Payments
Reserve
$
40,189,876
Foreign
Currency
Translation
Reserve
$
(33,773,553)
Contributed
Equity
$
802,967,815
Total
Equity
$
857,962,747
Loss for financial year
Exchange differences arising from the translation
of financial statements of foreign subsidiaries
Total comprehensive loss for financial year
-
-
-
(81,527,513)
-
(81,527,513)
-
-
-
-
(81,527,513)
(20,215,327)
(20,215,327)
(20,215,327)
(101,742,840)
Transactions with owners in their capacity as owners:
Ordinary shares bought back (on-market) and cancelled
Share buy-back transaction costs
Share-based payments expense
Prior year adjustment to recognise cash-settled share-
based payments
Balance as at 30 June 2017
(671,998)
(483)
-
-
-
-
-
-
3,590,639
-
-
-
(671,998)
(483)
3,590,639
-
(672,481)
802,295,334
-
-
(32,948,904)
(245,900)
3,344,739
43,534,615
-
-
(53,988,880)
(245,900)
2,672,258
758,892,165
Loss for financial year
Exchange differences arising from the translation of
financial statements of foreign subsidiaries
Total comprehensive loss for financial year
-
-
-
(181,777,789)
-
(181,777,789)
-
-
-
-
(181,777,789)
(26,064,346)
(26,064,346)
(26,064,346)
(207,842,135)
Transactions with owners in their capacity as owners:
Share-based payments expense
Balance as at 30 June 2018
-
-
802,295,334
-
-
(214,726,693)
4,175,684
4,175,684
47,710,299
-
-
(80,053,226)
4,175,684
4,175,684
555,225,714
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
65
Karoon Gas Australia LtdAnnual Report 2018 Consolidated Statement of Cash Flows
For the Financial Year Ended 30 June 2018
Cash flows from operating activities
Receipts from customers (inclusive of GST refunds)
Payments to suppliers and employees (inclusive of GST)
Payments for exploration and evaluation expenditure expensed
Interest received
Interest and other costs of finance paid
Income taxes refund
Net cash flows used in operating activities
Cash flows from investing activities
Purchase of plant and equipment
Purchase of computer software
Payments for exploration and evaluation expenditure capitalised
Repayment (payment) of security deposits
Proceeds from disposal of non-current assets
Net cash flows used in investing activities
Cash flows from financing activities
Share buy-back (on-market)
Payments for finance lease
Net cash flows used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effect of exchange rate changes on the balance of cash and cash equivalents
held in foreign currencies
Cash and cash equivalents at end of financial year
Consolidated
2018
$
2017
$
1,690,938
(21,965,953)
(5,569,499)
560,291
(237,474)
228,527
(25,293,170)
2,009,829
(38,048,826)
(3,095,573)
1,055,846
(323,035)
144,422
(38,257,337)
Note
26(a)
(197,791)
(52,173)
(25,542,883)
(2,422,599)
-
(28,215,446)
(200,862)
(216,670)
(52,476,682)
1,947,061
100
(50,947,053)
20(b)
26(c)
-
(64,290)
(64,290)
(672,687)
(66,150)
(738,837)
(53,572,906)
375,069,427
(89,943,227)
479,590,366
12,076,432
333,572,953
(14,577,712)
375,069,427
10
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
66
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018
Note 1. Significant Accounting Policies
The consolidated financial statements are for the consolidated entity consisting of the Company and its subsidiaries (the ‘Group’). Information
on the nature of the operations and principal activities of the Group are described in the Directors’ Report.
The following is a summary of significant accounting policies adopted by the Group in the preparation of these consolidated financial
statements. The accounting policies have been consistently applied to all the financial years presented, unless otherwise stated.
(a) Basis of Preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board (the ‘AASB’) and the Corporations Act 2001. The Company is a for-profit entity for the
purpose of preparing financial statements.
Where necessary, comparative information has been reclassified to achieve consistency in disclosure with financial year amounts and other
disclosures.
Currency of Presentation
The consolidated financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency.
Historical Cost Convention
The consolidated financial statements have been prepared on an accrual basis under the historical cost convention as modified, when
relevant, by the revaluation of selected financial assets and financial liabilities for which the fair value basis of accounting has been applied.
Significant Accounting Estimates, Assumptions and Judgements
The preparation of financial statements requires the use of certain significant accounting estimates. It also requires management to exercise
its judgement in the process of applying Group accounting policies. The areas involving a high degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2.
Compliance with International Financial Reporting Standards
Compliance with Australian Accounting Standards ensures that the consolidated financial statements comply with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
New or Revised Australian Accounting Standards and Interpretations that are First Effective in the Current Reporting Period
The Group has adopted all of the new and/or revised Australian Accounting Standards and Interpretations issued by the AASB that are
relevant to its operations and effective for the financial year ended 30 June 2018.
New and revised Australian Accounting Standards and amendments thereof and Interpretations effective for the financial year that are
relevant to the Group include:
(i) AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’
The AASB amended AASB 107 ‘Statement of Cash Flows’. The amendments to AASB 107 required disclosure of changes in liabilities arising
from financing activities (refer Note 26(c)); and
(ii) AASB 2017-2 ‘Annual Improvements to Australian Accounting Standards – Further Improvements 2014-2016 Cycle’. The relevant
amendment to AASB 12 ‘Disclosure of Interests in Other Entities’ required disclosure of whether its joint arrangements are strategic to the
Group’s activities (refer Note 23).
The adoption of all relevant new and/or revised Australian Accounting Standards and Interpretations has not resulted in any changes to the
Group’s accounting policies and has had no effect on either the amounts reported for the current or previous financial years.
Early Adoption of Australian Accounting Standards
The Group has not elected to apply any new or revised Australian Accounting Standards before their operative date in the financial year
beginning 1 July 2017.
(b) Basis of Consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2018 and the
results of all subsidiaries for the financial year then ended.
Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
Interests in subsidiaries are set out in Note 21.
67
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 1. Significant Accounting Policies continued
(b) Basis of Consolidation continued
All subsidiaries have a financial year end of 30 June, with the exception of: Karoon Petróleo & Gas Ltda; KEI (Peru 112) Pty Ltd, Sucursal
del Peru; and KEI (Peru Z38) Pty Ltd, Sucursal del Peru. These subsidiaries and branches have a financial year end of 31 December in
accordance with relevant Brazilian and Peruvian tax and accounting regulations respectively.
Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies applied by the Group.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Unrealised losses are also eliminated, unless the transaction provides evidence of the impairment of the asset transferred.
(c) Segment Information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief
operating decision maker, who is responsible for assessing performance and in determining the allocation of resources of the operating
segments, has been identified as the Managing Director and the Executive Director/Exploration Director.
(d) Revenue
Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that economic
benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before
revenue is recognised:
Interest Income
Interest income is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the
relevant financial asset.
(e) Foreign Currency Transactions and Balances
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic
environment in which the subsidiary or branch operates (the ‘functional currency’).
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the foreign exchange rates prevailing at the dates of the
transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at financial year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of
profit or loss and other comprehensive income, except when they are attributable to part of the net investment in a foreign operation.
Non-monetary items measured at historical cost continue to be carried at the foreign exchange rate at the date of transaction. Foreign
exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss
is directly recognised in equity, otherwise foreign exchange differences are recognised in the consolidated statement of profit or loss and
other comprehensive income.
Foreign exchange gains and losses are presented in the consolidated statement of profit or loss and other comprehensive income on a net
basis within other income or expenses.
Group Companies
The results and financial position of foreign subsidiaries that have a functional currency different from the presentation currency are translated
into the presentation currency as follows:
• assets and liabilities are translated at end of reporting period foreign exchange rates prevailing at the end of each reporting period;
• income and expenses are translated at average foreign exchange rates for the financial period; and
• all resulting foreign exchange differences are recognised in other comprehensive income.
On consolidation, foreign exchange differences arising on translation of foreign subsidiary financial statements are transferred directly
to the foreign currency translation reserve in the consolidated statement of financial position. The relevant differences are recognised in
the consolidated statement of profit or loss and other comprehensive income during the financial period when the investment in a foreign
subsidiary is disposed.
68
Karoon Gas Australia LtdAnnual Report 2018 (f) Income Taxes and Other Taxes
Current Tax
Current tax (expense) income is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable
profit or loss for the financial period. It is calculated using income tax rates that have been enacted or are substantively enacted by the end
of each reporting period. Current tax for current and previous financial periods is recognised as a liability (or asset) to the extent that it is
unpaid or (refundable).
Deferred Tax
Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The tax base of an asset or liability is the
amount attributed to that asset or liability for income taxation purposes.
No deferred 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 enacted or substantively enacted by the end of the financial period and are expected to
apply to the financial period when the asset is realised or liability is settled. Deferred tax is credited in the consolidated statement of profit
or loss and other comprehensive income 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 tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible
temporary tax differences or unused tax losses and tax offsets can be utilised.
Deferred tax assets and tax liabilities are offset when there is a legally enforceable right to offset current tax assets and tax liabilities and
when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has
a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
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 Group will derive sufficient future assessable income to enable the benefit
to be realised and comply with the conditions of deductibility imposed by law.
Tax Consolidation
The Company and its wholly owned Australian subsidiaries are part of an income tax-consolidated group under Australian taxation law.
The Company is the head entity in the income tax-consolidated group. Tax income (expense), deferred tax liabilities and deferred tax assets
arising from temporary tax differences of the members of the income tax-consolidated group are recognised in the separate financial
statements of the members of the income tax-consolidated group using the ‘stand alone taxpayer’ approach by reference to the carrying
amounts in the separate financial statements of each company and the tax values applying under tax consolidation. Current tax liabilities
and tax assets and deferred tax assets arising from unused tax losses and tax credits of members of the income tax-consolidated group are
recognised by the Parent Company (as head entity of the income tax-consolidated group).
Due to the existence of a tax funding agreement between the companies in the income tax-consolidated group, each company contributes
to the income tax payable or receivable in proportion to their contribution to the income tax-consolidated group’s taxable income. Differences
between the amounts of net tax assets and tax liabilities derecognised and the net amounts recognised pursuant to the funding agreement
are recognised as either a contribution by, or distribution to, the head entity.
Goods and Services Tax (‘GST’)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from
the Australian Taxation Office (‘ATO’). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or equity
or as part of an item of expense.
Receivables and payables in the consolidated statement of financial position are shown inclusive of GST.
The net amount of GST recoverable from, or payable to, the ATO is included as current receivables or payables respectively in the
consolidated statement of financial position.
Cash flows are included on a gross basis in the consolidated statement of cash flows. The GST components of cash flows arising from
investing and financing activities, which are recoverable from, or payable to, the ATO, are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the ATO.
69
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 1. Significant Accounting Policies continued
(f) Income Taxes and Other Taxes continued
Petroleum Resource Rent Tax (‘PRRT’)
PRRT is accounted for as income tax under AASB 112 ‘Income Taxes’.
Research and Development Tax Incentives
Companies within the Group may be entitled to claim special tax deductions in relation to qualifying expenditure (e.g. the Research and
Development Tax Incentive regime in Australia). A tax incentive refund is recognised when it is possible that the claim will be received.
The claim is based upon the Group’s interpretation as to the eligibility of its specific research and development activities. The Group
accounts for such refunds as tax credits, which means that the incentive reduces income tax payable and current tax expense.
(g) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statement of financial position and for presentation in the consolidated statement of cash
flows comprise cash at banks and on hand (including share of joint operation cash balances) and short-term bank deposits that are readily
convertible to known amounts of cash and which are subject to insignificant risk of changes in value.
(h) Receivables
Receivables, which generally have 30 day terms, are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less any accumulated impairment losses. They are presented as current assets unless collection is not
expected for more than 12 months after the reporting date.
Cash flows relating to receivables are not discounted if the effect of discounting would be immaterial.
Collectability of receivables is reviewed on an ongoing basis. Individual receivables that are known to be uncollectible are written-off when
identified.
Receivables are tested for impairment in accordance with the accounting policy described in Note 1(n). An impairment is recognised when
there is objective evidence that the Group will not be able to collect the receivable. The amount of the impairment loss is the receivable’s
carrying amount compared to the discounted value of estimated future cash flows, discounted when material, at the original effective
interest rate.
(i) Inventories
Inventories are measured at the lower of cost and net realisable value. Inventories are represented by assets acquired from third parties,
in the form of casing and other drilling inventory to be consumed or used in exploration and evaluation activities. They are presented as
current assets unless inventories are not expected to be consumed or used in exploration and evaluation activities within 12 months.
The cost of casing and other drilling inventory includes direct materials, direct labour and transportation costs.
(j) Security Deposits
Certain financial assets have been pledged as security for performance guarantees, bank guarantees and bonds related to exploration
tenements and operating lease rental agreements. Their realisation may be restricted subject to terms and conditions attached to the
relevant exploration tenement agreements or operating lease rental agreements.
Security deposits are non-derivative financial assets that are not quoted in an active market. Security deposits are initially recognised at cost.
Such assets are subsequently carried at amortised cost using the effective interest method. They are included in current assets, except for
those with maturities greater than 12 months after the end of the reporting period which are classified as non-current assets.
Security deposits are derecognised when the terms and conditions attached to the relevant exploration tenement agreements or operating
lease rental agreements have expired or been transferred.
Security deposits are tested for impairment in accordance with the accounting policy described in Note 1(n).
(k) Plant and Equipment
Plant and equipment is stated at 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 parts 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 as an expense in the consolidated statement of profit or loss and other comprehensive
income as incurred.
70
Karoon Gas Australia LtdAnnual Report 2018 Commencing from the time the plant and equipment is held ready for use, depreciation expense is calculated on a straight-line basis to
allocate their cost amount, net of their residual values, over their estimated useful lives ranging from 2 to 10 years.
Plant and equipment residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of each
reporting period.
Gains and losses on disposals are determined by comparing proceeds with the net carrying amount. These gains and losses are included
in the consolidated statement of profit or loss and other comprehensive income.
Plant and equipment are tested for impairment in accordance with the accounting policy described in Note 1(n).
(l) Intangibles
Computer Software
Computer software is stated at cost less accumulated amortisation and any accumulated impairment losses. Computer software costs
have a finite life.
Commencing from the time the computer software is held ready for use, amortisation expense is calculated on a straight-line basis to
allocate their cost amount, net of their residual values, over their estimated useful lives ranging from 2 to 2.5 years.
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at the end of each reporting
period.
Computer software is tested for impairment in accordance with the accounting policy described in Note 1(n).
(m) Exploration and Evaluation Expenditure
Exploration and evaluation expenditure for each ‘area of interest’ is fully capitalised at cost, as an intangible, provided the right to tenure of
the area of interest is current and either:
• the exploration and evaluation activities are expected to be recouped through successful development and exploitation of the area of
interest or, alternatively, by its sale; or
• exploration and evaluation activities in the area of interest have not at the end of the reporting period reached a stage that permits a
reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or
in relation to, the area of interest are continuing.
Otherwise, exploration and evaluation expenditure is expensed as incurred.
Accumulated costs in relation to an abandoned area are written-off in full in the consolidated statement of profit or loss and other
comprehensive income during the financial period in which the decision to abandon the area of interest is made.
As capitalised exploration and evaluation expenditure is not available for use, it is not amortised.
Cash flows associated with exploration and evaluation expenditure (comprising amounts capitalised) are classified as investing activities
in the consolidated statement of cash flows. Whereas, cash flows associated with exploration and evaluation expenditure expensed are
classified as operating activities.
When the technical feasibility and commercial viability of extracting economically recoverable reserves have been demonstrated, any related
capitalised exploration and evaluation expenditure is reclassified as development expenditure in the consolidated statement of financial
position. Prior to reclassification, capitalised exploration and evaluation expenditure is assessed for impairment.
Farm-out
The Group does not record any exploration and evaluation expenditure made by a farmee. It also does not recognise any gain or loss on
its exploration and evaluation farm-out arrangements, but redesignates any exploration and evaluation expenditure previously capitalised in
relation to the whole area of interest as relating to the partial interest retained.
Any cash consideration received on sale or farm-out of an area within an exploration area of interest is offset against the carrying value of the
particular area involved. Where the total carrying value of an area of interest has been recouped in this manner, the balance of the proceeds
is brought to account in the consolidated statement of profit or loss and other comprehensive income as a gain on disposal.
71
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 1. Significant Accounting Policies continued
(m) Exploration and Evaluation Expenditure continued
Impairment of Capitalised Exploration and Evaluation Expenditure
The carrying value of capitalised exploration and evaluation expenditure is assessed for impairment at the asset or cash-generating unit level
whenever facts and circumstances (as defined in AASB 6 ‘Exploration for and Evaluation of Mineral Resources’) suggest that the carrying
amount of the asset may exceed its recoverable amount. If any indication of impairment exists, an estimate of the asset’s recoverable
amount is calculated.
An impairment loss exists when the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount.
The asset or cash-generating unit is then written-down to its recoverable amount. Impairment losses are recognised as an expense
in the consolidated statement of profit or loss and other comprehensive income.
Capitalised exploration and evaluation expenditure that suffered impairment are tested for possible reversal of the impairment loss whenever
facts or changes in circumstances indicate that the impairment may have reversed.
(n) Impairment of Assets (Other than Capitalised Exploration and Evaluation Expenditure)
All other current and non-current assets (other than inventories and deferred tax assets) are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable.
At the end of each reporting period, the Group conducts an internal review of asset values, which is used as a source of information
to assess for any indicators of impairment. External factors, such as changes in economic conditions, are also monitored to assess for
indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.
An impairment loss exists when the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount.
The asset is then written-down to its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).
Impairment losses are recognised as an expense in the consolidated statement of profit or loss and other comprehensive income.
Assets that suffered impairment are tested for possible reversal of the impairment loss whenever events or changes in circumstances
indicate that the impairment may have reversed.
(o) Trade and Other Payables
Trade and other payables are initially recognised at their fair value and subsequently measured at amortised cost using the effective
interest method. These amounts represent liabilities for goods and services provided to the Group prior to the end of the reporting period
that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of goods and services.
The amounts are unsecured and are usually paid within 30 days of recognition. They are presented as current liabilities unless payment
is not due within 12 months from the reporting date.
(p) Employee Benefits
Wages, Salaries, Annual Leave and Personal Leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end
of the reporting period in which the employees render the related services are recognised in respect of employees’ services up to the end of
the reporting period. They are measured at the amounts expected to be paid when the liabilities are settled plus related on-costs. Expenses
for non-vesting personal leave are recognised when the leave is taken and are measured at the rates paid or payable.
The obligations are presented as current liabilities in the consolidated statement of financial position if the Group does not have an
unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected
to occur.
72
Karoon Gas Australia LtdAnnual Report 2018 Share-based Payments
Share-based remuneration benefits are provided to Executive Directors and employees via the Company’s PRP and ESOP (refer Note 27).
The Group issues equity-settled and cash-settled share-based payments to certain employees.
The fair value of share options and performance rights granted is recognised as a share-based payments expense in the consolidated
statement of profit or loss and other comprehensive income. The total amount to be expensed is determined by reference to the fair value
of the share options and performance rights granted, which includes any market performance conditions, but excludes the impact of any
service and non-market performance vesting conditions. Non-market performance vesting conditions are included in assumptions about
the number of share options or performance rights that are expected to vest.
The fair value is measured at grant date. For equity-settled share-based payments the corresponding credit is recognised directly in the
share-based payments reserve in equity. For cash-settled share-based payments a liability is recognised based on fair value of the payable
earned by the end of the reporting period. The liability is re-measured to fair value at each reporting date up to, and including the vesting
date, with changes in fair value recognised in share-based payments expense. The total expense is recognised over the vesting period,
which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group
revises its estimates of the number of share options and performance rights that are expected to vest based on the non-market performance
vesting conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated statement of profit or loss and
other comprehensive income.
The fair value of share options at grant date is independently determined using a Black-Scholes option pricing model that takes into account
the exercise price, the term of the share option, the impact of dilution, the non-tradeable nature of the share option, the share price at grant
date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the share
option.
The fair value of performance rights, granted for $Nil consideration, at grant date is based on the Company’s closing share price at that date.
(q) 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.
Long Service Leave
A provision has been recognised for employee entitlements relating to long service leave measured at the discounted value of estimated
future cash outflows. In determining the provision, consideration is given to employee wage increases and the probability that the employee
may satisfy vesting requirements. The cash outflows are discounted using market yields with terms of maturity that match the expect timing
of cash outflows.
Employee entitlements relating to long service leave are presented as a current provision in the consolidated statement of financial position
if the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when
the actual settlement is expected to occur.
(r) Contributed Equity
Ordinary shares are classified as equity.
Transaction costs directly attributable to the issue of new ordinary shares, share options or performance rights are shown in equity as a
deduction, net of any related income tax, from the proceeds. Transaction costs are the costs that are incurred directly in connection with the
issue of new ordinary shares and which would not have been incurred had those ordinary shares not been issued. These directly attributable
transaction costs include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing
costs and marketing costs.
Where the Company acquires its own ordinary shares, as a result of a share buy-back, those ordinary shares are cancelled. No gain or
loss is recognised and the consideration paid to acquire the ordinary shares, including any transaction costs directly attributable, net of any
related income tax, is recognised directly as a reduction from equity.
73
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 1. Significant Accounting Policies continued
(s) Interests in Joint Operations
A joint operation is a joint arrangement whereby the participants that have joint control of the arrangement (i.e. joint operators) have rights
to the assets, and obligations for the liabilities, relating to the arrangement.
The Group recognises assets, liabilities, revenues and expenses according to its share in the assets, liabilities, revenues and expenses
of a joint operation or similar as determined and specified in contractual arrangements (joint operating agreements). These have been
incorporated in the consolidated financial statements under the appropriate headings.
The Group’s share of assets, liabilities, revenues and expenses employed in joint operations is set out in Note 23.
(t) Leases
A lease is classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Group as a Lessee
Assets held under finance leases are initially recognised as an asset of the Group at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the consolidated statement of financial position. Lease payments are apportioned
between finance charges and reduction of the finance lease liability so as to achieve a constant rate of interest on the remaining balance
of the finance lease liability. Finance charges are recognised as finance costs in the consolidated statement of profit or loss and other
comprehensive income. Leased assets are amortised over the term of the finance lease.
Operating lease payments (net of any incentives received from the lessor) are recognised as an expense in the consolidated statement of
profit or loss and other comprehensive income on a straight-line basis over the financial period of the lease.
(u) Earnings Per Share
Basic Earnings Per Share
Basic earnings per ordinary share is calculated by dividing the profit or loss attributable to owners of the Company, excluding any costs
of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year,
adjusted for any bonus elements in ordinary shares issued during the financial year.
Diluted Earnings Per Share
Diluted earnings per ordinary share adjusts the figures used in the determination of basic earnings per ordinary share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average
number of ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
(v) Parent Company Financial Information
The financial information for the Parent Company, Karoon Gas Australia Ltd, disclosed in Note 29 has been prepared on the same basis as
the consolidated financial statements, except as set out below:
Investments in Subsidiaries
Investments in subsidiaries are accounted for at cost in the Parent Company’s financial statements.
The Parent Company does not designate any investments in subsidiaries as being subject to the requirements of Australian Accounting
Standards specifically applicable to financial instruments. They are held for strategic and not trading purposes.
Investments in subsidiaries and receivables from subsidiaries are tested for impairment in accordance with the accounting policy described
in Note 1(n).
Share-based Payments
The grant by the Company of equity-settled share options and performance rights over its ordinary shares to the employees of subsidiary
companies in the Group is treated as a capital contribution to that subsidiary company. The fair value of employee services received,
measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investments in subsidiaries, with
a corresponding credit to equity.
74
Karoon Gas Australia LtdAnnual Report 2018 (w) New Australian Accounting Standards and Interpretations for Application in Future Financial Years
Certain new Australian Accounting Standards and Interpretations have been published that are not mandatory for this financial year.
The Group’s assessment of the impact of the relevant new Australian Accounting Standards and Interpretations is set out below:
(i) AASB 15 ‘Revenue from Contracts with Customers’
AASB 15 ‘Revenue from Contracts with Customers’ is the new standard for revenue recognition, replacing AASB 118 ‘Revenue’. The new
standard’s core principle will require the Group to recognise revenue to depict when control over a good or service is transferred to a
customer in amounts that reflect the consideration (that is, payment) to which the Group expects to be entitled in exchange for those goods
or services. At the present time, as revenue comprises only interest income from unrelated entities, AASB 15 will have no impact on the
consolidated financial statements, as the Group does not currently have any revenue contracts with customers.
AASB 15 is applicable to annual reporting periods beginning on or after 1 January 2018, but is available for early adoption. The Group does
not intend to adopt the new standard before its operative date, which means that it would first be applied during the financial year ending
30 June 2019, following the modified retrospective approach.
(ii) AASB 9 ‘Financial Instruments’
AASB 9 ‘Financial Instruments’ includes guidance on the classification and measurement of financial instruments, including a new expected
credit loss model for calculation of impairment on financial assets, and new general hedge accounting requirements. Based on the Group’s
initial assessment of the classification and measurement impacts of the new standard, the Group does not expect the new standard to
have any impact on the classification of its financial assets. As the Group does not hold any financial liabilities at fair value through profit or
loss, the Group does not expect any impact of the new standard on financial liabilities. As the Group has not undertaken any hedging, the
Group does not expect any impact of the new standard as a result of hedge accounting. The new standard, however, will require additional
disclosures around credit risk and, if any, expected credit losses.
AASB 9 is applicable to annual reporting periods beginning on or after 1 January 2018, but is available for early adoption. The Group does
not intend to adopt the new standard before its operative date, which means that it would first be applied during the financial year ending
30 June 2019.
(iii) AASB 2016-5 ‘Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment
Transactions’
The amendments to AASB 2 address the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-
settled share-based payments, the classification of share-based payment transactions with a net settlement feature for withholding tax
obligations, and the accounting for 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. The Group has assessed the amended AASB 2’s will have little impact on cash-settled
share-based payments in the Group.
The amendments are applicable to annual reporting periods beginning on or after 1 January 2018, but is available for early adoption.
The Group does not intend to adopt the revised standard before its operative date, which means that it would first be applied during the
financial year ending 30 June 2019.
(iv) AASB 16 ‘Leases’
AASB 16 ‘Leases’ is the new standard for lease recognition, replacing AASB 117 ‘Leases’. AASB 16 introduces a single lessee accounting
model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset
is of low value. The new standard removes the current distinction between operating and finance leases and requires recognition of an asset
(the right-to-use the leased item) and a financial liability to pay rentals.
Whilst the Group only operates as a lessee, implementation of AASB 16 will have an impact on the consolidated financial statements
as it will result in the recognition of all relevant non-cancellable operating lease commitments, with a term of more than 12 months,
on the consolidated statement of financial position.
As at 30 June 2018, the Group had non-cancellable operating lease commitments of $1,612,344 (refer to Note 25(b)). Of these commitments,
approximately $167,052 relate to short-term leases (a term of 12 months or less).
75
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 1. Significant Accounting Policies continued
(w ) New Australian Accounting Standards and Interpretations for Application in Future Financial Years continued
(iv) AASB 16 ‘Leases’ continued
As some of the non-cancellable operating leases expire prior to implementation of the new standard, and decisions on the extension
of existing and new operating leases will be made as projects progress, the Group has not yet finalised the quantification of the impact of
AASB 16. However, the following impacts on the consolidated financial statements are expected:
(a) total assets and liabilities on the consolidated statement of financial position will increase;
(b) the straight-line rental expense on operating leases will be replaced with a depreciation charge for the right-of-use assets and interest
expense on lease liabilities;
(c) finance costs will increase due to the unwinding of the effective interest rate (at the Group’s ‘incremental’ borrowing rate) in lease
liabilities; and
(d) repayment of the principal portion of all lease liabilities will be classified as financing activities in the consolidated statement of cash
flows.
The Group intends to apply the simplified transition approach allowed under AASB 16 and will therefore not restate comparative amounts
for the financial year prior to first adoption.
AASB 16 is applicable for annual reporting periods beginning on or after 1 January 2019, but is available for early adoption. The Group does
not intend to adopt the new standard before its operative date, which means that it would first be applied during the financial year ending
30 June 2020.
(v) AASB Interpretation 23 ‘Uncertainty over Income Tax Treatments’
Interpretation 23 clarifies how to apply the recognition and measurement requirements in AASB 112 ‘Income Taxes’ when there is uncertainty
over income tax treatments. The Group currently recognises provisions based on the most likely amount of the liability, if any, for each
uncertain tax position. The Interpretation requires a probability weighed average approach to be taken for tax issues for which there are
a wide range of possible outcomes. For tax issues with a binary outcome, the most likely amount method should continue to be used.
The Group does not anticipate that application of Interpretation 23, as currently assessed, will have a material impact on the consolidated
financial statements.
Interpretation 23 is applicable to annual reporting periods beginning on or after 1 January 2019, but is available for early adoption.
The Group does not intend to adopt it before its operative date, which means that it would first be applied during the financial year ending
30 June 2020.
There are no other relevant new Australian Accounting Standards or Interpretations that are not yet effective and that are expected to have
a material impact on the Group in the current or future financial years and on foreseeable future transactions.
Note 2. Significant Accounting Estimates, Assumptions and Judgements
Revenues and expenses and the carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions
of future events. In applying the Group’s significant accounting policies, the Board of Directors and management evaluate estimates and
judgements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future
events and are based on current trends and economic data obtained both externally and within the Group.
Significant estimates, assumptions and/or judgements made by the Board of Directors and management in the preparation of the
consolidated financial statements were:
(a) Capitalised Exploration and Evaluation Expenditure
Exploration and evaluation expenditure is carried forward on the basis that exploration and evaluation activities in the areas of interest have
not at the end of the reporting period reached a stage that permits a reasonable assessment of the existence or otherwise of economically
recoverable reserves, and active and significant operations in, or in relation to, the areas of interest are continuing.
76
Karoon Gas Australia LtdAnnual Report 2018 The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether
the Group decides to exploit the related exploration tenement itself or, if not, whether it successfully recovers the related exploration and
evaluation asset through sale. Factors that could affect the future recoverability include the level of economically recoverable reserves,
future technological changes which could impact the cost of development, future legal changes (including changes to environmental
and restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is
determined not to be recoverable in the future, the relevant capitalised amount will be impaired in the consolidated statement of profit or loss
and other comprehensive income and net assets will be reduced during the financial period in which this determination is made.
Information on the reasonable existence or otherwise of economically recoverable reserves is progressively gained through geological
analysis and interpretation, drilling activity and prospect evaluation during a normal exploration tenement term. A reasonable assessment
of the existence or otherwise of economically recoverable reserves can generally only be made, therefore, at the conclusion of those
exploration and evaluation activities.
(b) Share-based Payments
The Group measures the cost of share-based payment transactions with Directors and employees by reference to the fair value of the share
options at the date they were granted. Fair value is ascertained using the Black-Scholes option pricing model taking into account the terms
and conditions upon which the share options were granted. The cumulative share-based payments expense recognised reflects the extent,
in the opinion of management, to which the vesting period has expired and the number of share options and performance rights granted
that will ultimately vest or be settled in cash. At the end of each reporting period, the unvested share options, performance rights and cash-
settled share-based payment liability are adjusted by the number forfeited during the reporting period to reflect the actual number of share
options and performance rights outstanding and cash liability to be settled. Management is of the opinion that this represents the most
accurate estimate of the number of share options and performance rights that will ultimately vest.
(c) Income Tax
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. There are many transactions and
calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates
its tax liabilities based on the Group’s understanding of the relevant tax laws. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the current and deferred tax balances in the financial period in which
such determination is made.
The Group has not recognised deferred tax assets in respect of Brazilian and Peruvian tax losses and temporary tax differences as the future
utilisation of these losses and temporary tax differences is not considered probable at this point in time. Assessing the future utilisation of
tax losses and temporary tax differences requires the Group to make significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent
that future utilisation of these tax losses and temporary tax differences becomes probable, this could result in significant changes to deferred
tax assets recognised, which would in turn impact future financial results.
(d) Joint Arrangements
Exploration and evaluation activities of the Group are conducted primarily through arrangements with other participants. Each arrangement
has a contractual agreement (joint operating agreement) that provides the participants with rights to the assets and obligations for the
liabilities of the arrangement. Under certain agreements, more than one combination of participants can make decisions about the relevant
activities and therefore joint control does not exist. Where the arrangement has the same legal form as a joint operation, but is not subject to
joint control, the Group accounts for its interest in accordance with the contractual agreement by recognising its share of jointly held assets,
liabilities, revenues and expenses of the arrangement.
77
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 3. Financial Risk Management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk); credit risk;
and liquidity risk. The Group’s overall financial risk management program focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure the different
types of financial risk to which it is exposed. These methods include sensitivity analysis in the case of foreign exchange and interest rates.
The overall financial risk management strategy of the Group is governed by the Board of Directors through the Risk and Governance
Committee and is primarily focused on ensuring that the Group is able to finance its business plans, while minimising potential adverse
effects on financial performance. The Board of Directors provides written principles for overall financial risk management, as well as written
policies covering specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of derivative financial instruments
and investment of excess cash. Financial risk management is carried out by the Company’s finance function under policies approved by the
Board of Directors. The finance function identifies, evaluates and if necessary hedges financial risks in close co-operation with the Managing
Director. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and Group activities.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the
basis on which income and expenses are recognised in respect of each class of financial asset and financial liability are disclosed in Note 1.
The Group’s financial instruments consist of cash and cash equivalents, receivables, security deposits, trade and other payables.
The Group had no off-statement of financial position financial assets or financial liabilities at either 30 June 2018 or 30 June 2017.
The totals for each category of financial instruments in the consolidated statement of financial position are as follows:
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables (refer note (a) below)
Total financial liabilities
(a) Trade and other payables above exclude amounts relating to leave liabilities, which are not
considered a financial instrument. The reconciliation to the amount in the consolidated statement
of financial position is as follows:
Trade and other payables
Less: Leave liabilities
(a) Market Risk
Consolidated
2018
$
2017
$
Note
10 333,572,953
1,152,572
11
10,316,198
13
345,041,723
375,069,427
1,430,487
7,833,512
384,333,426
5,387,801
5,387,801
11,124,528
11,124,528
18
6,708,533
(1,320,732)
5,387,801
12,553,916
(1,429,388)
11,124,528
(i) Foreign Exchange Risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities
are denominated in a currency that is not the Company’s functional currency.
The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures predominantly to the United
States dollar and Brazilian REAL. The Group manages foreign exchange risk at the corporate level by monitoring forecast cash flows in
currencies other than Australian dollars and ensuring that adequate United States dollar and Brazilian REAL cash balances are maintained.
Foreign currencies are bought on the spot market in excess of immediate requirements. Where currencies are purchased in advance of
requirements, these balances do not usually exceed 3 months requirements. The appropriateness of United States dollar holdings are
reviewed regularly against future commitments and current Australian dollar market expectations.
78
Karoon Gas Australia LtdAnnual Report 2018 Periodically, sensitivity analysis is conducted to evaluate the potential impact of unfavourable exchange rates on the Group’s future financial
position. The results of this evaluation are used to determine the most appropriate risk mitigation tool to be used. The Group will hedge when
it is deemed the most appropriate risk mitigation tool to be used.
Foreign currency hedging transactions were not entered into during the financial year or previous financial year.
An analysis of the Group’s exposure to foreign exchange risk for financial assets and liabilities, expressed in Australian dollars, at the end
of the financial year is set out below:
Consolidated
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables
Total financial liabilities
AUD
$
2018
USD
$
REAL
$
Total
$
AUD
$
2017
USD
$
REAL
$
Total
$
1,658,203 329,996,027
694,732
7,701,406
2,465,820 338,392,165
376,922
430,695
1,918,723 333,572,953
1,152,572
80,918
10,316,198
2,184,097
4,183,738 345,041,723
1,593,332 372,613,005
1,382,239
7,364,726
2,063,807 381,359,970
39,781
430,694
863,090 375,069,427
1,430,487
7,833,512
909,649 384,333,426
8,467
38,092
3,558,729
3,558,729
669,993
669,993
1,159,079
1,159,079
5,387,801
5,387,801
2,644,329
2,644,329
1,013,168
1,013,168
7,467,031
7,467,031
11,124,528
11,124,528
Foreign Exchange Sensitivity Analysis
The following table details the Group’s sensitivity to a 10.0% increase or decrease in the Australian dollar against the United States dollar
and Brazilian REAL respectively, with all other variables held constant. The sensitivity analysis includes only outstanding foreign currency
denominated amounts at the end of the financial year and adjusts their translation for a 10.0% change in the relevant foreign exchange rate.
The sensitivity analysis is not fully representative of the inherent foreign exchange risk, as the financial year end exposure does not necessarily
reflect the exposure during the course of a financial year. These sensitivities should not be used to forecast the future effect of movements
in United States dollar or Brazilian REAL exchange rates on future cash flows.
Change in profit (loss) before income tax
– Improvement in AUD by 10.0%
– Decline in AUD by 10.0%
Change in financial assets
– Improvement in AUD by 10.0%
– Decline in AUD by 10.0%
Change in financial liabilities
– Improvement in AUD by 10.0%
– Decline in AUD by 10.0%
Change in foreign currency translation reserve
– Improvement in AUD by 10.0%
– Decline in AUD by 10.0%
Consolidated
REAL Impact
2017
$
Consolidated
USD Impact
2017
$
2018
$
-
-
(30,686,098)
37,505,229
(34,508,426)
42,176,965
(82,695)
101,072
(30,762,924)
37,599,129
(34,669,088)
42,373,330
678,821
(829,670)
(596,126)
728,598
60,908
(74,444)
15,918
(19,456)
92,106
(112,574)
68,556
(83,791)
2018
$
-
-
(380,340)
464,860
105,371
(128,787)
274,969
(336,073)
(ii) Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of financial assets and financial liabilities will fluctuate because of changes
in market interest rates. Interest rate risk is managed on a Group basis at the corporate level.
As at 30 June 2018 and 30 June 2017, there was no interest rate hedging in place.
79
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 3. Financial Risk Management continued
(a) Market Risk continued
(ii) Interest Rate Risk continued
The Group’s interest rate risk arises from relevant financial assets, primarily cash and cash equivalents deposited at variable rates of interest
and security deposits related to Australia. As the majority of cash and cash equivalents is in United States dollars, the primary exposure is
to United States interest rates.
An analysis of the Group’s exposure to interest rate risk for financial assets and financial liabilities at the end of the financial year is set out below:
Weighted
Average
Interest Rate
% p.a.
0.08
-
2.13
8.45
Weighted
Average
Interest Rate
% p.a.
0.03
-
1.27
8.45
Consolidated
Floating
Interest Rate
$
Fixed Interest
Rate
$
Non-interest
Bearing
$
Fair Value
$
Carrying
Amount
$
326,019,829
-
4,813
326,024,642
6,863,024
-
8,110,455
14,973,479
690,100
1,152,572
2,200,930
4,043,602
333,572,953
1,152,572
10,316,198
345,041,723
333,572,953
1,152,572
10,316,198
345,041,723
-
-
122,043
122,043
5,265,758
5,265,758
5,387,801
5,387,801
5,387,801
5,387,801
Consolidated
Floating
Interest Rate
$
Fixed Interest
Rate
$
Non-interest
Bearing
$
Fair Value
$
Carrying
Amount
$
367,494,725
-
4,812
367,499,537
6,527,239
-
7,743,708
14,270,947
1,047,463
1,430,487
84,992
2,562,942
375,069,427
1,430,487
7,833,512
384,333,426
375,069,427
1,430,487
7,833,512
384,333,426
-
-
209,400
209,400
10,915,128
10,915,128
11,124,528
11,124,528
11,124,528
11,124,528
2018
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables
Total financial liabilities
2017
Financial assets
Cash and cash equivalents
Receivables
Security deposits
Total financial assets
Financial liabilities
Trade and other payables
Total financial liabilities
Interest Rate Sensitivity Analysis
The following table details the Group’s sensitivity to a 1.0% p.a. increase or decrease in interest rates, with all other variables held constant.
The sensitivity analysis is based on the balance of floating interest rate amounts held at the end of the financial year.
The sensitivity analysis is not fully representative of the inherent interest rate risk, as the financial year end exposure does not necessarily
reflect the exposure during the course of a financial year. These sensitivities should not be used to forecast the future effect of movements
in interest rates on future cash flows.
Change in profit (loss) before income tax
– Increase of interest rate by 1.0% p.a.
– Decrease of interest rate by 1.0% p.a.
Change in financial assets
– Increase of interest rate by 1.0% p.a.
– Decrease of interest rate by 1.0% p.a.
80
Consolidated
2018
$
2017
$
3,260,246
(31,194)
3,674,995
(16,392)
3,260,246
(31,194)
3,674,995
(16,392)
Karoon Gas Australia LtdAnnual Report 2018 (b) Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk
arises from cash and cash equivalents and security deposits held with banks, financial institutions and joint operators, as well as credit
exposures to customers, including outstanding receivables.
Credit risk is managed on a Group basis at the corporate level. To minimise credit risk, the Group has adopted a policy of only dealing
with recognised and creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result being the Group’s
exposure to bad debts is minimised. The Group does not hold collateral, nor does it securitise its receivables.
The Group has policies in place to ensure that services are made to customers with an appropriate credit history.
Cash and cash equivalents and security deposit counterparties are limited to high credit quality banks and financial institutions. For banks
and financial institutions in Australia, only independently rated counterparties with a minimum rating of A/A2 are accepted. For banks
and financial institutions in Brazil and Peru, only independently rated counterparties with a minimum rating of BBB+/Baa1 are accepted.
For banks and financial institutions in Brazil and Peru with independently rated counterparties ratings below BBB+/Baa1, exposure cannot
exceed the short-term country specific cash requirements. Where commercially practical, the Group seeks to limit the amount of credit
exposure to any one bank or financial institution. The Group’s credit exposure and credit ratings of its counterparties are monitored on an
ongoing basis.
The maximum exposure to credit risk at the end of the financial year is the carrying amount of the financial assets as disclosed
in the consolidated statement of financial position and notes to the consolidated financial statements.
The Group is exposed to credit risk in relation to cash and cash equivalents and security deposits held with the National Australia Bank
Limited and HSBC Group, the maximum amount of exposure as at 30 June 2018 was $324,436,451 (30 June 2017: $367,409,992) and
$8,222,145 (30 June 2017: $7,772,220) respectively. The Group is also exposed to credit risk in relation to cash and cash equivalents held
with the Commonwealth Bank Limited in Australia and Banco Bradesco SA in Brazil, the maximum amount of exposure as at 30 June 2018
was $6,863,024 (30 June 2017: $6,527,239) and $4,086,781 (30 June 2017: $862,006) respectively.
As at 30 June 2018, there were $Nil (30 June 2017: $Nil) financial assets past due.
(c) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
At the end of the financial year, the Group held cash and cash equivalents at call of $326,709,929 (30 June 2017: $368,542,188) that are
expected to readily generate cash inflows for managing liquidity risk.
The Group manages liquidity risk by ensuring that there are sufficient funds available to meet financial obligations on a day-to-day basis and
to meet unexpected liquidity needs in the normal course of business. Emphasis is placed on ensuring there is sufficient funding in place to
meet the ongoing requirements of the Group’s exploration and evaluation activities.
The following mechanisms are utilised to manage liquidity risk:
• preparing and maintaining rolling forecast cash flows in relation to operational, investing and financing activities;
• comparing the maturity profile of financial liabilities with the realisation profile of financial assets;
• managing credit risk related to financial assets;
• when necessary, utilising short-term loan facilities;
• investing surplus cash only in credit quality banks and financial institutions; and
• maintaining a reputable credit profile.
81
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 3. Financial Risk Management continued
(c) Liquidity Risk continued
An analysis of the Group’s financial liability maturities at the end of the financial year is set out below:
2018
Financial liabilities
Trade and other payables
Total financial liabilities
2017
Financial liabilities
Trade and other payables
Total financial liabilities
Less than
6 Months
$
Consolidated
6 –12
Months
$
1– 2
Years
$
Total
$
5,313,952
5,313,952
48,194
48,194
25,655
25,655
5,387,801
5,387,801
$
$
$
$
10,759,604
10,759,604
45,948
45,948
318,976
318,976
11,124,528
11,124,528
(d) Fair Value Estimation
For disclosure purposes only, the fair values of financial assets and financial liabilities as at 30 June 2018 and 30 June 2017 are presented in
the table under Note 3(a)(ii) and can be compared to their carrying values as presented in the consolidated statement of financial position.
Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an
arm’s length transaction. Fair values estimated for disclosure purposes are based on information that is subject to judgement, where
changes in assumptions may have a material impact on the amounts estimated.
The following summarises the significant methods and assumptions used in estimating fair values of financial assets and financial liabilities
for disclosure purposes:
Cash and Cash Equivalents
The carrying amount is fair value due to the liquid nature of these assets.
Receivables
The carrying amounts of receivables are assumed to approximate their fair values due to their short-term nature.
Security Deposits
The carrying amounts of security deposits are assumed to represent their fair values based on their likely realisability profile.
Trade and Other Payables
Due to the nature of these financial liabilities, their carrying amounts are a reasonable approximation of their fair values.
Note 4. Revenue
Interest income from unrelated entities
Total revenue
Net foreign currency gains
Total other income
Consolidated
2018
$
2017
$
710,652
710,652
858,356
858,356
12,993,578
12,993,578
-
-
82
Karoon Gas Australia LtdAnnual Report 2018 Note 5. Expenses
Loss before income tax includes the following specific expenses:
Depreciation and amortisation expense:
– depreciation of plant and equipment
– amortisation of computer software
Total depreciation and amortisation expense
Exploration and evaluation expenditure expensed, impaired or written-off:
– exploration and evaluation expenditure expensed
– exploration and evaluation expenditure written-off
– exploration and evaluation expenditure impaired
Total exploration and evaluation expenditure expensed, impaired or written-off
Finance costs:
– finance charges under finance lease
– bank charges
Total finance costs
Share-based payments expense
Rental expense on operating leases – minimum lease payments
Business development and other project costs (refer (a) below)
Write-down of inventory to net realisable value (refer (b) below)
Loss on disposal of inventory (refer (c) below)
Drilling rig mobilisation expense (refer (d) below)
Consolidated
2018
$
2017
$
Note
15
16
371,394
359,440
730,834
672,460
376,538
1,048,998
5,569,500
17
5,892,079
17 151,503,114
162,964,693
3,067,253
9,791,031
21,638,168
34,496,452
27(d)
14,300
223,174
237,474
4,409,889
1,583,097
7,285,306
6,679,549
1,157,407
-
16,287
323,035
339,322
3,797,668
1,920,137
4,526,430
1,326,811
-
16,513,578
(a) Reviewing new exploration opportunities predominantly in Australia and Brazil on business development and other project activities
that includes internal time allocation of employees and consultants and associated office charges, geotechnical data and external
advice relating to due diligence reviews on potential asset acquisitions.
(b) The write-down of inventory during the financial year resulted predominantly from potential well design specifications and number of
wells being considered as part of the ongoing Neon and Goiá work and the potential future development of the Neon light oil discovery,
which is distinct from inventory requirements for exploration drilling.
(c) Loss on disposal of inventory relates to the liquid mud inventory for Block Z-38 in Peru, following the liquid mud plant demobilisation
during the financial year.
(d) The drilling rig for Brazil was released during the previous financial year, without drilling any of the Santos Basin planned wells.
Accordingly, drilling rig mobilisation costs incurred during the previous financial year were expensed.
83
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 6. Income Tax
(a) Income Tax Recognised in the Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Tax income comprises:
Current tax
Adjustments in respect of current tax of previous financial years
Deferred tax
Total tax income
Consolidated
2018
$
2017
$
Note
264,780
(30,739)
2,044,767
2,278,808
(971,764)
57,269
11,114,830
10,200,335
The prima facie tax on loss before income tax is reconciled to tax income as follows:
Prima facie tax payable on loss before income tax, calculated at the Australian tax rate of 30%
55,216,980
27,518,355
Add the tax effect of:
Share-based payments expense (non-cash)
Other non-deductible items
Tax losses and temporary tax differences not previously recognised
Adjustment for current tax of previous financial years
Subtract the tax effect of:
Difference in overseas tax rates
Adjustment for current tax of previous financial years
Non-assessable income
Total tax income
(1,252,705)
(6,158,578)
(52,160,484)
(30,739)
(1,077,192)
(4,053,605)
(15,272,358)
-
5,947,964
-
716,370
2,278,808
1,933,514
57,269
1,094,352
10,200,335
(b) Amounts Recognised Directly in Equity
Aggregate current and deferred tax arising during the financial year and not recognised in net
profit or loss, but directly debited or credited in equity:
Deferred tax – credited directly in contributed equity
20(b)
-
206
(c) Current Tax Asset
Income tax receivable
Total current tax asset
185,737
185,737
391,020
391,020
84
Karoon Gas Australia LtdAnnual Report 2018 (d) Deferred Tax Balances
Temporary differences
Exploration and evaluation expenditure
Provisions and accruals
Equity raising transaction costs
Unrealised foreign currency gains
Farm-out expenditures
Other
Total temporary differences
Unused tax losses
Tax losses
Total unused tax losses
Net deferred tax liabilities
Consolidated
Charged
(Credited)
to Profit or
Loss
$
Charged
(Credited)
Directly to
Equity
$
3,207,800
(52,937)
(394,294)
(795,556)
85,793
(6,039)
2,044,767
167,719
167,719
2,212,486
-
-
-
-
-
-
-
-
-
-
Balance as
at 30 June
2018
$
(12,092,920)
579,781
8,301
(22,116,622)
178,739
10,873
(33,431,848)
1,058,550
1,058,550
(32,373,298)
Balance as
at 1 July
2017
$
(15,300,720)
632,718
402,595
(21,321,066)
92,946
16,912
(35,476,615)
890,831
890,831
(34,585,784)
Presented in the consolidated statement of financial position as follows:
Deferred tax liabilities
(34,585,784)
(32,373,298)
Deferred tax liabilities expected to be settled within 12 months
Deferred tax liabilities expected to be settled after more than 12 months
Deferred tax liabilities
Consolidated
2018
$
(5,529,155)
(26,844,143)
(32,373,298)
2017
$
(5,330,267)
(29,255,517)
(34,585,784)
(e) Unrecognised Deferred Tax Assets
A deferred tax asset has not been recognised in the consolidated statement of financial position as
the benefits of which will only be realised if the conditions for deductibility set out in Note 1(f) occur:
Unrecognised temporary tax differences relating to deferred tax assets at a tax rate of 34%
Tax losses: Brazilian operating losses at a tax rate of 34%
Tax losses: Peruvian operating losses at a tax rate of 32%
Potential tax income
31,983,685
39,524,231
8,923,638
80,431,554
-
26,336,834
5,437,371
31,774,205
(f) Unrecognised Taxable Temporary Differences
Temporary tax differences relating to deferred tax liabilities
Offset by deferred tax assets relating to operating losses
Total deferred tax liabilities (unrecognised)
(5,106,132)
5,106,132
-
(19,842,555)
19,842,555
-
85
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 6. Income Tax continued
(f) Unrecognised Taxable Temporary Differences continued
PRRT
PRRT applies to all the Group’s Australian petroleum projects in offshore areas under the Petroleum Resource Rent Tax Assessment Act
1987, other than some specific production licences. PRRT is assessed on a project basis or production licence area and will be levied on
the taxable profits of a relevant petroleum project at a rate of 40%. Certain specified undeducted expenditures are eligible for compounding.
The expenditures can be compounded annually at set rates and the compounded amount can be deducted against assessable receipts
in future financial years.
The Group estimates that it has incurred compounded carried forward undeducted PRRT expenditure in excess of accounting carrying
values as at 30 June 2018 of $129,696,596 (2017: $217,337,527). The resulting deferred tax asset calculated at an effective tax rate of 28%,
that has not been recognised in the consolidated statement of financial position, was $36,315,047 (2017: $60,854,508).
In order for the Group to utilise undeducted expenditures for PRRT purposes from previous financial years, it will be required to substantiate
eligible expenditure in relation to respective Australian offshore permits since the date of their granting to the Group. Any amount that the
Group is not able to substantiate will not be able to be utilised against assessable receipts in future financial years. Interests in undeducted
PRRT expenditure may be transferred, subject to satisfying certain conditions, between projects within the Group or to other third parties on
acquisitions of interests in the Group’s Australian offshore permits.
Note 7. Remuneration of External Auditors
Remuneration received or due and receivable by the external auditor of the Company for:
(a) PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Total remuneration for audit and other assurance services
(ii) Other services
Australian tax advice
Due diligence services
Taxation services
Other non-audit services
Total remuneration of PricewaterhouseCoopers Australia
(b) Related Practices of PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Due diligence services
Other non-audit services
Total remuneration for audit and other assurance services of related practices of PricewaterhouseCoopers
Australia
(ii) Other services
Taxation services
Total remuneration of related practices of PricewaterhouseCoopers Australia
Total remuneration of external auditors
Note 8. Dividends
There were no ordinary dividends declared or paid during the financial year by the Group (2017: $Nil).
Consolidated
2018
$
2017
$
157,590
157,590
157,590
157,590
22,500
330,727
346,702
59,116
916,635
15,000
-
62,500
-
235,090
153,105
2,496
5,594
165,227
209,363
-
161,195
374,590
221,813
383,008
-
374,500
1,299,643
609,680
Balance of franking account available for subsequent reporting periods
13,164,770
13,164,770
The above amount is calculated from the balance of the Company’s franking account as at the end
of the financial year. Franking credits are based on the Australian tax rate of 30%.
86
Karoon Gas Australia LtdAnnual Report 2018 Note 9. Earnings Per Share
Loss for the financial year used to calculate basic and diluted earnings per ordinary share:
(a) Basic loss per ordinary share
(b) Diluted loss per ordinary share*
* Diluted loss per ordinary share equates to basic loss per ordinary share in the current and previous financial year
because a loss per ordinary share is not considered dilutive for the purposes of calculating earnings per share pursuant
to AASB 133 ‘Earnings per Share’.
Weighted average number of ordinary shares on issue during the financial year used in calculating basic
earnings per ordinary share:
Weighted average number of potential ordinary shares:
Weighted average number of ordinary shares and potential ordinary shares used in calculating diluted
earnings per ordinary share (excluding anti-dilutive share options outstanding):
Weighted average number of anti-dilutive share options:
Potential ordinary shares
Share options and performance rights over unissued ordinary shares of the Company outstanding at the
end of the financial year are considered to be potential ordinary shares and have been included in the
determination of diluted earnings per ordinary share to the extent to which they are dilutive. The share
options and performance rights have not been included in the determination of basic earnings per ordinary
share.
Consolidated
2018
$
2017
$
(181,777,789)
(81,527,513)
(0.7403)
(0.7403)
(0.3327)
(0.3327)
245,560,596
245,034,116
5,842,566
4,012,485
251,403,162
249,046,601
7,075,268
7,267,017
Note 10. Cash and Cash Equivalents
Cash at banks and on hand (refer note (a) below)
Short-term bank deposits (refer note (b) below)
Total cash and cash equivalents
325,113,355
8,459,598
333,572,953
368,390,294
6,679,133
375,069,427
(a) Cash and Cash Equivalents of Joint Operations
Cash and cash equivalents includes share of joint operation cash and short-term bank deposit balances. Refer to Note 23 for further details.
(b) Short-term Bank Deposits
Short-term bank deposits are made for varying periods of between 1 day and 120 days, depending on the immediate cash requirements of
the Group, and earn interest at the respective short-term bank deposit rates.
(c) Financial Risk Management
Information concerning the Group’s exposure to financial risks on cash and cash equivalents is set out in Note 3.
87
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 11. Receivables
Current
Other receivables
Total current receivables
(a) Financial Risk Management
Information concerning the Group’s exposure to financial risks on receivables is set out in Note 3.
Note 12. Inventories
Current
Casing and other drilling inventory
Total current inventories
Non-current
Casing and other drilling inventory
Total non-current inventories
Note 13. Security Deposits
Current
Karoon Petróleo & Gas Ltda, KEI (Peru Z38) Pty Ltd, Sucursal del Peru (refer note (d) below)
Total current security deposits
Non-current
Karoon Gas Australia Ltd (refer note (a) below)
Karoon Petróleo & Gas Ltda (refer note (b) below)
Karoon Gas Australia Ltd (refer note (c) below)
KEI (Peru Z38) Pty Ltd, Sucursal del Peru (refer note (d) below)
Total non-current security deposits
Consolidated
2018
$
2017
$
1,152,572
1,152,572
1,430,487
1,430,487
-
-
10,858
10,858
37,696,266
37,696,266
46,368,852
46,368,852
18,955
18,955
24,746
24,746
7,684,573
2,169,021
430,695
12,954
10,297,243
7,317,827
-
430,693
60,246
7,808,766
(a) Performance Guarantee
Performance guarantee (via a letter of credit) provided to Perupetro SA (the Peruvian oil and gas regulator) for Block Z-38 by the Group
(refer Note 24) for third period work commitments. The letter of credit is fully funded by way of payment of a security deposit, which will be
released once the work commitments are met.
(b) Guarantee Bond
The Group has provided the ANP (the Brazilian oil and gas regulator) a letter of credit (refer Note 24) to carry out the minimum work program
in relation to exploration in Santos Basin Block S-M-1537. The letter of credit is fully funded by way of payment of a security deposit, which
will be released once the work program is met.
(c) Bank Guarantees
Cash deposits are held as security against bank guarantee facilities for bank guarantees (refer Note 24) given to lessors for the Group’s
compliance with its obligations in respect of operating lease rental agreements for office premises.
(d) Bonds
Cash deposits are held as bonds for the Group’s compliance with its obligations in respect of agreements for the guarantee (refer Note 24)
of payment obligations for various accommodation in Brazil and Peru.
(e) Financial Risk Management
Information concerning the Group’s exposure to financial risks on security deposits is set out in Note 3.
88
Karoon Gas Australia LtdAnnual Report 2018 Note 14. Other Assets
Current
Prepayments
Total current other assets
Note 15. Plant and Equipment
Plant and equipment
At cost
Accumulated depreciation
Total plant and equipment
Consolidated
2018
$
2017
$
Note
782,828
782,828
2,129,830
2,129,830
5,191,476
(4,388,962)
802,514
5,527,586
(4,388,423)
1,139,163
Reconciliation
The reconciliation of the carrying amount for plant and equipment is set out below:
Balance at beginning of financial year
Additions
Disposals
Net foreign currency difference on translation of financial statements of foreign subsidiaries
Depreciation expense
Carrying amount at end of financial year
22(c)
5
1,139,163
216,372
(144,527)
(37,100)
(371,394)
802,514
1,603,216
254,565
-
(46,158)
(672,460)
1,139,163
Note 16. Intangible Assets
Computer software
At cost
Accumulated amortisation
Total intangibles
3,077,235
(2,295,721)
781,514
3,185,839
(2,018,264)
1,167,575
Reconciliation
The reconciliation of the carrying amounts for computer software is set out below:
Balance at beginning of financial year
Additions
Net foreign currency difference on translation of financial statements of foreign subsidiaries
Amortisation expense
Carrying amount at end of financial year
22(c)
5
1,167,575
81,468
(108,089)
(359,440)
781,514
1,116,739
492,473
(65,099)
(376,538)
1,167,575
89
Karoon Gas Australia LtdAnnual Report 2018
Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Consolidated
2018
$
2017
$
Note
Note 17. Exploration and Evaluation Expenditure Carried Forward
Geological, geophysical, drilling and other exploration and evaluation expenditure, including
directly attributable general administrative costs
209,629,983
371,029,112
Reconciliation
The reconciliation of exploration and evaluation expenditure carried forward is set out below:
Balance at beginning of financial year
Additions
Exploration and evaluation expenditure written-off (refer note (a) below)
Exploration and evaluation expenditure impaired (refer note (b) below)
Net foreign currency difference on translation of financial statements of foreign subsidiaries
Total exploration and evaluation expenditure carried forward (refer note (c) below)
Intangible
371,029,112
19,175,698
22(c)
5
(5,892,079)
5 (151,503,114)
(23,179,634)
209,629,983
209,629,983
376,766,598
41,730,248
(9,791,031)
(21,638,168)
(16,038,535)
371,029,112
371,029,112
(a) The liquid mud plant for Block Z-38 was demobilised during the financial year, as more cost effective alternatives were considered whilst
the block was under force majeure. Accordingly, previously capitalised mud plant costs in exploration and evaluation expenditure were
written-off during the financial year (30 June 2017: exploration and evaluation expenditure carried forward associated with Block 144
had been written-off as the block was relinquished during the previous financial year. In addition, exploration and evaluation expenditure
carried forward associated with drilling rig mobilisation costs capitalised was written-off, as the rig for Brazil was released without drilling
any of the planned Santos Basin wells).
(b) As part of the review of the Group’s non-current assets as at 30 June 2018, exploration and evaluation expenditure carried forward has
been fully impaired for:
(i)
exploration Blocks S-M-1101 and S-M-1165, including the Goiá light oil discovery, following the probabilistic reassessment
of its contingent resources at the 2C level to 27 mmbbls during May 2018, re-assessment of its associated economics,
and the Group’s primary focus on developing the Neon light oil discovery. A future development of the Goiá light oil
discovery would be largely dependent on a successful development of the Neon light oil discovery and associated
economics. Under AASB 6 area of interest both light oil discoveries have been assessed independently of each other
(30 June 2017: exploration and evaluation expenditure carried forward associated with Block S-M-1166, including the Bilby oil
discovery, had been fully impaired as at 30 June 2017); and
(ii) exploration permit WA-314-P as active and significant exploration and evaluation activities in relation to the permit are no longer
continuing at the present time. Karoon’s continued presence in this permit remains subject to industry interest in progressing
exploration and approval of its application for suspension, extension and variation of title conditions with the regulatory authority
(NOPTA). A decision on whether to proceed into the next permit period will be made during the 31 December 2018 financial
half-year. The current term (Years 1-3) of WA-314-P ends 13 October 2018.
(c) Exploration and evaluation expenditure carried forward relates to areas of interest in the exploration and evaluation phase for exploration
tenements EPP46, WA-482-P, Block S-M-1037, Block S-M-1102, Block S-M-1537 and Block Z-38 (30 June 2017: EPP46, WA-314-P,
WA-482-P, Block S-M-1037, Block S-M-1101, Block S-M-1102, Block S-M-1165 and Block Z-38).
The expenditure is carried forward on the basis that exploration and evaluation activities in the areas of interest have not reached a stage that
permits reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant activity in, or
in relation, to the areas is continuing. The future recoverability of the carrying amount of capitalised exploration and evaluation expenditure
is dependent on successful development and commercial exploitation or, alternatively, the sale of the respective areas of interest.
90
Karoon Gas Australia LtdAnnual Report 2018
Note 18. Trade and Other Payables
Current (unsecured)
Trade payables
Sundry payables and accruals
Cash-settled share-based payments
Finance lease liability
Total current trade and other payables
Non-current (unsecured)
Cash-settled share-based payments
Finance lease liability
Total non-current trade and other payables
Note
28(d)
28(d)
Consolidated
2018
$
2017
$
2,011,915
4,029,890
290,796
96,388
6,428,989
7,888,550
4,113,505
140,990
91,895
12,234,940
253,889
25,655
279,544
201,471
117,505
318,976
(a) Financial Risk Management
Information concerning the Group’s exposure to financial risks on trade and other payables is set out in Note 3.
Note 19. Provisions
Current
Provision for long service leave (refer note (a) below)
Total current provision
Non-current
Provision for long service leave (refer note (a) below)
Total non-current provisions
Consolidated
2018
$
2017
$
283,500
283,500
246,647
246,647
329,520
329,520
291,324
291,324
(a) Provision for Long Service Leave
A provision was recognised for employee entitlements relating to long service leave. The measurement and recognition criteria relating
to long service leave entitlements are as described in Note 1(q).
The current portion of this provision includes all the unconditional entitlements to long service leave where employees have completed
the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances.
Consolidated
Consolidated
2018
Number
2017
Number
2018
$
2017
$
Note 20. Contributed Equity and Reserves Within Equity
(a) Contributed Equity
Ordinary shares, fully paid
Total contributed equity
245,721,153 245,217,605 802,295,334 802,295,334
802,295,334 802,295,334
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
Voting rights of shareholders are governed by the Company’s Constitution. In summary, on a show of hands every holder of ordinary shares
present at a meeting in person or by proxy is entitled to one vote, and upon a poll each such attending shareholder is entitled to one vote
for every fully paid ordinary share held.
Ordinary shares participate in dividends as declared from time to time and the proceeds on winding up of the Company in proportion to the
number of fully paid ordinary shares held.
91
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 20. Contributed Equity and Reserves Within Equity continued
(b) Movement in Ordinary Shares
Date
1 July 2016
30 June 2017
30 June 2018
Details
Opening balance in previous financial year
Performance rights conversion
Ordinary shares bought back (on-market) and cancelled
Share buy-back transaction costs
Deferred tax credit recognised directly in equity
Balance at end of previous financial year
Performance rights conversion
Balance at end of financial year
Number of
Ordinary
Shares
245,260,124
472,426
(514,945)
245,217,605
503,548
245,721,153
Note
27(c)
6(b)
27(c)
Issue Price
Per Ordinary
Share
-
-
$
802,967,815
-
(671,998)
(689)
206
802,295,334
-
802,295,334
(c) Capital Management
The Board of Directors controls the capital of the Company in order to ensure that the Group can fund its operations and continue as a going
concern. The aim is to maintain a capital structure that ensures the lowest cost of capital to the Company.
The Managing Director manages the Company’s capital by monitoring future rolling cash flows and adjusting its capital structure,
as required, in consultation with the Board of Directors to meet Group business objectives. As required, the Group will balance its overall
capital structure through the issue of new ordinary shares, share buy-backs and utilising short-term loan facilities when necessary.
There were no externally imposed capital management restrictions on the Group during the financial year.
There is no current on-market share buy-back.
(d) Reserves Within Equity
(i) Share-based Payments Reserve
The share-based payments reserve is used to recognise the grant date fair value of equity-settled share-based payments to Directors,
other key management personnel and employees as part of their remuneration, as described in Note 1(p).
(ii) Foreign Currency Translation Reserve
The foreign currency translation reserve is used to recognise exchange differences arising from the translation of financial statements of
foreign subsidiaries, as described in Note 1(e). The relevant amounts included in the foreign currency translation reserve will be recognised
in the consolidated statement of profit or loss and other comprehensive income when each relevant investment in foreign subsidiary is
disposed.
92
Karoon Gas Australia LtdAnnual Report 2018 Note 21. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described in Note 1(b):
Name
Parent Company:
Karoon Gas Australia Ltd
Unlisted subsidiaries of Karoon Gas Australia Ltd:
Karoon Energy International Pty Ltd
Karoon Gas Browse Basin Pty Ltd
Karoon Gas (FPSO) Pty Ltd
Unlisted subsidiaries of Karoon Energy International Pty Ltd:
KEI (Brazil Santos) Pty Ltd
KEI (Peru 112) Pty Ltd
KEI (Peru Z38) Pty Ltd
Jointly owned unlisted subsidiary of Karoon Energy
International Pty Ltd and KEI (Brazil Santos) Pty Ltd:
Karoon Petróleo & Gas Ltda
Branch of KEI (Peru 112) Pty Ltd:
KEI (Peru 112) Pty Ltd, Sucursal del Peru
Branch of KEI (Peru Z38) Pty Ltd:
KEI (Peru Z38) Pty Ltd, Sucursal del Peru
Note 22. Segment Information
Percentage of Equity
and Voting Interests Held
by the Group
Country of
Incorporation or
Registration
Business
Activities
Carried on in
2018
%
2017
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
Brazil
Brazil
100
100
Peru
Peru
100
100
Peru
Peru
100
100
(a) Description of Segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director and
Executive Director/Exploration Director (identified as the ‘chief operating decision maker’) in assessing performance and in determining the
allocation of resources.
The operating segments are based on the Group’s geographical location of its operations.
The Group has identified operating segments based on the following three geographic locations:
• Australia – in which the Group is currently involved in the exploration and evaluation of hydrocarbons in 3 offshore exploration permit
areas: WA-314-P, WA-482-P and EPP46;
• Brazil – in which the Group is currently involved in the exploration and evaluation of hydrocarbons in 5 offshore exploration blocks:
Block S-M-1037, Block S-M-1101, Block S-M-1102, Block S-M-1165 and Block S-M-1537. Block S-M-1537 was acquired during the
financial year. Block S-M-1166 was requested to be relinquished during the financial year; and
• Peru – in which the Group is currently involved in the exploration and evaluation of hydrocarbons in offshore exploration Block Z-38.
‘All other segments’ include amounts not specifically attributable to an operating segment.
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies.
Segment revenue and results do not include transfers between segments as intercompany balances are eliminated on consolidation.
93
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 22. Segment Information continued
(a) Description of Segments continued
Employee benefits expense and other operating expenses, that are associated with exploration and evaluation activities and specifically
relate to an area of interest, are allocated to the area of interest and are capitalised as exploration and evaluation assets.
The amounts provided to the chief operating decision maker with respect to total assets and total liabilities are measured in a manner
consistent with that of the consolidated financial statements. Reportable segment assets and segment liabilities are equal to consolidated
total assets and total liabilities respectively. These assets and liabilities are allocated on the operations of the segment.
(b) Operating Segments
Segment Performance
Result for financial year ended 30 June 2018
Segment revenue (interest income from unrelated entities)
Other income
Business development and other project costs
Depreciation and amortisation expense
Employee benefits expense (net)^
Exploration and evaluation expenditure expensed,
impaired or written-off
Finance costs
Write-down of inventory to net realisable value
Property costs
Administration and other operating expenses
Loss before income tax
Tax income
Loss for financial year
Result for financial year ended 30 June 2017
Segment revenue (interest income from unrelated entities)
Business development and other project costs
Depreciation and amortisation expense
Drilling rig mobilisation expense
Employee benefits expense (net)^^
Exploration and evaluation expenditure expensed,
impaired or written-off
Finance costs
Write-down of inventory to net realisable value
Net foreign currency losses
Property costs
Administration and other operating expenses
Loss before income tax
Tax income
Loss for financial year
Australia
$
Brazil
$
Peru
$
All Other
Segments
$
Consolidated
$
242,403
12,955,238
(79,648)
(152,588)
(7,553,915)
455,079
50,752
(6,463,603)
(421,828)
(3,259,339)
13,170
(12,412)
-
(156,418)
(526,054)
(11,670,959) (144,386,155)
(157,793)
(9,288)
(6,669,605)
(9,944)
(877,191)
(773,591)
(2,404,555)
(1,423,438)
(9,456,847) (163,153,121)
-
2,278,808
(7,178,039) (163,153,121)
(6,725,744)
(70,393)
-
(274,224)
(2,770,664)
(10,522,739)
-
(10,522,739)
146,747
(136,206)
(350,456)
-
(8,797,547)
711,557
(4,390,224)
(408,782)
(16,513,578)
(2,736,569)
641,063
(17,608)
-
(14,808,172)
(776,352)
(2,854,461)
(26,952,992)
10,200,335
(16,752,657)
(27,316,536)
(239,572)
(1,326,811)
859,328
(1,169,944)
(1,478,891)
(54,010,022)
-
(54,010,022)
52
-
(289,760)
-
(1,117,563)
(6,831,249)
(82,142)
-
39,110
(332,881)
(1,160,671)
(9,775,104)
-
(9,775,104)
-
-
(742,055)
-
-
(181,835)
-
-
-
-
(923,890)
-
(923,890)
710,652
12,993,578
(7,285,306)
(730,834)
(11,339,308)
(162,964,693)
(237,474)
(6,679,549)
(1,925,006)
(6,598,657)
(184,056,597)
2,278,808
(181,777,789)
-
-
-
-
-
(989,730)
-
-
-
-
-
(989,730)
-
(989,730)
858,356
(4,526,430)
(1,048,998)
(16,513,578)
(12,651,679)
(34,496,452)
(339,322)
(1,326,811)
(13,909,734)
(2,279,177)
(5,494,023)
(91,727,848)
10,200,335
(81,527,513)
^
Includes share-based payments expense of $3,256,798 (Australia) and $1,153,091 (Brazil) during the financial year.
^^ Includes share-based payments expense of $3,038,026 (Australia), $661,591 (Brazil) and $98,051 (Peru) during the previous financial year.
94
Karoon Gas Australia LtdAnnual Report 2018 Segment Assets
As at 30 June 2018
Segment asset information
Cash and cash equivalents
Exploration and evaluation expenditure carried forward
Security deposits
Inventories
Other
Segment assets
As at 30 June 2017
Segment asset information
Cash and cash equivalents
Exploration and evaluation expenditure carried forward
Security deposits
Inventories
Other
Segment assets
Segment Liabilities
As at 30 June 2018
Segment liability information
Trade and other payables
Deferred tax liabilities
Provisions
Segment liabilities
As at 30 June 2017
Segment liability information
Trade and other payables
Deferred tax liabilities
Provisions
Segment liabilities
Australia
$
Brazil
$
Peru
$
All Other
Segments
$
Consolidated
$
331,353,468
2,019,810
41,774,616 103,474,676
2,184,097
12,815,556
1,806,235
374,305,796 122,300,374
430,695
-
747,017
199,675
64,380,691
7,701,406
24,880,710
1,151,913
98,314,395
373,920,044
52,467,284
430,694
10,858
1,256,717
428,085,597
898,220
254,225,048
38,092
21,145,461
2,958,744
279,265,565
251,163
64,336,780
7,364,726
25,223,391
2,042,614
99,218,674
-
-
-
-
-
-
-
-
-
-
-
-
333,572,953
209,629,983
10,316,198
37,696,266
3,705,165
594,920,565
375,069,427
371,029,112
7,833,512
46,379,710
6,258,075
806,569,836
Australia
$
Brazil
$
Peru
$
All Other
Segments
$
Consolidated
$
3,321,249
32,373,298
613,020
36,307,567
2,759,038
-
-
2,759,038
628,246
-
-
628,246
3,424,634
34,585,784
537,971
38,548,389
8,232,785
-
-
8,232,785
896,497
-
-
896,497
-
-
-
-
-
-
-
-
6,708,533
32,373,298
613,020
39,694,851
12,553,916
34,585,784
537,971
47,677,671
95
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 22. Segment Information continued
(c) Other Segment Information
Additions to non-current assets, other than financial assets (refer Note 3), during the reporting periods were:
Financial year ended 30 June 2018
Plant and equipment
Intangible assets
Exploration and evaluation expenditure carried forward
Financial year ended 30 June 2017
Plant and equipment
Intangible assets
Exploration and evaluation expenditure carried forward
Note 23. Joint Operations
Australia
$
Brazil
$
Peru
$
All Other
Segments
$
Consolidated
$
2,038
42,305
808,269
18,030
37,404
14,669,756
196,304
1,759
3,697,673
33,450
2,068
2,440,517
211,342
486,894
33,442,453
9,773
3,511
5,847,278
-
-
-
-
-
-
216,372
81,468
19,175,698
254,565
492,473
41,730,248
The Group has an equity interest in the following joint operations as at 30 June 2018 as follows:
Unincorporated
Equity Interest (%)
Petroleum
Tenement
WA-482-P
Block Z-38
Business Activities Carried on in
Northern Carnarvon Basin, Australia
Tumbes Basin, Peru
2018
50
40^
2017
50
75
Principal Activities
Exploration and evaluation Quadrant Northwest Pty Ltd
Exploration and evaluation KEI (Peru Z38) Pty Ltd,
Operator of Joint Operation
Sucursal del Peru
^ During January 2018, the Group entered into a farm-out agreement with Tullow Peru Limited to reduce its Block Z-38 equity interest to 40%, subject to
conditions including regulatory approvals that were still outstanding as at 30 June 2018. During the financial year, Karoon funded 100% of Block Z-38’s
exploration expenditure. The Group’s farm-in obligations to Pitkin Petroleum Peru Z-38 SRL are still to be completed.
The exploration and evaluation activities of both WA-482-P and Block Z-38 are ‘strategic’ to the Group’s activities.
The following amounts represented the Group’s share of assets, liabilities, revenues and expenses employed in joint operations. The
amounts are included in the consolidated financial statements, in accordance with the accounting policy described in Note 1(s), under the
following classifications:
Cash and cash equivalents
Receivables (current)
Inventories (current)
Exploration and evaluation expenditure carried forward (non-current)
Trade and other payables (current)
Share of net assets employed in joint operations
Interest income from unrelated entities
Other income
Exploration and evaluation expenditure expensed, impaired or written-off
Loss on disposal of inventory
Write-down of inventory to net realisable value
Consolidated
2018
$
52,529
1,106
-
105,733,673
(25,746)
105,761,562
2017
$
-
74
10,858
105,238,634
(72,837)
105,176,729
1,500
2,465
(6,709,590)
(1,157,407)
(9,944)
-
29,252
-
-
-
Contingent liabilities in respect of joint operations are set out in Note 24. Exploration expenditure commitments in respect of joint operations
are set out in Note 25.
Parent Company guarantee has been provided to Tullow Peru Limited guaranteeing KEI (Peru Z38) Pty Ltd, Sucursal del Peru’s performance
under the joint operating agreement covering Block Z-38 in Peru.
96
Karoon Gas Australia LtdAnnual Report 2018 Consolidated
2018
$
2017
$
Note 24. Contingent Liabilities and Contingent Assets
(a) Contingent Liabilities
The Group has contingent liabilities as at 30 June 2018 that may become payable in respect of:
(i) Performance guarantee (via a letter of credit) provided to Perupetro SA (the Peruvian oil and gas regulator)
for Block Z-38 by the Group for third period work commitments. The Directors are of the opinion that the
work commitments will be satisfied. The letter of credit is fully funded by way of payment of a security
deposit (refer Note 13), which will be released once the work commitments are met.
7,684,573
7,317,827
(ii) The Group has provided the ANP (the Brazilian oil and gas regulator) a letter of credit (refer Note 13)
to carry out the minimum work program in relation to exploration in Santos Basin Block S-M-1537. The
Directors are of the opinion that the work program commitments will be satisfied. The letter of credit is fully
funded by way of payment of a security deposit, which will be released once the work program is met.
2,169,021
-
(iii) Bank guarantees were provided in respect of operating lease rental agreements for office premises of
the Group. These guarantees may give rise to liabilities in the Group if obligations are not met under these
guarantees. The bank guarantees given to lessors are fully funded by way of payment of security deposits
(refer Note 13).
430,695
430,693
(iv) Cash deposits (refer Note 13) are held as bonds for the Group’s compliance with its obligations in respect
of agreements for the guarantee of payment obligations for various accommodation in Brazil and Peru.
31,909
84,992
(v) Block Acquisition
As part of the acquisition of Pacific Exploration and Production Corp.’s equity interest of Santos Basin Blocks S-M-1037, S-M-1101,
S-M-1102, S-M-1165 and S-M-1166 during the 2017 financial year, the Group agreed to pay Pacific Exploration and Production Corp.
a deferred contingent consideration of US$5.0 million payable upon first production reaching a minimum of 1 million barrels of oil equivalent
from the Blocks. The deferred contingent obligation has not been provided for as at 30 June 2018, as it is dependent upon uncertain
future events.
(vi) Brazilian Local Content
The Concession Contracts for Santos Basin Blocks S-M-1037, S-M-1101, S-M-1102, S-M-1165 and S-M-1166 require Karoon Petróleo
& Gas Ltda to acquire a minimum proportion of goods and services from Brazilian suppliers, with the objective to stimulate industrial
development, promote and diversify the Brazilian economy, encourage advanced technology and develop local capabilities. The minimum
Brazilian local content requirement under the Concession Contracts during the exploration and appraisal phase is 55%. If Karoon Petróleo
& Gas Ltda fails to comply with this minimum requirement, Karoon Petróleo & Gas Ltda may be subject to a fine by the ANP.
It is not practical to estimate a potential shortfall in meeting the local content requirement as at 30 June 2018, nor the financial effect of any
potential fine by the ANP.
(vii) Other Matters
There are also legal claims and exposures, which arise from the Group’s ordinary course of business. No material loss to the Group is
expected to result.
(viii) Joint Operations
In accordance with normal industry practice, the Group has entered into joint operations with other parties for the purpose of exploring
and evaluating its exploration tenements. If a participant to a joint operation defaults and does not contribute its share of joint operation
obligations, then the remaining joint operation participants are jointly and severally liable to meet the obligations of the defaulting participant.
In this event, the equity interest in the exploration tenements held by the defaulting participant may be redistributed to the remaining joint
operation participants.
In the event of a default, a contingent liability exists in respect of expenditure commitments due to be met by the Group in respect of the
defaulting joint operation participant.
(b) Contingent Assets
The Group has no contingent assets as at 30 June 2018 (30 June 2017: $Nil).
97
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 25. Commitments
(a) Capital Expenditure Commitments
Contracts and/or signed Authorities for Expenditure for capital expenditure in relation to assets not provided
for in the consolidated financial statements and payable:
Drilling operations
Not later than one year
Later than one year but not later than five years
Total capital expenditure commitments
(b) Operating Lease Rental Commitments
Non-cancellable operating lease rentals not provided for in the consolidated financial statements
and payable:
Not later than one year
Later than one year but not later than five years
Total operating lease rental commitments
Consolidated
2018
$
2017
$
1,460,063
139,617
1,599,680
2,819,813
-
2,819,813
999,845
612,499
1,612,344
1,859,879
1,216,073
3,075,952
The Group leases various offices under non-cancellable operating leases expiring within 1 to 3 years. The leases have varying terms,
escalation clauses and, for some, renewal rights. On renewal, the terms of the leases are renegotiated.
Consolidated
2018
$
2017
$
(c) Exploration Expenditure Commitments
The Group has commitments for exploration expenditure arising from obligations to government,
to perform minimum exploration and evaluation work and expend minimum amounts of money pursuant
to the award of exploration tenements EPP46, WA-314-P, WA-482-P, Block S-M-1537 and Block Z-38
(30 June 2017: WA-314-P, WA-482-P, Block S-M-1037, Block S-M-1101, Block S-M-1102, Block S-M-1165,
Block S-M-1166, Block Z-38 and Block 144) not provided for in the consolidated financial statements and
payable. Included in exploration expenditure commitments are $275,361,548 (30 June 2017: $439,745,268)
of commitments that relate to the non-guaranteed work commitments:
Not later than one year
Later than one year but not later than five years (refer note (i) below)
Later than five years
Total exploration expenditure commitments
The above commitments include exploration expenditure commitments relating to joint operations:
Not later than one year
Later than one year but not later than five years
Total joint operation exploration expenditure commitments
166,301
376,607,883
2,169,021
378,943,205
-
769,920,329
-
769,920,329
166,301
189,522,796
189,689,097
-
216,895,151
216,895,151
Estimates for future exploration expenditure commitments to government are based on estimated well and seismic costs, which will
change as actual drilling locations and seismic surveys are organised, and are determined in current dollars on an undiscounted basis.
The exploration and evaluation obligations may vary significantly as a result of renegotiations with relevant parties.
The commitments may also be reduced by the Group entering into farm-out agreements, which are typical of the normal operating activities
of the Group.
Where exploration and evaluation expenditure included in this category relates to an existing contract for expenditure and/or signed
Authorities for Expenditure, the amount will be included in both categories (a) and (c) above.
(i) During February 2018, the ANP approved an application to review the appraisal plan for Santos Basin exploration Blocks S-M-1037,
S-M-1101, S-M-1102, S-M-1165 and S-M-1166 thereby removing the appraisal phase firm commitments to drill 2 wells and acquire
3D seismic and drilling up to four contingent wells. These were included in the previous financial year comparative exploration expenditure
commitments and totalled $364,146,098.
98
Karoon Gas Australia LtdAnnual Report 2018 Note 26. Reconciliation to the Consolidated Statement of Cash Flows
(a) Reconciliation of Loss for Financial Year to Net Cash Flows Used in
Operating Activities
Loss for financial year
(181,777,789)
(81,527,513)
Consolidated
2018
$
2017
$
Add (subtract)
Non-cash items included in loss for financial year:
Depreciation of plant and equipment and amortisation of computer software
Share-based payments expense
Loss on disposal of inventory
Net foreign currency losses (gains)
Items classified as investing/financing activities:
Net loss on disposal of non-current assets
Exploration and evaluation expenditure impaired or written-off
Net foreign currency gains
Write-down of inventory to net realisable value
Finance charges under finance lease
Change in operating assets and liabilities:
(Increase) decrease in assets
Receivables – current
Current tax asset
Other assets
Increase (decrease) in liabilities
Trade and other payables – current
Trade and other payables – non-current
Provisions – current
Provisions – non-current
Deferred tax liabilities
Net cash flows used in operating activities
(b) Non-cash Financing Activities
Acquisition of computer software by means of a finance lease
(c) Total Liabilities from Financing Activities
730,834
4,175,684
1,157,407
(12,076,432)
1,048,998
3,590,639
-
14,577,712
144,527
157,395,193
(917,146)
6,679,549
-
134
31,429,199
(667,978)
1,326,811
16,287
333,300
162,205
118,421
1,247,840
13,923
267,604
655,833
62,681
36,853
38,196
(2,212,486)
(25,293,170)
805,484
(303,300)
(40,801)
27,460
(10,069,836)
(38,257,337)
-
273,386
Finance lease liability (current and non-current)
Total liabilities from financing activities
Balance as at
1 July 2017
209,400
209,400
Cash Flow:
Payments for
Finance Lease
Liability
(64,290)
(64,290)
Non-cash Change:
Foreign Currency
Translation Reserve
Movement
(23,067)
(23,067)
Balance as at
30 June 2018
122,043
122,043
99
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 27. Share-based Payments
The share-based payment plans are described below. There has been no cancellation to a plan during the financial year.
(a) Employee Share Option Plan (‘ESOP’)
The Company currently has one ESOP in place, the 2016 ESOP. ESOP options expire up to 4 years after they are granted. The exercise price
of ESOP options, issued during the financial year, is based on the volume weighted average price at which the Company’s ordinary shares
are traded on the ASX during the 20 days of trading before the ESOP options were offered plus a premium to the market price.
Each ESOP option provides eligible employees with the right to acquire one fully paid ordinary share of the Company at the exercise price
determined upon grant, or its equivalent value, subject to the achievement of the relevant performance conditions.
Share options granted under the ESOP carry no dividend or voting rights.
If there is a change of control of the Company, for all unexercised ESOP options, a percentage amount of unvested ESOP options may vest
on the basis of the pro-rata achievement of pre-determined performance conditions.
During the financial year, the Group granted 1,148,344 ESOP options (2017: 846,752) over unissued ordinary shares in the Company to
Executive Directors. Share options issued to Directors are approved on a case-by-case basis by shareholders at relevant general meetings.
The following summary reconciles the outstanding ESOP options over unissued ordinary shares in the Company at the beginning and end
of the financial year:
Balance at beginning of financial year
Granted during financial year
Exercised during financial year
Cancelled during financial year
Expired during financial year
Forfeited during financial year
Balance at end of financial year
Exercisable at end of financial year
Consolidated
Consolidated
2018
Weighted
Average
Exercise
Price
$3.02
$1.74
-
-
-
$4.06
$2.11
-
2017
Weighted
Average
Exercise
Price
$4.11
$1.82
-
$3.18
-
$6.74
$3.02
-
2017
Number
5,872,110
2,515,632
-
(225,506)
-
(895,304)
7,266,932
-
2018
Number
7,266,932
3,177,319
-
-
-
(2,820,313)
7,623,938
-
All ESOP options issued during the financial year were issued under the Karoon Gas Australia 2016 Employee Share Option Plan.
There was no exercise of ESOP options during the financial year or previous financial year.
The weighted average fair value of ESOP options granted during the financial year was $0.36 (2017: $0.74).
ESOP options outstanding as at 30 June 2018 had a range of exercise prices from $1.73 to $3.04 (30 June 2017: range of exercise prices
from $1.82 to $4.06) with a weighted average remaining contractual life of 787 days (30 June 2017: 713 days).
100
Karoon Gas Australia LtdAnnual Report 2018 Details of ESOP options outstanding at the end of the financial year are:
Grant Date
9 October 2015
30 October 2015
30 November 2016
2 December 2016
2 December 2016
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Total ESOP options
Date of Expiry
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
Exercise
Price Per
ESOP Option
$3.04
$3.04
$1.82
$1.82
$1.82
$1.73
$1.73
$1.73
$1.77
Number
1,013,888
981,818
1,100,476
846,752
503,685
1,547,619
421,647
59,709
1,148,344
7,623,938
(b) Fair Value of Share Options
The fair value of each share option issued during the financial year was estimated on grant date using the Black-Scholes option pricing model.
The Black-Scholes option pricing model takes into account the exercise price, the term of the share option, the share price at grant date and
expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the share option.
The Group applied the following assumptions and inputs in estimating the weighted average fair value:
Weighted average exercise price
Weighted average life of share options
Weighted average share price
Expected share price volatility
Risk free interest rate
Weighted average share option value
2018
$1.74
1,343 days
$1.33
54%
2.05%
$0.36
2017
$1.82
1,307 days
$1.92
46%
2.42%
$0.74
Historical volatility was the basis for determining expected share price volatility as it is assumed that this is indicative of future trends, which
may not eventuate.
(c) Performance Rights Plan (‘PRP’)
The Company currently has one PRP plan in place, the 2016 PRP.
Under the PRP, eligible employees are given performance rights to be issued and allotted fully paid ordinary shares in the Company,
or its equivalent value, for no consideration provided certain conditions have been met. Vesting of performance rights is conditional on
the achievement of performance measures, over a one-year performance period, and provided the employee remains employed by the
Company for an additional year. In each case, the Remuneration Committee will be responsible for assessing whether the performance
measures have been achieved. When vested, each performance right is convertible into one ordinary share of the Company.
Performance rights granted carry no dividend or voting rights.
If there is a change of control of the Company, for all unexercised performance rights issued pursuant to the Company’s PRP, a percentage
amount of unvested performance rights may vest on the basis of the pro-rata achievement of pre-determined performance conditions.
During the financial year, the Group granted 662,816 performance rights (2017: 596,944) over unissued ordinary shares in the Company
to Executive Directors. Performance rights issued to Directors are approved on a case-by-case basis by shareholders at relevant general
meetings.
101
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 27. Share-based Payments continued
(c) Performance Rights Plan (‘PRP’) continued
The following summary reconciles the outstanding performance rights over unissued ordinary shares in the Company at the beginning and
end of the financial year:
Balance at beginning of financial year
Granted during financial year
Vested and converted during financial year
Cancelled during financial year
Cash-settled during financial year
Forfeited during financial year
Balance at end of financial year
Consolidated
2018
Number
4,470,794
3,434,635
(503,548)
-
(112,512)
(789,356)
6,500,013
2017
Number
1,792,398
3,573,686
(472,426)
(166,446)
(63,946)
(192,472)
4,470,794
All performance rights issued during the financial year were issued under the 2016 PRP.
There were 503,548 (2017: 472,426) performance rights vested during the financial year, which were converted into 503,548 (2017: 472,426)
fully paid ordinary shares.
The weighted average fair value of performance rights granted during the financial year was $1.31 (2017: $1.91). Fair values of performance
rights were based on the Company’s closing share price at grant date.
Performance rights outstanding as at 30 June 2018 had a weighted average remaining contractual life of 700 days (30 June 2017: 793 days).
Details of performance rights outstanding at the end of the financial year are:
Grant Date
9 October 2015
30 October 2015
30 November 2016
2 December 2016
30 November 2016
2 December 2016
2 December 2016
16 November 2017
6 October 2017
9 November 2017
14 November 2017
6 October 2017
9 November 2017
14 November 2017
16 November 2017
Total performance rights
Date of Expiry
30 June 2019
30 June 2019
30 June 2019
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2019
30 June 2020
30 June 2020
30 June 2020
30 June 2021
30 June 2021
30 June 2021
30 June 2021
Number
451,395
138,460
646,845
444,327
636,546
385,516
362,289
257,010
1,367,123
382,758
42,200
724,883
233,755
21,100
405,806
6,500,013
102
Karoon Gas Australia LtdAnnual Report 2018 (d) Share-based Payments Expense
Total expenses arising from share-based payment transactions recognised during the financial year, included as part of employee benefits
expense in the consolidated statement of profit or loss and other comprehensive income, were as follows:
Share options issued under ESOP
Performance rights issued under PRP
Share-based payments expense (non-cash)
Share-based payments expense (cash-settled)
Total share-based payments expense
Note 28. Related Party Transactions
Consolidated
2018
$
1,048,956
3,126,728
4,175,684
234,205
4,409,889
2017
$
1,548,412
2,042,227
3,590,639
207,029
3,797,668
Transactions between related parties are on normal commercial terms and conditions, no more favourable than those available to other
parties, unless otherwise stated.
(a) Subsidiaries
Interests in subsidiaries are set out in Note 21.
During the financial year, the Group provided accounting, administrative and technical services to subsidiaries at cost. This allocation was
based on costs recharged on a relevant time allocation of employees and consultants and associated office charges.
Other transactions that occurred were provision of funding by the Parent Company to its overseas subsidiaries via an increase in contributed
equity and intercompany loans to the Australian subsidiaries. The intercompany loans provided are at a Nil% interest rate (2017: Nil%) and
no fixed term for repayment and therefore will not be repaid within 12 months. Loans are unsecured and are repayable in cash.
Where equity-settled share options and performance rights are issued to employees of subsidiaries within the Group, the transaction is
recognised as an investment in the subsidiary by the Parent Company and in the subsidiary, a share-based payments expense and an
equity contribution by the Parent Company.
The above transactions are eliminated on consolidation.
(b) Remuneration of Key Management Personnel
Directors and other key management personnel remuneration is summarised as follows:
Short-term employee benefits
Post-employment benefits
Long-term employee benefits (non-cash)
Share-based payments expense
Total key management personnel remuneration
Consolidated
2018
$
3,598,808
201,923
39,517
1,621,116
5,461,364
2017
$
3,714,974
187,622
44,260
1,711,340
5,658,196
Detailed remuneration disclosures for the Directors and other key management personnel are provided in Sections 5 of the audited
Remuneration Report on pages 50 to 52.
In addition to the above, the Group is committed to pay the Executive Directors and other key management personnel up to $3,208,556
(2017: $3,160,046) in the event their role is fundamentally reduced upon a change in control of the Group.
Apart from the details disclosed in this note, no Director or other key management personnel has entered into a material contract with
the Group since the end of the previous financial year and there were no material contracts involving Directors’ or other key management
personnel interests subsisting as at 30 June 2018.
103
Karoon Gas Australia LtdAnnual Report 2018 Notes to the Consolidated Financial Statements
For the Financial Year Ended 30 June 2018 (continued)
Note 28. Related Party Transactions continued
(c) Other Related Party Transactions Within the Group
During the financial year, Mr Jose Coutinho Barbosa, a Non-Executive Director, had an interest in Net Pay Óleo & Gás Consultoria Ltda
that provided business and geology consulting services to the Group. The value of these transactions during the financial year in the
Group was $321,395 (2017: $332,210). The balance outstanding included in current trade and other payables is $28,486 (2017: $27,149).
Given Karoon’s relative size to other operators in Brazil, the consulting services provided by Net Pay Óleo & Gás Consultoria Ltda are
required for Karoon to operate within the Brazilian oil industry.
During the financial year, Ms Flavia Barbosa, the daughter of a Non-Executive Director, was employed by the Group as the in-house Legal
Counsel in Brazil. The total value of her remuneration (including share-based payments expense) during the financial year was $252,311
(2017: $242,372), which includes social security and indemnity fund contributions of $38,702 (2017: $16,535). Ms Barbosa has been an
employee of the Company since 2011, and has a comprehensive understanding of the Brazilian legal and regulatory framework.
During the financial year, Ms Marina Sayao, the wife of Mr Tim Hosking (a key management person), was employed by the Group on a
full-time basis until August 2016 and then on a part-time basis from September 2016 as the Sustainability and Communications Manager
South America. The total value of her remuneration (including share-based payments expense) during the financial year was $115,488
(2017: $152,478), which includes social security and indemnity fund contributions of $Nil (2017: $34,967). Ms Sayao is a key member of the
South American operations. The Brazilian and Peruvian regulatory and business environments require transparent and clear communication
on social and environmental issues with local and federal governments.
During the previous financial year, Mr Mark Smith, an Executive Director, had an interest in IERS (Australia) Pty Ltd, which has an ongoing
informal agreement with the Group to provide geophysical fault seal analysis software. No work was performed for the Group during the
financial year.
(d) Related Party Payables
During the financial year, as part of their ‘At Risk’ remuneration Mr Scott Hosking and Mr Tim Hosking, Ms Marina Sayao and Ms Flavia
Barbosa were issued cash-settled share-based payments for which a liability is recognised based on fair value earned by the end of the
reporting period. The balance outstanding included in current trade and other payables is $290,796 (2017: $140,990) and in non-current
trade and other payables $253,889 (2017: $201,471).
Note 29. Parent Company Financial Information
(a) Summary Financial Information
The individual financial statements for the Parent Company show the following aggregate amounts:
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Accumulated losses
Share-based payments reserve
Total equity
Loss for financial year
Company
2018
$
2017
$
331,451,574
158,749,443
490,201,017
374,469,705
310,093,584
684,563,289
1,984,757
24,905,701
26,890,458
463,310,559
1,998,063
23,456,171
25,454,234
659,109,055
802,295,334
(386,695,074)
47,710,299
463,310,559
802,295,334
(186,720,894)
43,534,615
659,109,055
(199,974,180)
(102,194,430)
Total comprehensive loss for financial year
(199,974,180)
(102,194,430)
104
Karoon Gas Australia LtdAnnual Report 2018 (b) Contingent Liabilities of Parent Company
(i)
Bank guarantees were provided in respect of operating lease rental agreements. These guarantees
may give rise to liabilities in the Parent Company if obligations are not met under these guarantees.
The bank guarantees given to lessors are fully funded by way of payment of security deposits
(refer Note 13).
(ii) Performance guarantee (via a letter of credit) was provided to Perupetro SA (the Peruvian oil and gas
regulator) for Block Z-38 by the Parent Company for third period work commitments. The Directors
are of the opinion that the work commitments will be satisfied. The letter of credit is fully funded
by way of payment of a security deposit (refer Note 13), which will be released once the work
commitments are met.
Company
2018
$
2017
$
430,695
430,693
7,684,573
7,317,827
(iii) The Company’s present intention is to provide the necessary financial support for all Australian incorporated subsidiaries, whilst they
remain wholly owned subsidiaries, as is necessary for each company to pay all debts as and when they become due.
(c) Guarantees Entered into by Parent Company
Parent Company guarantee provided to a third party during the financial year guaranteeing a subsidiary’s performance under a joint
operating agreement is set out in Note 23.
Parent Company guarantee has been provided to Perupetro SA guaranteeing a subsidiary’s obligations under a License Agreement
covering Tumbes Basin Block Z-38 in Peru.
Parent Company guarantees have been provided to the ANP (the Brazilian oil and gas regulator) guaranteeing a subsidiary’s obligations
under Concession Agreements covering Santos Basin Blocks S-M-1037, S-M-1101, S-M-1102, S-M-1165, S-M-1537 and S-M-1166^
in Brazil.
^ Block S-M-1166 was requested to be relinquished during the financial year. The request to withdraw the Parent Company guarantee, provided to the ANP,
is underway.
Note 30. Subsequent Events
This Annual Report was authorised for issue by the Board of Directors on 24 September 2018. The Board of Directors has the power
to amend and reissue the consolidated financial statements and notes.
Since 30 June 2018, the following material event has occurred:
Removal of Peruvian Block Z-38 Force Majeure
During September 2018, Perupetro S.A. advised that force majeure was lifted from Block Z-38. The joint operation has 22 months
in which to fulfil its work obligation.
105
Karoon Gas Australia LtdAnnual Report 2018
Directors’ Declaration
The Directors’ declare that:
(a) in the Directors’ opinion, the consolidated financial statements and notes, set out on pages 63 to 105, are in accordance with the
Corporations Act 2001, including:
(i) complying with relevant Australian Accounting Standards and the Corporations Regulations 2001; and
(ii) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on
that date; and
(b) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
Note 1(a) confirms that the consolidated financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by Section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
On behalf of the Directors:
Mr Peter Turnbull
Independent Interim Non-Executive Chairman
Mr Robert Hosking
Managing Director
25 September 2018
106
Karoon Gas Australia LtdAnnual Report 2018
Independent Auditor’s Report
Independent auditor’s report
To the members of Karoon Gas Australia Ltd
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Karoon Gas Australia Ltd (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated statement of profit or loss and other comprehensive income for the financial
year then ended
the consolidated statement of financial position as at 30 June 2018
the consolidated statement of changes in equity for the financial year then ended
the consolidated statement of cash flows for the financial year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the Directors’ Declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
107
Karoon Gas Australia LtdAnnual Report 2018
Independent Auditor’s Report (continued)
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
For the purpose of our audit we used overall Group materiality of $5.94 million, which represents
approximately 1% of the Group’s total assets.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
We chose the Group's total assets because, in our view, it is a commonly accepted benchmark for exploration
companies in the oil and gas industry that do not currently have producing assets. The Group does not
currently have revenue from producing assets, meaning profit and revenue based thresholds are less
relevant. We chose 1% based on our professional judgement, nothing it is within the range of commonly
accepted thresholds.
Audit Scope
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
The Group has three operating segments in Australia, Brazil and Peru. In establishing the overall approach to
the Group audit, we determined the type of work that needed to be performed by us, as the Group
engagement team, and by component auditors under our instruction. Due to their financial significance,
audit procedures were performed over the three main operating segments’ financial information.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit Committee.
108
Karoon Gas Australia LtdAnnual Report 2018
Key audit matter
How our audit addressed the key audit matter
To evaluate the Group’s carrying value assessment, we
performed the following procedures:
Obtained an understanding of the Group’s
process for assessing indicators of
impairment;
Considered the market data and industry
forecasts for the long-term commodity prices;
Considered approved budgets and business
plans, current drilling operations, permit
tenure and other evidence of future intentions
for individual exploration areas of interest;
and
Compared the impairment charge recorded
against permits S-M-1101, S-M-1165, and WA-
314-respectively against historical capitalised
costs.
We performed the following procedures, amongst
others, in evaluating the Group’s determination:
Obtained the Group’s analysis of future
exploration expenditure commitments and
considered the guaranteed and non-
guaranteed classification of these amounts;
Evaluated other additional non-guaranteed
exploration expenditure commitments and
operational cash outflows included in the
Group’s assessment;
Carrying value assessment of exploration and
evaluation assets (Refer to note 17 in the
financial report)
As at 30 June 2018, the Group has capitalised
exploration and evaluation expenditures of $209.6
million, related primarily to geological, geophysical,
drilling and other exploration and evaluation
expenditure, across Australia, Brazil and Peru.
Exploration and evaluation assets are assessed for
indicators of impairment by area of interest at each
period end. Where there are indicators of impairment,
the Group is required to assess whether the carrying
amount of the exploration and evaluation assets is
likely to be fully recovered from a successful
development or by sale, which requires the Group to
make a number of estimates and assumptions. These
estimates include the recoverability of reserves, cost of
development and production, legal and environmental
regulation changes, and long-term commodity prices.
As discussed in Note 17, during the financial year, an
expense of $151.5 million was recorded in the
consolidated statement of profit or loss and other
comprehensive income to reflect the impairment
charge recorded against the capitalised exploration and
evaluation expenditure associated with permits S-M-
1101, S-M-1165, and WA-314-P.
We focused on this area due to the significant carrying
value of the capitalised exploration and evaluation
expenditure relative to the total assets of the Group,
along with the significant and complex judgements and
estimates required by the Group in determining
whether there are any impairment indicators.
Liquidity to fund future exploration
expenditure (Refer to note 25 in the financial
report)
As of June 30, 2018 the Group has material exploration
expenditure commitments arising from its obligations
to perform minimum exploration and evaluation work,
which are not recorded as liabilities in the consolidated
statement of financial position. The Group’s
guaranteed exploration expenditure was $103.6 million
as at 30 June 2018. In addition, non-guaranteed work
commitments totalled $275.3 million at financial year
end. These commitments are not due in the 2019
financial year.
109
Karoon Gas Australia LtdAnnual Report 2018
Independent Auditor’s Report (continued)
Key audit matter
How our audit addressed the key audit matter
The Group holds cash and cash equivalents of
approximately $333.6 million and has no committed
external debt arrangements as at 30 June 2018.
Notwithstanding this, the Group currently has no cash-
generating assets in operation. Therefore, our
assessment of the Group’s determination that there are
sufficient funds available to allow the Group to
continue as a going concern was a key audit matter.
Assessed whether there were any deficiencies
in the Group’s cash flow forecast position; and
Obtained written representations from
management and the Board of Directors
regarding their plans for future action and the
feasibility of these plans.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the annual report for the financial year ended 30 June 2018, including the
Chairman and Managing Director's Review, Karoon at a Glance, Financial Year 2018 Highlights,
Where We Operate, Resource Summary, Strengths and Risks, Operations Review, Corporate
Sustainability Report, Directors' Report, Additional Securities Exchange Information, Glossary of
Terms, and Corporate Directory but does not include the financial report and our auditor’s report
thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the financial report
The Directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and Corporations Act 2001
and for such internal control as the Directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the Directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
110
Karoon Gas Australia LtdAnnual Report 2018
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 33 to 60 of the Directors’ Report for the
year ended 30 June 2018.
In our opinion, the Remuneration Report of Karoon Gas Australia Ltd for the year ended 30 June
2018 complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Charles Christie
Partner
Melbourne
25 September 2018
111
Karoon Gas Australia LtdAnnual Report 2018
Additional Securities Exchange Information
Additional information required by the ASX Listing Rules and not disclosed elsewhere in the Annual Report is set out below. The information
was applicable for the Company as at 17 September 2018.
Distribution of Shareholding
The number of shareholders ranked by size of holding is set out below:
Size of Holding
Less than 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
More than 100,000
Total
Number of Holders
2,488
2,887
1,226
1,415
177
8,193
Number of Ordinary
Shares on Issue
1,111,412
8,034,209
9,340,413
39,739,229
187,495,890
245,721,153
There were 1,291 shareholders holding less than a marketable parcel of ordinary shares to the value of $500.
Substantial Shareholders
The number of ordinary shares held by substantial shareholders and their associates (who held 5% or more of total fully paid ordinary shares
on issue), as disclosed in substantial holder notices given to the Company, is set out below:
Shareholder
Talbot Group Holdings Pty Ltd
Wellington Management Group, LLP and its related bodies corporate
Janus Henderson Group PLC
Total
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company’s ordinary shares are listed below:
Fully Paid Ordinary Shares
Number Held
26,358,356
18,044,551
12,562,452
56,965,359
% of Issued
Ordinary Shares
10.73
7.34
5.11
23.18
Fully Paid Ordinary Shares
Talbot Group Investments Pty Ltd
Shareholder
1 HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
2
3
Talbot Group Holdings Pty Ltd
4 BNP Paribas Noms Pty Ltd
5 Citicorp Nominees Pty Limited
6
7 Ropat Nominees Pty Ltd
8 National Nominees Limited
9 Nero Resource Fund Pty Ltd
10 UBS Nominees Pty Ltd
11 BNP Paribas Nominees Pty Ltd
12 Mrs Mara Spong
13 IERS (Australia) Pty Ltd
14 Aranim Pty Ltd
15 Mr Samuel Thomas Henderson
16 Mr Mark Alexander Smith
17 Safari Capital Pty Ltd
18 IERS (Australia) Pty Ltd
19 Mrs Pauline Frolley
20 Mr Steven Mark Sinclair + Mrs Heather Joy Sinclair
Total
112
Number Held
40,886,668
28,227,471
15,317,043
14,697,276
11,394,454
11,000,313
9,210,022
4,308,682
4,219,938
2,484,740
1,778,614
1,127,888
1,071,500
1,024,378
999,879
991,658
834,047
807,780
770,746
724,724
151,877,821
% of Issued
Ordinary Shares
16.64
11.49
6.23
5.98
4.64
4.48
3.75
1.75
1.72
1.01
0.72
0.46
0.44
0.42
0.41
0.40
0.34
0.33
0.31
0.29
61.81
Karoon Gas Australia LtdAnnual Report 2018 Unlisted Equity Securities: Share Options and Performance Rights
The following share options and performance rights over unissued ordinary shares of the Company are not quoted:
Share options issued pursuant to Karoon Gas Australia Employee Share Option Plan
Performance rights issued pursuant to Company’s Performance Rights Plan
Total
Voting Rights
Number of Unlisted
Share Options and
Performance Rights
on Issue
5,628,232
4,811,558
10,439,790
Number of Holders
40
42
82
(a) Ordinary Shares, Fully Paid
Voting rights of shareholders are governed by the Company’s Constitution. In summary, on a show of hands every holder of ordinary shares
present at a meeting in person or by proxy is entitled to one vote, and upon a poll each such attending shareholder is entitled to one vote
for every fully paid ordinary share held.
(b) Unlisted Share Options and Performance Rights
No voting rights.
Other Information
The Company was incorporated as a public company on 11 November 2003.
The Company was admitted to the ASX official list during June 2004 and quotation of its ordinary shares commenced on 8 June 2004.
The register of securities is held at Computershare Investor Services Pty Limited, GPO Box 2975 Melbourne VIC 3001 Australia. Investor
enquiries can be made via telephone on 1300 850 505 (within Australia).
Schedule of Interests in Petroleum Tenements
Exploration Permit/Block
EPP46
WA-314-P
WA-482-P
Block S-M-1037
Block S-M-1101
Block S-M-1102
Block S-M-1165
Block S-M-1537
Block Z-38
Basin
Ceduna Sub-basin, Australia
Browse, Australia
Northern Carnarvon, Australia
Santos, Brazil
Santos, Brazil
Santos, Brazil
Santos, Brazil
Santos, Brazil
Tumbes, Peru
% Equity
Interest Held
100
100#
50^
100
100
100
100
100
40^^
#
^
1.5% over-riding royalty for first five years of production, going to 2% thereafter.
Liberty Petroleum Corporation is entitled to certain milestone cash bonuses and a royalty in the event of production.
^^ During January 2018, the Group entered into a farm-out agreement with Tullow Peru Limited to reduce its Block Z-38 equity interest to 40%, subject
to conditions including regulatory approvals that are still outstanding as at the date of this Annual Report. The Group’s farm-in obligations to Pitkin
Petroleum Peru Z-38 SRL are still to be completed.
113
Karoon Gas Australia LtdAnnual Report 2018 Glossary of Terms
Term
2D seismic
3D seismic
$ or cents
AASB
Definition
Two-dimensional seismic.
Three-dimensional seismic.
Units of Australian currency.
Australian Accounting Standards Board.
amplitude anomaly
A change in seismic amplitude that may represent a change in subsurface properties, such as the presence
of hydrocarbons or improved reservoir.
ANP
API
Agência Nacional do Petróleo, Gás Natural e Biocombustíveis.
American Petroleum Institute’s inverted scale for denoting the ‘lightness’ or ‘heaviness’ of crude oils and other
liquid hydrocarbons.
appraisal well
A well drilled to confirm the size or quality of a hydrocarbon discovery.
ASX
ATO
AUD
AVO
ASX Limited (ACN 008 624 691), trading as Australian Securities Exchange.
Australian Taxation Office.
Australian currency.
Amplitude versus offset.
barrel or bbl
Barrel of oil, inclusive of condensate. A quantity of 42 United States gallons; equivalent to approximately
159 litres.
basin
block
boe
Company or Parent
Company
contingent resources
A natural depression on the earth’s surface in which sediments, eroded from higher surrounding ground levels,
accumulated and were preserved.
A licence or concession area. It may be almost any size or shape, although usually part of a grid pattern.
Barrel of oil equivalent. The factor used to convert gas to oil equivalent is based upon an approximate energy
value of 6,000 standard cubic feet per barrel and not price equivalence at the time.
Karoon Gas Australia Ltd.
Those quantities of hydrocarbons estimated, as of a given date, to be potentially recoverable from known
accumulations by application of development projects, but which are not currently considered to be
commercially recoverable (as evaluation of the accumulation is insufficient to clearly assess commerciality).
1C- Denotes low estimate scenario of contingent resources.
2C- Denotes best estimate scenario of contingent resources.
3C- Denotes high estimate scenario of contingent resources.
Director
A Director of the Company.
discovery well
The first successful well on a new prospect.
DoC
Declaration of Commerciality.
economically
recoverable reserves
The estimated quantity of hydrocarbons in an area of interest that can be expected to be profitably extracted,
processed and sold under current and foreseeable economic conditions.
E&P
ESG
ESOP
Exploration and production.
Environmental, social and governance.
Karoon Gas Australia 2016 Employee Share Option Plan and Karoon Gas Australia 2012 Employee Share
Option Plan.
exploration
The process of identifying, discovering and testing prospective hydrocarbon regions and structures, mainly by
interpreting regional and specific geochemical, geological, geophysical survey data and drilling.
farm-in and farm-out
A commercial agreement in which an incoming joint operation participant (the ‘farmee’) earns an interest in an
exploration tenement by funding a proportion of exploration and evaluation expenditures, while the participant
owning the interest in the exploration tenement (the ‘farmor’) pays a reduced contribution. The interest received
by a farmee is a farm-in while the interest transferred by the farmor is a farm-out.
FBT
FEED
FID
Fringe Benefits Tax in Australia.
Front End Engineering and Design.
Final Investment Decision.
114
Karoon Gas Australia LtdAnnual Report 2018 Term
field
Definition
An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual
geological structural feature or stratigraphic condition. The field name refers to the surface area although it may
refer to both the surface and underground productive formation.
financial year
Financial year ended 30 June 2018.
FPSO
GAB
Floating production, storage and off-loading facility.
Great Australian Bight.
GABRWS
Great Australian Bight Right Whale Study in Australia.
G&G
GST
HSSE
hydrocarbon
Geological and geophysical.
Goods and Services Tax in Australia.
Health, safety, security and environment.
A compound of the elements hydrogen and carbon, in either liquid or gaseous form. Natural gas and petroleum
are mixtures of hydrocarbons.
Karoon or Group
Karoon Gas Australia Ltd and its subsidiaries.
km
lead
LNG
LTI
m
Kilometres.
A potential hydrocarbon target which has been identified, but requires further evaluation before it is drill ready,
at which point it becomes a prospect.
Liquefied natural gas.
Long-term incentive.
Metres.
market capitalisation
The product of a company’s share price multiplied by the total number of ordinary shares issued by the
company.
migration
mm
mmbbls
NOPTA
NOPSEMA
OMS
Operator
Hydrocarbons are often found in formations other than those in which their organic source was deposited.
This movement often covers considerable distances and is known as migration.
Million.
Millions of barrels (1,000,000 barrels).
National Offshore Petroleum Titles Administrator.
National Offshore Petroleum Safety and Environmental Management Authority.
Operating Management System.
One joint operation participant that has been appointed to carry out all operations on behalf of all the joint
operation participants.
ordinary shares
The ordinary shares in the capital of the Company.
OWC
p.a.
Oil-water-contact.
Per annum.
performance rights
Performance rights issued under the PRP.
permit
Petróbras
play
A hydrocarbon tenement, lease, licence, concession or block.
Petróleo Brasileiro SA.
A trend within a prospective basin that has common geologic elements containing one or more fields, prospects
or leads with common characteristics.
previous financial year
Financial year ended 30 June 2017.
PRP
prospect
Karoon Gas Australia 2016 Performance Rights Plan and Karoon Gas Australia 2012 Performance Rights Plan.
A geological or geophysical anomaly that has been surveyed and defined, usually by seismic data, to the
degree that its configuration is fairly well established, and on which further exploration such as drilling can be
recommended.
115
Karoon Gas Australia LtdAnnual Report 2018 Glossary of Terms (continued)
Term
Definition
prospective resource
The estimated quantities of petroleum that may potentially be recoverable by the application of a future
development project related to undiscovered accumulations.
Low estimate (P90): P90 refers to a 90% chance that an estimated quantity, such as a prospective resources
volume or associated quantity, will be equalled or exceeded.
Best estimate (P50): P50 refers to a 50% chance that an estimated quantity, such as a prospective resources
volume or associated quantity, will be equalled or exceeded.
High estimate (P10): P10 refers to a 10% chance that an estimated quantity, such as a prospective resources
volume or associated quantity, will be equalled or exceeded.
Mean estimate (Mean): Mean is the expected value, equal to the sum of the values in that distribution divided
by the number of values.
prospectivity
Referring to the likelihood of finding commercial hydrocarbons.
PRRT
PSDM
REAL
Petroleum Resource Rent Tax in Australia.
Pre-stack depth migration.
Brazilian currency.
recoverable gas
An estimated measure of the total amount of gas which could be brought to surface from a given reservoir. In a
good quality reservoir this is usually in the order of 70-80% of the estimated gas-in-place.
reserves
reservoir
RFAD
risk
seismic survey
sq km
STI
TCF
TRIR
TSR
Tullow
unrisked
Quantities of economically recoverable hydrocarbons estimated to be present within a trap.
A porous and permeable rock formation to store and transmit fluids such as hydrocarbons and water.
Final Discovery Evaluation Report.
Prospect risk or geologic risk is the assessed chance that the drilling of the prospect will be successful in
finding significant volumes of hydrocarbons. The risk is calculated by multiplying the chance of success of each
of the petroleum system elements involved in the prospect.
A type of geophysical survey where the travel times of artificially created seismic waves are measured as they
are reflected in a near vertical plane back to the surface from subsurface boundaries. This data is typically used
to determine the depths and form of stratigraphic units and in making subsurface structural contour maps and
ultimately in delineating prospective structures.
Square kilometres.
Short-term incentive.
Trillion cubic feet (1,000,000,000,000 cubic feet).
Total Recordable Incident Rate.
Total shareholder return.
Tullow Peru Limited or Tullow Oil plc.
A risk value has not been applied to an estimate of hydrocarbon volume either in place or recoverable.
USD or US$
United States dollars.
116
Karoon Gas Australia LtdAnnual Report 2018 Corporate Directory
Board of Directors
Mr Peter Turnbull – Independent Interim Non-Executive Chairman
Mr Robert Hosking – Managing Director
Mr Mark Smith – Executive Director
Ms Luciana Rachid – Independent Non-Executive Director
Mr Geoff Atkins – Independent Non-Executive Director
Mr Clark Davey – Independent Non-Executive Director
Mr Jose Coutinho Barbosa – Non-Executive Director
Company Secretary
Mr Scott Hosking
Audit Committee Members
Mr Clark Davey (Chairman of Committee)
Mr Geoff Atkins
Mr Peter Turnbull
Nomination Committee Members
Mr Geoff Atkins (Chairman of Committee)
Ms Luciana Rachid
Mr Clark Davey
Mr Peter Turnbull
Remuneration Committee Members
Mr Peter Turnbull (Chairman of Committee)
Mr Geoff Atkins
Mr Clark Davey
Risk and Governance Committee Members
Mr Peter Turnbull (Chairman of Committee)
Ms Luciana Rachid
Mr Clark Davey
Registered Office
Office 7A
34-38 Lochiel Avenue
Mt Martha VIC 3934
Australia
107 001 338
53 107 001 338
ACN
ABN
Telephone + 61 3 5974 1044
Facsimile + 61 3 5974 1644
Website www.karoongas.com.au
info@karoongas.com.au
Email
External Auditor
PricewaterhouseCoopers Australia
2 Riverside Quay
Southbank VIC 3006
Australia
Telephone + 61 3 8603 1000
Facsimile + 61 3 8603 1999
Share Registrar
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 3001
Australia
Telephone 1300 850 505 (within Australia)
+ 61 3 9415 4000 (outside Australia)
Facsimile + 61 3 9473 2500
Website www.computershare.com
Securities Exchange Listing
The Company’s ordinary shares are listed on the ASX.
The home exchange is Melbourne VIC.
ASX code KAR
117
Karoon Gas Australia LtdAnnual Report 2018