Keyera
Annual Report 2021

Plain-text annual report

Level 1 100 Havelock Street West Perth WA 6005 T: + 61 (0) 8 6160 6022 ABN: 50 120 580 618 29 September 2021 The Manager The Australian Securities Exchange The Announcements Office Level 4/20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam 2021 ANNUAL REPORT Please find attached Key Petroleum Limited’s 2021 Annual Report. This announcement has been authorised by the Board of Directors. For more information please contact: IAN GREGORY Company Secretary Key Petroleum Limited Telephone: +61 (0) 8 6160 6022 Email: investors@keypetroleum.com.au ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 ACN 120 580 618 CORPORATE INFORMATION ABN 50 120 580 618 Directors Geoff Baker (Non-Executive Chairman) Dennis Wilkins (Non-Executive Director) Min Yang (Non-Executive Director) Dongmei Ye (Non-Executive Director) Company Secretary Ian Gregory Registered Office and Principal Place of Business Level 1 100 Havelock Street WEST PERTH WA 6005 Telephone: +61 8 6160 6022 Facsimile: +61 8 6160 5901 Solicitors Thomson Greer Lawyers Level 14, 60 Martin Place SYDNEY NSW 2000 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 Telephone: +61 3 9415 4000 or 1300 850 505 (within Australia) Auditors Hall Chadwick 283 Rokeby Road SUBIACO WA 6008 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 Chairman’s Report 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 4 15 16 17 18 19 20 45 46 52 2 CHAIRMAN’S REPORT Dear Shareholders I am pleased to present the Annual Report of the consolidated entity (referred to as the ‘Group’) consisting of Key Petroleum Limited (referred to as the ‘Company’) and the entities it controls. The continued disruption of COVID-19 has caused significant distress in investment in Australia and across the world. This uncertainty seems to be never ending although there are signs that the worst maybe behind us. To date we have been able to weather these disruptions and not suffer too many significant adverse consequences. The Financial Year ending June 2021 for the Group started with some significant changes at the board level with the resignation of Rex Turkington and Kane Marshall. In the lead up to 2020 the Company had successfully implemented strategy based on organic growth focussed on conventional oil and gas assets within Australia. However, even before the impact of COVID-19 unfolded, the Company had made efforts to monetise its offshore Perth basin asset in the face of increasing offshore exploration costs. The successful sale of WA-481-P to Pilot Energy Limited, completed in December 2020, provided the Company with access to significant financial resource through receipt of 20,000,000 Pilot shares received in the transaction, as well as the Company's first exposure to a renewable energy through Pilot’s Mid West Blue Hydrogen project. In the second half of 2020, as the Group attempted to navigate a path forward for the Company’s remaining assets in the Perth Basin, it became clear that Key’s best interests would be served by selling its interests in L7 and EP 437. Several factors led to this consideration including the uncertainty created by the announcement regarding the Kwinana oil refinery. While the sale process has extended out beyond the end of this financial year the Company remains insulated from any ongoing costs, which are to be covered by Triangle Energy. While the company continues to monitor the impact of COVID-19 on exploration activities, it is now focussing on the forecast sustained increase in demand for energy in the east Australian economy. As part of its risk management strategy the Company intends to revert to previously planned operational schedules once conditions stabilise. The directors of the Group see great potential in its Cooper-Eromanga Basin assets, particularly for gas, and are confident in delivering shareholder wealth. I want to sincerely thank all our loyal shareholders, lenders, clients, directors, employees and consultants for being on the difficult journey with us. More than ever, we are fully committed to a path of continuous growth and value creation for our shareholders and partners. Yours sincerely Geoff Baker Chairman 28 September 2021 3 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 2021. 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 Geoff Baker, BCom, LLB, MBA (Non-Executive Director, appointed 1 March 2015 and Non-Executive Chairman appointed 31 August 2020) 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, Rey Resources Limited, ActivEX Limited and BSF Enterprise PLC. Min Yang, (Non-Executive Director, appointed 28 January 2014) Ms Yang resides in Hong Kong and has over 22 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, ActivEX Limited and BSF Enterprise PLC. Dennis Wilkins, BBus, AICD, ACIS (Non-Executive Director, appointed 5 July 2006) 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 25 years. Mr Wilkins previously served as the Finance Director and Company Secretary for a mid-tier gold producer and spent five years working for a leading merchant bank in the United Kingdom. Resource postings to Indonesia, South Africa and New Zealand in managerial roles has broadened his international experience. Mr Wilkins has extensive experience in capital raising, specifically for the resources industry, and is the principal of DWCorporate Pty Ltd which provides advisory, funding and administrative management services to the resource sector. Within the last three years Mr Wilkins was also an alternate director of Middle Island Resources Limited (resigned 31 January 2021). Dongmei (Yvonne) Ye, BAcc, MAcc(CPA), CPA (Non-Executive Director, appointed 18 December 2020) Ms Ye has over 10 years knowledge and experience gained in small to large businesses in the areas of accounting and taxation compliance. Prior to being a senior tax accountant in a firm of Chartered Accountants in Australia, she worked internationally in the accounting field, since 2002. Ms Ye also brings to the Company extensive experience in the areas of corporate finance, business restructuring and tax planning in a number of industries both in Australia and overseas, including with Australian listed companies. Ms Ye is currently a non-executive director of ActivEX Limited. Rex Turkington, was a director from the beginning of the financial year until his resignation on 31 August 2020. Kane Marshall, was a director from the beginning of the financial year until his retirement on 28 August 2020. COMPANY SECRETARY Ian Gregory, BBus, FGIA, FCGI, 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. 4 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: Geoff Baker Min Yang Dennis Wilkins Yvonne Ye Ordinary Shares 225,372,940(1) 225,372,940(1) - - Options over Ordinary Shares Performance Rights - - - - - - - - (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 Much of efforts throughout the financial year ended 30 June 2021, were placed in finding an agreeable solution to progressing efforts in the Perth Basin. On 28 January 2021 Key Petroleum Limited (Key) announced that it had completed an agreement with Triangle Energy (Global) Limited (Triangle) and its subsidiary A.C.N. 008 939 080 Pty Ltd for an agreed path forward for the L7 Joint Venture. The agreement included the transfer of Key’s equity in EP 437 as part of a combined exploration effort on the Bookara Shelf, in the northern Perth Basin, thereby removing all financial commitments to Key in the Perth Basin. As part of the commitments Triangle agreed to provide funds to cover and commenced planning activities for a larger (>200sq.km) Bookara 3D survey. At the end of the reporting period planning was well advanced for the proposed 230 sq.km Bookara 3D survey covering a greater area of L7 and extending into EP 437. Part of the planning activities included the purchase of approximately 200 square kilometres of a high resolution aerial photo survey to assist with access and environmental approvals. COVID-19 impacts continued to be felt throughout the year with long standing Western Australian border closures. Towards the end of 2020 Key approached the Department of Mines, Industry Regulation and Safety, Western Australia (DMIRS) to discuss the EP 437 work program, for the purpose of acquiring a larger 3D survey that encompasses L7 and west into parts of EP 437, including Wye Knot and other identified prospects. On 12 January 2021 DMIRS approved a Variation and Suspension to the EP 437 work program where the Year three commitment is now one well and twenty square kilometres of 3D seismic, to be completed by 27 May 2022. On 17 August 2020 the company announced that the offshore northern Perth Basin permit WA-481-P, operated by Pilot Energy, had been renewed for a further five years. The R1 renewal area has been carefully selected by the joint venture participants, Key (40%) and Pilot Energy (60% and Operator), in consideration for the forward work program that is designed to target and illuminate the high graded hydrocarbon fairways. Upon completing the renewal of the permit WA-481-P (“the 481 Permit”) on 6 October 2020 Key Petroleum Ltd advised it had entered into an agreement to sell its 40% interest to Pilot Energy Limited (Pilot), to rationalise the ownership of the 481 Permit., 21 million fully paid ordinary shares in Pilot were issued to Key (its nominee Key Perth Basin Investments Pty Ltd) in consideration for the transfer of this interest. At 30 June 2021 the company’s shares in Pilot Energy were worth $1,640,000. The COVID-19 pandemic continued to impact progress in Key’s Cooper Basin assets during 2021. Key successfully applied to the Department of Nature Resources, Mines and Energy, Queensland (DNRME) for a variation in it exploration commitments by removing the Year one well from the ATP-924 renewal program. At 30 June 2021 the company was still waiting for an outcome on its application for project status across the three ATPs. Key continued its efforts to attract investment for its Cooper Basin exploration program. At the same time the company continues to monitor movement restrictions, particularly in relation to planning for its exploration commitments. The Company intends to revert to previously planned operational schedules once conditions stabilise. Outlook Key continues to maintain its status as operator of L7 and EP 437 until the transfer of equities and title is completed. All of the costs associated with this activity will continue to be paid for by Triangle. The Bookara 3D survey remains on track to commence in December 2021, after crop harvesting in the area is near completion. Key continued efforts to attract investment for its Cooper Basin assets, while at the same time monitoring movement restrictions, particularly in relation to planning for its exploration commitments. The Company intends to revert to previously planned operational schedules once conditions stabilise. 5 Cooper-Eromanga Basin Satellite imagery of ATP-920, 924 and surrounding Cooper Creek catchment area. 6 Finance Review The Group has recorded an operating loss after income tax for the year ended 30 June 2021 of $2,233,603 (2020: $145,922). At 30 June 2021 funds available totalled $45,903 (2020: $642,193). Operating Results for the Year Summarised operating results are as follows: Consolidated revenues and loss Shareholder Returns Basic loss per share (cents) Risk Management 2021 Revenues Results $ $ 1,074,193 (2,233,603) 2021 (0.11) 2020 (0.01) 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 often meets in tandem with Audit and Risk Management Committee to discuss risk and strategy. 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; and Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as disclosed in this Annual Report, no significant changes in the state of affairs of the Group occurred during the financial year. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 29 July 2021 the Group drew down a further $50,000 on the ASF Group Limited unsecured loan in accordance with the terms as disclosed at Note 12. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. 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 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. 7 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 2021 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. 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(o) 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 no performance based remuneration component built into key management personnel 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. The performance rights lapsed, unvested, upon Mr Marshall’s retirement. 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 expired, unvested, on 30 November 2020. 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 2021. Voting and comments made at the Company’s 2020 Annual General Meeting The Company received 95.2% of “yes” votes on its remuneration report for the 2020 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 4 above and the following executive officer who had authority and responsibility for planning, directing and controlling activities within the Group: • Ric Jason – Interim Chief Executive Officer (appointed 28 August 2020) and Exploration Manager. 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. 8 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 Total $ $ $ $ $ $ $ $ $ $ $ Directors Geoff Baker (1) 2021 55,333 2020 32,000 Min Yang (1) 2021 32,000 2020 32,000 Dennis Wilkins (2) 2021 28,250 Yvonne Ye (appointed 18 December 2020) Rex Turkington (resigned 31 August 2020) 2020 32,000 2021 17,227 2021 10,000 2020 60,000 Kane Marshall (retired 28 August 2020) 2021 138,420 2020 222,160 Other KMP Ric Jason (3) 2021 171,467 Total key management personnel 2021 452,697 2020 378,160 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,273 21,904 13,943 17,216 21,904 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (6,382) 2,306 2,306 (6,382) - - - - - - - - - - - - - - - - - - - - - - - 55,333 32,000 32,000 32,000 28,250 32,000 17,227 10,000 60,000 3,316 145,009 7,911 245,593 - 187,716 3,316 475,535 7,911 401,593 (1) In addition to Min Yang’s and Geoff Baker’s remuneration as directors, interest payments totalling $6,301 (2020: nil) were made to ASF Group Limited and a total of nil (2020: $30,000) was paid to ASF Capital Pty Ltd, businesses of which Min Yang and Geoff Baker are directors. ASF Group Limited provided the Group with an unsecured loan during the year, refer to Note 12 for details. ASF Capital Pty Ltd provided corporate advisory services to the Group during the 2020 financial year. The amounts paid were at usual commercial rates. (2) In addition to Mr Wilkins’ remuneration as a director, a total of $21,274 (2020: $21,787) was paid to DWCorporate Pty Ltd, a business of which Mr Wilkins is principal. DWCorporate Pty Ltd provided accounting services to the Group during the year. The amounts paid were at usual commercial rates with fees charged on an hourly basis. (3) Ric Jason was appointed Interim Chief Executive Officer, and became a member of key management personnel, on 28 August 2020. Before this appointment he was, and continues as, the Group’s Exploration Manager. Amounts shown above include all Mr Jason’s remuneration during the reporting period. Service agreements The details of service agreements of the key management personnel of Key Petroleum Limited are as follows: Rex Turkington, Non-Executive Chairman (resigned 31 August 2020): • • • Annual consulting fee of $60,000 paid to Katarina Corporation Pty Ltd, a business of which Mr Turkington is principal; Agreement commenced 14 January 2014 for a twelve month period and was since renewed for a further twelve months in each of the following three years. Since January 2018 the contract is a rolling month by month agreement with the Company; and The agreement may be terminated, without cause, by either party giving written notice. Kane Marshall, Managing Director (retired 28 August 2020): • Mr Marshall was a full-time employee of the Company with an annual salary of $175,000, plus statutory superannuation; • Mr Marshall’s original employment agreement expired in April 2018 and was renewed on the same terms for a further 2 years then rolling on a monthly basis; and • The agreement may be terminated, without cause, by either party with three months’ written notice. 9 Min Yang, Non-Executive Director: • • • Annual consulting fee of $32,000 to be paid to Luxe Hill Ltd, a business of which Ms Yang is principal; Agreement commenced 28 January 2014 for a twelve month period and was since renewed for a further twelve months in each of the following three years. Since January 2018 the contract is a rolling month by month agreement with the Company; and The agreement may be terminated, without cause, by either party giving written notice. Geoff Baker, Non-Executive Director till 31 August 2020, Non-Executive Chairman since 31 August 2020: • • • Annual consulting fee of $32,000 to be paid to Gold Star Industry Limited, a business of which Mr Baker is principal; Agreement commenced 3 March 2015 for a twelve month period and was since renewed for a further twelve months in each of the following two years. Since March 2018 the contract is a rolling month by month agreement with the Company; and The agreement may be terminated, without cause, by either party giving written notice. Dennis Wilkins – Non-Executive Director: • • • Annual consulting fee of $32,000 to be paid to DWCorporate Pty Ltd, a business of which Mr Wilkins is principal; The contract is a rolling month by month agreement with the Company; and The agreement may be terminated, without cause, by either party giving written notice. Yvonne Ye – Non-Executive Director (appointed 18 December 2020): • • • Annual consulting fee of $32,000 to be paid to Star Surpass Ltd, a business of which Ms Ye is principal; The contract is a rolling month by month agreement with the Company; and The agreement may be terminated, without cause, by either party giving written notice. Ric Jason – Interim Chief Executive Officer (appointed 28 August 2020) and Exploration Manager: • Mr Jason is a full-time employee of the Company with an annual salary of $159,100, plus statutory superannuation; • Mr Jason’s original employment agreement expired in August 2020 and has since been rolling on a monthly basis on the same terms; and • The agreement may be terminated, without cause, by either party with three 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 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 22/11/2016 20,000,000 (1) 30/11/2020 1.5 0.4 N/A 2.3 (1) The options were to vest if the average 30 consecutive day VWAP of the Company’s shares was equal or greater than 1.5 cents. The options expired, unvested, on 30 November 2020. (2) 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. 10 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, all the performance rights lapsed upon Mr Marshall’s retirement on 28 August 2020: Grant Date Granted Number Vested Number Date Vesting and Exercisable Expiry Date Value per right at grant date (cents) (1) % of Remuneration Directors Kane Marshall Kane Marshall 06/08/2012 2,000,000 06/08/2012 2,000,000 Nil Nil (2) (3) N/A N/A 3.6 3.6 - - (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 were to 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.” (3) These rights were to 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.” 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. Balance at start of the year (1) Received during the year on the exercise of options Other changes during the year Balance at end of the year (1) 2021 Directors of Key Petroleum Limited Ordinary shares Geoff Baker (2) Min Yang (2) Dennis Wilkins Yvonne Ye (appointed 18 December 2020) Rex Turkington (resigned 31 August 2020) 225,372,940 225,372,940 - - - Kane Marshall (retired 28 August 2020) 18,908,450 Other key management personnel Ordinary shares Ric Jason (appointed 28 August 2020) 2,000,000 - - - - - - - - - - - - - - 225,372,940 225,372,940 - - - 18,908,450 2,000,000 (1) Balances are at the respective dates of appointment or cessation where not in the position for the full reporting period. (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. 11 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 (1) Granted as compensation Exercised Other changes Balance at end of the year (1) Vested and exercisable Unvested 2021 Directors of Key Petroleum Limited Geoff Baker Min Yang Dennis Wilkins Yvonne Ye (appointed 18 December 2020) Rex Turkington (resigned 31 August 2020) - - - - - Kane Marshall (retired 28 August 2020) 20,000,000 Other key management personnel Ric Jason (appointed 28 August 2020) 4,500,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20,000,000 - 20,000,000 - 4,500,000 4,500,000 - (1) Balances are at the respective dates of appointment or cessation where not in the position for the full reporting period. 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 were to 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.” As a result of the retirement of Kane Marshall on 28 August 2021, all of the Performance Rights lapsed, unvested, on that date. Loans to key management personnel There were no loans to key management personnel during the year. Other transactions with key management personnel The Company had a lease agreement for a vehicle relating to an associate of Mr Marshall. The value of the lease payments for the year was $1,197 (2020: $14,364) and this total plus related FBT contribution was taken from Mr Marshall’s gross salary as a deduction for the year. DWCorporate Pty Ltd, a business of which Mr Wilkins is principal, provided accounting services to the Key Petroleum Group during the year. The amounts paid of $21,274 (2020: $21,787) were on arm’s length commercial terms and are disclosed in the remuneration report in conjunction with Mr Wilkin’s compensation. At 30 June 2021 there was $17,466 (2020: $11,951) owing to DWCorporate Pty Ltd. Interest payments totalling $6,301 (2020: nil) were made to ASF Group Limited and a total of nil (2020: $30,000) was paid to ASF Capital Pty Ltd, businesses of which Min Yang and Geoff Baker are directors. ASF Group Limited provided the Group with an unsecured loan during the year, refer to Note 12 for details. ASF Capital Pty Ltd provided corporate advisory services to the Group during the 2020 financial year. The amounts paid were at usual commercial rates. End of audited Remuneration Report 12 DIRECTORS’ MEETINGS During the year the Company held fourteen meetings of directors. The attendance of directors at meetings of the board were: Geoff Baker Min Yang Dennis Wilkins Yvonne Ye (appointed 18 December 2020) Rex Turkington (resigned 31 August 2020) Kane Marshall (retired 28 August 2020) Notes A – Number of meetings attended. Directors Meetings A 14 14 10 7 3 3 B 14 14 14 7 3 3 B – Number of meetings held during the time the director held office during the year. On 10 March 2020 the Board of Directors determined that there were no efficiencies to be gained by continuing the Audit and Risk Committee and Remuneration Committee. It was resolved to disband these Committees. Instead the functions of these Committees are undertaken by the full Board. When the Board is considering matters within the ambit of the Audit and Risk Committee Charter and Remuneration Committee Charter, it will be guided by and, to the extent practicable, act in accordance with, those Charters. At such time when the Group is of sufficient size, consideration will be given to reforming these Committees. SHARES UNDER OPTION Unissued ordinary shares of Key Petroleum Limited under option at the date of this report are as follows: Date options granted Expiry date Exercise price (cents) Number of options 24 August 2018 28 March 2019 24 August 2022 27 March 2023 1.3 1.3 Total number of options outstanding at the date of this report 4,500,000 1,000,000 5,500,000 No option holder has any right under the options to participate in any other share issue of the Company or any other entity. INSURANCE OF DIRECTORS AND OFFICERS During the financial year, Key Petroleum Limited paid a premium of $35,250 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 The following details any non-audit services provided by the entity's auditor, Hall Chadwick WA Audit Pty Ltd or associated entities. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor; and None of the services undermine the general standard of independence for auditors. Hall Chadwick WA Audit Pty Ltd and associated entities received or are due to receive the following amounts for the provision of non-audit services: Taxation compliance services 13 2021 $ 2,395 2020 $ - 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 15. Signed in accordance with a resolution of the directors for Key Petroleum Limited. Geoff Baker Non-Executive Chairman Perth, 28 September 2021 CORPORATE GOVERNANCE STATEMENT The Company’s 2021 Corporate Governance Statement has been released as a separate document and is located on the Company’s website at http://www.keypetroleum.com.au/corporate_governance. 14 To the Board of Directors Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 As lead audit partner for the audit of the financial statements of Key Petroleum Limited for the financial year ended 30 June 2021, 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 HALL CHADWICK WA AUDIT PTY LTD DOUG BELL CA Partner Dated this 28th day of September 2021 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2021 CONTINUING OPERATIONS Revenue Fair value gains on financial assets Depreciation expense Salaries and employee benefits expense Corporate expenditure Administration costs Exploration costs not capitalised Share-based payments expense Finance costs Impairment of capitalised exploration costs Impairment of plant and equipment LOSS BEFORE INCOME TAX INCOME TAX BENEFIT / (EXPENSE) LOSS FOR THE YEAR Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO MEMBERS OF KEY PETROLEUM LIMITED Notes 2 24 3 4 2021 $ 549,193 525,000 (40,993) (327,709) (65,243) (412,497) (126,479) (3,316) (10,739) (2,162,815) (158,005) (2,233,603) - 2020 $ 767,527 - (82,793) (143,057) (133,586) (411,291) (121,486) (10,509) (10,727) - - (145,922) - (2,233,603) (145,922) - - (2,233,603) (145,922) Basic and diluted loss per share attributable to the members of Key Petroleum Limited (cents per share) 23 (0.11) (0.01) 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. 16 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2021 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Assets classified as held for sale TOTAL CURRENT ASSETS NON-CURRENT ASSETS Receivables Plant and equipment Capitalised exploration costs Right of use Asset TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Borrowings Lease liabilities Provisions Liabilities directly associated with assets classified as held for sale TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Lease Liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Notes 5 6 7 10(2) 8 9 10 19 11 12 19 13 19 13 2021 $ 45,903 37,076 1,344,000 1,426,979 700,000 2,126,979 61,392 403 1,346,177 4,136 1,412,108 3,539,087 273,724 200,000 2,127 - 475,851 300,000 775,851 2,346 3,575 5,921 781,772 2,757,315 2020 $ 642,193 268,735 - 910,928 - 910,928 178,562 171,293 4,502,264 33,856 4,885,975 5,796,903 439,102 - 26,369 338,256 803,727 - 803,727 4,305 1,269 5,574 809,301 4,987,602 14 15(a) 42,515,302 42,515,302 32,950 756,674 (39,790,937) (38,284,374) 2,757,315 4,987,602 The above Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial Statements. 17 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2021 Issued Capital Share-Based Payments Reserve Accumulated Losses $ $ $ Total $ BALANCE AT 1 JULY 2019 Loss for the year TOTAL COMPREHENSIVE INCOME TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Shares issued during the year Share issue transaction costs Share-based payments BALANCE AT 30 JUNE 2020 Loss for the year TOTAL COMPREHENSIVE LOSS FOR THE YEAR TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Share-based payments BALANCE AT 30 JUNE 2021 41,314,075 746,165 (38,138,452) 3,921,788 - - 1,297,010 (95,783) - - - - - 10,509 (145,922) (145,922) (145,922) (145,922) - - - 1,297,010 (95,783) 10,509 42,515,302 756,674 (38,284,374) 4,987,602 - - - - - (2,233,603) (2,233,603) (2,233,603) (2,233,603) (723,724) 727,040 3,316 42,515,302 32,950 (39,790,937) 2,757,315 The above Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial Statements. 18 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 30 JUNE 2021 Notes CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Government Grants and tax incentives Finance costs paid Expenditure on petroleum interests 2021 $ 4,223 (893,536) 4,499 121,056 (7,068) (455,690) 2020 $ 197,322 (767,322) 921 68,000 (10,727) (535,360) NET CASH OUTFLOW FROM OPERATING ACTIVITIES 5(a) (1,226,516) (1,047,166) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of plant and equipment Refund of permit guarantees Proceeds on sale or farmout of Permit 4,400 95,913 200,000 - - 150,000 Payments for rehabilitation expenses on petroleum interest - (1,382,750) Reimbursement of rehabilitation expenses NET CASH INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of ordinary shares and options Payments of share issue transaction costs Proceeds from borrowings Principal elements of Lease Payment NET CASH INFLOW FROM FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 5 156,114 456,427 - - 200,000 (26,201) 173,799 (596,290) 642,193 45,903 1,334,164 101,414 1,297,010 (95,783) - (60,177) 1,141,050 195,298 446,895 642,193 The above Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial Statements. 19 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 28 September 2021. 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 the new, revised or amending Accounting Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards. (iii) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2021 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is that they are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (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 $2,233,603 (2020: $145,922) and net cash outflows from operating activities of $1,226,516 (2020: $1,047,166). The directors have prepared an estimated cash flow forecast for the period to September 2022 to determine if the Group will 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 material uncertainty as to whether the Group 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 Group 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: • • • • • The Group has access to cash reserves of $45,903 as at 30 June 2021 (30 June 2020: $642,193); The Group 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 Group has agreed a sale for its interests in the L7 and EP 437 projects for cash proceeds of $600,000 (of which $200,000 was received as a non-refundable deposit in January 2021 and a further $200,000 was received as a non-refundable deposit in August 2021) plus a 5% gross overriding royalty payable on production from L7 and EP 437; The Group has the ability to raise funds from equity sources; and The Directors anticipate the support of the Group’s major shareholders to continue with the advancement of the Group’s assets. Should the Directors not achieve the matters as set out above, there is a material uncertainty whether the Group will continue as a going concern and it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business and at amounts 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. 20 (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. (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. 21 (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. They are deferred in equity if they 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. (e) Revenue recognition Sales revenue from providing services to external parties is recognised in the accounting period in which the services are rendered. For fixed price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. This is based on the actual labour hours spent relative to the total expected labour hours. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial assets. (f) Income tax The Company formed a tax consolidated Group on 1 July 2016. The effect of the transition from single taxable entities to a tax consolidated group is the re-setting of the tax bases for assets within the group and an adjustment to the available carry forward losses under the available fraction calculation. The head entity, Key Petroleum Limited, and the controlled entities in the tax consolidated group account for their own current and deferred taxes and are measured on a stand-alone taxpayer basis. The Group currently does not have a tax sharing or tax funding arrangement. 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 operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. 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 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. (g) Leases The Group leases an item of office equipment with a five-year term. Upon commencement of the lease the Group recognised a lease liability for this lease, measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate, being 10%. Where the Group is lessee, the Group recognises a right-of-use asset and a corresponding liability at the date at which the lease asset is available for use by the Group. Each lease payment is allocated between the liability and the 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 right- of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • • • fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate; amounts expected to be payable by the lessee under residual value guarantees; 22 • • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The Group’s current lease agreement does not contain any extension options. Right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before commencement date less any lease incentives received, and any initial direct costs. Where the terms of a lease require the Group to restore the underlying asset, or the Group has an obligation to dismantle and remove a leased asset, a provision is recognised and measured in accordance with AASB 137. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset. Where leases have a term of less than 12 months or relate to low value assets the Group may apply exemptions in AASB 16 to not capitalise any such leases and instead recognise the lease payments on a straight-line basis as an expense in profit or loss. (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 to the former owners of the acquired businesses; 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 the: • • • 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 acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in profit or loss. (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. 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 23 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) Investments and other financial assets (i) Classification The Group classifies its financial assets in the following measurement categories: • • Those to be measured subsequently at fair value (either through OCI or through profit or loss); and Those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its debt instruments: • • • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other income or expenses. Impairment losses are presented as a separate line item in the statement of profit or loss. FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other income or expenses. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other income or expenses and impairment losses are presented as a separate line item in the statement of profit or loss. FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other income or expenses in the period in which it arises. Equity instruments The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Company’s right to receive payment is established. Changes in the fair value of financial assets at FVPL are recognised in other income or expenses in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (iv) Impairment The Group assesses, on a forward-looking basis, the expected credit loss associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology depends on whether there has been a significant increase in credit risk. (l) Plant and equipment All plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 24 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 5% 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. (m) 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: (i) the rights to tenure of the area of interest are current; and (ii) at least one of the following conditions is also met: (a) (b) the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or exploration and evaluation activities in the area of interest have not at the 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 and sampling and associated activities and depreciation 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 Note 1(i). 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. (n) 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. They are recognised initially at fair value and subsequently at amortised cost. The amounts are unsecured and are paid on normal commercial terms. (o) 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) Other long-term employee benefit obligations The Group also has liabilities for long service leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. 25 (iii) 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. (p) 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. (q) 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. (r) 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. (b) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (s) 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. (t) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (u) 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. 26 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 consider 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 Group 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. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Company based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Company operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Company unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. 27 30 JUNE 2021 2. REVENUE AND OTHER INCOME From continuing operations Other revenue Interest from financial institutions Management fees Fuel tax credits Recharge Income Gain on sale of permit Net gain on disposal of plant and equipment Consulting services Government grants Other Income 3. EXPENSES Loss before income tax includes the following specific expenses: Directors’ fees Superannuation expense Expenses relating to short-term leases Depreciation expenses: Plant and equipment Right-of-use assets 2021 $ 2020 $ 4,499 - 1,058 - 463,816 2,790 - 74,800 2,230 549,193 142,811 16,423 40,265 11,273 29,720 40,993 921 32,092 5,750 481,094 - - 133,286 89,500 24,884 767,527 156,000 52,306 - 25,799 56,994 82,793 28 30 JUNE 2021 4. INCOME TAX (a) Income tax expense Current tax Deferred tax (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss before income tax expense Prima facie tax (benefit)/expense at the Australian tax rate of 26% (2020: 27.5%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share based payments COVID-19 Cash flow BOOST Other Movements in unrecognised temporary differences Tax effect of current year tax losses for which no deferred tax asset has been recognised Under/Over Income tax expense (c) Deferred tax assets not brought to account at 25% (2020: 26%) Capital raising costs Provision and accruals Financial assets at fair value through profit or loss Tax losses Total 2021 $ 2020 $ - - - - - - (2,233,603) (580,737) 862 (19,448) 353 (598,970) 462,401 136,569 - - 31,367 11,205 131,250 2,323,069 2,496,891 (145,922) (40,129) 2,890 (17,188) 416 (54,010) (196,669) 277,020 (26,341) - 49,890 110,680 - 2,279,423 2,439,993 29 30 JUNE 2021 4. INCOME TAX (cont’d) (d) Deferred tax liabilities at 25% (2020: 26%) Right of Use Asset 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 2020 $ 84 165,323 165,407 (165,407) 165,407 - 2018 $ 827 845,135 845,962 (845,962) 845,962 - Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account at 30 June 2020 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 Group derives future assessable income of nature and of an amount sufficient to enable the benefits to be utilised; (ii) the Group continues to comply with the conditions for deductibility imposed by law; and (iii) no changes in income tax legislation adversely affect the Group in utilising the benefits. In April 2017, the Australian Government enacted legislation which reduces the corporate rate for small and medium business (base rate) entities from 30% to 25% over the next decade. For the 2017 financial year the corporate tax rate reduced to 27.5% for small business entities with turnover less than $10 million. This turnover threshold progressively increased until it reached $50 million in the 2020 financial year. For the 2021 financial year, the tax rate has decreased to 26% and then 25% for the 2022 and later financial years. Key Petroleum Limited satisfies the criteria to be a base rate entity. 5. 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 45,903 - 45,903 627,193 15,000 642,193 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+ 45,903 642,193 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. 30 30 JUNE 2021 5. 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 Net gain on disposal of plant and equipment Impairment of plant and equipment Impairment of capitalised exploration costs Share-based payments expense Gain on sale of permit Change in operating assets and liabilities Decrease/(increase) in trade and other receivables (Increase) in financial assets (Increase) in capitalised exploration costs (Decrease) in trade and other payables (Decrease)/increase in provisions Net cash outflow from operating activities 2021 $ 2020 $ (2,233,603) (145,922) 40,993 (2,790) 158,005 2,162,815 3,316 (463,817) 96,803 (525,000) (261,910) (165,378) (35,950) 82,793 - - - 10,509 - (38,747) - (679,050) (277,586) 837 (1,226,516) (1,047,166) (b) Liabilities for which cash flows classified as financing activities This section sets out an analysis of the liabilities for which cash flows have been classified as financing activities and the movements for each of the periods presented. Borrowings Lease liabilities As at 1 July 2019 Recognised on adoption of AASB 16 Cash flows As at 30 June 2020 Cash flows As at 30 June 2021 200,000 4,473 204,473 Liabilities from financing activities Borrowings Lease liabilities $ - - - - 200,000 200,000 $ - 90,851 (60,177) 30,674 (26,201) 4,473 - 30,674 30,674 Total $ - 90,851 (60,177) 30,674 173,799 204,473 (c) Non-cash investing and financing activities Non-cash investing and financing activities disclosed in other notes are: • • The Group received shares in ASX listed Pilot Energy Limited (ASX: PGY), classified as financial assets at fair value through profit or loss, as consideration for the sale a permit, refer Note 10(1); and Options issued to employees, contractors and suppliers for no cash consideration – Note 24. 31 30 JUNE 2021 6. TRADE AND OTHER RECEIVABLES L7 restoration reimbursement receivable Other receivables Credit Risk – Trade and Other Receivables - 37,076 37,076 156,114 112,621 268,735 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 26. 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 assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high quality. The table below outlines the amounts due, past due and not impaired. Gross Amount Past due and impaired Past due but not impaired (days overdue) Within initial trade terms $ $ < 30 $ 31 - 60 61 - 90 $ $ > 90 $ 2021 Other receivables Total 2020 37,076 37,076 L7 restoration reimbursement receivable Other receivables Total 156,114 112,621 268,735 - - - - - - - - - - - - - - - - - - - - $ 37,076 37,076 156,114 112,621 268,735 - - - - - 7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Australian listed equity securities 1,344,000 - Changes in fair values of financial assets at fair value through profit or loss are disclosed directly on the face of the consolidated statement of profit or loss and other comprehensive income. These constitute Level 1 financial assets. 2021 $ 2020 $ 8. NON-CURRENT RECEIVABLES Bank guarantees 2021 $ 2020 $ 61,392 178,562 The guarantee is held by the Group’s financial institution in cash. The credit rating has been disclosed above in Note 5. 32 30 JUNE 2021 9. PLANT AND EQUIPMENT Plant and equipment Cost Accumulated depreciation Net book amount Reconciliation of movements in plant and equipment Opening net book amount Disposals Impairment prior to transfer to assets classified as held for sale 10(2) Depreciation charge Closing net book amount 10. CAPITALISED EXPLORATION COSTS Notes 2021 $ 2020 $ 14,028 (13,625) 403 171,293 (1,612) (158,005) (11,273) 403 416,866 (245,573) 171,293 197,092 - - (25,799) 171,293 Exploration, evaluation and development costs carried forward in respect of areas of interest 1,346,177 4,502,264 Reconciliation - Pre-production Carrying amount at the beginning of the year Additions to exploration and evaluation costs Disposals during the year Impairment prior to transfer to assets classified as held for sale Transferred to assets classified as held for sale Carrying amount at the end of the year (1), (2) (2) (2) 4,502,264 261,911 (555,184) (2,162,815) (699,999) 1,346,177 3,673,214 979,050 (150,000) - - 4,502,264 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. (1) (2) During the year the Group completed the sale of its 40% interest in WA-481-P to Pilot Energy Limited (Pilot) for consideration of 21 million new ordinary shares in Pilot. The fair value of the consideration at completion was $819,000, resulting in a gain on sale of $463,816. During January 2021 the Group announced it had entered into the Agreement and Royalty Deed with Triangle Energy (Global) Limited (Triangle) to sell to Triangle Key Petroleum’s 50% participating interest in L7 and Key Petroleum and Key Midwest’s combined 86.94% interest in EP 437. The Group will receive cash proceeds of $600,000 plus a 5% gross overriding royalty payable on production from L7 and EP 437. Summary of the key terms of the Agreement and Royalty Deed Completion of the Agreement is conditional on usual regulatory approvals, execution of a deed of covenant in respect of the EP 437 JOA, Triangle receiving binding commitments for a capital raising of at least $1,000,000 and, if required, Key obtaining the approval of its shareholders under Chapter 11 of the ASX Listing Rules for the Key subsidiaries to sell its interests in these assets. Under the terms of the Agreement: • • Triangle will pay to Key a cash consideration of A$600,000 ($A200,000 of which was paid as a non-refundable deposit in January 2021 with a further A$200,000 non-refundable amount paid during August 2021), any outstanding cash calls in respect of L7 based on an agreed work program and budget plus a 5% gross overriding royalty payable on production from L7 and EP 437; Subject to Completion occurring, the existing Farmout Agreement between Key and Triangle in relation to the L7 licence at Mt Horner, the execution of which was announced on 31 October 2018, will terminate and the parties will release each other from all claims and liabilities in respect of L7 and the Farmout Agreement, except in relation to certain rehabilitation work undertaken by Key Petroleum prior to execution of the Agreement, including any disputes in respect of the Farmout Agreement (refer announcement by KEY on 4 August 2020); and 33 30 JUNE 2021 10. CAPITALISED EXPLORATION COSTS (cont’d) Notes 2021 $ 2020 $ • Triangle is guaranteeing the performance by the Triangle subsidiary acquiring the interest under the Agreement and the Royalty Deed. The fair value of the disposal group has been determined by reference to the estimated fair value of the consideration receivable. This has resulted in the recognition of impairment during the year of $2,162,815 for capitalised exploration costs and $158,005 for plant and equipment. Following recognition of this impairment, receipt of the initial $200,000 non-refundable deposit in January 2021 has been treated as a disposal of capitalised exploration costs with a resulting nil gain or loss on disposal. The following assets and liabilities of the Group have been presented as a disposal group classified as held for sale at 30 June 2021: Assets classified as held for sale Plant and equipment Capitalised exploration costs Total assets of disposal group held for sale Liabilities directly associated with assets classified as held for sale Provision for restoration Total liabilities of disposal group held for sale Joint operations 1 699,999 700,000 300,000 300,000 - - - - - 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: EP 437 ATP 783/920/924 WA-481-P L7 10(2) 10 (1) 10(2) - 100.00 - - 86.94 100.00 40.00 50.00 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. Refer Note 10(2), the EP 437 interest has been classified as held for sale. EP 437 Balance sheet CURRENT ASSETS Cash and cash equivalents 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 - - - - - - 22 22 1,614,180 1,614,180 19,635 19,635 There are no capital commitments or contingencies as at 30 June 2021 and 30 June 2020 for the Joint Operations outside the work program commitments listed as part of Note 19(a) below. 34 30 JUNE 2021 11. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals 12. BORROWINGS Unsecured loan – at cost 2021 $ 87,599 186,125 273,724 2020 $ 166,569 272,533 439,102 (1) 200,000 - (1) ASF Group Limited (ASF) has provided the Group with an unsecured $250,000 loan facility. The loan has an interest rate of 10% per annum, payable on a quarterly basis, with a maturity date of 30 September 2021. Min Yang and Geoff Baker, directors of the Company, are also directors of ASF. Total interest paid during the year to ASF was $6,301. 13. PROVISIONS Current Restoration provision (L7) Long service leave Non-Current Long service leave Total Provisions Reconciliation – provision for restoration Opening balance Additions – exploration (a) Restoration expenses incurred Transferred to liabilities directly associated with assets classified as held for sale Closing balance - - - 3,575 3,575 300,000 - - (300,000) - 300,000 38,256 338,256 1,269 339,525 1,336,500 300,000 (1,336,500) - 300,000 (a) The addition in the restoration provision during the 2020 financial year relates to the further rehabilitation work required on the Production Licence L7. Reconciliation – provision for long service leave Opening balance Additional provision for the year Amounts used during the year Closing balance 39,525 2,306 (38,256) 3,575 46,683 (7,158) - 39,525 35 30 JUNE 2021 14. ISSUED CAPITAL (a) Share capital (b) Number of shares $ Number of shares $ Ordinary shares fully paid Total issued capital (b) Movements in ordinary share capital 2021 2020 1,967,928,126 42,515,302 1,967,928,126 42,515,302 1,967,928,126 42,515,302 1,967,928,126 42,515,302 Beginning of the financial year 1,967,928,126 42,515,302 1,549,462,207 41,314,075 − Share placements − Share issue transaction costs End of the financial year - - - - 418,465,919 1,297,010 - (95,783) 1,967,928,126 42,515,302 1,967,928,126 42,515,302 (c) Movements in options on issue (d) Beginning of the financial year Options expired during the year: − On 30 November 2020, exercisable at 1.5 cents End of the financial year (d) Movements in performance rights on issue Beginning of the financial year Lapsed during the year End of the financial year (e) Ordinary shares Number of options 2021 2020 25,500,000 25,500,000 (20,000,000) - 5,500,000 25,500,000 Number of performance rights 2021 2020 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. (f) 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 programs 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 2021 and 30 June 2020 are as follows: 36 30 JUNE 2021 14. ISSUED CAPITAL (cont’d) Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Net assets classified as held for sale Trade and other payables Borrowings Provisions - current Lease liabilities - current Working capital position 15. RESERVES (a) Reserves Share-based payments reserve 2021 $ 45,903 37,076 1,344,000 400,000 (273,724) (200,000) - (2,127) 1,351,128 2020 $ 642,193 268,735 - - (439,102) - (338,256) (26,369) 107,201 32,950 756,674 (b) Nature and purpose of reserves (i) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued. 16. DIVIDENDS No dividends were paid during the financial year. No recommendation for payment of dividends has been made. 17. REMUNERATION OF AUDITORS 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 Hall Chadwick – audit and review of financial reports Total remuneration for audit services Non-audit services Hall Chadwick – taxation compliance services Total remuneration for other services 18. CONTINGENCIES There are no material contingent liabilities or contingent assets of the Group at the reporting date. 30,551 30,551 2,395 2,395 25,000 25,000 - - 37 30 JUNE 2021 19. COMMITMENTS (a) Exploration commitments 2021 $ 2020 $ 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 3,124,500 6,585,000 9,709,500 3,524,840 12,084,040 15,608,880 (b) Leases The statement of financial position shows the following amounts relating to leases: Leased Assets Right-of-use assets Accumulated Depreciation of Right of Use Asset Carrying value of right-of-use-asset Lease Liabilities Current Lease Liabilities Non-Current Lease Liabilities Total Lease Liabilities The statement of profit or loss and other comprehensive income shows the following amounts relating to leases: Depreciation charge for right-of-use assets Interest expense (included in finance costs) 8,140 (4,004) 4,136 2,127 2,346 4,473 29,720 1,141 90,850 (56,994) 33,856 26,369 4,305 30,674 56,994 6,112 The Group leases an item of office equipment with a five-year term. The Group leased office premises with a two-year term that expired on 31 December 2020. Following the expiry of this lease the office premises were rented on a monthly basis and classified as a short-term lease with the payments treated on a straight-line basis as an expense in profit or loss. 20. 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 21. (c) Key management personnel compensation Short-term benefits Post-employment benefits Long-term benefits Share-based payments 452,697 17,216 2,306 3,316 475,535 378,160 21,904 (6,382) 7,911 401,593 Detailed remuneration disclosures are provided in the remuneration report within the Directors’ Report. 38 30 JUNE 2021 21 RELATED PARTY TRANSACTIONS (cont’d) (d) Transactions and balances with other related parties Transactions with key management personnel are disclosed below: • • • The Company had a lease agreement for a vehicle relating to an associate of Mr Marshall. The value of the lease payments for the year was $1,197 (2020: $14,364) and this total plus related FBT contribution was taken from Mr Marshall’s gross salary as a deduction for the year. DWCorporate Pty Ltd, a business of which Mr Wilkins is principal, provided bookkeeping and accounting services to the Key Petroleum Group during the year. The amounts paid of $21,274 (2020: $21,787) were on arm’s length commercial terms and are disclosed in the remuneration report in conjunction with Mr Wilkins’ compensation. At 30 June 2021 there was $17,466 (2020: $11,951) owing to DWCorporate Pty Ltd. Interest payments totalling $6,301 (2020: nil) were made to ASF Group Limited and a total of nil (2020: $30,000) was paid to ASF Capital Pty Ltd, businesses of which Min Yang and Geoff Baker are directors. ASF Group Limited provided the Group with an unsecured loan during the year, refer to Note 12 for details. ASF Capital Pty Ltd provided corporate advisory services to the Group during the 2020 financial year. The amounts paid were at usual commercial rates. 21. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(b): Name Country of Incorporation Class of Shares Equity Holding (1) Key Petroleum (Australia) Pty Ltd Key Cooper Basin Pty Ltd Key Petroleum Services Pty Ltd Key Midwest Pty Ltd Key Perth Basin Investments Pty Ltd (2) Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary (1) The proportion of ownership interest is equal to the proportion of voting power held. 2021 % 100 100 100 100 100 2020 % 100 100 100 100 - (2) Key Perth Basin Investments Pty Ltd was incorporated on 14 September 2020 with Key Petroleum Limited the sole shareholder. The sole activity of Key Perth Basin Investments Pty Ltd since incorporation has been to act as the nominee holder of the investment in Pilot Energy Limited received as consideration for the sale of the Group’s 40% interest in the WA-481-P permit. 22. EVENTS OCCURRING AFTER THE REPORTING DATE On 29 July 2021 the Group drew down a further $50,000 on the ASF Group Limited unsecured loan in accordance with the terms as disclosed at Note 12. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. 39 30 JUNE 2021 23. 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 (c) Information on the classification of options 2021 $ 2020 $ (2,233,603) (145,922) Number of shares Number of shares 1,967,928,126 1,718,902,416 As the Group made a loss for the year ended 30 June 2021, the options on issue were considered anti-dilutive and were not included in the calculation of diluted earnings per share. The options currently on issue could potentially dilute basic earnings per share in the future. 24. SHARE-BASED PAYMENTS (a) Employees and contractors’ options The Group provides benefits to employees (including Directors) and contractors of the Group in the form of share-based payment transactions, whereby options to acquire ordinary shares are issued as an incentive to improve employee and shareholder goal congruence. The exercise prices of the options granted and on issue at 30 June 2021 are 1.3 cents per option, with expiry dates ranging from 24 August 2022 to 27 March 2023. 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: 2021 2020 Number of options Weighted average exercise price cents Number of options Weighted average exercise price cents Outstanding at the beginning of the year 25,500,000 1.46 25,500,000 1.46 Granted Forfeited/cancelled Exercised Expired / lapsed Outstanding at year-end Exercisable at year-end - - - (20,000,000) 5,500,000 5,500,000 - - - 1.50 1.30 1.30 - - - - 25,500,000 25,500,000 - - - - 1.46 1.46 The weighted average remaining contractual life of share options outstanding at the end of the financial year was 1.3 years (2020: 0.8), and the exercise prices are 1.3 cents. There were no options granted during the 2021 or 2020 financial years. (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. The performance rights granted to directors and on issue at 30 June 2021 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. 40 30 JUNE 2021 24 SHARE BASED PAYMENTS (cont’d) Set out below are summaries of the performance rights granted: Outstanding at the beginning of the year 4,000,000 4,000,000 2021 $ 2020 $ Granted Forfeited/cancelled Exercised Expired Outstanding at year-end There were no performance rights granted during the 2021 or 2020 financial years. (c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year were as follows: Options and performance rights issued to or vesting with employees and contractors - (4,000,000) - - - - - - - 4,000,000 3,316 3,316 10,509 10,509 25. PARENT ENTITY INFORMATION The following information relates to the parent entity, Key Petroleum Limited, at 30 June 2021. 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 Non-current liabilities Total liabilities Issued capital Share-based payments reserve Accumulated losses Total equity Loss for the year Total comprehensive income The parent entity is responsible for the contingent liabilities outlined in Note 18. The parent entity is responsible for funding the commitments outlined in Note 19. Interests in subsidiaries are set out in Note 21. 41 28,802 2,503,091 2,531,893 347,638 5,921 353,559 684,346 4,269,672 4,954,018 352,544 5,574 358,118 42,515,302 42,515,302 32,950 756,674 (40,369,918) (38,676,076) 2,178,334 4,595,900 (2,420,882) (2,420,882) (537,623) (537,623) 30 JUNE 2021 26. FINANCIAL RISK MANAGEMENT 2021 $ 2020 $ 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 9 as detailed in the accounting policies to these financial statements, are as follows: Financial Assets Cash and cash equivalents Loans and receivables Financial assets at fair value through profit or loss Total Financial Assets Financial Liabilities Trade payables Total Financial Liabilities (a) Market risk (i) Price risk 45,903 37,076 1,344,000 1,426,979 87,599 87,599 642,193 268,435 - 910,628 166,569 166,569 The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified in the statement of financial position at fair value through the profit and loss. The Group is not exposed to commodity price risk. At the reporting date, the Group has investments in ASX listed equity securities. Sensitivity analysis The Group’s equity investments are listed on the Australian Stock Exchange (ASX) and are all classified at fair value through the profit or loss. At 30 June 2021, if the value of the equity investments held had increased/decreased by 15% with all other variables held constant, post tax loss for the Company would have been $201,600 lower/higher (2020: n/a) as a result of gains/losses on the fair value of the financial assets. (ii) Interest rate risk The Group is exposed to movements in market interest rates on cash and cash equivalents. The Group policy is to monitor the interest rate yield curve out to six months to ensure a balance is maintained between the liquidity of cash assets and the interest rate return. The entire balance of cash and cash equivalents for the Group $45,903 (2020: $642,193) is subject to interest rate risk. The weighted average interest rate received on cash and cash equivalents by the Group was 2.5% (2020: 0.1%). Sensitivity analysis At 30 June 2021, if interest rates had changed by -/+ 50 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 $901 lower/higher (2020: $3,597 lower/higher) as a result of lower/higher interest income from cash and cash equivalents. (b) Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is minimised by investing surplus funds in financial institutions that maintain 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. 42 30 JUNE 2021 (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 management’s 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 2021 $ 2020 $ 2021 $ 2020 $ 2021 $ 2020 $ Financial liabilities due for payment Trade payables (excluding estimated annual leave) Borrowings Lease liabilities 87,599 166,569 200,000 - 2,127 26,369 Total contractual outflows 289,726 192,938 Financial assets – cash flows realisable Cash and cash equivalents Trade and loan receivables Total anticipated inflows Net (outflow)/inflow on financial instruments (c) Fair value estimation 45,903 37,076 82,979 642,193 268,435 910,628 - - 2,346 2,346 - - - - - 4,305 4,305 - - - 87,599 166,569 200,000 - 4,473 30,674 292,072 197,243 45,903 37,076 82,979 642,193 268,435 910,628 (206,747) 717,690 (2,346) (4,305) (209,093) 713,385 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. 27. SEGMENT INFORMATION Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. During the period, the Group is managed primarily based on one segment being oil and gas exploration in Australia. 43 30 JUNE 2021 28. COMPANY DETAILS The registered office of the company is: Key Petroleum Limited Level 1 100 Havelock Street WEST PERTH WA 6005 The principal place of business is: Key Petroleum Limited Level 1 100 Havelock Street WEST PERTH WA 6005 44 DIRECTORS' DECLARATION In the directors’ opinion: (a) the financial statements and notes set out on pages 16 to 44 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 2021 and of its performance for the financial year ended on that date; (b) 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 (c) 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. Geoff Baker Non-Executive Chairman Perth, 28 September 2021 45 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 Group”), which comprises the consolidated statement of financial position as at 30 June 2021, 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 Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 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(a)(i). 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 Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1(a)(v) in the financial report, which indicates that the Group incurred a net loss of $2,233,603 during the year ended 30 June 2021. As stated in Note 1(a)(v), these events or conditions, along with other matters as set forth in Note 1(a)(v), indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional 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 Assets and Liabilities classified as held for sale (Note 10) During the year the Company entered into an Agreement with Triangle Energy (Global) Limited to dispose of its 50% participating interest in L7 and its 86.94% interest in EP437. As a result the assets and associated liabilities were classified as held for sale as at balance date. We considered this as a key audit matter the because of transactions. the size and nature of Capitalised Exploration Costs (Note 10) Our procedures included, amongst others: • Reviewing the Sale Agreement; • Assessing the transactions to ensure the balance was recorded at the lower of its carrying amount and fair value less costs to sell; and • Assessing the appropriateness of the financial the in related disclosures statements. At balance date, exploration costs are carried at $1,346,177 the Group’s capitalised Our audit procedures included but were not limited to: The recognition and recoverability of the capitalised exploration costs was considered a key audit matter due to: • The carrying value of capitalised exploration a costs significant asset of the Group, we considered to assess it necessary facts and circumstances whether represents • 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 for a sample of permits and licenses; • Testing to capitalised exploration costs for the year the Group’s additions Key Audit Matter How our audit addressed the Key Audit Matter existed to suggest the carrying amount of the this asset may exceed recoverable amount; and • Determining whether impairment involves significant indicators exist judgement by management. for by evaluating a sample of recorded expenditure to underlying records, the capitalisation requirements of the Group’s accounting policy and the requirements of AASB 6; consistency • By testing the status of the Group’s tenure and planned future activities, reading board minutes and discussions with management we assessed each area of interest for one or more of the following that may indicate impairment of the capitalised exploration costs: circumstances o The licenses for the rights to explore expiring in the near future or are not expected to be renewed; o Substantive expenditure for further exploration in the area of is not budgeted or interest planned; o Decision or intent by the Group to discontinue activities in the specific area of interest due to lack of commercially viable quantities of resources; and o Data indicating that, although a development in the specific area is likely to proceed, the carrying amount of the exploration asset is unlikely to be recorded in full from successful development or sale; and • Assessing the appropriateness of the financial the in related disclosures statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021, 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(a)(i), 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 Group’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 Group 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. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group 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 2021. 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. Auditor’s Opinion In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. HALL CHADWICK WA AUDIT PTY LTD DOUG BELL CA Partner Dated this 28th day of September 2021 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 23 September 2021. (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 The number of equity security holders holding less than a marketable parcel of securities are (minimum $500.00 parcel at $0.0035 per unit – minimum parcel size 142,858): (b) Twenty largest shareholders The names of the twenty largest holders of quoted ordinary shares are: Number of holders Number of shares % of shares Ordinary shares 68 86 121 616 845 12,170 278,620 1,089,138 31,508,700 1,935,039,498 1,736 1,967,928,126 0.00 0.01 0.06 1.60 98.33 100.00 987 44,749,203 2.27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BNP PARIBAS NOMS PTY LTD ASF OIL & GAS HOLDINGS PTY LTD CITICORP NOMINEES PTY LIMITED GREAT SCHEME INVESTMENTS LIMITED START GRAND GLOBAL LIMITED RENOWN CAPITAL HOLDINGS LTD GRANBOROUGH PTY LTD YUCAJA PTY LTD MR MARC FERGUSON ROWE MR ANDREW CHRISTOPHER MAYES HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR LIZHEN REN MR HANIF MIAH MR XUMING QIN BNP PARIBAS NOMINEES PTY LTD MR KENNETH RAYMOND PETTIT MINSK PTY LTD MR TENDAI RONALD MUCHEMWA + MS SINEAD GEORGE MRS MARGARET ANN RYAN + MR MICHEAL RODNEY RYAN MR ROBERT JOHN SUNSHINE PHILLIPS Listed ordinary shares Number of shares Percentage of ordinary shares 283,022,808 225,372,940 224,869,210 178,125,000 170,000,000 32,500,000 30,000,000 25,016,017 22,608,896 22,000,000 20,918,094 17,307,926 15,000,000 12,500,000 12,197,970 12,000,000 11,898,365 10,730,287 10,350,000 9,000,000 14.38 11.45 11.43 9.05 8.64 1.65 1.52 1.27 1.15 1.12 1.06 0.88 0.76 0.64 0.62 0.61 0.60 0.55 0.53 0.46 1,345,417,513 68.37 52 ASX ADDITIONAL INFORMATION (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: BNP Paribas Noms Pty Ltd ASF Oil & Gas Holdings Pty Ltd Citicorp Nominees Pty Limited Great Scheme Investments Limited Start Grand Global Limited (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Number of Shares 283,022,808 225,372,940 224,869,210 178,125,000 170,000,000 (e) Schedule of interests in petroleum blocks Location Australia – Onshore Australia – Onshore Australia – Onshore (f) Unquoted Securities Class 1.3 cent Options, Expiry 24 August 2022 1.3 cent Options, Expiry 27 March 2023 Block EP 437 L7 ATP 783/920/924 Percentage held/earning 86.94% 50.00% 100.00% Holders of 20% or more of the class Number of Securities Number of Holders 4,500,000 1,000,000 1 1 Holder Name Number of Securities R Jason M Armitage 4,500,000 1,000,000 53 

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