Key Petroleum Limited
and its Controlled Entities
ABN 50 120 580 618
Annual Report
for the year ended 30 June 2011
Key Petroleum Limited and its Controlled Entities
Corporate Information
ABN 50 120 580 618
Directors
Dennis Wilkins (Non Executive Chairman)
Kenneth Russell (Managing Director)
John Sheppard (Non Executive Director)
Company Secretary
John Ribbons
Registered Office
Ground Floor, 20 Kings Park Road
WEST PERTH WA 6005
Principal Place of Business
163 Stirling Highway
NEDLANDS WA 6009
Telephone: +61 8 9389 3200
Facsimile: +61 8 9389 3299
Postal Address
PO Box 1622
WEST PERTH WA 6872
Solicitors
Richard O’Shannassy & Co Pty Ltd
Level 3, 46 Ord Street
WEST PERTH WA 6005
Bankers
National Australia Bank Limited
1232 Hay Street
WEST PERTH WA 6005
Share Register
Computershare Investor Services Pty Ltd
Level 2, Reserve Bank Building
45 St George’s Terrace
PERTH WA 6000
Auditors
Bentleys
Level 1, 12 Kings Park Road
WEST PERTH WA 6005
Internet Address
www.keypetroleum.com
Email Address
info@keypetroleum.com
Stock Exchange Listings
Key Petroleum Limited shares (Code: KEY) and the 7.5 cent options (Code: KEYO) expiring on 30 November 2011 are listed on the
Australian Securities Exchange.
1
Key Petroleum Limited and its Controlled Entities
Contents
Chief Executive’s Review
Directors' Report
Auditor’s Independence Declaration
Corporate Governance Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors' Declaration
Independent Auditor’s Report
ASX Additional Information
3
5
11
12
16
17
18
19
20
51
52
55
2
Key Petroleum Limited and its Controlled Entities
Chief Executive’s Review
It has been a very difficult year for many junior oil and gas companies around the world with so much uncertainty in the financial market.
To counteract that uncertainty we have seen there has been a number of mergers and acquisitions between industry participants, some have
been successful, and others have not. Key has not escaped from that worldwide impact and has been actively pursuing opportunities that
would elevate that pressure with potential acquisitions instigated by itself.
Reducing Financial Impact
There is no getting away from the fact that it’s a different world that we operate in today. Not only different, but in many respects a
difficult world in which to operate in. We are plagued by financial uncertainties making the conventional methods of raising funds much
harder. To counter this it has been imperative for all involved in the day to day operations of the Company to focus on reducing financial
exposure wherever possible. This could be from our 100% owned onshore oil production operations located in the United Kingdom or from
our exploration activity, in areas such as recently in Tanzania.
This focus has been, and is continuing to be, achieved through the reduction in our drilling commitments which were considerable for a
company of Key’s size in places such as Tanzania. For instance, the Nyuni 2 well offshore Tanzania drilled from Nyuni island
approximately 35km off the coast of Tanzania could have impacted considerably on the Company but the fact that Key was free carried
through this difficult well following a reduction in its percentage interest in the permit provided the Company with a level of much needed
protection.
Additionally, we have been downsizing internally within the Company by minimising our permanent staff numbers and relying more on the
use of geological, technical and engineering consultants for specific requirements as and when required. As we discuss personnel, we
should acknowledge the dedication and hard work being performed by our field based and technical support personnel in the United
Kingdom who have been working to minimize disruptions to our oil production.
Operating Costs
We have been concentrating on reducing our day to day operating overheads by undertaking such things as office downsizing. The
reduction in staff levels has allowed the Company to reduce office space required. Actions such as this are all aimed at protecting the
Company from financial impacts that in many instances are beyond our control. It is, we believe, allowing us to position Key to take
advantage when world markets stabilise and a degree of certainty returns to business forecasting.
Looking for Opportunities
It is important for the Company to continue reviewing opportunities that are presented which may offer the potential to expand the
Company into growth areas. The Company is continuing to evaluating opportunities that are made available. Any one of these
opportunities could be the one that provides a turn-a-round point for our Company.
As an example, one of the main transactions attempted by the team at Key during the year was the acquisition of Zeta Petroleum Ltd, a
United Kingdom based, privately held company with oil and gas assets located onshore in Romania. That transaction ultimately did not
come to fruition through the failure of the vendor to meet conditions precedent, but, the reasoning behind the company attempting the
acquisition was that Zeta had gas assets in Romania that could replace those of Key held in Tanzania. It was also felt that i t was where the
cost impact for operating there was considerable and where the Company felt that there would be a long time before shareholders would
receive a return on their investments in any drilling.
As can be seen from recent Australian Securities Exchange (ASX) announcements made by Key the proposed Zeta transaction has now
been replaced with an alternative one that is expanding Keys position in Western Australia’s with entry into the onshore Canning Basin
area. This is an area that has caught the interest of a number of mid and large sized oil and gas companies recently and complements Keys
position already in Western Australia where we have our 45% interest in EP 437. Feed back to the Company so far from Keys
announcement that it was to acquire the assets of Gulliver Productions Pty Ltd has been favourable.
Increasing Position in Western Australia
It may be worth remembering at this point as we discuss increasing the Company’s position in Western Australia that, as has been written
about in the media recently, Australia has moved over the years from a net exporter of produced oil to an importer of approximately 75% of
its oil requirements. With current oil pricing expected to continue this is a perilous position for any country and Key is hoping to take
advantage of this market placed opportunity by better positioning itself into a prospective location in Australia. Any success in these areas
in Western Australia will complement the current oil production being obtained by the Company in the UK. This production has been
creating a viable revenue stream for Key and helping to reduce the financial pressures being observed. We’ve also been protected from the
volatile swings seen in WTI (West Texas Intermediate) as Keys oil is sold using North Sea Brent oil as its bench mark.
3
Key Petroleum Limited and its Controlled Entities
Drilling Activity During The Year
As we continue to discuss our focus on Western Australia it will be remembered that towards the end of 2010 and into the beginning of
2011, Key participated in the drilling of two shallow, low cost wells named Dunnart and Dibbler in permit EP 437. Participation in those
two wells has provided the Company with a 45% earned interest in that block, in a known hydrocarbon province, the Perth Basin. Ours and
the joint ventures technical teams are reviewing the results of those wells to better understand the permit and determine further drilling
targets and opportunities.
Although the Company has had plans in place to drill the Lidsey 2 horizontal well for some time, the reality is that Key has not been in a
position to undertake this work. The Company has already prepared the location with a concrete pad and cellar in anticipation. This well is
now currently scheduled for post the Gulliver Productions Pty Ltd acquisition.
Gas Field Development
As mentioned earlier, in Tanzania we have reduced our exploration exposure in the Nyuni block to a 5% interest. It is important to
remember the Company has maintained an interest in the Kiliwani North Gas field which is now being developed. Progress had been slow
however this is now changing and a number of what is known as long lead items have been ordered order for the tie-in of this project. We
also see the government of Tanzania in the last few months making some major changes to the way that gas is allowed into the distribution
network via the Songo Songo gas plant and interconnecting pipeline which is a clear indicator for the development of the Kiliwani North
Gas Field.
Europe - Italy
The Company always regarded Italy as a long term company building exercise due to the size of its surrounding market place for oil and
gas and the history of the surrounding countries’ close links with it. However, the frustrations of operating in the country have continued
with the enactment of environmental laws that have seriously curtailed our subsidiary Company, Puma Petroleum Srl’s activities. Italy has
been a costly exercise with no sign of relief on the horizon for the Company and we are therefore working towards an exit from Italy.
Health and Safety and Environment
Although not positioned in the opening paragraph of this Chief Executives review, Health and Safety is always paramount in all of Key
Petroleum’s activities. The Company has instigated and maintains a culture of Safety First and our personnel have worked well in this
regard during the year. Third parties entering Company sites must adhere to the same culture at all times.
Key is extremely vigilante and aware of the need to undertake our operations, be they large or small, with environmental sensitivity and
awareness. If Safety is first on our list of requirements, then Environmental is a very close second.
Outlook
The Company’s believes that with the new opportunities in Western Australia that have recently been announced, together with our
continuing oil production from the UK, the gas field development in Tanzania and our strong in house commitment to cost control, we can
succeed in attaining our objectives.
Our vision as always still remains unchanged, that is, ‘To build Key Petroleum Ltd into a midsized oil and gas exploration and production
company that provides a good return for shareholders”. We will continue to try to do this by:
Acquiring additional oil producing assets where possible;
Continually improving those assets we already have;
Ensuring that we are focusing on specific areas and countries that can provide growth opportunities; and by
Always remembering that we are working for the benefit of all shareholders as we make our decisions.
4
Key Petroleum Limited and its Controlled Entities
Directors’ Report
Your directors submit their report on the consolidated entity (referred to hereafter as the Group) consisting of Key Petroleum
Limited and the entities it controlled at the end of, or during, the year ended 30 June 2011.
DIRECTORS
The names and details of the Company’s directors in office during the year and until the date of this report are as follows. Where
applicable, all current and former directorships held in listed public companies over the last three years have been detailed below.
Directors were in office for this entire period unless otherwise stated.
Names, qualifications, experience and special responsibilities
Dennis Wilkins, B.Bus, AICD, ACIS (Non Executive Chairman)
Mr Wilkins is an accountant who has been a director, company secretary or acted in a corporate advisory capacity to listed resou rce
companies for over 22 years.
Mr Wilkins previously served as the Finance Director and Company Secretary for a mid-tier gold producer and also spent five years
working for a leading merchant bank in the United Kingdom. Resource postings to Indonesia, South Africa and New Zealand in
managerial roles has broadened his international experience.
Mr Wilkins has extensive experience in capital raising specifically for the resources industry and is the principal of DWCorporate
Pty Ltd which provides advisory, funding and administrative management services to the resource sector. Mr Wilkins is a director
of Minemakers Limited and Enterprise Metals Limited. Mr Wilkins is a former director of Marengo Mining Limited and South
Boulder Mines Limited within the last 3 years.
Kenneth Russell (Managing Director)
Mr Russell is a petroleum engineering and production technology specialist with over 35 years experience in the international oil and
gas industry. He commenced his career in the oil producing offshore fields of West Africa with Gulf Oil Limited in Angola and later
worked for Flopetrol Schlumberger Limited, involved in well testing, wireline services and production and worked in areas such as
Australia, Asia and various parts of Africa and Europe.
In 1984 he established a petroleum engineering and production technology consultancy business which participated in the
development of a large number of the oil and gas fields in Australia and also in parts of South East Asia, Brazil, and Russia. His
client list included companies such as Royal Dutch Shell plc (Shell), Enterprise Oil plc, Chevron Limited, BHP Billiton Limited and
Hardman Resources Limited as well as a number of smaller entities.
Mr Russell has held a number of managerial roles and directorships in the oil and gas industry throughout his career and was a
founding Director of Bounty Oil and Gas NL. He has considerable experience, developed over the last 24 years, in international
business and has practical operating experience operating in the areas of Key Petroleum’s exploration permits. Mr Russell has not
held any former directorships in the last 3 years.
John Sheppard, MBA, B. Eng, Met Cert, M Aus IMM, GAICD (Non Executive Director - appointed 31 August 2010)
Mr Sheppard is a senior executive with oil and gas, finance and business development skills. He has extensive experience in
corporate governance, strategic planning, business development, mergers and acquisitions, capital development and project financing
nationally and internationally in the resources and finance areas which has been built up over 42 years. Mr Sheppard has not held
any former directorships in the last 3 years.
Edward Ellyard was a director from the beginning of the year until 31 August 2010.
Richard O’Shannassy was a director from the beginning of the year until 31 August 2010.
COMPANY SECRETARY
John Ribbons, B.Bus., CPA, ACIS
Mr Ribbons is an accountant who has worked within the resources industry for over 17 years in the capacity of company accountant,
group financial controller or company secretary.
Mr Ribbons has extensive knowledge and experience with ASX listed production and exploration companies. He has considerable
site based experience with operating mines and has also been involved with the listing of several exploration companies on ASX.
Mr Ribbons has experience in capital raising, ASX compliance and regulatory requirements.
Interests in the shares and options of the Company and related bodies corporate
As at the date of this report, the interests of the directors in the shares and options of Key Petroleum Limited were:
Dennis Wilkins
Kenneth Russell
John Sheppard
5
Ordinary
Shares
1,000,000
5,815,000
70,000
Options
over
Ordinary
Shares
-
-
17,500
Key Petroleum Limited and its Controlled Entities
Directors’ Report (continued)
PRINCIPAL ACTIVITIES
The principal activities of the Group during the year were the production of oil, acquisition of petroleum permits, and the exploration
of these permits with the objective of identifying economic oil and gas deposits.
DIVIDENDS
No dividends were paid or declared during the year. No recommendation for payment of dividends has been made.
OPERATING AND FINANCIAL REVIEW
Finance Review
The Group has recorded an operating loss after income tax for the year ended 30 June 2011 of $8,845,724 (2010: $6,072,006).
At 30 June 2011 funds available totalled $1,972,248.
Operating Results for the Year
Summarised operating results are as follows:
Geographic segments
Australia
United Kingdom
Tanzania
Italy
Consolidated entity revenues and loss
Shareholder Returns
Basic loss per share (cents)
2011
Revenues
$
Results
$
114,350
1,879,806
-
17
(6,973,389)
(1,232,622)
(508,264)
(131,449)
1,994,173
(8,845,724)
2011
(4.8)
2010
(4.9)
Risk Management
The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that activities are aligned
with the risks and opportunities identified by the board.
The Company believes that it is crucial for all board members to be a part of this process, and as such the board has not established a
separate risk management committee.
The board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks
identified by the board. These include the following:
• Board approval of a strategic plan, which encompasses strategy statements designed to meet stakeholders needs and manage
business risk.
Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets.
•
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Other than as disclosed in this Annual Report, no significant changes in the state of affairs of the Group occurred during the financial
year.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
No matters or circumstances, besides those disclosed at note 27, have arisen since the end of the financial year which significantly
affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in
future financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
The Group expects to maintain the present status and level of operations and hence there are no likely developments in the Group’s
operations.
6
Key Petroleum Limited and its Controlled Entities
Directors’ Report (continued)
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is subject to significant environmental regulation in respect of its production and exploration activities.
The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in
compliance with all environmental legislation. The directors of the Company are not aware of any breach of environmental
legislation for the year under review.
The Group is in compliance with the various environmental legislation and regulations that govern its activities in the jurisdictions in
which it operates.
REMUNERATION REPORT
The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.
Principles used to determine the nature and amount of remuneration
Remuneration Policy
The remuneration policy of Key Petroleum Limited has been designed to align director and executive objectives with shareholder
and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key
performance areas affecting the Company’s financial results. The board of Key Petroleum Limited believes the remuneration policy
to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Group.
The board’s policy for determining the nature and amount of remuneration for board members and senior executives of the Group is
as follows:
The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by
the board. All executives receive a base salary or an agreed fee (which is based on factors such as length of service and experience)
and superannuation or GST. The board reviews executive packages annually by reference to the Group’s performance, executive
performance and comparable information from industry sectors and other listed companies in similar industries.
The board may exercise discretion in relation to approving incentives, bonuses and options. The policy is designed to attract and
retain the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth.
Executives are also eligible to participate in the employee share and option arrangements.
The executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not
receive any other retirement benefits.
All remuneration paid to directors and executives is valued at the cost to the Group. Based on each individual’s timesheet, costs are
allocated to exploration projects and treated in accordance with the accounting policy described at note 1(p), or expensed where the
time is not allocated directly to a project. Options are valued using the Black-Scholes methodology.
The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and
responsibilities. The board determines payments to the non-executive directors and reviews their remuneration annually, based on
market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of
fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting (currently
$300,000). Fees for non-executive directors are not linked to the performance of the Group. However, to align directors’ interests
with shareholder interests, the directors are encouraged to hold shares in the Company and are eligible to participate in the employee
option plan.
Performance based remuneration
The Group currently has no specific performance based remuneration component built into director and executive remuneration
packages.
Group performance, shareholder wealth and directors' and executives' remuneration
The remuneration policy has been tailored to increase the direct positive relationship between shareholders’ investment objectives
and directors’ and executives’ performance. The Company plans to facilitate this process by directors and executives participating in
future option issues to encourage the alignment of personal and shareholder interests. The Company believes this policy will be
effective in increasing shareholder wealth. For details of directors’ and executives’ interests in options at year end, refer to note 18 of
the financial statements.
Details of remuneration
Details of the remuneration of the directors, the key management personnel of the Group (as defined in AASB 124 Related Party
Disclosures) and specified executives of Key Petroleum Limited and the Key Petroleum Group are set out in the following table.
The key management personnel of Key Petroleum Limited include the directors and company secretary as per page 5 above.
Given the size and nature of operations of Key Petroleum Limited, there are no other employees who are required to have their
remuneration disclosed in accordance with the Corporations Act 2001.
7
Key Petroleum Limited and its Controlled Entities
Directors’ Report (continued)
Key management personnel and other executives of Key Petroleum Limited
Short Term Benefits
Profit
Share
&
Bonuse
s
Salary
& Fees
Non
Monetary Other
Post-
employment
benefits
Long-Term
Benefits
Pension &
super-
annuation
Other
Incentive
plans
LSL
Equity-Settled
Share-Based
Payments
Share
s/
Units
Options/
Rights
Total
Termin-
ation
benefits
Cash-
Settled
Share
Based
Payments
$
$
$
$
$
$
$
$
$
$
$
$
$
Directors
Dennis
Wilkins(1)
Kenneth
Russell
John
Sheppard
(appointed
31 August
2010)
Edward
Ellyard
(Resigned 31
August 2010)
Richard
O’Shannassy
(2) (Resigned
31 August
2010)
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
45,625
30,000
315,000
302,500
25,000
-
8,333
46,840
5,417
33,750
Other key management personnel
John
Ribbons(3)
Total key
management
personnel
2011
2010
2011
2010
-
-
399,375
413,090
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,250
-
750
4,126
-
-
-
-
3,000
4,126
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45,625
30,000
315,000
302,500
27,250
-
9,083
50,966
5,417
33,750
-
-
402,375
417,216
(1) In addition to the above remuneration, which is for Mr Wilkins’ services as director/chairman, a total of $177,895 (2010:
$132,026) was paid to DWCorporate Pty Ltd, a business of which Mr Wilkins is principal. DWCorporate Pty Ltd provided company
secretarial, bookkeeping and other corporate services to the Key Group during the year. The amounts paid were at usual commercial
rates with fees charged on an hourly basis.
(2) In addition to the above remuneration a total of $62,102 (2010: $69,050) was paid to Richard O’Shannassy & Co Pty Ltd, a
business of which Mr O’Shannassy is principal. Richard O’Shannassy & Co Pty Ltd provided legal services. The amounts paid were
at usual commercial rates.
(3) Mr Ribbons is a full-time employee of DWCorporate Pty Ltd.
Service agreements
The details of service agreements of the key management personnel of Key Petroleum Limited are as follows:
Dennis Wilkins, Non Executive Chairman (for services other than directors duties):
• Term of agreement – four months written notice of termination by either party.
• Mr Wilkins’ firm, DWCorporate Pty Ltd, is engaged to provide book-keeping, accounting and company secretarial services. A
fixed fee of $1,750 per month is payable and additional services are charged on an hourly basis. This engagement is subject to
four months notification of termination.
Share-based compensation
No shares or options were issued to directors and executives as part of their remuneration during the year.
There were no ordinary shares issued upon exercise of remuneration options to directors or other key management personnel of Key
Petroleum Limited during the year. Refer to note 30 for model inputs for the options granted.
8
Key Petroleum Limited and its Controlled Entities
Directors’ Report (continued)
DIRECTORS’ MEETINGS
During the year the Company held ten meetings of directors. The attendance of directors at meetings of the board were:
Meetings of Committees
Directors Meetings
Audit
A
1
*
1
A
10
10
8
B
10
10
8
Dennis Wilkins
Kenneth Russell
John Sheppard (appointed 31 August
2010)
Edward Ellyard (resigned 31 August
2010)
Richard O’Shannassy (resigned 31
August 2010)
Notes
A – Number of meetings attended.
B – Number of meetings held during the time the director held office during the year.
* - Not a member of the relevant committee.
3
3
3
3
-
-
B
1
*
1
-
-
Remuneration
B
A
1
1
*
*
1
1
-
-
-
-
SHARES UNDER OPTION
At the date of this report there are 41,425,058 unissued ordinary shares in respect of which options are outstanding.
Balance at the beginning of the year
Movements of share options during the year
Issued, exercisable at 7.5 cents, on or before 30 November 2011
Expired on 30 November 2010, exercisable at 20 cents
Expired on 30 November 2010, exercisable at 50 cents
Total number of options outstanding as at 30 June 2011 and the date of this report
The balance is comprised of the following:
Expiry date
30 November 2011
30 November 2011
Exercise price (cents)
7.5
30
Total number of options outstanding at the date of this report
Number of options
5,950,000
41,175,058
(700,000)
(5,000,000)
41,425,058
Number of options
41,175,058
250,000
41,425,058
No person entitled to exercise any option referred to above has or had, by virtue of the option, a right to participate in any share issue
of any other body corporate.
INSURANCE OF DIRECTORS AND OFFICERS
During or since the financial year, the Group has paid premiums insuring all the directors of Key Petroleum Limited against costs
incurred in defending proceedings for conduct involving:
(a) a wilful breach of duty; or
(b) a contravention of sections 182 or 183 of the Corporations Act 2001,
as permitted by section 199B of the Corporations Act 2001.
The total amount of insurance contract premiums paid is $24,640.
9
Key Petroleum Limited and its Controlled Entities
Directors’ Report (continued)
NON-AUDIT SERVICES
The following non-audit services were provided by the auditor of one of the entity’s subsidiaries, Mazars LLP or associated entities.
The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as
set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of
the auditor;
None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
The following fees were paid or payable to Mazars LLP for non-audit services provided during the year ended 30 June 2011.
2011
$
Preparation of financial statements for UK entities
3,675
3,675
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
Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the
Group for all or any part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the
Corporations Act 2001.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 11.
Signed in accordance with a resolution of the directors for Key Petroleum Limited.
Ken Russell
Managing Director
Perth, 23 August 2011
10
To The Board of Directors
This declaration is made in connection with our audit of the financial report of Key Petroleum
Limited and Controlled Entities for the year ended 30 June 2011 and in accordance with the
provisions of the Corporations Act 2001.
We declare that, to the best of our knowledge and belief, there have been:
no contraventions of the auditor independence requirements of the Corporations Act 2001
in relation to the audit;
no contraventions of the Code of Professional Conduct of the Institute of Chartered
Accountants in Australia in relation to the audit.
Yours faithfully
BENTLEYS
Chartered Accountants
CHRIS WATTS CA
Director
DATED at PERTH this 23rd day of August 2011
Key Petroleum Limited and its Controlled Entities
Corporate Governance Statement
The Board of Directors
The Company's constitution provides that the number of directors shall not be less than three and not more than nine. There is no
requirement for any share holding qualification.
As and if the Company's activities increase in size, nature and scope the size of the board will be reviewed periodically, and as
circumstances demand. The optimum number of directors required to supervise adequately the Company’s constitution will be
determined within the limitations imposed by the constitution.
The membership of the board, its activities and composition, is subject to periodic review. The criteria for determining the
identification and appointment of a suitable candidate for the board shall include quality of the individual, background of experience
and achievement, compatibility with other board members, credibility within the Company's scope of activities, intellectual ability to
contribute to board's duties and physical ability to undertake board's duties and responsibilities.
Directors are initially appointed by the full board subject to election by shareholders at the next general meeting. Under the
Company's constitution the tenure of a director (other than managing director, and only one managing director where the positi on is
jointly held) is subject to reappointment by shareholders not later than the third anniversary following his or her last appointment.
Subject to the requirements of the Corporations Act 2001, the board does not subscribe to the principle of retirement age and there is
no maximum period of service as a director. A managing director may be appointed for any period and on any terms the directors
think fit and, subject to the terms of any agreement entered into, may revoke any appointment.
The board considers that the Group is not currently of a size, nor are its affairs of such complexity to justify the formation of separate
or special committees (other than an Audit Committee) at this time. The board as a whole is able to address the governance aspects
of the full scope of the Group’s activities and to ensure that it adheres to appropriate ethical standards.
Role of the Board
The board's primary role is the protection and enhancement of long-term shareholder value.
To fulfil this role, the board is responsible for oversight of management and the overall corporate governance of the Group including
its strategic direction, establishing goals for management and monitoring the achievement of these goals.
Appointments to Other Boards
Directors are required to take into consideration any potential conflicts of interest when accepting appointments to other boards.
Independent Professional Advice
The board has determined that individual directors have the right in connection with their duties and responsibilities as dir ectors, to
seek independent professional advice at the Group’s expense. With the exception of expenses for legal advice in relation to
director's rights and duties, the engagement of an outside adviser is subject to prior approval of the Chairman and this will not be
withheld unreasonably.
Continuous Review of Corporate Governance
Directors consider, on an ongoing basis, how management information is presented to them and whether such information is
sufficient to enable them to discharge their duties as directors of the Company. Such information must be sufficient to enable the
directors to determine appropriate operating and financial strategies from time to time in light of changing circumstances and
economic conditions. The directors recognise that petroleum exploration is an inherently risky business and that operational
strategies adopted should, notwithstanding, be directed towards improving or maintaining the net worth of the Group.
ASX Principles of Good Corporate Governance
The board has reviewed its current practices in light of the revised ASX Corporate Governance Principles and Recommendations
with a view to making amendments where applicable after considering the Group’s size and the resources it has available.
As the Group’s activities develop in size, nature and scope, the size of the board and the implementation of any additional formal
corporate governance committees will be given further consideration.
The board has adopted the revised Recommendations and the following table sets out the Company's present position in relation to
each of the revised Principles.
12
Key Petroleum Limited and its Controlled Entities
Corporate Governance Statement continued
ASX Principle
Status
Reference/comment
Principle
1:
1.1
1.2
1.3
Lay solid foundations for
management and oversight
Companies should establish the
functions reserved to the board
and those delegated to senior
executives and disclose those
functions
Companies should disclose the
process for evaluating the
performance of senior executives
A
Matters reserved for the board are included on the Company’s website.
N/A
Acting in its ordinary capacity, the board from time to time carries out the
process of considering and determining performance
issues. The
remuneration of executive and non executive Directors is reviewed by the
board with the exclusion of the Director concerned. The remuneration of
executive management is reviewed and approved by the Board.
Companies should provide the
information indicated in the
Guide to reporting on Principle 1
A
(in
part)
Principle
2:
2.1
Structure the board to add
value
A majority of the board should
N/A
be independent directors
2.2
2.3
2.4
2.5
2.6
The chair should be an
independent director
The roles of chair and chief
executive officer should not be
exercised by the same individual
A
A
The board should establish a
N/A
nomination committee
Companies should disclose the
process for evaluating the
performance of the board, its
committees and individual
directors
Companies should provide the
information indicated in the
Guide to reporting on Principle 2
N/A
A
(in
part)
Given the Company’s background, the nature and size of its business and
the current stage of its development the board compromises three directors,
two of whom are non-executive. The board believes that this is both
appropriate and acceptable at this stage of the Company’s development.
The positions of Chairman and Managing Director are held by separate
persons.
The board has no formal nomination committee. Acting in its ordinary
capacity from time to time as required, the board carries out the process of
determining the need for screening and appointing new directors. In view of
the size and resources available to the Company, it is not considered that a
separate nomination committee would add any substance to the process.
Given the size of the Company, formal procedures for evaluating the
performance of the board, committees and individual directors have not
been developed. The Company conducts these aspects on an ongoing basis
and takes action to correct any abnormalities.
The skills and experience of Directors are set out in the Company’s Annual
Report and on its website.
A
The Company has formulated a Code of Conduct which can be viewed on
the Company’s website.
Principle
3:
3.1
Promote ethical and
responsible decision-making
Companies should establish a
code of conduct and disclose the
code or a summary of the code as
to:
the practices necessary to
maintain confidence in the
company’s integrity
the practices necessary to take
into account their legal
obligations and the reasonable
expectations of their stakeholders
the responsibility and
accountability of individuals for
reporting and investigating
reports of unethical practices
A = Adopted
N/A = Not adopted
13
Key Petroleum Limited and its Controlled Entities
Corporate Governance Statement continued
ASX Principle
Status
Reference/comment
3.2
Companies should establish a policy
concerning trading in company
securities by directors, senior
executives and employees, and
disclose the policy or a summary of
that policy
3.3
Companies should provide the
information indicated in the Guide
to reporting on Principle 3
A
A
Principle
4:
4.1
Safeguard integrity in financial
reporting
The board should establish an audit
A
committee
4.2
The audit committee should be
A
The Company has formulated a securities trading policy, which can
be viewed on its website.
The Company has established an audit committee which compromises
two members, both being non executive, with one independent,
director. The charter for this committee is disclosed on the
Company’s website. Sourcing alternative or additional directors to
strictly comply with this Principle is considered expensive with costs
outweighing the potential benefits. In addition, the board as a whole
addresses the governance aspects to the full scope of the Company’s
activities to ensure that it adheres to appropriate ethical standards. All
matters which might properly be dealt with by special committees are
subject to regular scrutiny at full board meetings.
consists of a majority of
consists only of non-executive
structured so that it:
•
directors
•
independent directors
is chaired by an independent
•
chair, who is not chair of the board
has at least three members
•
The audit committee should have a
formal charter
Companies should provide the
information indicated in the Guide
to reporting on Principle 4
Make timely and balanced
disclosure
Companies should establish written
policies designed to ensure
compliance with ASX Listing Rule
disclosure requirements and to
ensure accountability at a senior
executive level for that compliance
and disclose those policies or a
summary of those policies
Companies should provide the
information indicated in the Guide
to reporting on Principle 5
Respect the rights of shareholders
Companies should design a
communications policy for
promoting effective communication
with shareholders and encouraging
their participation at general
meetings and disclose their policy or
a summary of that policy
4.3
4.4
Principle
5:
5.1
5.2
Principle
6:
6.1
N/A
The Company only has two non executive directors.
A
A
A
A
A
A
A
A
The Company has instigated internal procedures designed to provide
reasonable assurance to the effectiveness and efficiency of operations,
the reliability of financial reporting and compliance with relevant
laws and regulations. The board is acutely aware of the continuous
disclosure regime and there are strong informational systems in place
to ensure compliance, underpinned by experience.
The Board receives monthly updates on the status of the Company’s
activities and any new or proposed activities. Disclosure is reviewed
as a routine agenda item at each Board Meeting.
In line with adherence to continuous disclosure requirements of ASX,
all shareholders are kept informed of major developments affecting
the Company. This disclosure
is through regular shareholder
communications including the Annual Reports, Half Yearly Reports,
Quarterly Reports, the Company Website and the distribution of
specific releases covering major transactions and events or other price
sensitive information.
A = Adopted
N/A = Not adopted
14
Key Petroleum Limited and its Controlled Entities
Corporate Governance Statement continued
ASX Principle
Status
Reference/comment
6.2
Principle
7:
7.1
Companies should provide the
information indicated in the Guide to
reporting on Principle 6
Recognise and manage risk
A
The Company has formulated a Communication Policy which can
be viewed on the Company website.
Companies should establish policies for
A
the oversight and management of material
business risks and disclose a summary of
those policies
While the Company does not have formalised policies on risk
management the Board recognises its responsibility for identifying
areas of significant business risk and for ensuring that arrangements
are in place for adequately managing these risks. This issue is
regularly reviewed at Board meetings and risk management culture
is encouraged amongst employees and contractors.
Determined areas of risk which are regularly considered include:
•
•
•
•
performance and funding of exploration activities
budget control and asset protection
status of mineral tenements
land access and native title considerations
compliance with government laws and regulations
safety and the environment
continuous disclosure obligations
share market conditions
sovereign risk
•
•
•
•
•
While the Company does not have formalised policies on risk
management it recognises its responsibility for identifying areas of
significant business risk and for ensuring that arrangements are in
place for adequately managing these risks. This issue is regularly
reviewed at board meetings and risk management culture is
encouraged amongst employees and contractors.
For information on the Company’s Remuneration Committee refer
to its website.
Refer to the Remuneration Report in the Company’s Annual Report.
7.2
7.3
7.4
The board should require management to
design and implement the risk
management and internal control system
to manage the company’s material
business risks and report to it on whether
those risks are being managed effectively.
The board should disclose that
management has reported to it as to the
effectiveness of the company’s
management of its material business risks
The board should disclose whether it has
received assurance from the chief
executive officer (or equivalent) and the
chief financial officer (or equivalent) that
the declaration provided in accordance
with section 295A of the Corporations Act
is founded on a sound system of risk
management and internal control and that
the system is operating effectively in all
material respects in relation to financial
reporting risks
Companies should provide the
information indicated in the Guide to
reporting on Principle 7
Principle
8:
8.1
8.2
8.3
Remunerate fairly and responsibly
The board should establish a remuneration
committee
Companies should clearly distinguish the
structure of non-executive directors’
remuneration from that of executive
directors and senior executives
Companies should provide the
information indicated in the Guide to
reporting on Principle 8
A = Adopted
N/A = Not adopted
N/A
A
N/A
A
A
A
15
Key Petroleum Limited and its Controlled Entities
Consolidated Statement of Comprehensive Income
YEAR ENDED 30 JUNE 2011
Notes
REVENUE AND OTHER INCOME
2
1,994,173
1,243,973
2011
$
2010
$
EXPENDITURE
Cost of Goods Sold
Depreciation expense
Salaries and employee benefits expense
Corporate expenditure
Administration costs
Exploration costs written off
Impairment expense
Interest expense
Share based expense
Share of net loss of associate accounted for using the equity method
LOSS BEFORE INCOME TAX
INCOME TAX BENEFIT / (EXPENSE)
LOSS FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
(817,993)
(1,933,359)
(253,104)
(549,101)
(1,310,382)
(5,970,880)
-
(5,078)
-
-
(974,903)
(1,211,997)
(246,611)
(930,102)
(1,478,604)
(1,934,789)
(503,779)
-
(32,620)
(2,574)
(8,845,724)
(6,072,006)
-
-
(8,845,724)
(6,072,006)
(568,727)
(568,727)
(692,476)
(692,476)
30
25(c)
3
4
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO
MEMBERS OF KEY PETROLEUM LIMITED
(9,414,451)
(6,764,482)
Basic loss per share for loss attributable to the ordinary equity holders of
the company (cents per share)
29
(4.76)
(4.87)
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the Notes to the Consolidated Financial Statements.
16
Key Petroleum Limited and its Controlled Entities
Consolidated Statement of Financial Position
AT 30 JUNE 2011
Notes
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables
Plant and equipment
Intangible assets
Petroleum assets
Capitalised exploration costs
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
TOTAL CURRENT LIABILITIES
NON CURRENT LIABILITIES
Provisions
TOTAL NON CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
5
6
7
8
9
10
11
12
13
14
2011
$
1,972,248
560,624
93,806
2,626,678
48,903
92,211
-
452,286
637,711
1,231,111
2010
$
2,902,916
594,536
47,237
3,544,689
75,254
145,305
-
2,787,049
3,546,076
6,553,684
3,857,789
10,098,373
333,728
333,728
499,211
499,211
832,939
667,192
667,192
575,707
575,707
1,242,899
3,024,850
8,855,474
15
16 (a)
28,214,283
(1,140,173)
(24,049,260)
24,599,056
(471,169)
(15,272,413)
3,024,850
8,855,474
The above Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial Statements.
17
Key Petroleum Limited and its Controlled Entities
Consolidated Statement of Changes in Equity
YEAR ENDED 30 JUNE 2011
BALANCE AT 1 JULY 2009
Loss for the year
OTHER COMPREHENSIVE INCOME
Exchange differences on translation
of foreign operations
TOTAL COMPREHENSIVE INCOME
TRANSACTIONS WITH OWNERS IN
THEIR CAPACITY AS OWNERS
Employee options
Shares issued during the year
Issued
Capital
$
19,868,699
-
Options
Reserve
$
276,557
-
Foreign
Currency
Translation
Reserve
$
Accumulated
Losses
$
Total
$
(87,870)
-
(9,200,407)
(6,072,006)
10,856,979
(6,072,006)
-
-
-
-
(692,476)
(692,476)
-
(6,072,006)
(692,476)
(6,764,482)
-
4,730,357
32,620
-
-
-
-
-
32,620
4,730,357
BALANCE AT 30 JUNE 2010
24,599,056
309,177
(780,346)
(15,272,413)
8,855,474
Loss for the year
OTHER COMPREHENSIVE INCOME
Exchange differences on translation
of foreign operations
TOTAL COMPREHENSIVE INCOME
TRANSACTIONS WITH OWNERS IN
THEIR CAPACITY AS OWNERS
Employee options
Shares issued during the year
Share issue transaction costs
-
-
-
-
-
-
-
(8,845,724)
(8,845,724)
(568,727)
(568,727)
-
(8,845,724)
(568,727)
(9,414,451)
220,000
3,691,604
(296,377)
(100,277)
-
-
-
-
-
68,877
-
-
188,600
3,691,604
(296,377)
BALANCE AT 30 JUNE 2011
28,214,283
208,900
(1,349,073)
(24,049,260)
3,024,850
The above Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial Statements.
18
Key Petroleum Limited and its Controlled Entities
Consolidated Statement of Cash Flows
YEAR ENDED 30 JUNE 2011
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Expenditure on petroleum interests
NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant and equipment
Payments for subsidiaries, net of cash acquired
NET CASH (OUTFLOW) FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of ordinary shares and options
Payments of share issue transaction costs
Repayment of borrowings
NET CASH INFLOW FROM FINANCING ACTIVITIES
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
28
23(c)
2011
$
1,836,057
(3,229,972)
113,245
(3,225,412)
(4,506,082)
(5,905)
-
(5,905)
3,691,604
(107,777)
-
3,583,827
(928,160)
2,902,916
(2,508)
2010
$
912,215
(3,234,574)
153,862
(915,423)
(3,083,920)
(25,733)
(202,384)
(228,117)
4,635,357
-
(4,001,662)
633,695
(2,678,342)
5,594,855
(13,597)
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
5
1,972,248
2,902,916
The above Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial Statements.
19
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements
30 JUNE 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity
consisting of Key Petroleum Limited and its subsidiaries. The financial statements are presented in the Australian currency. Key
Petroleum Limited is a company limited by shares, domiciled and incorporated in Australia. The financial statements were
authorised for issue by the directors on 23 August 2011. The directors have the power to amend and reissue the financial statements.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other
authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the
Corporations Act 2001.
Compliance with IFRS
The consolidated financial statements of the Key Petroleum Limited Group comply with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
Accruals basis
These financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by
the measurement at fair value of selected non-current assets, financial assets and financial liabilities.
Going concern
The accounts have been prepared on the going concern basis, which contemplates continuity of normal activities and the reali sation
of assets and settlement of liabilities in the ordinary course of business. The Group incurred a loss from general business activities of
$8,845,724 for the year ended 30 June 2011 (2010: $6,072,006 loss). Included within this loss was the write off of exploration
expenditure of $5,970,880 (2010: $1,934,789).
The net working capital position of the Group at 30 June 2011 was $2,199,144 (2010: $2,830,260) and the net decrease in cash held
during the year was $928,160 (2010: $2,830,260).
The Group has expenditure commitments relating to work programme obligations of their assets of $1,264,117 which potentially
could fall due in the twelve months to 30 June 2012.
The ability of the Group to continue to pay its debts as and when they fall due is dependent upon the Company successfully r aising
additional share capital. The Company constantly considers capital needs and capital raising opportunities.
Should the Group not be successful in its planned capital raisings, it may be necessary to sell further assets and reduce exploration
expenditure by various methods including surrendering or withdrawing from less prospective tenements.
Although the Directors believe that they will be successful in these measures, if they are not, the Group may be unable to continue as
a going concern and therefore may be unable to realise its assets and extinguish its liabilities in the normal course of business and at
the amounts stated in the financial statements. The Directors also recognise, that should the Group fail to secure the required funding
to maintain its assets in good standing then the Directors would then be in a position whereby they could not commit to further
capital expenditure on them. The consequences of this eventuating are that some of the Group’s asset values could be severely
impaired or even lost.
However, whilst bearing all of the above comments in mind, in light of the Group’s current exploration and development projects ,
the Directors believe it is appropriate to prepare these accounts on a going concern basis because they have an ongoing and
appropriate business plan which includes raising additional funds as and when required.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Key Petroleum Limited (“Company”
or “parent entity”) as at 30 June 2011 and the results of all subsidiaries for the year then ended. Key Petroleum Limited and its
subsidiaries together are referred to in this financial report as the Group or the consolidated entity.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and
operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls
another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer note 1(h)).
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of
comprehensive income, statement of changes in equity and statement of financial position respectively.
20
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Investments in subsidiaries are accounted for at cost in the separate financial statements of Key Petroleum Limited.
(ii) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a sharehol ding of
between 20% and 50% of the voting rights. Investments in associates are accounted for in the parent entity financial statements using
the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net
of any accumulated impairment loss) identified on acquisition (refer to note 25).
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its
share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s statement
of comprehensive income, whilst in the consolidated financial statements they reduce the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-
term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the
associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the
associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
(iii) Joint ventures
Jointly controlled assets
The proportionate interests in the assets, liabilities and expenses of joint venture activities have been incorporated in the financial
statements under the appropriate headings. Details of the joint ventures are set out in note 26.
(iv) Changes in ownership interests
The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners
of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-
controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-
controlling interests and any consideration paid or received is recognised in a separate reserve within equity attribut able to owners of
Key Petroleum Limited.
When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasu red to its
fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition,
any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had
directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensi ve
income are reclassified to profit or loss.
If the ownership interest in a jointly controlled entity or associate is reduced but joint control or significant influence is retained, only
a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where
appropriate.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating
segments, has been identified as the full Board of Directors.
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in
Australian dollars, which is Key Petroleum Limited's functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when
they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net
investment in a foreign operation.
Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are
recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as
equities classified as available-for-sale financial assets are included in the fair value reserve in equity.
21
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
(iii) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
statement of financial position;
income and expenses for each statement of comprehensive income are translated at average exchange rates (unless that is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and
other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a
foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange
differences is reclassified to profit or loss, as part of the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entities and translated at the closing rate.
(e) Revenue recognition
The consolidated entity’s revenue is derived primarily from oil sales. Sales revenue is recognised when the physical product and
associated risks and rewards of ownership pass to the purchaser. This is generally at the time of delivery to the purchaser’s
premises. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial
assets.
(f) Income tax
The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary di fferences
and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the Company’s subsidiaries and associated operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of
investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and lia bilities and
when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity
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.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
(g) Leases
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased prop erty or, if lower,
the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other
short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the
liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the
asset’s useful life and the lease term.
Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as
22
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
operating leases (note 21). Payments made under operating leases (net of any incentives received from the lessor) are charged to
profit or loss on a straight-line basis over the period of the lease.
(h) Business combinations
The purchase method of accounting is used to account for all business combinations, including business combinations involving
entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured
as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs
directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their
published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the
date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable
measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(n)). If the cost of
acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is
recognised directly in the statement of comprehensive income, but only after a reassessment of the identification and measurement of
the net assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their pre sent
value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and conditions.
(i) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recover able
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the ca sh
inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an
impairment are reviewed for possible reversal of the impairment at each reporting date.
(j) Cash and cash equivalents
For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with
financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to insignificant risk of changes in value, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on the statement of financial position.
(k) Trade and other receivables
Receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate for
doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred.
(l) Investments and other financial assets
Classification
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which
the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of
assets classified as held-to-maturity, re-evaluates this designation at each reporting date.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in th is category
if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are
designated as hedges. Assets in this category are classified as current assets.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are
classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial
position.
(iii) Held-to-maturity investments
23
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the
Company’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an
insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-for-sale.
Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the
reporting date, which are classified as current assets.
(iv) Available-for-sale financial assets
Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated
in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to
dispose of the investment within 12 months of the reporting date. Investments are designated available-for-sale if they do not have
fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term.
Financial assets - reclassification
The Group may choose to reclassify a non-derivative trading financial asset out of the held-for-trading category if the financial asset
is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permi tted to be
reclassified out of the held-for-trading category only in rare circumstances arising from a single event that is unusual and highly
unlikely to recur in the near term. In addition, the Group may choose to reclassify financial assets that would meet the defi nition of
loans and receivables out of the held-for-trading or available-for-sale categories if the Group has the intention and ability to hold
these financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as
applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective
interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the
reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or
sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carrie d at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction
costs are expensed to the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and
rewards of ownership.
When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in
the statement of comprehensive income as gains and losses from investment securities.
Subsequent measurement
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains
or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in
the statement of comprehensive income within other income or other expenses in the period in which they arise. Dividend income
from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of revenue
from continuing operations when the Group’s right to receive payments is established.
Changes in the fair value of monetary securities denominated in a foreign currency and classified as available -for-sale are analysed
between translation differences resulting from changes in amortised cost of the security and other changes in the carrying am ount of
the security. The translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in
carrying amount are recognised in equity. Changes in the fair value of other monetary and non -monetary securities classified as
available-for-sale are recognised in equity.
Details on how the fair value of financial investments are determined are disclosed in note 32.
Impairment
The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is
impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a
security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for avail able-for-sale
financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the
statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments
classified as available-for-sale are not reversed through the statement of comprehensive income.
If there is evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses
that have not been incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is
recognised in the statement of comprehensive income.
24
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
(m) Plant and equipment
All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs
and maintenance are charged to the statement of comprehensive income during the reporting period in which they are incurred.
Depreciation of plant and equipment is calculated using the reducing balance method to allocate their cost or revalued amount s, net
of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and
equipment, the shorter lease term. The rates vary between 20% and 40% per annum.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (note 1(i)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of
comprehensive income. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in
respect of those assets to retained earnings.
(n) Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the consolidated entity’s share of the net
identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included
in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised.
Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be
impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents
the Group’s investment in each country of operation (note 33).
(o) Petroleum assets
Petroleum assets are measured on the cost basis less amortisation and impairment losses. The carrying amount of petroleum assets is
reviewed bi-annually by Directors to ensure that it is not in excess of the recoverable amount from these assets. The recoverable
amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent
disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.
Amortisation
Amortisation of petroleum and gas licences, production facilities, field equipment and buildings are determined based on the proven
and probable hydrocarbon reserves.
(p) Exploration and evaluation costs
Exploration, evaluation and development costs incurred are accumulated in respect of each identifiable area of interest.
These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:
(i) such costs are expected to be recouped through successful development and exploitation or from sale of area; or (ii) expl oration
and evaluation activities in the area have not yet reached a stage that permits a reasonable assessment of the existence or otherwise
of economically recoverable reserves, and active operations in, or relating to, the area are continuing.
When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area
are written off in the financial year the decision is made.
(q) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.
(r) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are
unpaid. The amounts are unsecured, non-interest bearing and are paid on normal commercial terms.
(s) Employee benefits
(i) Wages and salaries and annual leave
25
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the
reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured a t the
amounts expected to be paid when the liabilities are settled.
(ii) Share-based payments
The Group provides benefits to employees (including directors) of the Company in the form of share-based payment transactions,
whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’).
The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are
granted. The fair value is determined by an internal valuation using a Black-Scholes option pricing model.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award
(‘vesting date’).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to
which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the Company, will
ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the
likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value
at grant date.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the
original award.
(t) Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable
that an outflow of economic benefits will result and that outflow can be reliably measured.
(u) Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the
proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not
included in the cost of the acquisition as part of the purchase consideration.
(v) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit 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 bonus elements in ordinary shares issued during the year.
(w) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from
the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which
are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(x) Comparative figures
When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the
current financial year.
(y) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2011 reporting periods.
The Group’s assessment of the impact of these new standards and interpretations is set out below.
AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013)
26
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value;
simplifying the requirements for embedded derivatives;
removing the tainting rules associated with held-to-maturity assets;
removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost;
This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial
instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determine d any
potential impact on the financial statements.
The key changes made to accounting requirements include:
allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are
not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment
can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument;
requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially cla ssified
based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the
contractual cash flows; and
requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value
due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting
mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (inclu ding
the effects of changes in the credit risk of the liability) in profit or loss.
AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011)
This Standard removes the requirement for government-related entities to disclose details of all transactions with the government and
other government-related entities and clarifies the definition of a “related party” to remove inconsistencies and simplify the structure
of the Standard. No changes are expected to materially affect the Group.
AASB 1053: Application of Tiers of Australian Accounting Standards and AASB 2010–2: Amendments to Australian Accounting
Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119,
121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052]
(applicable for annual reporting periods commencing on or after 1 July 2013)
AASB 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting
requirements for those entities preparing general purpose financial statements:
Tier 1: Australian Accounting Standards; and
Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.
Tier 2 of the framework comprises the recognition, measurement and presentation requirements of Tier 1, but contains significantly
fewer disclosure requirements.
The following entities are required to apply Tier 1 reporting requirements (ie full IFRS):
Since the Group is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure
requirements for Tier 2 entities.
AASB 2010–2 makes amendments to Australian Accounting Standards and Interpretations to give effect to the reduced disclosure
requirements for Tier 2 entities. It achieves this by specifying the disclosure paragraphs that a Tier 2 entity need not comply with as
well as adding specific “RDR” disclosures.
for-profit private sector entities that have public accountability; and
the Australian Government and state, territory and local governments.
AASB 2009–12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and
Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011)
This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including
amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to
exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a
single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Group.
AASB 2009–14: Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement [AASB Interpretation
14] (applicable for annual reporting periods commencing on or after 1 January 2011)
This Standard amends Interpretation 14 to address unintended consequences that can arise from the previous accounting
requirements when an entity prepays future contributions into a defined benefit pension plan.
This Standard is not expected to impact the Group.
AASB 2010–4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1,
AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commencing on or after 1 January
2011)
This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB’s annual
improvements project. Key changes include:
27
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
clarifying the application of AASB 108 prior to an entity’s first Australian-Accounting-Standards financial statements;
adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclos ures
to better enable users to evaluate an entity’s exposure to risks arising from financial instruments;
amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from transactions
recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of
changes in equity or in the notes;
adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and
making sundry editorial amendments to various Standards and Interpretations.
This Standard is not expected to impact the Group.
AASB 2010–5: Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137,
139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or
after 1 January 2011)
This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including
amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact
on the requirements of the respective amended pronouncements.
AASB 2010–6: Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7]
(applicable for annual reporting periods beginning on or after 1 July 2011)
This Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature
of the financial assets involved and the risks associated with them. Accordingly, this Standard makes amendments to AASB 1: First-
time Adoption of Australian Accounting Standards, and AASB 7: Financial Instruments: Disclosures, establishing additional
disclosure requirements in relation to transfers of financial assets.
This Standard is not expected to impact the Group.
AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101,
102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applies to
periods beginning on or after 1 January 2013)
This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the
issuance of AASB 9: Financial Instruments in December 2010. Accordingly, these amendments will only apply when the entity
adopts AASB 9.
As noted above, the Group has not yet determined any potential impact on the financial statements from adopting AASB 9.
AASB 2010–8: Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112]
(applies to periods beginning on or after 1 January 2012)
This Standard makes amendments to AASB 112: Income Taxes.
The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred
tax assets when investment property is measured using the fair value model under AASB 140: Investment Property.
Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity
expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is
recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose
objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through
sale.
The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112.
The amendments are not expected to impact the Group.
AASB 2010–9: Amendments to Australian Accounting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time
Adopters [AASB 1] (applies to periods beginning on or after 1 July 2011)
This Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards.
The amendments brought in by this Standard provide relief for first-time adopters of Australian Accounting Standards from having
to reconstruct transactions that occurred before their date of transition to Australian Accounting Standards.
Furthermore, the amendments brought in by this Standard also provide guidance for entities emerging from severe hyperinflation
either to resume presenting Australian-Accounting-Standards financial statements or to present Australian-Accounting-Standards
financial statements for the first time.
This Standard is not expected to impact the Group.
AASB 2010–10: Further Amendments to Australian Accounting Standards – Removal of Fixed Dates for First-time Adopters [AASB
2009–11 & AASB 2010–7] (applies to periods beginning on or after 1 January 2013)
This Standard makes amendments to AASB 2009–11: Amendments to Australian Accounting Standards arising from AASB 9, and
AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010).
The amendments brought in by this Standard ultimately affect AASB 1: First-time Adoption of Australian Accounting Standards and
28
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
provide relief for first-time adopters from having to reconstruct transactions that occurred before their transition date.
[The amendments to AASB 2009–11 will only affect early adopters of AASB 2009–11 (and AASB 9: Financial Instruments that was
issued in December 2009) as it has been superseded by AASB 2010–7.]
This Standard is not expected to impact the Group.
(z) Critical accounting judgements, estimates and assumptions
The preparation of these financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement
or complexity, or areas where assumptions and estimates are significant to the financial statements are:
Exploration and evaluation costs
Exploration and evaluation costs are accumulated in respect of each identifiable area of interest.
These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:
(i) such costs are expected to be recouped through successful development and exploitation or from sale of area; or (ii) expl oration
and evaluation activities in the area have not yet reached a stage that permits a reasonable assessment of the existence or otherwise
of economically recoverable reserves, and active operations in, or relating to, the area are continuing.
When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area
are written off in the financial year the decision is made.
Environmental Issues
Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental
legislation, and the directors understanding thereof. At the current stage of the Group’s development and its current environmental
impact the directors believe such treatment is reasonable and appropriate.
Taxation
Balances disclosed in the financial statements and the notes thereto related to taxation are based on the best estimates of the
directors. These estimates take into account both the financial performance and position of the Group as they pertain to current
income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation
legislation. The current income tax position represents that directors’ best estimate, pending an assessment by the Australian
Taxation Office.
Share-based payments
Share-based payment transactions, in the form of options to acquire ordinary shares, are valued using the Black-Scholes option
pricing model. This model uses assumptions and estimates as inputs.
Provision for site restoration
Where a restoration obligation exists, the Group estimates the future removal costs of production facilities at the time of installation
of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions
regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology
for estimating cost, future removal techniques in determining the removal cost and asset specific discount rates to determine the
present value of these cash flows.
29
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
2. REVENUE AND OTHER INCOME
From continuing operations
Sales revenue
Oil Sales
Other revenue
Interest from financial institutions
3. EXPENSES
Loss before income tax includes the following specific expenses:
Defined contribution superannuation expense
Impairment of Goodwill
Impairment of Investment
Minimum lease payments relating to operating leases
4.
INCOME TAX
(a) Income tax expense
Current tax
Deferred tax
(b) Reconciliation of income tax expense to prima facie tax payable
The prima facie tax payable on profit from ordinary activities before
income tax is reconciled to the income tax expense as follows:
2011
$
2010
$
1,879,805
1,090,538
114,368
1,994,173
153,435
1,243,973
23,908
-
-
106,422
-
-
-
50,776
2,891
500,888
112,185
-
-
-
Loss from continuing operations before income tax expense
(8,845,724)
(6,072,006)
Prima facie tax benefit at the Australian tax rate of 30%
Tax effect of amounts which are not deductible (taxable) in calculating
taxable income:
Share of associate loss
Exploration expenditure written off
Impairment of Investments
Impairment of Goodwill
Sundry items
Movements in unrecognised temporary differences
Tax effect of current year tax losses for which no deferred tax asset has
been recognised
Income tax expense
(2,653,717)
(1,821,602)
-
1,791,264
-
-
15,449
(847,004)
772
580,437
150,266
867
206,831
(882,429)
(441,366)
(1,050)
1,288,370
-
883,479
-
30
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
4. INCOME TAX (cont.)
(c) Deferred Tax Assets
Employee entitlements
Capital raising costs and other section 40-880 deductions
Tax losses
Set off deferred tax liabilities
Net deferred tax assets
(d) Deferred Tax Liabilities
Accrued interest revenue
Capitalised exploration and evaluation costs
Set-off deferred tax assets
Net deferred tax liabilities
(e) Tax Losses
Unused tax losses for which no deferred tax asset has been recognised
Notes
2011
$
2010
$
4(d)
4(c)
283
46,377
896,830
943,490
(943,490)
-
1,082
942,408
943,490
(943,490)
-
17,362
140,132
130,498
287,992
(287,992)
-
20,092
267,900
287,992
(287,992)
-
6,136,346
6,136,346
6,540,207
6,540,207
Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account
at 30 June 2011 because the directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this
point in time. These benefits will only be obtained if:
the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions
i.
for the loss and exploration expenditure to be realised;
ii.
the Group continues to comply with conditions for deductibility imposed by law; and
no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the loss and
iii.
exploration expenditure.
5. CURRENT ASSETS - CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Cash and cash equivalents as shown in the statement of financial position
and the statement of cash flows
672,248
1,300,000
602,916
2,300,000
1,972,248
2,902,916
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term deposit rates.
6. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
415,566
145,058
560,624
378,236
216,300
594,536
Credit Risk – Trade and Other Receivables
The Group has no significant concentration of credit risk with respect to any single counter party or group of counterparties other
than those receivables specifically provided for and mentioned within note 32. The class of assets described as Trade and Other
Receivables is considered to be the main source of credit risk related to the group.
On a geographical basis, the Group has credit risk exposures in Australia and the United Kingdom given the operations in those
regions. The Group’s exposure to credit risk for receivables at the end of the reporting period in those regions is as follows:
31
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
6. CURRENT ASSETS – TRADE AND RECEIVABLES (cont.)
AUD
Australia
United Kingdom
Notes
2011
$
153,541
354,219
507,760
2010
$
143,757
430,842
574,599
The following table details the Group’s trade and other receivables exposed to credit risk with ageing analysis and impairment
provided for thereon. Amounts are considered to be ‘past due’ when the debt has not been settled, with the terms and conditi ons
agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for
impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the
debt may not be fully repaid to the Group.
The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality.
Gross
Amount
Past due
and
impaired
Past due but not impaired
(days overdue)
$
$
< 30
$
31 - 60
$
61 - 90
$
> 90
$
2011
Trade receivables
Other receivables
Total
2010
Trade receivables
Other receivables
Total
415,566
145,048
560,624
378,236
216,300
594,536
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7. CURRENT ASSETS - INVENTORY
Petroleum products at cost
Chemical stocks at cost
8. NON-CURRENT ASSETS – RECEIVABLES
Bank guarantees
Loan to associate company
Other non-current receivables
-
-
-
-
-
-
73,052
20,754
93,806
33,768
9,601
5,534
48,903
Within
initial
trade
terms
$
415,566
145,048
560,624
378,236
216,300
594,536
-
-
-
-
-
-
13,786
33,451
47,237
62,275
8,101
4,878
75,254
The recovery of the carrying value of loans to subsidiaries (refer note 31) and loan to associate company is dependent on the
successful development and commercial exploitation, or alternatively, sale of the respective exploration areas of interest. Key
Petroleum Limited has provided an unsecured, interest free loan to Portsea Oil & Gas Pty Ltd, a company the Group has account ed for
as an associate.
32
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
9. NON-CURRENT ASSETS - PLANT AND EQUIPMENT
Plant and equipment
Cost
Accumulated depreciation
Net book amount
Plant and equipment
Opening net book amount
Exchange differences
Additions
Depreciation charge
Closing net book amount
10. NON-CURRENT ASSETS – INTANGIBLE ASSETS
Goodwill
Cost
Accumulated impairment
Net book amount
Goodwill
Opening net book amount
Impairment
Closing net book amount
11. NON CURRENT ASSETS – PETROLEUM ASSETS
Petroleum assets at cost
Less accumulated amortisation
Total petroleum assets
Reconciliation of movement in petroleum assets
Opening net book amount
Exchange differences
Additions
Acquisitions
Amortisation expense
Closing net book amount
2011
$
2010
$
503,123
(410,912)
92,211
145,305
(4,588)
5,905
(54,411)
92,211
2,891
(2,891)
-
-
-
-
2,770,359
(2,318,073)
452,286
2,787,049
(455,815)
-
-
(1,878,948)
452,286
539,317
(394,012)
145,305
134,342
-
63,569
(52,606)
145,305
2,891
(2,891)
-
2,891
(2,891)
-
3,944,042
(1,156,993)
2,787,049
-
-
13,806
3,930,236
(1,156,993)
2,787,049
12. NON-CURRENT ASSETS –CAPITALISED EXPLORATION COSTS
Exploration, evaluation and development costs carried forward in respect
of areas of interest
Pre-production
Opening net book amount
Exchange differences
Capitalised exploration and evaluation costs
Exploration and evaluation costs written off
Closing net book amount
3,546,076
(78,846)
3,141,361
(5,970,880)
637,711
4,587,866
-
892,999
(1,934,789)
3,546,076
The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development
and commercial exploitation or sale of the respective petroleum interests.
33
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
13. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES
Trade payables
Other payables and accruals
14. NON CURRENT LIABILITIES - PROVISIONS
Site Restoration Provision
Opening balance
Exchange differences
Purchase of controlled entity
Unwind discount
Amount capitalised
Closing balance
2011
$
2010
$
285,731
47,997
333,728
575,707
(81,574)
-
5,078
-
499,211
549,144
118,048
667,192
-
-
555,986
19,721
-
575,707
Provision for Site Restoration
A provision has been recognised for the costs to be incurred for the restoration of the oil well sites in the United Kingdom. It is
anticipated that the sites will require restoration within the next five years if no further discoveries are made.
15. ISSUED CAPITAL
(a) Share capital
Ordinary shares fully paid
Total issued capital
(b) Movements in ordinary share capital
Beginning of the financial year
Entitlements issue
Share placement
Supplier shares issued
Vendor shares issued
Share issue transaction costs
Transfer from Options Reserve
End of the financial year
(c) Movements in options on issue
Notes
15(b),
15(d)
2011
2010
Number of
shares
$
Number of
shares
$
216,047,707
28,214,283
130,175,518
24,599,056
216,047,707
28,214,283
130,175,518
24,599,056
130,175,518
65,950,134
19,501,887
420,168
-
-
-
216,047,707
24,599,056
2,638,004
1,033,600
20,000
-
(296,377)
220,000
28,214,283
86,000,005
43,175,513
-
-
1,000,000
-
-
130,175,518
19,868,699
4,749,307
-
-
95,000
(113,950)
-
24,599,056
Beginning of the financial year
Issued during the year:
Exercisable at 7.5 cents, on or before 30 November 2011 (listed)
Exercisable at 20 cents, on or before 30 November 2010
Exercisable at 30 cents, on or before 30 November 2011
Expired/cancelled during the year
Exercisable at 20 cents, on or before 30 November 2010
Exercisable at 50 cents, on or before 30 November 2010
End of the financial year
34
Number of options
2010
2011
5,950,000
5,750,000
41,175,058
-
-
(700,000)
(5,000,000)
41,425,058
-
200,000
250,000
(250,000)
-
5,950,000
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
15. ISSUED CAPITAL (cont.)
(d) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of and amounts paid on the shares held.
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 share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(e) Capital risk management
The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they may
continue to provide returns for shareholders and benefits for other stakeholders.
Due to the nature of the Group’s activities, being petroleum exploration, the Group does not have ready access to credit faci lities,
with the primary source of funding being equity raisings. Therefore, the focus of the Group’s capital risk management is the current
working capital position against the requirements of the Group to meet exploration programmes and corporate overheads. The
Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating
appropriate capital raisings as required. Refer to Note 1 for managements plans to remain a going concern. The working capital
position of the Group at 30 June 2011 and 30 June 2010 are as follows:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Working capital position
16. RESERVES
(a) Reserves
Foreign currency translation reserve
Share-based payments reserve
Movements:
Foreign currency translation reserve
Balance at beginning of year
Currency translation differences arising during the year
Balance at end of year
Share-based payments reserve
Balance at beginning of year
Employees and contractors option expense
Transferred to Issued Capital
Transferred to Accumulated Losses
Balance at end of year
2011
$
1,972,248
560,624
(333,728)
2,199,144
(1,349,073)
208,900
(1,140,173)
(780,346)
(568,727)
(1,349,073)
309,177
188,600
(220,000)
(68,877)
208,900
2010
$
2,902,916
594,536
(667,192)
2,830,260
(780,346)
309,177
(471,169)
(87,870)
(692,476)
(780,346)
276,557
32,620
-
-
309,177
(b) Nature and purpose of reserves
(i) Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as
described in note 1(d). The reserve is recognised in profit and loss when the net investment is disposed.
(ii) Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of options issued.
35
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
17. DIVIDENDS
No dividends were paid during the financial year. No recommendation for payment of dividends has been made
18. KEY MANAGEMENT PERSONNEL DISCLOSURES
(a) Key management personnel compensation
Short-term benefits
Post employment benefits
Other long-term benefits
Termination benefits
Share-based payments
2011
$
399,375
3,000
-
-
-
402,375
2010
$
413,090
4,126
-
-
-
417,216
Detailed remuneration disclosures are provided in the remuneration report on pages 7 and 8.
(b) Equity instrument disclosures relating to key management personnel
(i) Options provided as remuneration and shares issued on exercise of such options
No options were provided as remuneration to key management personnel in 2011.
(ii) Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each director of Key Petroleum
Limited and other key management personnel of the Group, including their personally related parties, are set out below:
2011
Balance at
start of the
year
Granted as
compensat
ion
Exercised
Other
changes
Balance at
end of the
year
Vested and
exercisable
Unvested
750,000
2,000,000
Directors of Key Petroleum Limited
Dennis Wilkins
Kenneth Russell
John Sheppard
(Appointed 31 August
2010)
Edward Ellyard
(Resigned 31 August
2010)
Richard O’Shannassy
(Resigned 31 August
2010)
-
1,000,000
750,000
Other key management personnel of the Group
John Ribbons
500,000
All vested options are exercisable at the end of the year.
-
-
-
-
-
-
-
-
-
-
-
-
(750,000)
(2,000,000)
-
-
-
-
17,500
17,500
17,500
(1,000,000)
(750,000)
-
-
-
-
(200,000)
300,000
300,000
-
-
-
-
-
-
2010
Balance at
start of the
year
Granted as
compensat
ion
Exercised
Other
changes
Balance at
end of the
year
Vested and
exercisable
Unvested
Directors of Key Petroleum Limited
Dennis Wilkins
Kenneth Russell
Edward Ellyard
Richard O’Shannassy
750,000
2,000,000
1,000,000
750,000
Other key management personnel of the Group
John Ribbons
500,000
-
-
-
-
-
-
-
-
-
-
750,000
2,000,000
1,000,000
750,000
750,000
2,000,000
1,000,000
750,000
500,000
500,000
-
-
-
-
-
-
-
-
-
-
36
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
18. KEY MANAGEMENT PERSONNEL DISCLOSURES (cont’d)
(iii) Share holdings
The numbers of shares in the Company held during the financial year by each director of Key Petroleum Limited and other key
management personnel of the Group, including their personally related parties, are set out below. There were no shares granted
during the reporting period as compensation.
2011
Directors of Key Petroleum Limited
Ordinary shares
Dennis Wilkins
Kenneth Russell
John Sheppard (Appointed 31 August 2010)
Edward Ellyard (Resigned 31 August 2010)
Richard O’Shannassy (Resigned 31 August 2010)
Other key management personnel of the Group
Ordinary shares
John Ribbons
2010
Directors of Key Petroleum Limited
Ordinary shares
Dennis Wilkins
Kenneth Russell
Edward Ellyard
Richard O’Shannassy
Other key management personnel of the Group
Ordinary shares
John Ribbons
Balance at
start of the
year
1,000,000
5,815,000
-
6,675,000
300,000
600,005
Balance at
start of the
period
1,000,000
5,565,000
4,450,000
200,000
600,005
Received
during the
year on the
exercise of
options
-
-
-
-
-
-
Received
during the
period on the
exercise of
options
-
-
-
-
-
Other
changes
during the
year
-
-
70,000
(6,675,000)
(300,000)
Balance at
end of the
year
1,000,000
5,815,000
70,000
-
-
399,995
1,000,000
Other
changes
during the
period
-
250,000
2,225,000
100,000
Balance at
end of the
period
1,000,000
5,815,000
6,675,000
300,000
-
600,005
(c) Loans to key management personnel
There were no loans to key management personnel during the year.
(d) Other transactions with key management personnel
The services of Mr Ken Russell as Managing Director of Key Petroleum Limited are provided by Russell Group Holdings Pty Ltd, a
company of which Mr Russell is a director and shareholder. The amounts are included as part of Mr Russell’s compensation.
During the 2011 financial year the Group moved its principal place of business to premises owned by Russell Group Holdings Pt y
Ltd on a casual lease with no fixed period, with monthly rent payable at usual commercial rates. Total rent and outgoings paid during
the year amounted to $19,032 (2010: N/A).
A total of $177,895 (2010: $132,026) was paid to DWCorporate Pty Ltd, a business of which Mr Wilkins is principal. DWCorporate
Pty Ltd provided company secretarial, bookkeeping and other corporate services to the Key Group during the year. The amounts
paid were at usual commercial rates with fees charged on an hourly basis.
Richard O’Shannassy & Co Pty Ltd, a business of which Mr O’Shannassy is principal, provided legal services to the Key Petroleum
Group during the year. The amounts paid were at arm’s length and are included as part of Mr O’Shannassy’s compensation for the
period he was a director.
37
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
19. REMUNERATION OF AUDITORS
2011
$
2010
$
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices
and non-related audit firms:
Audit services
Bentleys – audit of financial reports
Mazars – audit of UK financial reports
Total remuneration for audit services
31,450
10,435
41,885
56,450
3,165
59,615
Non audit services
Mazars – preparation of financial statements
Total remuneration for audit services
20. CONTINGENCIES
3,675
3,675
8,956
8,956
400,000 Key shares upon the granting of an Exploration Permit for the second Offshore Block.
200,000 Key shares upon the granting of an Exploration Permit for the third Offshore Block
400,000 Key shares upon the granting of an extension of permission to drill on the Borsano Permit.
A contingent liability exists in relation to the purchase of Puma Petroleum S.r.l which occurred in 2007. Key Petroleum Limited will
issue:
In relation to the Group's interest in the West Songo Songo joint venture correspondence has been received from its joint venture
participant’s legal representative notifying the Company of its obligations under the West Songo Songo Production Sharing
Agreement. The Company’s response has been that it is fully aware of its obligations as Operator and of its work commitments. The
directors believe the issues raised in the correspondence will be able to be satisfactorily resolved.
There are no material contingent assets of the Group at balance date.
21. COMMITMENTS
(a) Exploration commitments
The Company has certain commitments to meet minimum expenditure requirements on the mineral exploration assets it has an
interest in. Outstanding exploration commitments are as follows:
within one year
later than one year but not later than five years
(b) Lease commitments: Group as lessee
Operating leases (non-cancellable):
Minimum lease payments
within one year
later than one year but not later than five years
Aggregate lease expenditure contracted for at reporting date but not
recognised as liabilities
1,264,117
4,812,360
6,076,477
20,045,000
5,956,000
26,001,000
-
-
-
113,241
84,931
198,172
The current office premises are rented on monthly basis with no minimum commitment or notice period required on termination
from a related party, refer to note 18(d).
38
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
21. COMMITMENTS (cont’d)
2011
$
2010
$
(c) Remuneration commitments
Amounts disclosed as remuneration commitments include commitments arising from the service contracts of key management
personnel referred to in the remuneration report on pages 7 and 8 that are not recognised as liabilities and are not included in the key
management personnel compensation.
within one year
later than one year but not later than five years
6,000
-
6,000
88,750
-
88,750
22. RELATED PARTY TRANSACTIONS
(a) Parent entity
The ultimate parent entity within the Group is Key Petroleum Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in note 24.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 18.
(d) Loans to related parties
Loan to associate
Key Petroleum Limited has provided an unsecured, interest free loan to Portsea Oil & Gas Pty Ltd, a company the Group has
accounted for as an associate. The balance of the loan at 30 June 2011 is $9,601 (2010: $8,101).
23. BUSINESS COMBINATIONS
Prior period
(a) Summary of acquisitions
Key Petroleum (UK) Limited, a United Kingdom registered private company, was incorporated on 28 July 2009 with Key Petroleum
Limited being the sole shareholder.
On 30 September 2009 Key Petroleum (UK) Limited acquired 100% of the issued share capital of Midmar Energy Onshore Limited,
a company registered in the United Kingdom. Subsequently the name of the acquired entity has been changed to Key Petroleum
Weald Basin Limited.
As part of the acquisition the Company acquired third party borrowings of $3,648,800. These were repaid on the day of the
acquisition.
The acquired business contributed $1,090,538 revenue and a loss of $1,529,893 to the Group for the period from 30 September 2009
to 30 June 2010. If the acquisition had occurred on 1 July 2009, consolidated revenue and consolidated loss for the year ended 30
June 2010 would have been $2,102,628 and $6,148,328 respectively.
At the date of acquisition, the acquired entity was involved in oil production in England.
Details of the fair value of the assets and liabilities acquired and goodwill are as follows:
Purchase consideration (refer to (c) below):
Cash paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer to (b) below)
Goodwill
$
297,494
297,494
297,494
-
39
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
23. BUSINESS COMBINATIONS (cont.)
(b) Assets and liabilities acquired
The assets and liabilities arising from the acquisition are as follows:
Cash
Trade and other receivables
Inventory
Plant and equipment
Petroleum permits and capitalised exploration costs
Trade and other payables
Borrowings
Provisions
Net identifiable assets acquired
(c) Purchase consideration
Outflow of cash to acquire business, net of cash acquired
Cash consideration
Less: Balances acquired
Cash and cash equivalents
Outflow of cash
24. SUBSIDIARIES
Acquiree’s
carrying amount
$
95,110
258,300
65,810
37,834
6,624,359
(119,208)
(3,648,800)
(555,986)
2,757,419
2011
$
-
-
-
Fair value
$
95,110
258,300
65,810
37,834
4,164,434
(119,208)
(3,648,800)
(555,986)
297,494
2010
$
297,494
(95,110)
202,384
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
Country of
Incorporation
Class of Shares
Equity Holding*
Puma Petroleum S.r.L.
Key Petroleum (Australia) Pty Ltd
Funguo Petroleum Pty Limited
Key Petroleum (UK) Limited
Key Petroleum Weald Basin Limited
Italy
Australia
Tanzania
England
England
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
* The proportion of ownership interest is equal to the proportion of voting power held.
2011
%
100
100
100
100
100
2010
%
100
100
100
100
100
25. INVESTMENT IN ASSOCIATE
(a) Carrying amount
Information relating to the associate is set out below.
Name of Company
Principal
Activity
Unlisted
Portsea Oil & Gas Pty Ltd
Oil and gas
exploration
The above associate was incorporated in Australia.
Ownership Interest
Consolidated
2011
%
2010
%
2011
$
2010
$
50
50
-
-
40
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
25. INVESTMENT IN ASSOCIATE (cont.)
(b) Movements in carrying amount
Carrying amount at the beginning of the year
Share of loss after income tax
Impairment of Investment
Carrying amount at the end of the year
(c) Share of associate profit or loss
Loss before income tax
Income tax
Loss after income tax
(d) Unrecognised share of associate loss
Losses unrecognised at the beginning of the year
Share of associate loss not recognised during the year
Losses unrecognised at the end of the year
(e) Summarised financial information of associate
2011
$
2010
$
-
-
-
-
-
-
-
-
(1,823)
(1,823)
503,462
(2,574)
(500,888)
-
(2,574)
-
(2,574)
-
-
-
2011
Portsea Oil & Gas Pty Ltd
2010
Portsea Oil & Gas Pty Ltd
Gross Amount of:
Assets
$
Liabilities
Revenues
$
$
Loss
$
2,213
5,695
204,080
203,917
3
1
(3,645)
(5,150)
(f) Share of associate’s expenditure commitments, other than for the supply of inventories
Portsea Oil & Gas Pty Ltd does not have any expenditure commitments at balance date.
(g) Contingent liabilities of associate
Portsea Oil & Gas Pty Ltd does not have any contingent liabilities at 30 June 2011.
26. INTERESTS IN JOINT VENTURES
Tanzanian Agreement - Nyuni
Key Petroleum Limited owns a 5% interest in the Nyuni Production Sharing Agreement (“Nyuni PSA”) and a 5% participating
interest in the Joint Operating Agreement (“JOA”) between Ndovu Resources Limited (“Ndovu”), a Tanzanian company, Rakgas
Tanzania Ltd and Bounty Oil and Gas NL.
Tanzanian Agreement – West Songo Songo
Key Petroleum Limited, through its wholly owned subsidiary Funguo Petroleum Pty Ltd, owns a 50% interest in a Production
Sharing Contract with the Government of the Republic of Tanzania in respect of the West Songo Songo area.
27. EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION DATE
The Company will be holding a meeting of shareholders on 29 August 2011 seeking approval to acquire 100% of the issued capital
of Zeta Petroleum Limited (“Zeta”).
41
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
28. STATEMENT OF CASH FLOWS
(a) Reconciliation of net loss after income tax to net cash outflow
from operating activities
Net loss for the year
Non-Cash Items
Depreciation of non-current assets
Employee and contractors options expense
Share of loss of associate
Impairment expense
Net exchange differences
Change in operating assets and liabilities, net of effects from
purchase of controlled entity
Decrease/(increase) in trade and other receivables
(Increase)/decrease in inventories
(Decrease)/increase in provisions
Decrease in petroleum permits and capitalised exploration costs
(Decrease)/increase in trade and other payables
Net cash outflow from operating activities
2011
$
2010
$
(8,845,724)
(6,072,006)
1,933,359
-
-
-
(91,722)
60,264
(53,237)
(5,078)
2,829,519
(333,463)
(4,506,082)
1,211,997
32,620
2,574
503,779
(3,013)
(205,240)
16,246
39,378
1,019,366
370,379
(3,083,920)
Share issue
(b) Non-cash financing and investing activites
(i)
During the current year 420,168 ordinary shares were issued, with a deemed value of $20,000, as consideration for consulting
services.
During the prior year 1,000,000 ordinary shares were issued at 30 cents as a result of the granting of the Exploration Permit for West
Sardinia as part of the consideration for the purchase of Puma Petroleum S.r.L.
29. LOSS PER SHARE
(a) Reconciliation of earnings used in calculating loss per share
Loss attributable to the owners of the Company used in calculating basic
and diluted loss per share
(b) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted loss per share
2011
$
2010
$
(8,845,724)
(6,072,006)
Number of shares
Number of shares
185,647,744
124,670,935
(c) Information on the classification of options
As the Group has made a loss for the year ended 30 June 2011, all options on issue are considered anti-dilutive and have not been
included in the calculation of diluted earnings per share. These options could potentially dilute basic earnings per share in the future.
30. SHARE-BASED PAYMENTS
(a) Employees and contractors options
The Group provides benefits to employees (including Directors) and contractors of the Group in the form of share-based payment
transactions, whereby options to acquire ordinary shares are issued as an incentive to improve employee and shareholder goal
congruence. The exercise price of the options currently on issue is 30 cents, with an expiry date of 30 November 2011.
Options granted carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share of the
Company with full dividend and voting rights.
42
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
30. SHARE BASED PAYMENTS (cont.)
Set out below are summaries of the options granted:
Outstanding at the beginning of the year
Granted
Forfeited/cancelled
Exercised
Expired
Outstanding at year-end
Exercisable at year-end
2011
2010
Number of
options
5,950,000
-
-
-
(5,700,000)
250,000
250,000
Weighted
average
exercise
price cents
45.6
-
-
-
46.3
30.0
30.0
Number of
options
5,750,000
450,000
(250,000)
-
-
5,950,000
5,950,000
Weighted
average
exercise
price cents
46.1
25.6
20.0
-
-
45.6
45.6
The weighted average remaining contractual life of share options outstanding at the end of the financial year was 0.45 years (2010:
0.46), and the exercise price is 30 cents.
There were no options granted during the current period. The weighted average fair value of the options granted during the prior year
was 7.25 cents. The price was calculated by using the Black-Scholes European Option Pricing Model applying the following inputs:
Weighted average exercise price (cents)
Weighted average life of the option (years)
Weighted average underlying share price (cents)
Expected share price volatility
Risk free interest rate
2011
-
-
-
-
-
2010
25.6
1.46
14.0
148.44%
3.75%
Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is i ndicative of
future trends, which may not eventuate. The life of the options is based on historical exercise patterns, which may not eventuate in
the future.
(b) Options Issued to Suppliers
The Group issued options during the current financial year as consideration for capital raising services. The options granted had an
exercise price of 7.5 cents and an expiry date of 30 November 2011.
The options granted carried no dividend or voting rights. When exercised, each option was converted into one ordinary share in the
capital of the Company with full dividend and voting rights.
Set out below are summaries of granted options:
Outstanding at the beginning of the year
Granted
Forfeited
Exercised
Expired
Outstanding at year-end
Exercisable at year-end
Consolidated
2011
2010
Weighted
average
exercise price
cents
Number of
options
Weighted
average
exercise price
cents
-
7.5
-
-
-
7.5
7.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Number of
options
-
8,200,000
-
-
-
8,200,000
8,200,000
The weighted average remaining contractual life of share options outstanding at the end of the year was 0.45 years.
43
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
30. SHARE BASED PAYMENTS (cont.)
The weighted average fair value of the options granted during the year was 2.3 cents. The price was calculated by using the Black-
Scholes European Option Pricing Model applying the following inputs:
Weighted average exercise price (cents)
Weighted average life of the option (years)
Weighted average underlying share price (cents)
Expected share price volatility
Risk free interest rate
2011
7.5
1.25
4.7
145.11%
4.5%
Historical volatility has been the basis for determining expected share price volatility as it assumed that this is indicative of future trends,
which may not eventuate.
The life of the options is based on historical exercise patterns, which may not eventuate in the future.
(c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the year were as follows:
Options issued to employees and contractors
Options issued to suppliers recognised in share issue transaction costs
2011
$
-
188,600
188,600
2010
$
32,620
-
32,620
31. PARENT ENTITY INFORMATION
The following information relates to the parent entity, Key Petroleum Limited, at 30 June 2011. The information presented her e has
been prepared using accounting policies consistent with those presented in Note 1.
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Share-based payments reserve
Accumulated losses
Total equity
Loss for the year
Total comprehensive loss for the year
1,734,767
2,207,173
3,941,940
86,502
86,502
28,214,283
208,900
(24,567,745)
3,855,438
(9,398,917)
(9,398,917)
2,793,707
7,116,800
9,910,507
239,980
239,980
24,599,055
309,177
(15,237,705)
9,670,527
(6,485,369)
(6,485,369)
44
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
31. PARENT ENTITY INFORMATION (cont.)
The parent entity is responsible for the contingent liabilities outlined in note 20.
The parent entity is responsible for the commitments outlined in note 21.
Interests in subsidiaries are set out in note 24.
Disclosures relating to key management personnel are set out in note 18.
Loans to related parties
Loans to subsidiaries
Beginning of the year
Loans advanced
Interest charged
Impairments
Closing balance
Key Petroleum (UK) Ltd
Other subsidiaries
Total
2011
$
2010
$
3,346,054
175,192
364,270
(1,838,553)
2,046,963
-
4,911,872
268,254
(1,834,072)
3,346,054
2011
$
373,505
219,856
48,195
(603,498)
38,058
2010
$
453,081
50,963
29,915
(160,454)
373,505
2011
$
2010
$
3,719,559
395,048
412,465
(2,442,051)
2,085,021
453,081
4,962,835
298,169
(1,994,526)
3,719,559
Key Petroleum Limited has provided unsecured loans to its wholly owned subsidiaries Key Petroleum (UK) Ltd and Funguo
Petroleum Pty Limited with monthly interest charged at the BBSW rate plus 2%. Key Petroleum Limited has also provided an
unsecured, interest free loan to its wholly owned subsidiary Key Petroleum (Australia) Pty Ltd. An impairment assessment is
undertaken each financial year by examining the financial position of each subsidiary and the market in which the respective
subsidiary operates to determine whether there is objective evidence that any of the subsidiaries are impaired. When such obj ective
evidence exists, the Group recognises an allowance for the impairment loss.
32. FINANCIAL RISK MANAGEMENT
The Group’s financial instruments consist mainly of deposits with banks and accounts receivable and payable.
The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies
to these financial statements, are as follows:
Financial Assets
Cash and cash equivalents
Loans and Receivables
Total Financial Assets
Financial Liabilities
Trade and other payables
Total Financial Liabilities
2011
$
1,972,248
609,527
2,581,775
2010
$
2,902,916
669,790
3,572,706
333,728
333,728
667,191
667,191
Specific Financial Risk Exposures and Management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk),
credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the financial performance of the Group.
Risk management is carried out by the full Board of Directors as the Group believes that it is crucial for all board members to be
involved in this process. The Managing Director, with the assistance of senior management as required, has responsibility for
identifying, assessing, treating and monitoring risks and reporting to the board on risk management.
45
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
32. FINANCIAL RISK MANAGEMENT (cont.)
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a curre ncy
that is not the entity’s functional currency and net investments in foreign operations. The Group has not formalised a foreign
currency risk management policy however, it monitors its foreign currency expenditure in light of exchange rate movements.
The Group’s exposure to foreign currency risk at the reporting date was as follows:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
GBP
234,288
234,350
(110,256)
2011
USD
24,179
35,931
(40,974)
EUR
GBP
10,295
41,441
(54,671)
110,207
42,488
(204,201)
2010
USD
12,782
64,735
(37,506)
EUR
29,097
46,828
(25,793)
Sensitivity analysis
Based on the financial instruments held at 30 June 2011, had the Australian dollar weakened/strengthened by 10% against the US
dollar, the Euro or the British pound with all other variables held constant, there would have been an immaterial impact on the
Group’s post-tax losses for the year (2010: Nil) and immaterial movements to the Group’s equity for both years presented.
(ii) Price risk
The Group is exposed to movements in the world oil price as its revenues are generated through the sale of crude oil.
Sensitivity analysis
At 30 June, 2011 if the oil price had changed by -/+ 5% from the weighted average rate for the year with all other variables held
constant, the post-tax loss for the Group would have been $94,000 higher/lower (2010: $54,500) as a result of lower/higher oil sales
revenue.
(iii) Interest rate risk
The Group is exposed to movements in market interest rates on cash and cash equivalents. The Group policy is to monit or the
interest rate yield curve out to six months to ensure a balance is maintained between the liquidity of cash assets and the interest rate
return. The entire balance of cash and cash equivalents for the Group $1,972,248 (2010: $2,902,916) is subject to interest rate risk.
The proportional mix of floating interest rates and fixed rates to a maximum of six months fluctuate during the year depending on
current working capital requirements. The weighted average interest rate received on cash and cash equivalents by the Group was
4.0% (2010: 4.4%).
Sensitivity analysis
At 30 June 2011, if interest rates had changed by -/+ 80 basis points from the weighted average rate for the year with all other
variables held constant, post-tax loss for the Group would have been $23,000 lower/higher (2010: $28,000 lower/higher) as a result
of lower/higher interest income from cash and cash equivalents.
(b) Credit risk
Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations
that could lead to a financial loss to the Group.
Credit risk is minimised by investing surplus funds in financial institutions that maintain AAA credit ratings and by ensuring
customers and counterparties to transactions are of sound credit worthiness.
Credit Risk Exposures
The maximum exposure to credit risk by class of recognised financial assets at balance date is equivalent to the carrying val ue and
classification of those financial assets (net of any provisions) as presented in the statement of financial position.
The Group has a concentration of credit risk relating to sales of oil in the UK which are to only one customer (BP Exploration
Operating Company Ltd). There was an outstanding balance for this debtor at 30 June 2011 of $222,071 (2010: $178,322).
All cash holdings within the Group are currently held with AAA rated financial institutions.
46
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
32. FINANCIAL RISK MANAGEMENT (cont.)
(c) Liquidity risk
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and
marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group’s
activities, being oil and gas exploration, the Group does not have ready access to credit facilities, with the primary source of funding
being equity raisings. The Board of Directors constantly monitor the state of equity markets in conjunction with the Group’s current
and future funding requirements, with a view to initiating appropriate capital raisings as required. Refer to Note 1 for managements
plans to remain a going concern.
The tables below reflect an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial
assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The
timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates.
Financial Liability and Financial Asset Maturity Analysis
Within 1 Year
1 to 5 Years
Total
2011
$
2010
$
2011
$
2010
$
2011
$
2010
$
Financial liabilities due for payment
Trade and other payables (excluding
estimated annual leave)
Operating lease liabilities
Exploration commitments
Total contractual outflows
Financial assets – cash flows
realisable
Cash and cash equivalents
Trade and loan receivables
Total anticipated inflows
Net (outflow)/inflow on financial
instruments
333,728
-
609,318
113,241
-
-
-
333,728
84,931
-
609,318
198,172
1,264,117
20,045,000
4,812,360
5,956,000
6,076,477
26,001,000
1,597,845
20,767,559
4,812,360
6,040,931
6,410,205
26,808,490
1,972,248
2,902,916
609,527
669,790
2,581,775
3,572,706
-
-
-
-
-
-
1,972,248
2,902,916
609,527
669,790
2,581,775
3,572,706
983,930
(17,194,853)
(4,812,360)
(6,040,931)
(3,828,430)
(23,235,784)
(d) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure
purposes. All financial assets and financial liabilities of the Group at the balance date are recorded at amounts approximati ng their
fair value.
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quoted
market price used for financial assets held by the Group is the current bid price.
The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to
their short-term nature.
As disclosed in note 1 should the Company not continue as a going concern then the fair value of financial assets and financi al
liabilities may not reflect the true fair value of financial assets and financial liabilities on a liquidation basis.
33. SEGMENT INFORMATION
Identification of reportable segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors
(chief operating decision makers) in assessing performance and determining the allocation of resources.
The Group is managed primarily on the basis of geographic location of assets given that the type of work done in each location is of
a similar nature. Operating segments are therefore determined on this basis.
Types of activites by segment
United Kingdom
The United Kingdom segment produces oil for sale and conducts exploration on the Company’s licenses.
47
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
33. SEGMENT INFORMATION (cont.)
Tanzania
The Tanzanian segment is engaged in exploration for oil and gas in the Company’s interests in Tanzania.
Italy
The Italian segment is engaged in exploration for oil and gas in the Company’s interests in Italy.
Basis of accounting for purposes of reporting by operating segments
Accounting policies adopted
Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker with respect to operating
segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial
statements of the Group.
Inter-segment transactions
An internally determined transfer price is set for all inter-entity sales. This price is re-set quarterly and is based on what would be
realised in the event the sale was made to an external party at arm’s-length. All such transactions are eliminated on consolidation for
the Group’s financial statements.
Inter-segment loans payable and receivable are initially recognised at the consideration received net of transact ion costs. If inter-
segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market intere st
rates. This policy represents a departure from that applied to the statutory financial statements.
Segment assets
Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value
from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.
Unless indicated otherwise in the segment assets note, investments in financial assets, deferred tax assets and intangible assets have
not been allocated to operating segments.
Segment liabilities
Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the
segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment
liabilities include trade and other payables and certain direct borrowings.
Unallocated items
The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not cons idered
part of the core operations of any segment:
Interest income
Administration expenses
Corporate expenses
Equity accounted profits and losses of associates
Impairment of investment in associates
Corporate liabilities
Cash
Major Customers
Details of major customers are disclosed in note 32(b).
Comparative information
This is the first reporting period in which AASB 8 Operating Segments has been adopted. Comparative information has been restated
to conform to the requirements of the Standard.
48
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
33. SEGMENT INFORMATION (cont.)
Segment revenue
External sales
Interest revenue
Total segment revenue
Reconciliation of segment revenue
to Group revenue
Amounts not included in the
segment result but reviewed by the
Board:
Interest revenue
Total Group revenue
Segment result
Segment result before income tax
Reconciliation of segment result to
Group loss before tax
Amounts not included in the
segment result but reviewed by the
Board:
Depreciation and amortisation
Impairment of capitalised
exploration costs
Equity accounted profits of
associates and JVs
Impairment of goodwill
Impairment of investment
Interest revenue
Administration charges
Corporate charges
Unallocated items:
Depreciation and amortisation
Other
Loss for the year
United Kingdom
Tanzania
Italy
Total
2011
$
2010
$
2011
$
2010
$
2011
$
2010
$
2011
$
2010
$
1,879,806
-
1,879,806
1,090,538
-
1,090,538
-
-
-
-
-
-
-
17
17
-
427
427
1,879,806
17
1,879,823
1,090,538
427
1,090,965
677,106
(349,564)
(9,565)
(14,219)
(121,086)
(203,509)
546,455
(567,292)
114,350
1,994,173
153,008
1,243,973
(1,904,650)
(1,175,480)
-
-
-
-
(1,904,650)
(1,175,480)
(5,960,517) (1,695,896)
(10,363)
(253,695)
(5,970,880)
(1,949,591)
-
(2,891)
-
-
-
114,350
(1,029,188)
(535,166)
(2,574)
(2,891)
(500,888)
153,435
(1,215,738)
(692,046)
(28,709)
(37,936)
(8,845,724)
(36,516)
(82,425)
(6,072,006)
Segment assets
1,905,677
3,757,518
62,254
3,280,197
70,252
117,846
2,038,183
7,155,561
Reconciliation of segment assets to
Group assets
Intersegment elimination
Unallocated items:
Corporate assets
Total Group assets from continuing
operations
Segment asset increases for the year
Capital expenditure
Acquisitions
-
-
1,819,606
2,942,812
3,857,789 10,098,373
423,645
-
423,645
271,846
4,202,268
4,474,114
586,858
-
586,858
565,195
-
565,195
-
-
-
-
-
-
1,010,503
-
1,010,503
837,041
4,202,268
5,039,309
Segment liabilities
5,218,219
5,662,001
655,724
509,671
74,237
36,773
5,948,180
6,208,445
Reconciliation of segment liabilities
to Group liabilities
Intersegment elimination
Unallocated items:
Corporate liabilities
Total Group liabilities from
continuing operations
(5,201,743)
(5,205,524)
86,502
239,978
832,939
1,242,899
49
Key Petroleum Limited and its Controlled Entities
Notes to the Financial Statements continued
30 JUNE 2011
34. COMPANY DETAILS
The registered office of the company is:
Key Petroleum Limited
Ground Floor, 20 Kings Park Road
WEST PERTH WA 6005
The principal place of business is:
Key Petroleum Limited
163 Stirling Highway
NEDLANDS WA 6009
50
Key Petroleum Limited and its Controlled Entities
Directors' Declaration
In the directors’ opinion:
(a)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
the financial statements and notes set out on pages 16 to 50 are in accordance with the Corporations Act 2001, including:
(i)
requirements; and
(ii)
financial year ended on that date;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
giving a true and fair view of the Company’s financial position as at 30 June 2011 and of its performance for the
a statement that the attached financial statements are in compliance with International Financial Reporting Standards has been
(b)
payable; and
(c)
included in the notes to the financial statements.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of
the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors for Key Petroleum Limited.
Ken Russell
Managing Director
Perth, 23 August 2011
51
We have audited the accompanying financial report of Key Petroleum Limited, which
comprises the consolidated statement of financial position as at 30 June 2011, and the
consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year then ended, notes comprising a
summary of significant accounting policies and other explanatory information, and the
directors’ declaration of the Company and the Consolidated Entity, comprising the Company
and the entities it controlled at the year’s end or from time to time during the financial year.
The directors of the Company are responsible for the preparation and fair presentation of the
financial report in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that is free from material misstatement, whether due to fraud
or error. In Note 1, the directors also state, in accordance with Accounting Standards
AASB 101: Presentation of Financial Statements, that the financial statements comply with
International Financial Reporting Standards.
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial report in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the directors, as well as evaluating the overall presentation
of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
In conducting our audit, we followed applicable independence requirements of Australian professional ethical
pronouncements and the Corporations Act 2001.
As disclosed in Note 1 to the financial statements, the accounts have been prepared on the going concern basis,
which contemplates continuity of normal activities and the realisation of assets and settlement of liabilities in the
ordinary course of business. The Consolidated Entity incurred a loss from general business activities of
$8,845,724 for the year ended 30 June 2011 (2010: $6,072,006 loss). Included within this loss was the write off of
exploration expenditure of $5,970,880 (2010: $1,934,789).
The net working capital position of the Consolidated Entity at 30 June 2011 was $2,199,144 (2010: $2,830,260)
and the net decrease in cash held during the year was $928,160 (2010: $2,830,260).
The Consolidated Entity has expenditure commitments relating to work programme obligations of their assets of
$1,264,117 which potentially could fall due in the twelve months to 30 June 2012.
The ability of the Consolidated Entity to continue to pay its debts as and when they fall due is dependent upon the
Company successfully raising additional share capital. The Company constantly considers capital needs and
capital raising opportunities.
Should the Consolidated Entity not be successful in its planned capital raisings, it may be necessary to sell further
assets and reduce exploration expenditure by various methods including surrendering or withdrawing from less
prospective tenements.
As a result of these matters, a significant uncertainty exists which may cast significant doubt on the Consolidated
Entity’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial report does not include any adjustments relating to the
recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that
might be necessary should the Consolidated Entity not continue as a going concern.
In our opinion, except for the matter included in the preceding paragraph:
a. The financial report of Key Petroleum Limited is in accordance with the Corporations Act 2001, including:
i.
giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2011 and of its
performance for the year ended on that date; and
ii.
complying with Australian Accounting Standards and the Corporations Regulations 2001;
b. The financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
We have audited the Remuneration Report included in directors’ report of the year ended 30 June 2011. 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.
In our opinion, the Remuneration Report of Key Petroleum Limited for the year ended 30 June 2011, complies
with section 300A of the Corporations Act 2001.
BENTLEYS
Chartered Accountants
CHRIS WATTS CA
Director
DATED at PERTH this 23rd day of August 2011
ASX Additional Information
Key Petroleum Limited
Additional information required by Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information
is current as at 27 October 2011.
(a) Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
1
1,001
5,001
10,001
100,001
-
-
-
-
1,000
5,000
10,000
100,000
and over
The number of equity security holders
holding less than a marketable parcel of
securities are:
Ordinary shares
Number of holders Number of shares
Options
Number of holders
Number of options
51
108
191
705
256
1,311
9,345
367,637
1,687,362
27,872,137
186,111,226
216,047,707
10
56
52
136
57
311
3,504
208,294
417,332
4,528,373
36,017,555
41,175,058
660
7,738,664
291
13,315,319
(b) Twenty largest shareholders
The names of the twenty largest holders of quoted ordinary shares are:
1
HSBC Custody Nominees (Australia) Limited
2
Leet Investments Pty Ltd
3
DMG & Partners Securities Pte Ltd
4
Leet investments Pty Limited
5
Jerele Mining Pty Ltd
6
Mr Paul Noble Bennett
7
Mr Kenneth Russell
8
Citicorp Nominees Pty Limited
9
HSBC Custody Nominees (Australia) Limited
10
Mr Allen King & Mrs Jolanka King & Mr John King
11
Dr Donald Stewart Anson
12
Mr Kie Yik Wong
13
Centaur Oil Services Pty Ltd
14
Mr Stephen Cansdell Hirst
15
Campetre Enterprises Pty Ltd
Key International Pty Ltd
16
17 Woolsthorpe Investments Limited
18
19
20
Resource Investment Capital Holdings Pty Ltd
Kurraba Investments Pty Ltd
Mr Gordon Richard Lehmensich & Mr Robin Gordon Lehmensich
Listed ordinary shares
Number of shares
14,000,000
9,599,500
7,250,950
6,600,000
6,000,000
5,621,902
5,290,000
5,199,678
5,051,115
4,500,000
4,000,000
3,500,000
3,429,410
3,210,000
2,800,000
2,700,000
2,256,746
2,018,000
2,000,000
2,000,000
97,027,301
Percentage of
ordinary shares
6.48
4.44
3.36
3.05
2.78
2.60
2.45
2.41
2.34
2.08
1.85
1.62
1.59
1.49
1.30
1.25
1.04
0.93
0.93
0.93
44.91
55
Key Petroleum Limited
ASX Additional Information continued
(c) Twenty largest option holders
The names of the twenty largest holders of quoted options are:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Campestre Enterprises Pty Ltd
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited
Mr Paul Jennings & Mrs Jackie Jennings
Mr Allen King & Mrs Jolanka King & Mr John King
Melbourne Business Construction Group Pty Ltd
Pursuit Capital Pty Ltd
Mr Nicolas Moutis
Citicorp Nominees Pty Limited
Mr Barry Emidio De Jong
Fiske Nominees Limited
HSBC Custody Nominees (Australia) Limited
Rivermore Pty Limited
Mr Matthew David Burford
Mrs Denise Margaret McAleer
Mr Jia Jian Chen & Mrs Zhang Ping
Kurraba Investments Pty Ltd
Mr Gordon Richard Lehmensich & Mr Robin Gordon Lehmensich
Mr Lasarus Phillipiah
Shayden Nominees Pty Ltd
Listed options
Number of options
4,000,000
3,750,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
1,900,000
1,672,944
1,000,000
750,000
657,045
571,250
550,000
508,500
500,000
500,000
500,000
500,000
500,000
27,859,739
Percentage of total
options
9.71
9.11
4.86
4.86
4.86
4.86
4.86
4.61
4.06
2.43
1.82
1.60
1.39
1.34
1.23
1.21
1.21
1.21
1.21
1.21
67.66
(d) Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001
are:
Copulos Group
(e) Voting rights
All ordinary shares (whether fully paid or not) carry one vote per share without restriction.
Number of Shares
14,000,000
(f) Schedule of interests in petroleum blocks
Location
Tanzania – Offshore
Tanzania – Offshore
Suriname – Onshore
Suriname – Onshore
Italy – Offshore
Italy – Offshore (Application)
Italy – Offshore (Application)
Italy – Po Valley
Australia – Onshore
Block
Nyuni
West Songo Songo
Uitjik
Coronie
West Sardinia
Lampedusa
Elba South
Borsano
EP 437
Percentage held / earning
20
50
1.75 (indirect)
1.75 (indirect)
100
100
100
100
45
56