Keyera
Annual Report 2017

Plain-text annual report

Level 2 47 Stirling Highway Nedlands WA 6009 T: + 61 (08) 6389 0322 F: + 61 (08) 6389 0697 26 September 2017 The Manager The Australian Securities Exchange The Announcements Officer Level 4/20 Bridge Street SYDNEY NSW 2000 Please find attached Key Petroleum Limited’s 2017 Annual Report. 2017 ANNUAL REPORT Regards IAN GREGORY Company Secretary KEY PETROLEUM LIMITED ANNUAL REPORT FOR THE 12 MONTHS ENDED 30 JUNE 2017 ACN 120 580 618 CORPORATE INFORMATION ABN 50 120 580 618 Directors Rex Turkington (Chairman & Non-Executive Director) Kane Marshall (Managing Director) Dennis Wilkins (Non-Executive Director) Min Yang (Non-Executive Director) Geoff Baker (Non-Executive Director) Company Secretary Ian Gregory Registered Office and Principal Place of Business Level 2, 47 Stirling Highway NEDLANDS WA 6009 Telephone: +61 8 6389 0322 Facsimile: +61 8 6389 0697 Solicitors Mizen & Mizen Barristers & Solicitors 69 Mount 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 11 172 St George’s Terrace PERTH WA 6000 Auditors Bentleys Level 3, 216 St George’s Terrace PERTH WA 6000 Internet Address www.keypetroleum.com.au Email Address investors@keypetroleum.com.au Stock Exchange Listings Key Petroleum Limited shares (Code: KEY) are listed on the Australian Securities Exchange 1 CONTENTS Directors' Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors' Declaration Independent Auditor’s Report ASX Additional Information 3 14 15 16 17 18 19 47 48 54 2 DIRECTORS’ REPORT Your Directors submit their report on the consolidated entity (referred to hereafter as the Company or Group) consisting of Key Petroleum Limited and the entities it controlled at the end of, or during, the year ended 30 June 2017. 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 Rex Turkington, BCom(Hons), BCA, GAICD, AAFSI, ADA1(ASX) (Non-Executive Director, appointed 18 July 2012 and Non-Executive Chairman, appointed 14 January 2014) Mr Turkington is a highly experienced corporate advisor and economist who has worked extensively in the financial services and stockbroking industry in Australia, specialising in the exploration and mining sectors. He has extensive experience with equities, derivatives, foreign exchange and commodities, and has participated in numerous corporate initial public offerings and capital raisings for listed exploration and mining companies. Mr Turkington is currently a Director of an Australian corporate advisory company, offering corporate finance and investor relations advice to listed companies. He holds a First-Class Honours degree in Economics, is a graduate of the Australian Institute of Company Directors and is an associate of the Institute of Financial Services of Australia. Mr Turkington is also a Non-Executive Director of TNG Limited and a Non-Executive Director of Todd River Resources Ltd. Kane Marshall, BSc/Geology, BCom/Corp.Finance, MPetEng (Managing Director, appointed 3 April 2012) Mr Marshall has several years’ experience working in the international oil industry. In more recent times, he was employed by Santos Ltd as a Consultant Production Engineer with the Roma Implementation Team in Brisbane, and prior to that, as a Reservoir Engineer for both Chevron Australia and Woodside Energy on the North-West Shelf projects based in Perth. Early in 2002 Mr Marshall moved to the United Kingdom where he worked for Highland Energy Limited as a Petroleum Geologist and Reservoir Engineer and then later with RWE Dea UK Limited as a Petroleum Engineer. Mr Marshall holds academic qualifications which include a Masters of Petroleum Engineering from Curtin University, Bachelor of Science (Petroleum Geology) from the University of Western Australia and a Bachelor of Commerce in Investment Finance and Corporate Finance from the University of Western Australia. Dennis Wilkins, BBus, AICD, ACIS (Non-Executive Director, appointed 12 January 2007) Mr Wilkins is an accountant who has been a Director, Company Secretary and acted in a corporate advisory capacity to listed resource companies for over 23 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 DW Corporate Pty Ltd which provides advisory, funding and administrative management services to the resource sector. Min Yang, (Non-Executive Director, appointed 28 January 2014) Ms Yang resides in Hong Kong and has over 20 years of experience with private and state-run businesses in China and has expertise in the identification of opportunities in resources and financial investment. Currently the Director and Chairman of ASF Group Limited and a Non-Executive Chairman of Rey Resources Limited and ActivEX Limited. Ms Yang has also held a non-executive position with Metaliko Resources Limited (resigned 27 October 2016). Geoff Baker, BCom, LLB, MBA (Non-Executive Director, appointed 1 March 2015) Mr Baker is an Australian solicitor residing and working in Hong Kong and UK and has over 30 years of experience assisting companies in conducting business in China in addition to providing advice in mining, resources and finance. Currently a Non-Executive Director of ASF Group Limited, ActivEX Limited and Rey Resources Limited. Mr Baker has also held a non-executive position with Metaliko Resources Limited (resigned 12 January 2017). COMPANY SECRETARY Ian Gregory, BBus, FGIA, FCIS, F Fin, MAICD Mr Gregory is a professionally well-connected Director and Company Secretary with over 30 years’ experience in the provision of company secretarial, governance and business administration services with listed and unlisted companies in a variety of industries, including oil and gas, exploration, mining, mineral processing, banking and insurance. He also has expertise which includes launching successful start-up operations through the development of the company secretarial role and board reporting processes. Mr Gregory currently consults on company secretarial and governance matters to a number of listed and unlisted companies. Prior to founding his own consulting Company Secretarial business in 2005 Mr Gregory was the Company Secretary of Iluka Resources Ltd (6 years), IBJ Australia Bank Ltd Group, the Australian operations of The Industrial Bank of Japan (12 years), and the Griffin Coal Mining Group of companies (4 years). Mr Gregory is a past member and Chairman of the Western Australian Branch Council of Governance Institute of Australia (GIA) and has also served on the National Council of GIA. 3 DIRECTORS’ REPORT (CONTINUED) 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: Rex Turkington Kane Marshall Dennis Wilkins Min Yang Geoff Baker Ordinary Shares - 17,500,000 - 221,147,588(1) 221,147,588(1) Options over Ordinary Shares Performance Rights 6,000,000 32,000,000 1,500,000 - - - 4,000,000 - - - (1) Ms Yang and Mr Baker are both directors of ASF Group Limited which is the ultimate holding company of ASF Oil & Gas Holdings Pty Ltd which holds shares in Key Petroleum Limited. PRINCIPAL ACTIVITIES The principal activities of the Group during the year were the acquisition of petroleum permits, and the exploration of these permits with the objective of identifying economic oil and gas reserves. DIVIDENDS No dividends were paid or declared during the year. No recommendation for payment of dividends has been made. OPERATING AND FINANCIAL REVIEW Operations Review 2016/2017 has been a pivotal year for Key Petroleum Limited (“Key”) where it established its position as a major Perth Basin explorer, as well as setting the company on an exciting new path with the acquisition of three permits from Beach Petroleum in south west Queensland portion of the Cooper Eromanga Basin. Key was instrumental in establishing a partnership with Pilot Energy, who then managed to secure the offshore Perth Basin permit WA-481-P from Murphy Oil for a small outlay and a net profit interest of 10%. Murphy, and its joint venture partners Kufpec and Samsung had previously acquired two 3D seismic surveys and drilled three wells with expenditure exceeding US$100 million. All of their efforts were focussed on the outboard Turtle Dove Ridge trend, leaving the highly prospective inboard trend where previous discoveries had been made by Roc Oil. In addition, Pilot and Key have secured Murphy’s PRRT credits, making the economics of any future developments much more attractive. Key has agreed to Binding Terms with AWE Perth Pty Ltd for the Acquisition of L7 (R1), onshore Perth Basin, which covers the Mt Horner oil field and adjoins eastward of Key’s EP 437 permit, providing strategic additional prospectivity to Key’s onshore Perth Basin portfolio. The terms include an Option for AWE to farm in for 50% of Key’s 40% interest in WA-481-P L7 in return for a capped carry of Key’s ongoing costs and commitments in the permit. Key entered a new phase with the completion of a sale and purchase agreement with subsidiaries of Beach Energy Limited (“Beach”) to acquire 100% ownership of authorities to prospect ATPs 783, 920 and 924 located in the Cooper Eromanga Basin in south west Queensland, subject to standard Ministerial approvals. An Environmental audit of ATP924 seismic survey lines to assess the rehabilitation status was completed as part of the conditions precedent for the sale and purchase agreement. Outlook EP437 Key has finalised a location for the drilling of Wye Knot-1 which will, in the coming year, test for a commercial oil leg below the previous Wye-1 discovery. Tendering for drilling and third-party services had commenced prior to the end of the review period. The Joint Venture has also received notification from the Department of Mines and Petroleum (“DMP”) that it was successful in its application for a $200,000 Exploration Incentive Scheme grant, which will be applied to the cost of drilling the well through Permian targets. 4 DIRECTORS’ REPORT (CONTINUED) EP104/R1/L15 For EP104 Key was granted an extension of 6 months by the DMP, with the permit year expiry moved from 29 July 2017 to 29 January 2018. An application for permission to access and conduct the Saddleback Geochemical Survey is still pending, however Key is confident that the survey will be completed within the revised timeline. Key also completed care and maintenance activities on suspended / shut-in wells in R1 and L15 as recommended by the DMP after an inspection last year. Key also conducted an Environmental Field Assessment and will submit its report to DMIRS in the first quarter. The planned AEM-PTP aerial survey over R1, to further evaluate economic potential of Retention Lease, is expected to be completed by the first week of October 2017. WA-481-P Pilot Energy Limited, operator of WA-481-P, provided a work program update to the market in July 2017, stating that NOPTA has agreed to remove the two commitment wells from the remaining secondary term and replace the work program with seismic reprocessing. Key understands that tendering the reprocessing work has been conducted by the operator and the prospectivity of the inboard play fairway will be matured in the coming year. ATPs 783, 920 and 924 Key has commenced preliminary geological and geophysical mapping of the Cooper Eromanga ATP’s and is confident that significant oil and gas potential will be realised in the area. Key has identified two significant oil trends and has also captured a large portion of the Permian basin centred gas play in which there has been recent positive results in neighbouring acreage. Key expects to release the results of its resource assessment within the next year. Finance Review The Group has recorded an operating loss after income tax for the year ended 30 June 2017 of $1,144,731 (2016: $2,186,709). At 30 June 2017 funds available totalled $1,126,887 (2016: $1,573,472). Operating Results for the Year Summarised operating results are as follows: Consolidated entity revenues and loss Shareholder Returns Basic loss per share (cents) Risk Management 2017 Revenues $ Results $ 57,882 (1,144,731) 2017 (0.11) 2016 (0.28) 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 Audit and 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 stakeholder’s needs and manage business risk. Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets. 5 DIRECTORS’ REPORT (CONTINUED) 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 Subsequent to the end of the year:- • Key Petroleum Limited issued 100 million shares at $0.01 per share on 15 August 2017 to raise $1million before costs. 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. 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 Committee Charter 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 strategic goals. 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. 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 was 9.5% for the 2017 financial year, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. Given the low oil price environment, effective from 1 February 2016 Non-Executive Directors agreed to reduce their fees by 25%. The Managing Director and Chief Financial Officer also reduced salaries by 30% and 20% respectively effective from 1 February 2016. On 1 January 2017 the previous reduction for the managing director’s salary was reinstated and the salary package is now $250,000 plus statutory superannuation. 6 DIRECTORS’ REPORT (CONTINUED) 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 Option Pricing 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 $500,000). 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 share option plan. Performance based remuneration The Group currently has performance based remuneration components built into director and executive remuneration packages. Kane Marshall was issued 4,000,000 performance rights for nil consideration following shareholder approval granted at a General Meeting held on 6 August 2012. Half of the performance rights will vest if the volume weighted average price of the Company’s shares as quoted on ASX increases by 100% from the share price reference point for a consecutive period of at least 30 business days during a calendar year. The other half will vest if the volume weighted average price of the Company’s shares as quoted on ASX increases by 150% from the share price reference point for a consecutive period of at least 30 business days during a calendar year. In addition, Mr Marshall received 20,000,000 options for nil consideration following shareholder approval granted at the Annual General Meeting on 22 November 2016. The options will vest where the average 30 consecutive day VWAP of the Company’s shares is equal or greater than 1.5 cents. 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. Use of remuneration consultants The Group did not employ the services of any remuneration consultants during the financial year ended 30 June 2017. Voting and comments made at the Company’s 2016 Annual General Meeting The Company received 92.32% of “yes” votes on its remuneration report for the 2016 financial year. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Details of remuneration Details of the remuneration of the directors and the key management personnel of the Group are set out in the following table. The key management personnel of the Group include the directors as per page 3 above and this also includes the chief financial officer. Given the size and nature of operations of the Group, there are no other employees who are required to have their remuneration disclosed in accordance with the Corporations Act 2001. 7 DIRECTORS’ REPORT (CONTINUED) Key management personnel of the Group Short Term Benefits Post-Employment Benefits Long-Term Benefits Equity- Settled Share- Based Payments Salary & Fees Profit Share & Bonuses Non- Monetary Other Pension & Super- annuation Other Incentive Plans LSL Shares/ Units Options/ Rights Cash- Settled Share Based Payments Termin -ation Benefits Total $ $ $ $ $ $ $ $ $ $ $ $ $ Directors Rex Turkingto (appointed 18 July 2013) 2017 45,000 2016 53,750 Kane Marshall 2017 213,542 2016 218,750 Dennis Wilkins 2017 24,000 Min Yang (appointed 28 January 2014) Geoff Baker (appointed 28 January 2014) Executives Robert Ierace (1) 2016 28,666 2017 24,000 2016 28,666 2017 24,000 2016 28,666 2017 94,498 2016 161,875 Total key management personnel 2017 425,040 2016 520,373 - - - - - - - - - - - - (1) Resigned on 10 February 2017. Service agreements - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19,792 20,781 - - - - - 8,447 15,378 28,239 36,159 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12,844 12,880 34,203 29,713 7,408 7,428 - - - - - 54,455 50,021 - - - - - - - - - - - - 57,844 66,630 267,536 269,244 31,408 36,094 24,000 28,666 24,000 28,666 102,945 177,253 507,734 606,553 The details of service agreements of the key management personnel of Key Petroleum Limited are as follows: Rex Turkington, Non-Executive Chairman: • • • Annual consulting fee of $45,000 to be paid to Katarina Corporation Pty Ltd, a business of which Mr Turkington is principal. From 1 July 2017, the previous 25% reduction in fees was re-instated and the amount is now $60,000). Agreement commenced 14 January 2014 for a twelve month period and has since been renewed for a further twelve months in each of the last three years. The agreement may be terminated, without cause, by either party with one months’ written notice. Kane Marshall, Managing Director: • Mr Marshall is a full-time employee of the Company with an annual salary of $250,000, plus statutory superannuation. • The agreement may be terminated, without cause, by either party with three months’ written notice. Min Yang, Non-Executive Director: • • • Annual consulting fee of $24,000 to be paid to Luxe Hill Ltd, a business of which Ms Yang is principal. From 1 July 2017, the previous 25% reduction in fees was re-instated and the amount is now $32,000). Agreement commenced 28 January 2014 for a twelve month period and has since been renewed for a further twelve months in each of the last three years. The agreement may be terminated, without cause, by either party with three months’ written notice. 8 DIRECTORS’ REPORT (CONTINUED) Geoff Baker, Non-Executive Director: • • • Annual consulting fee of $24,000 to be paid to Gold Star Industry Limited, a business of which Mr Baker is principal. From 1 July 2017, the previous 25% reduction in fees was re-instated and the amount is now $32,000). Agreement commenced 3 March 2015 for a twelve month period and has since been renewed for a further twelve months in each of the last two years. The agreement may be terminated, without cause, by either party with three months’ written notice. Robert Ierace – Chief Financial Officer (resigned 10 February 2017) • Mr Ierace was a full time employee of the Company with an annual salary of $140,000 plus statutory superannuation. • The agreement may be terminated, without cause, by either party with two months’ written notice. Share-based compensation Options Options are issued at no cost to key management personnel as part of their remuneration. The options are not issued based on performance criteria, but are issued to the majority of key management personnel of Key Petroleum Limited to increase goal congruence between key management personnel and shareholders. The following options over ordinary shares of the Company were granted to or vesting with key management personnel during the year: Grant Date Granted Number Vesting Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Exercised Number % of Remuneration Directors Kane Marshall 06/08/2012 4,000,000 Kane Marshall 06/08/2012 4,000,000 Kane Marshall 06/08/2012 4,000,000 Dennis Wilkins 06/08/2012 1,000,000 Dennis Wilkins 06/08/2012 1,000,000 Dennis Wilkins 06/08/2012 1,000,000 Rex Turkington 30/11/2012 2,000,000 Rex Turkington 30/11/2012 2,000,000 Rex Turkington 30/11/2012 2,000,000 Kane Marshall 22/11/2016 20,000,000 (1) (2) (3) (1) (2) (3) (4) (5) (6) (7) 06/08/2017 06/08/2017 06/08/2017 06/08/2017 06/08/2017 06/08/2017 06/08/2017 06/08/2017 06/08/2017 22/11/2020 5.5 6.4 7.4 5.5 6.4 7.4 4.4 5.2 5.9 1.5 2.5 2.5 2.4 2.5 2.5 2.4 2.1 2.0 1.9 0.4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.5 2.9 2.2 6.8 5.5 4.3 7.3 5.8 4.5 3.0 (1) These options will vest once the market capitalisation of the Company appreciates 100% from 6 August 2012. (2) These options will vest once the market capitalisation of the Company appreciates 150% from 6 August 2012. (3) These options will vest once the market capitalisation of the Company appreciates 200% from 6 August 2012. (4) These options will vest once the market capitalisation of the Company appreciates 100% from 30 November 2012. (5) These options will vest once the market capitalisation of the Company appreciates 150% from 30 November 2012. (6) These options will vest once the market capitalisation of the Company appreciates 200% from 30 November 2012. (7) The options will vest once the market price of the shares is above 1.5 cents for a period of 30 consecutive days trading on ASX. 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. 9 DIRECTORS’ REPORT (CONTINUED) Performance Rights Performance rights are issued to directors and executives as part of their remuneration. The Company does not have a formal policy in relation to the key management personnel limiting their exposure to risk in relation to the securities, but the Board actively discourages key personnel from obtaining mortgages in securities held in the Company. The following performance rights were granted to or vesting with key management personnel during the year, there were no performance rights forfeited during the year: Directors Kane Marshall Kane Marshall Grant Date Granted Number Vested Number Date Vesting and Exercisable Expiry Date Value per right at grant date (cents)(1) % of Remuneration 06/08/2012 2,000,000 06/08/2012 2,000,000 Nil Nil (2) (3) N/A N/A 3.6 3.6 6.6 5.5 (1) The value at grant date in accordance with AASB 2: Share Based Payments of performance rights granted during the year as part of remuneration. The value is the closing share price on grant date. (2) These rights vest upon the satisfaction of the following performance hurdle: “When the volume weighted average price of the Company’s shares increases by 100% for a consecutive period of at least 30 business days during each calendar year of the directors’ term.” At the grant date, the Board determined that the probability of this performance condition being met was 60%. (3) These rights vest upon the satisfaction of the following performance hurdle: “When the volume weighted average price of the Company’s shares increases by 150% for a consecutive period of at least 30 business days during each calendar year of the directors’ term.” At the grant date, the Board determined that the probability of this performance condition being met was 50%. Equity instruments held by key management personnel 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, and any nominally held, are set out below. There were no shares granted during the reporting period as compensation. 2017 Directors of Key Petroleum Limited Ordinary shares Rex Turkington Kane Marshall Dennis Wilkins Min Yang (1) (2) Geoff Baker (1) (2) Executives Balance at start of the year Received during the year on the exercise of options Other changes during the year Balance at end of the year - 17,500,000 - 141,147,588 141,147,588 - - - - - - - - - - 17,500,000 - 80,000,000 221,147,588 80,000,000 221,147,588 - - Robert Ierace (resigned on 10 February 2017) - (1) Amount held at the respective dates of appointment. (2) Ms Yang and Mr Baker are both directors of ASF Group Limited which is the ultimate holding company of ASF Oil & Gas Holdings Pty Ltd which holds shares in Key Petroleum Limited. 10 DIRECTORS’ REPORT (CONTINUED) 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: Balance at start of the year Granted as compensation Exercised Other changes Balance at end of the year Vested and exercisable Unvested 2017 Directors of Key Petroleum Limited Rex Turkington Kane Marshall Dennis Wilkins Min Yang Geoff Baker Executives 6,000,000 - 12,000,000 20,000,000 1,500,000 - - - - - - - - - - - - 6,000,000 - 6,000,000 - 32,000,000 - 32,000,000 - - - 1,500,000 - - - - - - - 1,500,000 - - - Robert Ierace (1) 5,000,000 - 5,000,000 (1) Held as at the date of resignation (10 February 2017). The options lapsed on 12 March 2017. All vested options are exercisable at the end of the year. Performance Right holdings Kane Marshall was issued 4,000,000 Performance Rights for nil consideration on 6 August 2012 following shareholder approval granted at the General Meeting held on that date. The performance rights were issued in two equal tranches that will vest on the respective satisfaction of the following performance conditions: (1) Performance rights A: “When the volume weighted average price of the Company’s shares increases by 100% for a consecutive period of at least 30 business days during each calendar year of the directors’ term.” (2) Performance rights B: “When the volume weighted average price of the Company’s shares increases by 150% for a consecutive period of at least 30 business days during each calendar year of the directors’ term.” Loans to key management personnel There were no loans to key management personnel during the year. Other transactions with key management personnel There are no other related party transactions during the year. End of audited Remuneration Report 11 DIRECTORS’ REPORT (CONTINUED) DIRECTORS’ MEETINGS During the year the Company held eight meetings of the board of directors. The attendance of directors at meetings of the board and its committees were: Directors’ Meetings Audit & Risk Committee Meetings Remuneration Committee Meetings A 8 8 7 5 7 B 8 8 8 8 8 A 3 *# 3 1 * B 3 *# 3 3 * A 2 *# 4 # 4 B 4 *# 4 # 4 Rex Turkington Kane Marshall Dennis Wilkins Min Yang Geoff Baker 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 Audit & Risk Committee. # - Not a member of the Remuneration Committee. SHARES UNDER OPTION Unissued ordinary shares of Key Petroleum Limited under option at the date of this report are as follows: Date options granted 7 December 2012 7 December 2012 8 August 2012 7 December 2012 8 August 2012 8 August 2012 9 March 2015 Expiry date 6 August 2017 6 August 2017 6 August 2017 6 August 2017 6 August 2017 6 August 2017 9 March 2019 22 November 2016 30 November 2020 Total number of options outstanding at the date of this report Exercise price (cents) Number of options 4.4 5.2 5.5 5.9 6.4 7.4 1.287 1.5 2,000,000 2,000,000 7,000,000 2,000,000 7,000,000 7,000,000 1,000,000 20,000,000 48,000,000 No option holder has any right under the options to participate in any other share issue of the Company or any other entity. 12 DIRECTORS’ REPORT (CONTINUED) INSURANCE OF DIRECTORS AND OFFICERS During the financial year, Key Petroleum Limited paid a premium of $17,864 to insure the directors and secretary of the company. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. NON-AUDIT SERVICES There were no non-audit services provided by the entity's auditor, Bentleys, or associated entities. 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 14 Signed in accordance with a resolution of the directors for Key Petroleum Limited. Kane Marshall Managing Director Perth, 26 September 2017 CORPORATE GOVERNANCE STATEMENT The Company’s 2017 Corporate Governance Statement has been released as a separate document and is located on our website at http://www.keypetroleum.com.au/corporate_governance. 13 To The Board of Directors Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 As lead audit director for the audit of the financial statements of Key Petroleum Limited for the financial year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. Yours faithfully BENTLEYS Chartered Accountants DOUG BELL CA Director Dated at Perth this 26th day of September 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2017 Notes 2017 $ 2016 $ REVENUE FROM CONTINUING OPERATIONS 2 57,882 75,686 EXPENDITURE Depreciation expense Salaries and employee benefits expense Corporate expenditure Administration costs Exploration costs not capitalised Exploration costs written off Share-based payments expense Finance costs LOSS BEFORE INCOME TAX INCOME TAX BENEFIT / (EXPENSE) LOSS FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO MEMBERS OF KEY PETROLEUM LIMITED Basic loss per share for loss (cents per share) Dilutive loss per share for loss (cents per share) (37,383) (364,881) (54,681) (408,884) (230,581) - (69,271) (36,932) (43,363) (442,301) (58,944) (300,555) (244,251) (1,095,916) (64,878) (12,187) (1,144,731) (2,186,709) - - (1,144,731) (2,186,709) 228 228 (1,698) (1,698) (1,144,503) (2,188,407) (0.11) (0.11) (0.28) (0.28) 9 22 3 4 21 21 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Consolidated Financial Statements. 15 8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2017 CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Receivables Plant and equipment Capitalised exploration costs TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Notes 2017 $ 2016 $ 5 6 7 8 9 10 11 11 1,126,887 54,905 1,181,792 15,000 254,970 4,675,209 4,945,179 6,126,971 212,641 - 212,641 2,866,782 2,866,782 3,079,423 3,047,548 1,573,472 146,463 1,719,935 15,000 292,352 4,084,087 4,391,439 6,111,374 154,396 2,479,543 2,633,939 349,468 349,468 2,983,407 3,127,967 12 13(a) 38,535,283 613,744 (36,101,479) 3,047,548 37,540,470 544,245 (34,956,748) 3,127,967 The above Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial Statements. 16 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2017 Issued Capital Share- Based Payments Reserve Foreign Currency Translation Reserve Accumulated Losses Total $ $ $ $ $ BALANCE AT 1 JULY 2015 36,844,550 559,262 (78,197) (32,770,039) 4,555,576 Loss for the year Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE INCOME TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Shares issued during the year Share issue transaction costs Share-based payments - - - 700,000 (4,080) - - - - - - 64,878 - (2,186,709) (2,186,709) (1,698) - (1,698) (1,698) (2,186,709) (2,188,407) - - - - - - 700,000 (4,080) 64,878 BALANCE AT 30 JUNE 2016 37,540,470 624,140 (79,895) (34,956,748) 3,127,967 BALANCE AT 1 JULY 2016 37,540,470 624,140 (79,895) (34,956,748) 3,127,967 Loss for the year Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE LOSS FOR THE YEAR TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Shares issued during the year Share issue transaction costs Share-based payments BALANCE AT 30 JUNE 2017 - - - 1,000,000 (5,187) - - - - - - 69,271 - (1,144,731) (1,144,731) 228 - 228 228 (1,144,731) (1,144,503) - - - - - - 1,000,000 (5,187) 69,271 38,535,283 693,411 (79,667) (36,101,479) 3,047,548 The above Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial Statements. 17 CONSOLIDATED STATEMENT OF CASH FLOWS Notes 2017 $ 2016 $ YEAR ENDED 30 JUNE 2017 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs paid Expenditure on petroleum interests NET CASH OUTFLOW FROM OPERATING ACTIVITIES 5(a) CASH FLOWS FROM INVESTING ACTIVITIES Payments for plant and equipment 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 NET CASH INFLOW FROM FINANCING ACTIVITIES 31,246 (735,761) 19,135 (1,990) (754,028) (1,441,398) 115,299 (797,729) 50,033 (3,804) (1,134,446) (1,770,647) - - (243) (243) 1,000,000 (5,187) 994,813 700,000 (4,080) 695,920 NET DECREASE IN CASH AND CASH EQUIVALENTS (446,585) (1,074,970) Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 5 1,573,472 - 1,126,887 2,648,442 - 1,573,472 The above Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial Statements. 18 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2017 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 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 26 September 2017. 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 and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Key Petroleum Limited is a for- profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Key Petroleum Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the Group The Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to their operations and effective for the current annual reporting period. The adoption of all the new and revised Standards and Interpretations has not resulted in any changes to the Group’s accounting policies and has no effect on the amounts reported for the current or prior years. (iii) Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2017. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the amount of share based payments expense, which have been measured at fair value. (v) Going concern The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Group incurred a loss for the year of $1,144,731 (2016: $2,186,709) and net cash outflows from operating activities of $1,441,398 (2016: $1,770,647). The directors have prepared an estimated cash flow forecast for the period to September 2018 to determine if the Company may require additional funding during the next 15 month period. Where this cash flow forecast includes the likelihood that additional amounts will be needed and these funds have not yet been secured, it creates uncertainty as to whether the Company will continue to operate in the manner it has planned over the next 15 months. Where the cash flow forecast includes these uncertainties, the directors are required to make an assessment of whether it is reasonable to assume that the Company will be able to continue its normal operations. The directors are satisfied that the going concern basis of preparation is appropriate based on the following factors and judgements: 19 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) • • • • The Company has access to cash reserves of $1,126,887 as at 30 June 2017 (30 June 2016: $1,573,472). The Company has the ability to adjust its exploration expenditure subject to results of its exploration activities and has a history of attracting Farm-in partners to assist in funding exploration commitments; The Company has raised $1,000,000 subsequent to year end via the issue of shares; and The Directors anticipate the support of the Company’s major shareholders to continue with the advancement of the Company’s assets. Should the Group be unable to continue as a going concern it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business and at amounts different to those stated in the annual report. The annual report does not include any adjustments relating to the recoverability and classification of asset carrying amounts or to the amount and classification of liabilities that might result should the Group be unable to continue as a going concern and meet its debts as and when they fall due. (b) Principles of consolidation (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group. 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 transferred asset. 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 profit or loss and other comprehensive income, statement of changes in equity and statement of financial position respectively. (ii) 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 attributable to owners of Key Petroleum Limited. When the Group ceases to have control, any retained interest in the entity is remeasured 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 comprehensive 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. 20 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (iii) Interests in joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. When a Group entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to its interest in a joint operation: • • • • • its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the AASBs applicable to the particular assets, liabilities, revenues and expenses. When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group's consolidated financial statements only to the extent of other parties' interests in the joint operation. When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party. (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 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, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. 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 services to external parties. Sales revenue is recognised on a proportionally basis over the period to which the services are provided. 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 differences 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 liabilities 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. 22 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (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 property 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 operating leases. 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 acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • • • • • fair values of the assets transferred; liabilities incurred; equity interests issued by the Group; fair value of any asset or liability resulting from a contingent consideration arrangement; and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of: • • • consideration transferred; amount of any non-controlling interest in the acquired entity; and acquisition-date fair value of any previous equity interest in the acquired entity; over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the aquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in profit or loss. 23 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (i) Impairment of non-financial 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. Exploration and Evaluation Expenditure is assessed for impairment indicators under AASB 6 paragraph 20 and where there are indicators of impairment the Company will test for impairment. Other assets are tested 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 recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash 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 the end of each reporting period. (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 this 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 Held-to-maturity investments are non-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the Group’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. 24 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 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 permitted 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 definition 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 carried 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. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. 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 amount 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. Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the assets are impaired. 25 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (i) Assets carried at amortised cost For loans and receivables, the amount of 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) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. (ii) Assets classified as available-for-sale If there is objective evidence of impairment for available-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 profit or loss. Impairment losses on equity instruments that were recognised in profit or loss are not reversed through profit or loss in a subsequent period. If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. (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 amounts, 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. 26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (n) Exploration and evaluation costs Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an exploration and evaluation asset in the year in which they are incurred where the following conditions are satisfied. the rights to tenure of the area of interest are current; and (i) (ii) at least one of the following conditions is also met: (a) the exploration and evaluation expenditures are expected to be recouped through successful development and exploration of the area of interest, or alternatively, by its sale; or (b) exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore, studies, salaries of exploration personnel, exploratory drilling, trenching and sampling and associated activities and amortised of assets used in exploration and evaluation activities. General and administrative costs are only included in the measurement of exploration and evaluation costs where they are related directly to operational activities in a particular area of interest. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The policy on impairment can be found at 1(i) above. The recoverable amount of the exploration and evaluation asset is estimated to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years. 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. (o) 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. (p) Employee benefits (i) Wages and salaries and annual leave 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 at 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. 27 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (q) Provisions and Asset Retirement Obligation 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. When this provision gives access to future economic benefits, an asset is recognised and then subsequently depreciated in line with the life of the underlying producing asset, otherwise the costs are charged to the income statement. The unwinding of the discount on the provision is included in the profit or loss and other comprehensive income within finance costs. Any changes to estimated costs or discount rates are dealt with prospectively. (r) 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. (s) Earnings per share (a) 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. (t) 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. (u) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. 28 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (v) New accounting standards and interpretations The group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the group during the financial year. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2017. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the group, are set out below. Title and Reference AASB 9 Financial Instruments AASB 9 Nature of Change Amends the requirements for classification and measurement of financial assets. The available-for-sale and held-to-maturity categories of financial assets in AASB 139 have been eliminated. Application date for entity 1 July 2018 AASB 15 Revenue from contracts with customers AASB 16 (issued February 2016) Leases Adoption of AASB 9 is only mandatory for the year ending 30 June 2019. The entity has a number of receivables which may be subject to the assessment of recoverability under the new standard. This assessment of expected credit losses will be undertaken at each reporting date to determine if, in the directors’ opinion, an impairment should be recorded in the financial statements. As at 30 June 2017, if the Company were to make this assessment using the future requirements, the Company would not record an impairment on consolidation. The Company is expected to have significant losses in the parent entity with the adoption of this standard which may result in the impairment of all inter-company balances. An entity will recognise revenue to depict the transfer of promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. The entity does not yet have a substantial amount of revenue and the impact of the new standard on transition is likely to be low for the year ended 30 June 2017 if the Company adopted the full transition. AASB 16 eliminates the operating and finance lease classifications for lessees currently accounted for under AASB 117 Leases. It instead requires an entity to bring most leases onto its balance sheet in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right of use asset in its balance sheet for most leases. There are some optional exemptions for leases with a period of 12 months or less and for low value leases. Lessor accounting remains largely unchanged from AASB 117. The entity has one significant lease, being the rental of its premises. This is due to expire in February 2018. As the Company does not have significant operating leases in place, the impact of the transition to this standard is low with the likely result of an asset and liability recorded at a similar value to the operating lease commitment note at year end. 29 1 July 2018 1 Jan 2019 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (w) 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. The write-off or carrying forward of exploration expenditure is based on a periodic assessment of the viability of an area of interest and/or the existence of economically recoverable reserves. This assessment is based on pre-determined impairment indicators, taking into account the requirements of the accounting standard, and with the information available at the time of preparing this report. Information may come to light in subsequent periods which requires the asset to be impaired or written down for which the directors are unable to predict the outcome. 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 Deferred tax assets are recognised for deductible temporary differences and taxation losses when the directors and management considers that it is probable that sufficient future tax profits will be available to utilise those temporary differences and losses. Significant judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits over the future period together with future tax planning strategies and the impact of the current income taxation legislation. Where there are significant variables relating to generating taxable profits in the future and there is limited operating history, the Company will disclose the unrecognised deferred taxes. 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 based on historical information available at the time the valuation was undertaken. This historical information may not be indicative of the future result. Provisions for rehabilitation A provision for restoration and rehabilitation is recognised when there is a present obligation as a result of development activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of abandoning sites, removing facilities and restoring the affected areas. The provision for future restoration costs is the best estimate of the present value (including an appropriate discount rate relevant to the time value of money plus any risk premium associated with the liability) of the expenditure required to settle the restoration obligation at the reporting date. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision. The initial estimate of the restoration and rehabilitation provision is capitalised into the cost of the related asset and amortised on the same basis as the related asset, unless the present obligation arises from the production of inventory in the period, in which case the amount is included in the cost of production for the period. Changes in the estimate of the provision for restoration and rehabilitation are treated in the same manner, except that the unwinding of the effect of discounting on the provision is recognised as a finance cost rather than being capitalised into the cost of the related asset. The non-current provision for rehabilitation relates to the West Kora 1 well and disused production facilities in Production Licence L15. The estimate is based upon converting the well to a water well following confirmation from the pastoral lease owner and removing the tank farm and restoring the site back to its original condition. This is the best estimate of the engineering methodology for estimating cost and future removal technologies in determining the removal cost. The provision for rehabilitation also includes the Retention Lease 1 in the Canning Basin and is based upon an estimate to plug and abandon the Stokes Bay 1 and Point Torment 1 wells using a completion rig as well as removal of the causeway to each of the well pads. The causeway removal includes replacement of gravel to the original borrow pit. 30 30 JUNE 2017 2. REVENUE AND OTHER INCOME From continuing operations Other revenue Interest from financial institutions Management fees Fuel tax credits Consulting services 3. EXPENSES Loss before income tax includes the following specific expenses: Directors fees Employee expenses (net of amount capitalised) Superannuation and leave entitlements expense Minimum lease payments relating to operating leases 4. INCOME TAX (a) Income tax expense Current tax Deferred tax 2017 $ 2016 $ 19,135 20,350 8,197 10,200 57,882 117,000 208,944 38,937 67,610 - - - 47,456 20,351 7,879 - 75,686 137,032 305,269 45,287 56,324 - - - (b) Numerical reconciliation between tax expense to pre-tax net loss payable Loss before income tax expense Income tax benefit calculate at 27.5% (2016: 30.0%) Effect of non-deductible item Share based payments: 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 (1,144,731) (2,186,709) (314,801) (656,013) 19,050 1,139 (294,612) (520,691) 19,463 4,335 (632,215) 415,580 815,303 216,635 - - 31 30 JUNE 2017 4. INCOME TAX (cont’d.) (c) Deferred tax assets not brought to account Capital raising costs Provision and accruals Tax losses Total (d) Deferred tax liabilities Accrued revenue Capitalised exploration and evaluation costs Total (e) Offset provisions Deferred tax liabilities Deferred tax assets (portion off-set deferred tax liabilities) Unused tax losses for which no deferred tax asset has been recognised 2017 $ 2016 $ 4,477 15,365 3,633,907 3,985,908 - 1,585,952 1,585,952 (1,585,952) 1,585,952 - 25,339 - 2,948,244 2,976,583 873 928,582 929,455 (929,455) 929,455 - Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account at 30 June 2017 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: (i) the Company derives future assessable income of nature and of an amount sufficient to enable the benefits to be utilised; (ii) the Company continues to comply with the conditions for deductibility imposed by law; and (iii) no changes in income tax legislation adversely affects the Company in utilising the benefits 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 590,179 536,708 125,461 1,448,011 1,126,887 1,573,472 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. Credit risk A-1+ 1,126,887 1,573,472 1. The equivalent S&P rating of the financial assets represent that rating of the counterpart with whom the financial asset is held rather than the rating of the financial asset itself. 32 30 JUNE 2017 5. CURRENT ASSETS – CASH AND CASH EQUIVALENTS (cont’d) (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 Share-based payments expense Impairment of Exploration Unwind of discount in provision for restoration Change in operating assets and liabilities Decrease in trade and other receivables (Increase) in petroleum permits and capitalised exploration costs Increase/(decrease) in trade and other payables Net cash outflow from operating activities (b) Non-cash items 2017 $ 2016 $ (1,144,731) (2,186,709) 37,383 69,271 - 37,337 91,558 (591,121) 58,905 43,363 64,878 1,095,916 - 176,188 (669,084) (295,198) (1,441,398) (1,770,646) The Company issued 20,000,000 options on 22 November 2016 in respect of long term incentives to its managing director. The details of this transaction can be found in Note 22. 6. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Credit Risk – Trade and Other Receivables 8,250 46,655 54,905 - 146,643 146,643 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 24. The class of assets described as Trade and Other Receivables is considered to be the main source of credit risk related to the Group. 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 conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assess 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 quality. The table below outlines the amounts due, past due and not impaired. 33 6. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES (cont’d) Gross Amount Past due and impaired Past due but not impaired (days overdue) $ $ < 30 $ 31 - 60 61 - 90 $ $ > 90 $ 2017 Trade receivables Other receivables Total 2016 Trade receivables Other receivables Total 8,250 46,655 54,905 - 146,643 146,643 - - - - - - - - - - - - - - - - - - - - - - - - Within initial trade terms $ 8,250 46,655 54,905 - 146,643 146,643 - - - - - - 7. NON-CURRENT RECEIVABLES Bank guarantees 2017 $ 2016 $ 15,000 15,000 15,000 15,000 The guarantee is held by the Company financial institution in cash. The credit rating has been disclosed above in Note 5. 8. PLANT AND EQUIPMENT Plant and equipment Cost Accumulated depreciation Net book amount Reconciliation of movements in Plant and Equipment Opening net book amount Additions Disposals Depreciation charge Closing net book amount 34 409,215 (154,245) 254,970 292,353 - - (37,383) 254,970 409,215 (116,862) 292,353 335,611 243 - (43,501) 292,353 30 JUNE 2017 9. CAPITALISED EXPLORATION COSTS 2017 $ 2016 $ Exploration, evaluation and development costs carried forward in respect of areas of interest 4,675,209 4,084,087 Reconciliation - Pre-production Carrying amount at the beginning of the year Additions to the exploration and evaluation costs Asset Retirement Obligation (movement) Exploration and evaluation costs written off Carrying amount at the end of the year 4,084,087 4,504,095 588,293 2,829 734,824 (58,915) - (1,095,917) 4,675,209 4,084,087 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. In the prior financial year, the Company surrendered EP488. As a result, $1,095,917 carried forward exploration was written off. Capitalised exploration and evaluation costs include the asset restoration obligation relating to L15 Production Licence and R1 Retention lease. (a) Joint operations The Group accounts for the assets, liabilities, revenues and expenses relating to its interests in Joint Operations in accordance with the accounting policy of the Group (refer note 1(b)(iii)). The Group has the following interests in Joint Operations: EP448 EP104 R1 L15 EP437 ATP 783/920/924 WA-481-P 2017 % 0.00 89.23 85.23 85.40 43.47 100.00 40.00 2016 % 78.00 89.23 85.23 85.40 43.47 0.00 0.00 All joint operations do not have any profit or loss items as the costs are capitalised to exploration assets. The amounts below represent the Group’s interests in each joint operation. EP104 Balance sheet NON-CURRENT ASSETS Exploration assets TOTAL NON-CURRENT ASSETS CURRENT LIABILITIES Trade and other payables TOTAL NON-CURRENT LIABILITIES 357,298 357,298 71,586 71,586 309,117 309,117 230,111 230,111 35 30 JUNE 2017 9. CAPITALISED EXPLORATION COSTS (cont’d) 2017 $ 2016 $ R1 Balance sheet NON-CURRENT ASSETS Exploration assets TOTAL NON-CURRENT ASSETS CURRENT LIABILITIES Trade and other payables TOTAL NON-CURRENT LIABILITIES L15 Balance sheet NON-CURRENT ASSETS Exploration assets TOTAL NON-CURRENT ASSETS CURRENT LIABILITIES Trade and other payables TOTAL NON-CURRENT LIABILITIES EP437 Balance sheet CURRENT ASSETS Cash and cash equivalents Receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Exploration assets TOTAL NON-CURRENT ASSETS CURRENT LIABILITIES Trade and other payables TOTAL NON-CURRENT LIABILITIES Commitments and contingencies 492,258 492,258 23,544 23,544 349,265 349,265 40,657 40,657 381,682 381,682 248,031 248,031 272,238 272,238 216,102 216,102 29,669 - 29,669 10,053 43,471 53,524 1,299,659 1,299,659 1,199,911 1,199,911 37,222 37,222 6,104 6,104 There are not capital commitments or contingencies as at 30 June 2017 for the Joint Ventures outside the work programme commitments listed as part of Note 17 below. 36 30 JUNE 2017 10. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals 11. PROVISIONS Restoration provision (R1) – current Restoration provision (L15) – non-current Restoration provision (R1) – non-current JV provisions – current (due for payment within 12 months) Reconciliation Balance brought forward Transferred to non-current Additions Unwind of discount Balance carried forward Restoration provisions – non-current liabilities (debts payable after 12 months) Reconciliation Balance brought forward Transferred from current Adjustment to rates Unwind of discount Balance carried forward 2017 $ 24,101 188,540 212,641 2016 $ 44,271 110,124 154,395 - 466,929 2,399,853 2,866,782 2,479,543 - 349,468 2,829,011 2,479,543 (2,479,543) - - - 349,468 2,479,543 2,829 34,942 2,866,782 - - 2,479,543 - 2,479,543 400,000 - (58,915) 8,383 349,468 The current liability for the prior period in the annual report related to the rehabilitation estimate for Retention Lease 1 in the Canning Basin. The current provision was based upon an estimate to plug and abandon the Stokes Bay 1 and Pont Torment 1 wells using a completion rig as well as removal of the causeway to each of the well pads. The causeway removal includes replacement of gravel to the original borrow pit. At the beginning of this financial year, the renewal of the Retention Lease R1 for a further five years was granted by the DMP. The prior period comparative classification of the rehabilitation liability is current as the renewal only occurred during this period. The non-current provision for rehabilitation related to the West Kora 1 well and disused production facilities in Production License L15. The estimate is based upon converting the well to a water well following confirmation from the pastoral lease owner and removing the tank farm and restoring the site back to its original condition. 37 30 JUNE 2017 12. ISSUED CAPITAL (i) Share capital Ordinary shares fully paid Total issued capital (ii) Movements in ordinary share capital Number of shares $ Number of shares $ 2017 2016 1,147,358,441 38,535,283 897,358,441 37,540,470 1,147,358,441 38,535,283 897,358,441 37,540,470 Beginning of the financial year 897,358,441 37,540,470 722,358,441 36,844,550  Share placement  Share issue transaction costs End of the financial year (iii) Movements in options on issue Beginning of the financial year Issued during the year:  Exercisable at 1.287 cents, on or before 9 March 2019  Options expired  Options lapsed  Exercisable at 1.5 cents, on or before 22 November 2020 250,000,000 1,000,000 175,000,000 700,000 - (5,187) - (4,080) 1,147,358,441 38,535,283 897,358,441 37,540,470 Number of options 2017 2016 33,500,000 33,500,000 - (500,000) (5,000,000) 20,000,000 - - End of the financial year 48,000,000 33,500,000 (iv) Movements in performance rights on issue Beginning of the financial year Expired during the year:  Performance Rights A  Performance Rights B End of the financial year (v) Ordinary shares Number of performance rights 2017 2016 4,000,000 4,000,000 - - - - 4,000,000 4,000,000 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. 38 30 JUNE 2017 12. ISSUED CAPITAL (cont’d) (vi) 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 natures of the Group’s activities, being petroleum exploration, the Group does not have the access to credit facilities, 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 management plans to remain a going concern. The working capital position of the Group as 30 June 2017 and 30 June 2016 are as follows: Cash and cash equivalents Trade and other receivables Trade and other payables Provisions Working capital position 2017 $ 1,126,887 54,905 (212,640) - 969,152 2016 $ 1,573,472 146,463 (154,395) (2,479,543) (914,003) In the comparative year the provision related to the rehabilitation estimate for Retention Lease 1 in the Canning Basin which has an expiry date of 31 January 2016. At the beginning of this financial year the DMP granted a renewal of the Retention Lease R1 for a further 5 years and as such the current liability of $2,479,543 was deferred for a further 5 years. 13. RESERVES (a) Reserves Foreign currency translation reserve Share-based payments reserve (b) Nature and purpose of reserves (i) Foreign currency translation reserve (79,667) 693,411 613,744 (79,895) 624,140 544,245 Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in Note 1(d) and accumulated within a separate reserve within equity. The cumulate amount is reclassified to profit or loss when net investment is disposed of. (ii) Foreign currency translation reserve The share-based payments reserve is used to recognise the fair value of options issued. 14. DIVIDENDS No dividends were paid during the financial year. No recommendation for payment of dividends has been made. 39 30 JUNE 2017 15. REMUNERATION OF AUDITORS 2017 $ 2016 $ 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 Total remuneration for audit services 16. CONTINGENCIES 31,584 31,584 28,728 28,728 There are no material contingent liabilities or contingent assets of the Group at the reporting date. 17. 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 1,644,350 13,476,413 15,120,763 959,240 13,788,463 14,747,703 (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 46,028 - 46,028 67,012 46,028 113,040 The property lease is a non-cancellable lease with a three-year term, with a rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments to increase by 3.5% on each annual anniversary of the commencement date. An option exists to renew the lease at the end of the three-year term for an additional term of one year. The lease allows for subletting of all lease areas. 18. 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 19. 40 30 JUNE 2017 18. RELATED PARTY TRANSACTIONS (cont’d) (c) Key management personnel compensation Short-term benefits Post-employment benefits Share-based payments 2017 $ 2016 $ 425,040 28,239 54,455 507,734 520,373 36,159 50,021 606,553 Detailed remuneration disclosures are provided in the remuneration report within the directors’ report. (d) Transactions and balances with other related parties Transactions with key management personnel are disclosed in the Directors’ Report. 19. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name Country of Incorporation Class of Shares Equity Holding* Gulliver Productions Pty Ltd Puma Petroleum S.r.L. Key Petroleum (Australia) Pty Ltd Cooper Basin Pty Ltd (formerly Key Petroleum Offshore Pty Ltd) Australia Italy Australia Australia Key Petroleum Taranaki Limited New Zealand Key Petroleum Services Pty Ltd Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 20. EVENTS OCCURRING AFTER THE REPORTING DATE Subsequent to the end of the financial year the following items occurred: 2017 2016 % 100 100 100 100 100 100 % 100 100 100 100 100 100 • Key Petroleum Limited issued 100 million shares at $0.01 per share on 15 August 2017 to raise $1million before costs. 41 30 JUNE 2017 2017 $ 2016 $ 21. 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 22. SHARE-BASED PAYMENTS (a) Employees and contractors options (1,144,731) (1,144,731) (2,186,709) (2,186,709) Number of shares Number of shares 995,988,578 781,453,556 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 a incentive to improve employee and shareholder goal congruence. The exercise of the options granted range from 1.5 cents to 7.4 cents, and the expiry dates range from 6 August 2017 to 22 November 2020. 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. Set out below are summaries of the options granted: 2017 2016 Outstanding at the beginning of the year Granted Forfeited/cancelled Exercised Expired / lapsed Outstanding at year-end Exercisable at year-end Weighted average exercise price cents Number of options Weighted average exercise price cents 33,500,000 5.2 Number of options 33,500,000 20,000,000 - - 5.20 0.63 - - (5,500,000) (1.40) 48,000,000 1,000,000 4.11 2.50 33,500,000 6,500,000 - - - - - - - - 5.2 2.5 During the year, the Company issued 20,000,000 to the managing director. The Options issued during the year have been valued using a Black Scholes Option Pricing model. The inputs to the model are listed on the following page. 42 30 JUNE 2017 22. SHARE-BASED PAYMENTS (cont’d) Exercise price Life of options Underlying share price Expected volatility Risk free rate 2017 1.5 cents 4 years 0.4 cents 91% 1.79% 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. (b) Employees and contractors performance rights The Group provides benefits to employees (including directors) and contractors of the Group in the form of share-based payment transactions, whereby performance rights over ordinary shares are issued as an incentive to improve employee and shareholder goal congruence. Performance rights granted to directors have no expiration date. Performance rights granted carry no dividend or voting rights. When each performance condition is satisfied, each performance right is converted into one ordinary share of the Company with full dividend and voting rights. Set out below are summaries of the performance rights granted: Outstanding at the beginning of the year Granted Forfeited/cancelled Exercised Expired Outstanding at year-end There were no performance rights granted during the 2017 and 2016 financial years. (c) Expense arising from share based payment transactions Total expenses arising from share-based payment transactions recognised during the year were as follows: Total expense arising from share-based payments 2017 $ 2016 $ 4,000,000 4,000,000 - - - - - - - - 4,000,000 4,000,000 69,271 69,721 64,878 64,878 43 30 JUNE 2017 23. PARENT ENTITY INFORMATION 2017 $ 2016 $ The following information relates to the parent entity, Key Petroleum Limited, at 30 June 2017. The information presented here 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 income 1,996,653 1,012,981 3,009,634 188,851 188,851 3,176,494 730,431 3,906,925 130,808 130,808 38,535,283 37,540,471 693,411 624,140 (36,407,911) (34,388,494) 2,820,783 3,776,117 (2,240,571) (2,240,571) (1,721,715) (1,721,715) The parent entity is responsible for the contingent liabilities outlined in Note 16. The parent entity is responsible for funding the commitments outlined in Note 17. Interests in subsidiaries are set out in Note 19. 24. 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 Foreign currency Cash and cash equivalents Trade receivables Trade payables 1,126,887 54,905 1,181,792 1,573,472 146,463 1,719,935 24,101 24,101 154,395 154,395 2017 NZD 20,922 - - 2016 NZD 22,112 - - 44 30 JUNE 2017 24. FINANCIAL RISK MANAGEMENT (cont’d) Sensitivity analysis At 30 June 2017, 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 $6,422 lower/higher (2016: $14,647 lower/higher) as a result of lower/higher interest income from cash and cash equivalents. (a) 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 a minimum of an A 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 value and classification of those financial assets (net of any provisions) as presented in the statement of financial position. All cash holdings within the Group are currently held with A-1+ rated financial institutions. (b) 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 2017 $ 2016 $ 2017 $ 2016 $ 2017 $ 2016 $ Financial liabilities due for payment Trade and other payables (excluding estimated annual leave) Total contractual outflows Financial assets – cash flows realisable 24,101 24,101 100,414 100,414 Cash and cash equivalents 1,126,887 1,573,472 Trade and loan receivables 54,905 146,463 Total anticipated inflows 1,181,792 1,719,935 Net inflow on financial instruments 1,157,691 1,619,521 - - - - - - - - - - - - 24,101 24,101 100,414 100,414 1,126,887 1,573,472 54,905 146,463 1,181,792 1,719,935 1,157,691 1,619,521 (c) 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 approximating their fair value. 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 financial liabilities may not reflect the true fair value of financial assets and financial liabilities on a liquidation basis. 45 30 JUNE 2017 25. SEGMENT INFORMATION Identification of reportable segments The Company 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. During the period, the Company is managed primarily on the basis of one segment being oil and gas exploration in Australia. 26. COMPANY DETAILS The registered office of the company is: Key Petroleum Limited Level 2, 47 Stirling Highway NEDLANDS WA 6009 The principal place of business is: Key Petroleum Limited Level 2, 47 Stirling Highway NEDLANDS WA 6009 46 DIRECTORS' DECLARATION In the directors’ opinion: (a) the financial statements and notes set out on pages 15 to 46 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Company’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; (b) (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and a statement that the attached financial statements are in compliance with International Financial Reporting Standards has been included in the notes to the financial statements. The directors have been given the declarations by the managing director and equivalent 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. Kane Marshall Managing Director Perth, 26 September 2017 47 Independent Auditor's Report To the Members of Key Petroleum Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Key Petroleum Limited (“the Company”) and its subsidiaries (“the Consolidated Entity”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion: a. the accompanying financial report of the Consolidated Entity 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 2017 and of its financial performance for the year then ended; 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. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditor’s Report To the Members of Key Petroleum Limited (Continued) Material Uncertainty Related to Going Concern We draw attention to Note 1(a)(v) in the financial report, which indicates that the Consolidated Entity incurred a net loss of $1,144,731 during the year ended 30 June 2017. As stated in Note 1(a)(v), these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Capitalised Exploration Costs As disclosed in note 9 to the financial statements, as at 30 June 2017, the Group’s capitalised exploration costs were carried at $4,675,209. The recognition and recoverability of the capitalised exploration costs was considered a key audit matter due to: The carrying value of capitalised exploration costs represents a significant asset of the Group, we considered it necessary to assess whether facts and circumstances existed to suggest the carrying amount of this asset may exceed the recoverable amount; and Determining whether impairment indicators judgement by exist involves significant management Our audit procedures included but were not limited to: Assessing management’s determination of its areas of interest for consistency with the definition in AASB 6 Exploration and Evaluation of Mineral Resources (“AASB 6”); Assessing the Group’s rights to tenure to its tenements; recorded Testing the Group’s additions to capitalised exploration costs for the year by evaluating a for of sample consistency the to underlying capitalisation requirements of the Group’s accounting policy and the requirements of AASB 6; expenditure records, future activities, By testing the status of the Group’s tenure and planned reading board minutes and discussions with management we assessed each area of interest for one or more of the following circumstances that may indicate the capitalised exploration costs: impairment of The licenses for the rights to explore expiring in the near future or are not expected to be renewed; Substantive expenditure further exploration in the area of interest is not budgeted or planned; for Independent Auditor’s Report To the Members of Key Petroleum Limited (Continued) Key audit matter How our audit addressed the key audit matter Decision or intent by the Group to discontinue activities in the specific area of lack of commercially viable quantities of resources; and interest due to indicating Data that, although a development in the specific area is likely to proceed, the carrying amount of the exploration asset is unlikely to be recorded development or sale. full in from successful Recognition and Measurement of Restoration Provision As disclosed in note 11 to the financial statements, as at 30 June 2017 the Group had a Restoration Provision of $2,866,782 relating to the Group’s requirement to rehabilitate its exploration fields (Retention Lease 1 and L15). The recognition and measurement of restoration provisions was considered a key audit matter as the calculation of the provision requires judgment in estimating the future costs, the timing as to when the future costs will be incurred and the determination of an appropriate rate to discount the future costs to their net present value. We also assessed the appropriateness of the related disclosures in note 9 to the financial statements. Our audit procedures included but were not limited to: the legal and/or constructive Evaluating obligations with respect to the rehabilitation for Retention Lease 1 and L15 and the intended method of rehabilitation; for Assessing determining the rehabilitation provision, and the Group’s process enquiring about material movements in the provision during the year; Assessing whether sufficient evidence was available to support the cost estimates; and Assessing the accuracy of the calculations used to determine the rehabilitation provision including the discount rate applied and the appropriateness of the current or non-current classification of the provision. We also assessed the appropriateness of the related disclosures in note 11 to the financial statements. Independent Auditor’s Report To the Members of Key Petroleum Limited (Continued) Other Information The directors are responsible for the other information. The other information comprises the information included in the Consolidated Entity’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. In preparing the financial report, the directors are responsible for assessing the Consolidated Entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Independent Auditor’s Report To the Members of Key Petroleum Limited (Continued) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Consolidated Entity’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Consolidated Entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Consolidated Entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Consolidated Entity audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2017. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with s 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. Independent Auditor’s Report To the Members of Key Petroleum Limited (Continued) Auditor’s Opinion In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. BENTLEYS Chartered Accountants DOUG BELL CA Director Dated at Perth this 26th day of September 2017 ASX ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 19 September 2017. (a) Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 and over Ordinary shares Number of holders Number of shares 66 95 136 613 11,276 319,312 1,219,197 27,040,718 1,330 1,247,358,441 The number of equity security holders holding less than a marketable parcel of securities are: (Minimum $500.00 parcel at $0.008 per unit – minimum parcel size 62,500) 768 16,012,153 (b) Twenty largest shareholders The names of the twenty largest holders of quoted ordinary shares are: 1 2 3 4 5 6 7 8 9 10 11 12 13 13 13 16 17 18 19 20 ASF Oil & Gas Holdings Pty Ltd Star Surpass Limited Start Grand Global Limited Elite Ray Investments Limited Forever New Limited Mr Jiarong He HSBC Custody Nominees (Australia) Ltd Renown Capital Holdings Ltd BNP Paribas Noms Pty Ltd Bellaire Capital Pty Ltd HC Investment Holdings Pty Limited Granborough Pty Ltd KJM Consultants Pty Ltd Seaville Investments Pty Ltd Ms Hongqing Wang Mr Andrew Christopher Mayes Odyssey Oil Pty Ltd BNP Paribas Nominees Pty Ltd Mr Hercules Philippus Bronn & Mrs Charmaine Bronn Mr Kenneth Raymond Pettit 54 Listed ordinary shares Number of shares Percentage of ordinary shares 221,147,588 175,000,000 170,000,000 100,000,000 92,500,000 57,325,075 35,483,582 32,500,000 22,808,867 20,110,621 12,190,159 10,000,000 7,500,000 7,500,000 7,500,000 7,000,000 6,875,000 4,584,854 4,500,000 4,417,062 998,942,808 17.73 14.03 13.63 8.02 7.42 4.60 2.84 2.61 1.83 1.61 0.98 0.80 0.60 0.60 0.60 0.56 0.55 0.37 0.36 0.35 80.08 ASX ADDITIONAL INFORMATION (b) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: ASF Oil & Gas Holdings Pty Ltd Star Surpass Limited Start Grand Global Limited Elite Ray Investments Limited Forever New Limited (c) Voting rights Number of Shares 221,147,588 175,000,000 170,000,000 100,000,000 92,500,000 All ordinary shares (whether fully paid or not) carry one vote per share without restriction. (d) Schedule of interests in petroleum blocks Location Australia – Onshore Australia – Onshore Australia – Onshore Australia – Onshore Australia – Onshore** Australia – Onshore Block EP437 EP104 R1 L15 ATP 783/920/924 WA-481-P Percentage held/earning 43.47% 89.23% 85.23% 85.40% 100.00% 40.00% ** Key is in the process of transferred the title into its name after completion the acquisition. (e) Unquoted Securities Class Number of Securities Number of Holders Holder Name Number of Securities Holders of 20% or more of the class Unlisted 1.287 cent Options, Expiry 9 March 2019 1,000,000 Unlisted 1.5 cent Options, Expiry 30 November 2020 20,000,000 Performance Rights A Performance Rights B 2,000,000 2,000,000 1 1 1 1 Michelle Armitage 1,000,000 JL Kane Marshall 20,000,000 JL Kane Marshall JL Kane Marshall 2,000,000 2,000,000 55 

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