Po Valley Energy Limited
Annual Report 2004

Plain-text annual report

P O V A L L E Y E N E R G Y L I M I T E D ABN 33 087 741 571 A N N U A L R E P O R T 2 0 0 4 P O V A L L E Y E N E R G Y L I M I T E D A N N U A L R E P O R T 2 0 0 4 Po Valley Energy is listed on the Australian Stock Exchange under the symbol PVE. The Company focuses on developing existing but undeveloped shallow, onshore gas fi elds in the Po Valley area in Northern Italy; a prolifi c hydrocarbon province which has produced over 25 tcf of gas since discovery in the late 1940s. For 50 years the Po Valley hydrocarbon province was a monopoly of the then State Oil Company ENI, now one of the 10 largest global oil and gas producers. Following the break-up of ENI’s monopoly and the liberalisation of the Italian gas market, Po Valley Energy entered the province in 1998 through its 100% owned subsidiary, North Sun Italia. Produced by: 0410 435 659 C O R P O R AT E D I R E C T O R Y DIRECTORS Graham Bradley, Chairman Michael Masterman, Executive Director AUDITOR KPMG Central Park David McEvoy, Non-Executive Director 152-158 St. Georges Terrace Byron Pirola, Non-Executive Director Perth WA 6000 COMPANY SECRETARY Dom Del Borrello REGISTERED OFFICE Level 28, 140 St. Georges Terrace BANK ANZ Banking Corporation Level 7, 77 St George's Terrace Perth WA 6000 Perth WA 6000 STOCK EXCHANGE LISTING Telephone: (08) 9278 2533 Po Valley Energy Limited shares are listed on the Australian Stock Exchange under the code PVE. The Company is limited by shares, incorporated and domiciled in Australia. SHARE REGISTRY ASX Perpetual Registrars Limited Level 8, 580 George Street Sydney NSW 2000 Telephone: (02) 8280 7424 SOLICITOR Steinepreis Paganin Level 4, Next Building 16 Milligan Street Perth WA 6000 I N D E X 1. CHAIRMAN'S LETTER TO SHAREHOLDERS 2. MANAGING DIRECTOR'S REPORT 3. CORPORATE GOVERNANCE STATEMENT 4. DIRECTORS’ REPORT 3 4 9 13 5. STATEMENTS OF FINANCIAL PERFORMANCE 17 6. STATEMENTS OF FINANCIAL POSITION 7. STATEMENTS OF CASHFLOW 8. NOTES TO THE FINANCIAL STATEMENTS 9. DIRECTORS’ DECLARATION 10. INDEPENDENT AUDIT REPORT 11. SHAREHOLDER INFORMATION 18 19 20 40 41 44 C H A I R M A N ' S L E T T E R T O S H A R E H O L D E R S Dear Shareholder On behalf of the Board of Directors of Po Valley Energy I am pleased to present the fi rst Annual report of the Company since listing on the Australian Stock Exchange on 14 December 2004. Since that time the Company has made solid progress against the initiatives set out in the prospectus. As this report goes to press we have commenced drilling activities at the fi rst of the new gasfi eld developments in the Po Valley and 2005 promises to be a very active year for the Company. During 2004 the major milestones achieved were the successful drilling of our Santa Maddalena fi eld north of Bologna and the raising of $20m in the Initial Public offering of Po Valley Energy. 2005 should see the drilling of three new wells, the advancement of Santa Maddalena towards production and commercial sales, and we expect to make progress in evaluating the Company's exploration areas to assess their potential, Graham Bradley identify drilling targets and secure necessary approvals to begin further drilling in 2006. I would like to thank our executive team for their hard work in preparing the Company for public listing, and for laying the groundwork for our 2005 drilling program. I would also like to thank my fellow directors for their contribution to the Company's achievements over the past year. Yours faithfully Graham Bradley Chairman 13th April 2005 H I G H L I G H T S (cid:127) Successfully drilled Santa Maddalena with Joint Venture partner Edison Gas (cid:127) Raised $22.7m in capital (cid:127) Listed on the Australian Stock Exchange (cid:127) Primed the Sillaro and Vitalba gas fi elds for development in 2005 (cid:127) Assumed operator ship and 100% ownership of the Casone della Sacca Licence area (cid:127) Upgraded the Pandino and Clodo projects to development status (cid:127) Increased 2P reserves by 71% to 105.6 bcf M A N A G I N G D I R E C T O R ' S R E P O R T Italian Gas Market The Po Valley in Northern Italy has historically been a prolific hydrocarbon province. Over 23tcf of gas has been produced from the province since it was brought into production in the early 1950s – this is over three times the production of Australia’s Northwest Shelf. Current production levels in the province are some 476bcf per annum, which is similar to the levels of the Northwest Shelf. The gas province sits immediately below one of the largest and highest priced gas consumption regions in Europe. Total gas consumption in Italy in 2004 was 2.7tcf – four times the size of Australia – and has been growing at a rapid rate of 5% per annum. Imports accounts for over 80% of supply. The combination of comparatively rapid demand growth and declining domestic production has significantly tightened import capacity. Prices are high by world standards (approximately A$8.00/’000cf) and have been steadily increasing over the last three years. Michael Masterman PO VALLEY GAS PROVINCE IN PERSPECTIVE Cumulative Production Billions of cubic ft 25,000 20,000 15,000 10,000 5,000 0 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 Annual Production Billions of cubic ft 800 700 600 500 400 300 200 100 0 Po Valley 22,809 Bcf North West Shelf 7,386 Bcf North West Shelf 635 Bcf Po Valley 476 Bcf 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 4 P O V A L L E Y E N E R G Y A N N U A L R E P O R T M A N A G I N G D I R E C T O R ' S R E P O R T M A N A G I N G D I R E C T O R S R E P O R T Po Valley Licences PVE has 4 licences and one licence application in the Po Valley region. Following the acquisition of the 45% interest in Casone della Sacca held by ENI, the Company owns 100% of Cascina San Pietro, Casone della Sacca, Crocetta and Terra del Sol and, in joint venture with Edison Gas 50% of San Vincenzo licence areas. Vitalba Pandino Santa Maddalena Sillaro PO VALLEY ENERGY LTD ITALY PERMIT LOCATION Santa Maddalena – San Vincenzo Licence (50% PVE) Santa Maddalena #1 was successfully drilled in June 2004 at a depth of 1005 metres. The well was cased to a depth of 1,005 metres and was completed with a single production string and gravel packing covering 16.5 metres in July 2004. A 6 day production test was carried out in July 2004 that indicated an initial daily production rate of 4mcf for each of the two levels tested with no liquids and high permeability (~900md). Under Italian law the current exploration licence has to be upgraded to a production licence and an application has been prepared for submission. Grant of the production concession application is expected in the second half of 2005. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 5 M A N A G I N G D I R E C T O R ' S R E P O R T Vitalba – Cascina san Pietro Licence (100% PVE) Vitalba, 23 kms to the east of Milan will be the first of the Company’s projects to be drilled since listing. The Vitalba gas field has 3P reserves of 8.6bcf of gas. Civil works are complete and drilling will commence in April 2005. Sillaro – Crocetta Licence (100% PVE) Sillaro is PVE’s largest gas field and it is located 23 km east of Bologna. The field contains estimated 3P reserves of 53.4bcf in two reservoirs at 2000m and 2500m . The field will be drilled following the drilling of Vitalba in the 2nd quarter of 2005 with a second well expected to be drilled later in the year. Drilling at Santa Maddalena SILLARO WELL CORRELATION AND GAS BEARING LAYERS 6 P O V A L L E Y E N E R G Y A N N U A L R E P O R T M A N A G I N G D I R E C T O R ' S R E P O R T PANDINO ANTICLINE STRUCTURE Pandino – Cascina san Pietro Licence (100% PVE) Pandino in the Cascina san Pietro Licence is a major new addition to the Company’s development portfolio. Following an exhaustive review of the historic data, geological and reservoir modelling, Pandino has been upgraded to development status and is expected to be drilled in 2006. The field was first developed by ENI in 1955. Estimated 3P reserves are 45.3bcf. Two well locations have been selected for drilling and PVE has initiated the process of applying for the necessary environmental approvals for the planned drilling program. Clodo and Marleba – Casone della Sacca Licence (100% PVE) The Casone della Sacca Licence is located 30km to the west of Bologna and holds the Clodo (formerly Bando) gasfield and the Marlerba prospect. PVE reached an agreement with ENI to take over ownership and ENI’s 45% interest in the Licence area. PVE has selected drill targets in Clodo and Marlerba and expects to drill one of these prospects in 2006. Terre del Sole (100% PVE) The company is undertaking prepatory environmental study work in order to be granted environmental approvals. Gas Reserves The total 3P gas reserves of PVE have increased to 129.6bcf from 84.2bcf in the November 2004 prospectus following the extensive review and upgrade to development status of the Pandino project. The reserves on a PVE equity basis are set out below: Field Permit PVE Interest Proven Probable Possible Total Santa Maddalena San Vincenzo Crocetta 50% 100% Cascina san Pietro 100% 6.50 0.00 3.60 Cascina san Pietro 100% 15.20 7.10 38.90 5.10 29.20 8.60 14.50 0.00 0.90 22.20 53.40 8.60 45.30 Sillaro Vitalba Pandino Total 25.30 80.30 24.00 129.60 P O V A L L E Y E N E R G Y A N N U A L R E P O R T 7 M A N A G I N G D I R E C T O R ' S R E P O R T Finance During 2004 the Company raised a total of $22.7 million through seed issues and the $20 million IPO in December. Funds have been used to drive forward development of the Company and it’s gasfields and prospects. Details are set out in the attached statement of Financial Performance. Cash at bank at 31 December 2004 was $18.03m. The Company's pre-drilling preparation work is running according to budget and broadly in line with prospectus estimates. Management The Company has put in place during 2004 a management team with the skills and experience necessary for the Company at this stage of it’s development. The key executives provide the breadth of skills needed to achieve the short and long-term objectives of the company. As PVE moves from development into production and operations, the Company will review and expand the number and skill mix of management as required. Conclusion Following the ground work laid in 2004, PVE starts 2005 well capitalized with a solid and growing development portfolio of gasfield assets located in a highly prospective and commercially attractive market. Market conditions are exceptionally strong and the core objective of the Company will be to drive its projects forward to gas production and sales. Michael Masterman Managing Director and Chief Executive Officer 13th April 2005 8 P O V A L L E Y E N E R G Y A N N U A L R E P O R T C O R P O R A T E G O V E R N A N C E S T A T E M E N T The Directors are committed to the principles underpinning the best practice in corporate governance. The Directors have noted carefully the recent guidance on the principles of corporate governance issued by the ASX. The Directors support the intent of these principles, noting that some recognition is required in their practical application given the limited size and scope of the Company at this time. The Directors’ overriding objective is to increase shareholder value within an appropriate framework that protects the rights and enhances the interests of Shareholders and ensures the Company is properly managed. A description of the Company’s main corporate governance practices is set out below. The Board The board ultimately takes responsibility for corporate governance and operates in accordance with the Company’s Constitution. Directors are initially appointed by the board subject to election by Shareholders at the next annual general meeting with one-third of the board being subject to re-election at each subsequent annual general meeting. The board comprises four directors; three non-executive directors and one executive director (the CEO). Two directors, including the Chairman, are independent non-executive directors. The board believes that this is an appropriate composition for a company at this stage of its development. Directors have the right, in connection with their duties and responsibility as Directors, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required which will not be unreasonably withheld. The board accepts that it has the responsibility for internal control procedures within the Company. Compliance with these procedures covering financial reporting, quality and integrity of personnel and operation control is to be regularly monitored. A number of areas are to be subject to regular reporting to the board such as finance, trade practices, industrial relations, environmental compliance, workplace health and safety and insurance matters. All Directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company. Audit and Risk Committee The Audit and Risk Committee provides advice and assistance to the board in fulfilling the board’s responsibilities relating to the Company’s financial statements, financial and market reporting processes, internal accounting and financial control systems, internal audit, external audit, risk management and such other matters as the board may request from time to time. Responsibilities (cid:127) Standards and Quality: The Committee oversees the adequacy and effectiveness of the Company’s accounting and financial policies and controls, and risk management systems, including periodic discussions with management and external auditors, and seeks assurance of compliance with relevant regulatory and statutory requirements. (cid:127) Financial Reports: The Committee oversees the Company’s financial reporting process and reports on the results of its activities to the board. Specifically, the Committee reviews, with management and the external auditor, the Company’s annual and interim financial statements and reports to Shareholders, seeking assurance that the external auditor is satisfied with the disclosures and content of those financial statements. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 9 C O R P O R A T E G O V E R N A N C E S T A T E M E N T (cid:127) External Audit: The Committee discusses with the external auditors the overall scope and plans for their audit activities, including staffing, contractual arrangements and fees. It reviews all audit reports provided by the external auditor. The Committee also specifically reviews any proposed activity or service by the providers of the external audit unrelated to external audit assurance activities. The external auditor will be requested to attend annual general meetings, and be available to answer questions from the shareholders. (cid:127) Appointment of External Auditor: The board appoints the external auditor. The Committee reviews the performance of the external auditor annually, and can recommend to the board any changes to selection it deems appropriate. (cid:127) Internal Control: The Committee examines the adequacy of the nature, extent and effectiveness of the internal control processes of the Company. (cid:127) Risk Management: The Committee oversees the risk management framework of the Company, and reviews risk management reports. Processes (cid:127) Communications: The Committee maintains free and open communications with the external auditors and management. (cid:127) Reporting: The issues discussed at each Committee meeting are reported at the next board meeting. (cid:127) Access: In exercising its oversight role, the Committee may investigate any matter relevant to its charter or relating to its role and scope, and for this purpose has full access to the Company’s financial reporting and practices. (cid:127) Charter: The Committee reviews and reassesses this Charter at least annually, and recommends any changes it considers appropriate to the board. The Committee may also undertake any other special duties as requested by the board. The current members of the committee are: Byron Pirola (Chairman), Graham Bradley and David McEvoy. 10 P O V A L L E Y E N E R G Y A N N U A L R E P O R T C O R P O R A T E G O V E R N A N C E S T A T E M E N T Remuneration Committee The Remuneration Committee must have a majority of non-executive directors. The main role of the Remuneration Committee is to: (cid:127) review the performance and remuneration of the Chief Executive Officer, and in conjunction with the Chief Executive Officer, review the engagement, performance and remuneration of senior executives of the Company; and (cid:127) recommend to the board appropriate terms and conditions of engagement and remuneration of Directors within the aggregate limits approved by Shareholders. In assessing the performance of the Chief Executive Officer and senior executives, the Committee gives considerable weight to the contribution of the employee towards the achievement of key performance indicators of the Company. Where necessary the committee can obtain external advice in respect to the structure and level of remuneration packages. The current members of the committee are Graham Bradley (Chairman) and Byron Pirola. Nominations Committee The role of the Nominations Committee is to provide recommendations to the board on matters including: (cid:127) composition of the board and competencies of board members; (cid:127) appointment and evaluation of the Chief Executive Officer; (cid:127) succession planning for board members and senior management; and (cid:127) processes for the evaluation of the performance of the Chief Executive Officers and Directors. The current members of the committee are Graham Bradley (Chairman) and Byron Pirola. Standards and Codes of Conduct All executives and employees are required to abide by laws and regulations, to respect confidentiality and the proper handling of information and act with the highest standards of honesty, integrity, objectivity and ethics in all dealings with each other, the Company, customers, suppliers and the community. The codes of conduct will be regularly reviewed and updated as necessary to ensure they reflect the highest standards of behaviour and professionalism. Continuous disclosure The Directors are committed to keeping the market fully informed of material developments to ensure compliance with the Listing Rules and the Corporations Act. At each board meeting specific consideration is to be given as to whether any matters should be disclosed under the Company’s continuous disclosure policy. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 11 C O R P O R A T E G O V E R N A N C E S T A T E M E N T Share Trading Directors, management and other employees as nominated will normally be permitted to trade in securities during an eight week period commencing two business days after the announcement to ASX of the half yearly and annual results and after the conclusion of the Company’s annual general meeting, provided that the person is not in possession of price sensitive information and the trading is not for short term or speculative gain. Any trading outside these periods can only be conducted with the prior written approval of the Chairman. Related party matters Directors and senior management will be required to advise the Chairman of any related party contract or potential contract. The Chairman will inform the board and the reporting party will be required to remove himself/herself from all discussions and decisions involving the matter. The board may, when appropriate, take further steps to avoid conflicts of interest in related party matters. Shareholder relations The Directors aim to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the Company. Information on all major developments affecting the company is to be communicated to the shareholders through: (cid:127) the Annual Report; (cid:127) half yearly reports; (cid:127) the Annual General Meeting and other meetings called to obtain approval for board action as appropriate; and (cid:127) the Company’s web site. 12 P O V A L L E Y E N E R G Y A N N U A L R E P O R T D I R E C T O R S ' R E P O R T D I R E C T O R S ' R E P O R T The directors present their general purpose financial report on the consolidated entity of Po Valley Energy Limited (formerly Po Valley Energy Pty Limited) and the entities it controlled at the end of, or during, the year ended 31 December 2004. The following persons were directors of Po Valley Energy Limited (“PVE” or “the Company”) during the financial year, and up to the date of this report:- G Bradley D McEvoy D Del Borrello1 M Masterman B Pirola (1) Mr D Del Borrello resigned as a Director of the Company on 30/9/2004. Principal Activities The principal continuing activity of the group in the course of the year was the exploration for gas in the Po Valley region in Italy. Operating Results The consolidated loss of the consolidated entity after income tax amounted to $1,044,700. During 2004, the Company successfully drilled the Santa Maddalena #1 well in conjunction with joint venture partner Edison Gas S.p.A in the San Vincenzo licence. Civil works and purchase of casing equipment commenced late in 2004 in preparation to drill the Sillaro wells in the Crocetta Licence and the Vitalba well in the Cascina San Pietro Licence. The Company successfully completed an Initial Public Offering (“IPO”) on 14 December 2004 raising $20,000,000. Net cash received from the IPO was $18,879,082. Dividends The directors report that during the year ended 31 December 2004 no dividends were declared or paid. Information on Directors The board is composed of a majority of non-executive Directors, including the Chairman. The Chairman of the board is elected by the board and is an independent director. Graham Bradley — Chairman BA, LLB (Hons), LLM, FAICD, Age 56 Graham joined PVE as a director and Chairman in September 2004 and is based in Sydney. He is an experienced chief executive and company director. Graham previously served as Chief Executive Officer of one of Australia’s major listed funds management and financial services groups, Perpetual Trustees Australia. He was formerly Managing Partner and Chief Executive Officer of national law firm Blake Dawson Waldron and was a senior partner of McKinsey & Company. Mr Bradley is currently a director of Stockland Corporation, Singapore Telecommunications, MBF Australia and Queensland Investment Corporation. He is Chairman of HSBC Bank Australia, Proteome Systems and Film Finance Corporation Australia. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 13 D I R E C T O R S ' R E P O R T Michael Masterman — Managing Director and CEO, BEcHons, Age 42 Michael is a co-founder of PVE and is based in Europe. Michael took up the position of Executive Chairman and CEO of PVE and Northsun Italia S.p.A. in 2002. Prior to joining PVE he was CFO and Executive Director of Anaconda Nickel (now Minara Resources). Michael oversaw the financing of the US$1 billion Murrin Murrin Nickel and Cobalt project in Western Australia, involving the negotiation of a US$220m joint venture agreement with Glencore International and the raising of US$420m in project finance from a US capital markets issues – the first of its kind for a green fields mining project. Prior to joining Anaconda Nickel, he spent 8 years at McKinsey & Company serving major international resources companies principally in the area of strategy and development. He is also Executive Chairman of Caspian Holdings Plc, an AIM listed company with oil interests in Kazakhstan. David McEvoy — Non Executive Director, BSc, Grad Diploma (Appl. Geophysics), Age 58 David joined PVE as a Director in September 2004 and is based in Sydney. He has over 35 years experience in the oil and gas industry since joining Esso Australia Limited in 1969. Key positions held within Exxon affiliates included Esso Australia Limited’s Exploration General Manager, Exploration and Development Vice President for Esso Resources Canada and Regional Vice President of Exxon Exploration Company responsible for Exxon’s exploration activities in the Far East, USA, Canada and South America. He was recently the Business Development Vice President and member of the Management Committee of Exxon (subsequently ExxonMobil) Exploration Company, responsible for new exploration and development opportunities worldwide. He is currently a Non-Executive Director of Innamincka Petroleum. Byron Pirola — Non Executive Director, BSc, PhD, Age 44 Byron is a co-founder of PVE and is based in Sydney. He is currently a Director of Port Jackson Partners Limited, a Sydney based strategy management consulting firm. Prior to joining Port Jackson Partners in 1992, Byron spent six years with McKinsey & Company working out of the Sydney, New York and London Offices and across the Asian Region. He has extensive experience in advising CEOs and boards of both large public and small developing companies across a wide range of industries and geographies. Meeting of Directors The number of formal meetings of the Board of Directors held during the financial year and the number of meetings attended by each director is provided below: No. of board meetings held meetings eligible meetings attended No. of board No. of board No. of Audit Committee No. of Audit Committee meetings held meetings attended 6 12 6 12 1 1 1 1 1 1 1 - 1 1 - G Bradley M Masterman D McEvoy B Pirola D Del Borrello 12 12 12 12 12 to attend 6 12 6 12 1 14 14 P O V A L L E Y E N E R G Y P R O S P E C T U S P O V A L L E Y E N E R G Y A N N U A L R E P O R T D I R E C T O R S ' R E P O R T Subsequent Events Since 31 December 2004, the consolidated entity has undertaken the following significant events: (cid:127) Commencement of civil works and acquisition of key well equipment for the Sillaro and Vitalba gas fields. Likely Developments During 2005 PVE intends to drill its Vitalba and Sillaro Gas fields and bring its Santa Maddalena gas field into production. Vitalba and Sillaro will be drilled in the second quarter of 2005. PVE and its joint venture partner Edison Gas S.p.A (“Edison”) are progressing development of Santa Maddalena. The Company will continue the program of scoping it’s reserves and identifying drill sites for it’s exsiting licence areas. In addition to the above exploration and development activities, the Company is pursuing an active program to acquire by application new gas fields and exploration prospects in the Po Valley Hydrocarbon region. Environmental Regulation The consolidated entity is required to carry out its activities in accordance with regulations determined by both Italian National and regional entities in the areas in which it undertakes its exploration, development and production activities. The consolidated entity is not aware of any matter which requires disclosure with respect to any significant environmental regulation in respect of its operating activities. Share Options Details of share options over ordinary shares issued during the year and on issue at 31 December 2004 are set out in Note 19 to the Financial Statements and form part of this report. Directors’ Interests At the date of this report, the direct and indirect interests of the Directors in the shares and options of the Company were: Options over Ordinary Shares Ordinary Shares G Bradley 323,981 M Masterman 21,339,242 D McEvoy B Pirola J Masterman1 I Masterman1 G Masterman1 129,593 12,010,821 4,788,444 500,000 388,778 (1) Related parties to M Masterman Directors’ and Officers’ Remuneration $1.00 expiring 31 October 08 1,000,000 – 500,000 200,000 – – – $1.25 expiring 31 October 08 – 1,500,000 – – – – – The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the Directors, the Chief Executive Officer and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount of entitlements of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 15 D I R E C T O R S ' R E P O R T Executive directors and senior executives may receive bonuses based on the achievement of specific goals related to the performance of the consolidated entity (including operational results and cash flow). Options may also be issued although the ability to exercise the options is conditional on the Company achieving certain performance hurdles. Details of the nature and amount of each major element of the remuneration provided to each director and officer of the Company and the consolidated entity during the financial year are as follows: Salary & Fees Bonus $ $ Superannuation benefits $ Number Value of Options of Options $ Total $ Specified directors G Bradley (Chairman) 2004 15,000 D McEvoy B Pirola 2004 10,000 2004 10,000 M Masterman (CEO) 2004 152,000 Specified executives D Greil 2004 57,804 D Del Borrello 2004 5,000 - - - - - - 1,350 1,000,000 292,500 308,850 900 900 500,000 146,250 157,150 200,000 58,500 69,400 - - - 1,500,000 61,128 213,128 900,000 36,677 94,481 150,000 6,113 11,113 Further details of Director and Executive Remuneration are set out in Note 17 to the Financial Statements and form part of this report. Annual General Meeting The Annual General Meeting of the Company will be held 10.30am on the 19th May, 2005 at Level 39, Citigroup Centre, 2 Park Street, Sydney NSW. Indemnities and Insurance The Company has agreed to indemnify current Directors against any liability or legal costs incurred by a Director as an officer of the Company or entities within the consolidated entity or in connection with any legal proceedings involving the Company or entities within the consolidated entity which is brought against the director as a result of his capacity as an officer. During the financial year the Company paid insurance premiums ($58,150) in respect of Directors’ and Officers’ Liability insurance contracts. This report has been made in accordance with a resolution of Directors. Graham Bradley Chairman Sydney, NSW Australia 21 March 2005 16 P O V A L L E Y E N E R G Y A N N U A L R E P O R T S T A T E M E N T S O F F I N A N C I A L P E R F O R M A N C E F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 Revenue from ordinary activities Borrowing costs General and administration Exploration expenditure written off Other expenses Loss from ordinary activities before income tax expense Income tax expense Loss from ordinary activities after income tax expense Net loss attributable to members of Po Valley Energy Limited Total changes in equity other than those resulting from Transactions with Owners as Owners NOTES CONSOLIDATED COMPANY 2 3 3 4 2004 $ 195,057 (40,042) 2004 $ 18,970 (38,687) (1,132,856) (724,799) (30,451) (36,408) - (2,208) (1,044,700) (746,724) - - (1,044,700) (746,724) 15 (1,044,700) (746,724) (1,044,700) (746,724) Earnings per share (cents) Diluted earnings per share (cents) 24 24 (7.59) (7.59) The above statements of financial performance should be read in conjunction with the accompanying notes. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 17 17 S T A T E M E N T S O F F I N A N C I A L P O S I T I O N A S A T 3 1 D E C E M B E R 2 0 0 4 NOTES CONSOLIDATED COMPANY 2004 $ 2004 $ Current Assets Cash Receivables Other Assets Total Current Assets Non-Current Assets Investments Receivables Plant & Equipment Resource Property Costs Total Non-Current Assets Total Assets Current Liabilities Provisions Payables Interest Bearing Liabilities Total Current Liabilities Non-Current Liabilities Interest Bearing Liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed Equity Accumulated Losses Parent Entity Interest Total Equity Commitments for Expenditure Contingent Liabilities 18,030,792 523,428 16,561 17,821,432 46,726 – 18,570,781 17,868,158 – – 826,213 11,869,449 10,749,314 1,740,215 – – 12,695,662 12,489,529 31,266,443 30,357,687 21,692 1,939,581 513,160 2,474,433 – – – 393,444 513,160 906,604 – – 2,474,433 906,604 28,792,010 29,451,083 30,276,671 (1,484,661) 30,276,671 (825,588) 28,792,010 29,451,083 28,792,010 29,451,083 5 6 7 8 9 10 11 12 13 13 14 15 25 27 The above statements of financial position should be read in conjunction with the accompanying notes. 18 P O V A L L E Y E N E R G Y A N N U A L R E P O R T S T A T E M E N T S O F C A S H F L O W F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid NOTES CONSOLIDATED COMPANY 2004 $ 44,986 (574,373) 18,991 (3,142) 2004 $ – (419,936) 18,970 – Net cash outflow from operating activities 23 (513,538) (400,966) Cash flows from investing activities Payments for non-current assets Payments for exploration expenditure Payments for investments Amounts advanced to related parties (809,692) (2,088,805) – (3,376) (1,531,571) (1,754,821) Net cash outflow from investing activities (2,901,873) (3,286,392) Cash flows from financing activities Proceeds from the issues of shares Payments for share issue costs Loans received from related parties Repayment of borrowings 22,678,500 (1,120,918) – (66,411) 22,678,500 (1,120,918) – (66,411) Net cash inflow from financing activities 21,491,171 21,491,171 Net increase in cash held 18,075,760 17,803,813 Cash at the beginning of the financial year Effects of exchange rate changes on cash 69,589 (114,557) 42,518 (24,899) Cash at the end of the financial year 5 18,030,792 17,821,432 The above statements of cash flows should be read in conjunction with the accompanying notes P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 19 19 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1.1 FINANCIAL REPORTING FRAMEWORK The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Urgent Issues Group Consensus Views, and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on the basis of historical cost and except where stated, does not take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. 1.2 SIGNIFICANT ACCOUNTING POLICIES Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby, ensuring that the substance of the underlying transactions and other events is reported. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Po Valley Energy Limited (“parent entity”) as at 31 December 2004 and the results of all controlled entities for the year then ended. Po Valley Energy Limited and its controlled entities together are referred to in this financial report as the consolidated entity. A list of controlled entities appears in Note 7. The effects of all transactions between entities in the consolidated entity are eliminated in full. Outside equity interests in the results and equity of controlled entities are shown separately in the consolidated statement of financial performance and statement of financial position respectively. When control of an entity is obtained during the financial year, its results are included in the consolidated statement of financial performance from the date on which control commences. Joint Ventures A joint venture is either an entity or operation that is jointly controlled by the consolidated entity. Joint Venture Operations The consolidated entity’s interests in unincorporated joint ventures are brought to account by including its proportionate share of joint venture operations’ assets, liabilities and expenses and the consolidated entity’s revenue from the sale of its share of output on a line-by-line basis, from the date joint control commences to the date joint control ceases. 20 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) TAXATION The liability method of tax effect accounting procedures are followed whereby the income tax expense is matched with the accounting profit after allowing for permanent differences. The Company has not entered the tax consolidation regime. Each entity will be taxed on a stand alone basis. Tax losses may not be transferred between group companies and remain with the entity that incurred the loss. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits relating to tax losses are only brought to account when their realisation is virtually certain. The tax effects of capital losses are not recorded unless realisation is virtually certain. (c) CASH For purposes of the statement of cash flows, cash includes short term deposits less bank overdrafts which are readily convertible to cash on hand and which are used in the cash management function on a day-to-day basis. (d) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS Non current assets other than exploration and evaluation expenditure are written down to recoverable amount where the carrying value of any non current asset exceeds recoverable amount. In determining the recoverable amount of non current assets, the expected net cash flows have not been discounted to their present value. (e) PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are recorded at cost and depreciated over their estimated useful lives using the straight line method. The useful lives of each class of asset falls within the following ranges: Office furniture & equipment 2004 3 – 5 years (f) INVESTMENTS Investments in controlled entities are valued in the parent entity’s financial statements at cost less amounts written off for permanent diminution in the value of investments. (g) PAYABLES Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. (h) RESOURCE PROPERTIES Resource property costs are accumulated in respect of each separate area of interest. Resource property costs are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Resource properties include the cost of acquiring and developing resource properties, mineral rights and exploration, evaluation and development expenditure relating to production and exploration areas. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 21 21 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Resource properties are amortised using the unit of production basis over the economically recoverable reserves. Amortisation of resource properties commences from the date when commercial production commences. When there is little likelihood of a mineral right being exploited, or the value of the exploitable mineral right has diminished below cost, the asset is written down to its recoverable amount. Cumulative exploration, evaluation and development expenditure which no longer satisfies the above policy is no longer carried forward as an asset, but is charged against, and shown as a deduction from operating profit. (i) REVENUE RECOGNITION Revenue from the sale of goods (gas) and disposal of other assets is recognised when the consolidated entity has passes control of the goods or other assets to the buyer. Interest revenue Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset. (j) RECEIVABLES Trade receivables and other receivables are recorded at amounts due less any allowance for doubtful debts. The collectibility of debts is assessed at the reporting date and specific provision is made for any doubtful accounts. Bad debts are written off in the period they are identified. (k) EMPLOYEE BENEFITS Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of wages and salaries, annual leave, sick leave, and other employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of other employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date. Superannuation The consolidated entity contributes to superannuation plans. Contributions are recognised as an expense as they are made. (l) COMPARATIVES The Company was not a disclosing entity in the previous year and therefore comparative information has not been disclosed. 22 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) FOREIGN CURRENCY Foreign Currency Transactions All foreign currency transactions during the financial year are brought to account using the monthly average exchange rate. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date. Exchange differences are recognised in net profit or loss in the period in which they arise except exchange differences on transactions entered into in order to hedge the purchase or sale of specific goods and services are deferred and included in the measurement of the purchase or sale. The assets and liabilities of foreign operations, including controlled entities, associates and joint ventures, that are integrated are translated using the temporal method. Monetary assets and liabilities are translated into Australian currency at rates of exchange current at reporting date, while non-monetary items and revenue and expense items are translated at exchange rates current when the transactions occurred. Exchange differences arising on translation are brought to account in the statement of financial performance. In the prior year, Northsun Italia S.p.A., being a controlled entity, was treated as a self-sustaining foreign operation. Foreign Operations The assets and liabilities of foreign operations, including controlled entities, associates and joint ventures, that are integrated are translated using the temporal method. Monetary assets and liabilities are translated into Australian currency at rates of exchange current at reporting date, while non-monetary items and revenue and expense items are translated at exchange rates current when the transactions occurred. Exchange differences arising on translation are brought to account in the statement of financial performance. In the prior year, Northsun Italia S.p.A., being a controlled entity, was treated as a self-sustaining foreign operation. (n) INTEREST-BEARING LIABILITIES Bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accrual basis. (o) ACQUISITION OF ASSETS Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition. When equity instruments are issued as consideration, their market price at date of acquisition is used as fair value. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 23 23 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) PROVISION FOR RESTORATION AND ABANDONMENT A provision for restoration and abandonment costs is accumulated by charging to the statements of financial performance the expected expenditure to be incurred on cessation of each area of interest. The provision is calculated so that at the end of operations the provision will be adequate to meet net restoration and abandonment costs, including the removal of facilities, abandonment of wells and restoration of affected areas. This method recognises the estimated future abandonment restoration and obligations incrementally over the life of the proved and probable reserves on a unit of production basis. Estimates of the future restoration obligation are based on current legal requirements and technology and are determined in current dollars on an undiscounted basis. The adequacy of the provision for restoration and abandonment is reassessed regularly. Changes in cost estimates are dealt with on a prospective basis. (q) EARNINGS PER SHARE Basic earnings per share (“EPS”) is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue. Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue. (r) USE AND REVISION OF ACCOUNTING ESTIMATES The preparation of the financial report requires the making of estimations and assumptions that affect the recognised amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are viewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. (s) INTERNATIONAL FINANCIAL REPORTING STANDARDS For reporting periods beginning on or after 1 January 2005, the consolidated entity must comply with International Financial Reporting Standards (“IFRS”) as issued by the Australian Accounting Standards Board (“AASB”). This financial report has been prepared in accordance with Australian accounting standards and other financial reporting requirements (Australian GAAP). The differences between Australian GAAP and IFRS identified to date as potentially having a significant effect on the consolidated entity’s financial performance and financial position are summarised below. The summary should not be taken as an exhaustive list of all the differences between Australia GAAP and IFRS. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions or events are presented. The consolidated entity has not quantified the effects of the differences discussed below. Accordingly, there can be no assurances that the consolidated financial performance and financial position as disclosed in this financial report would not be significantly different if determined in accordance with IFRS. 24 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The key potential implications of the conversion to IFRS on the consolidated entity are as follows: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) financial instruments must be recognised in the statement of financial position and all derivatives and most financial assets must be carried at fair value; income tax will be calculated based on the “balance sheet” approach, which will result in more deferred tax assets and liabilities and, as tax effects follow the underlying transaction, some tax effects will be recognised in equity; impairments of assets will be determined on a discounted basis, with strict tests for determining whether goodwill and cash-generating operations have been impaired; equity-based compensation in the form of shares and options will be recognised as expenses in the periods during which the employee provides related services; provisions for future restoration and abandonment costs will be recognised as an asset and liability up front; and the AASB has recently released AASB 6 “Exploration for and Evaluation of Mineral Resources” which is not expected to cause significant changes to the Consolidated Entity’s accounting for capitalised exploration and evaluation expenditure. AASB 6 continues to allow an area of interest approach to impairment and the standard effectively permits the grandfathering of existing accounting treatments of exploration and evaluation expenditure. Impairment tests of exploration and evaluation assets will be required once technical feasibility and commercial viability is determinable. The Board has established a formal project, monitored by the Audit and Risk Committee, to achieve transition to IFRS reporting, beginning with the half-year ended 30 June, 2005. The Company’s implementation project consists of three phases as described below. Assessment and planning phase The assessment and planning phase aims to produce a high level overview of the impacts of conversion to IFRS reporting on existing accounting and reporting policies and procedures, systems and processes, business structures and staff. This phase includes: (cid:127) (cid:127) high level identification of the key differences in accounting policies and disclosures that are expected to arise from adopting IFRS; assessment of new information requirements affecting management information systems, as well as the impact on the business and its key processes; (cid:127) evaluation of the implications for staff, for example training requirements; and (cid:127) preparation of a conversion plan for expected changes to accounting policies, reporting structures, systems, accounting and business processes and staff training. The Company expects to complete the assessment and planning phase by June 2005. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 25 25 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Design phase The design phase aims to formulate the changes required to existing accounting policies and procedures and systems and processes in order to transition to IFRS. The design phase will incorporate: (cid:127) formulating revised accounting policies and procedures for compliance with IFRS requirements; (cid:127) identifying potential financial impacts as at the transition date and for subsequent reporting periods prior to adoption of IFRS; (cid:127) developing revised IFRS disclosures; (cid:127) designing accounting and business processes to support IFRS reporting obligations; (cid:127) identifying and planning required changes to financial reporting and business source systems; and (cid:127) developing training programs for staff. The design phase is expected to be completed by 30 June 2005. Implementation phase The implementation phase will include implementation of identified changes to accounting and business procedures, processes and systems and operational training for staff. It will enable the Company to generate the required disclosures of AASB 1 as it progresses through its transition to IFRS. The Company expects this phase to be complete by 30 June 2005. 26 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 2: REVENUE FROM ORDINARY ACTIVITIES Revenue from non-operating activities Provisions written back Interest received – non related corporations Other Total revenue NOTE 3: LOSS FROM ORDINARY ACTIVITIES Loss from ordinary activities before income tax expense includes the following specific expenses: CONSOLIDATED 2004 $ COMPANY 2004 $ 135,704 18,991 40,362 195,057 – 18,970 – 18,970 Borrowing costs - interest Depreciation – office furniture & equipment Exploration expenditure written off 40,042 12,197 30,451 38,687 – – NOTE 4: INCOME TAX The income tax expense on pre tax accounting reconciles to the income tax expense in the financial statements as follows: Loss from ordinary activities before income tax expense Income tax calculated at 30% Tax effect of permanent differences Tax effect of timing differences Timing differences and tax losses not brought to account as future income tax benefit (1,044,700) (746,724) (313,410) – – (224,017) – – 313,410 224,017 Income tax attributable to operating loss – – The directors estimate that the potential future income tax benefit at 31 December 2004 in respect of tax losses not brought to account is 358,884 311,404 This benefit for tax losses will only be obtained if: (i) the relevant company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; (ii) the relevant company continues to comply with the conditions for deductibility imposed by tax legislation; and (iii) no changes in tax legislation adversely affect the relevant company in realising the benefit from the deductions for the losses. NOTE 5: CURRENT ASSETS – CASH Cash at bank and on hand 18,030,792 17,821,432 P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 27 27 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 6: CURRENT ASSETS – RECEIVABLES Sundry debtors Indirect taxes receivable CONSOLIDATED 2004 $ COMPANY 2004 $ 73,244 450,184 523,428 – 46,726 46,726 NOTE 7: NON-CURRENT ASSETS – INVESTMENTS Shares in controlled entities, at cost – 10,749,314 The investments held in controlled entities are included in the financial statements at cost at 31 December 2004 are as follows:- Name: Country of Incorporation Class of Shares Northsun Italia S.p.A Italy Ordinary 2004 Investment $ 10,033,424 Holding % 100 Po Valley Operations Pty Limited (formerly Petroz (Italy) Pty Limited) Australia Ordinary 715,890 100 NOTE 8: NON-CURRENT ASSETS – RECEIVABLES Loans – Controlled Entities 10,749,314 – – 1,740,215 1,740,215 NOTE 9: NON-CURRENT ASSETS – PLANT AND EQUIPMENT Office Furniture & Equipment: At cost Accumulated depreciation Casing: At cost Reconciliations: Reconciliation of the carrying amounts for each class of Plant & equipment are set out below: Office Furniture & Equipment: Carrying amount at beginning of year Additions Depreciation Carrying amount at end of year Casing: Carrying amount at beginning of year Additions Carrying amount at end of year 28 P O V A L L E Y E N E R G Y A N N U A L R E P O R T 92,587 (72,906) 19,681 806,532 826,213 21,191 10,687 (12,197) 19,681 – 806,532 806,532 826,213 – – – – – – – – – – N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 10: NON-CURRENT ASSETS – RESOURCE COSTS CONSOLIDATED 2004 $ COMPANY 2004 $ Resource Property Costs - exploration phase: Reconciliation of the carrying amount of resource properties Resource Property Costs – exploration phase: Carrying amount at beginning of year Exploration expenditure Exploration expenditure written off Carrying amount at end of year 11,869,449 11,869,449 7,929,640 3,970,260 (30,451) 11,869,449 – – – – – – The ultimate recoupment of costs carried forward for areas in exploration or evaluation phases is dependant on the successful development and commercial exploitation of the area or commercial sale of the respective areas. NOTE 11: CURRENT LIABILITIES - PROVISIONS The aggregate employee benefit liability recognised and included in the financial statement is as follows: Provision for employee benefits: Current The Company had 3 employees during 2004. NOTE 12: CURRENT LIABILITIES - PAYABLES Trade payables NOTE 13: INTEREST BEARING LIABILITIES CURRENT LIABILITIES Unsecured loans from: Other parties Directors and director-related entities NON-CURRENT LIABILITIES Other parties 21,692 21,692 – – 1,939,581 1,939,581 393,444 393,444 4,098 509,062 513,160 4,098 509,062 513,160 – – – – P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 29 29 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 14: CONTRIBUTED EQUITY Share Capital At the beginning of the reporting period Shares issued during the year: – Debt to equity swap at $5.00 each on 01.01.2004 – Cash issues at $5.00 each on 08.03.2004 – Options exercised at $1.00 each on 15.08.2004 – Options exercised at $1.30 each on 15.08.2004 – Seed issues at $9.00 each on 08.10.2004 – Debt to equity swap at $9.00 each on 08.10.2004 – Share issue at $9.00 each on 08.10.2004 Total shares after share reconstruction of 12.9593 for each share on issue on 15.10.04 COMPANY No. $ 2,564,254 6,409,352 10,000 200,000 525,000 195,000 100,000 30,500 233,493 50,000 1,000,000 525,000 253,000 900,000 274,500 2,101,437 50,000,000 11,513,789 – Initial public offer at $1.00 each on 14.12.2004 20,000,000 20,000,000 Transaction costs relating to share issues – (1,237,118) Ordinary shares 70,000,000 30,276,671 Fully paid ordinary shares carry one vote per share and carry the right to dividends. In the event of winding up the Company, ordinary shareholders rank after creditors. Founder shareholders had options over 720,000 shares issued in February 2002 which were exercised in August 2004. NOTE 15: ACCUMULATED LOSSES CONSOLIDATED 2004 $ COMPANY 2004 $ Accumulated losses at the beginning of the financial year (439,961) (78,864) Net loss attributable to members Po Valley Energy Limited (1,044,700) (746,724) Accumulated losses at the end of the financial year (1,484,661) (825,588) NOTE 16: REMUNERATION OF AUDITORS Remuneration for audit or review of the financial reports of the parent entity or any entity in the consolidated entity: Auditors of parent entity – KPMG - Auditing the financial statements 32,000 32,000 30 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 17: DIRECTOR AND EXECUTIVE DISCLOSURES (a) Remuneration of specified directors and specified executives by the consolidated entity Total remuneration for all non-executive directors, last voted upon by the shareholders at the 15 October 2004 Extraordinary General Meeting, is not to exceed $200,000 per annum. Non-executive directors’ base fees are presently $140,000 per annum. Directors’ fees cover all main board activities. Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The performance of all specified directors and specified executives are reviewed annually according to performance targets agreed at the beginning of each annual assessment period. These performance contracts are keyed to both group goals set annually in the Company Business Plan and individual performance objectives. Executive directors and senior executives may receive bonuses and/or options based on the achievement of specific performance hurdles. All options awarded to specified directors and specified executives have award thresholds set at prices equal to or higher than the Po Valley Energy share price at the time of issue. All remuneration levels are set after independent comparison with peer companies in the upstream oil and gas industry. The Chairman of the Remuneration Committee reviews the remuneration package of the Chief Executive Officer in this context. The major provisions of the service contracts held with the specified directors and executives, in addition to performance related bonuses and/or options, are as follows: Term of Contract Notice Period Remuneration Review Period Specified directors G Bradley M Masterman D McEvoy B Pirola Specified executives D Greil D Del Borrello3 From 30 Sep 2004 until AGM 2 years from 14 Dec 20041 From 30 Sep 2004 until AGM From 30 Sep 2004 until AGM 12 months from 1 Jan 2005 From 6 Sep 2004 N/A 3 months2 N/A N/A 3 months2 N/A Annually Annually Annually Annually Annually Annually (1) Option to extend for another year at election of executive (2) If termination is made without reason the termination payment will be the equivalent of 12 months salary (3) Mr D Del Borrello is contracted on an hourly basis to provide company secretarial and financial services. P O V A L L E Y E N E R G Y A N N U A L R E P O R T 31 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 The following table provides the details of all directors of the Company (“specified directors”) and the executives of the consolidated entity with the greatest authority (“specified executives”) and the nature and amount of the elements of their remuneration for the year ended 31 December 2004. Primary Post-employment Equity Compensation Salary Bonus Superannuation Number of & fees $ options # benefits $ $ Value of options(1) $ Total $ Specified directors Non-executive G Bradley D McEvoy B Pirola Executive M Masterman Total, all specified Directors Specified executives D Greil, Technical Director D Del Borrello, Company Secretary Total, all specified Executives 2004 2004 2004 15,000 10,000 10,000 2004 152,000 2004 187,000 – – – – – 2004 57,804 – 2004 5,000 62,804 – – 1,350 900 900 1,000,000 500,000 200,000 292,500 146,250 58,500 308,850 157,150 69,400 – 1,500,000 61,128 213,128 3,150 3,200,000 558,378 748,528 – – 900,000 36,677 94,481 150,000 6,113 11,113 – 1,050,000 42,790 105,594 (1) The exercise of Non-Executive Director options in 2004 was conditional upon the weighted average closing price of the Company’s Shares on the ASX for a period of 60 consecutive trading days being equal to or greater than $1.25. The exercise price of the Non-Executive Director options is $1.00 and the expiry is on 31 October 2008. These options are subject to mandatory ASX escrow and are unable to be exercised until 14 December, 2006. The issue of Executive Director and Executive options in 2004 was conditional upon 50% vesting 12 months after the listing of the Company and 50% vesting 24 months after the listing of the Company. The exercise price of the Executive Director and Executive options is $1.25. The Executive Director options issued to Michael Masterman are subject to mandatory ASX escrow and are unable to be exercised earlier than 14 December, 2006. The fair value of options was calculated at the date of issue using a Black-Scholes Option Pricing Model, adjusted for a discount rate (25%) to take into account such factors as the option exercise price, the current level and volatility of the underlying share price, the performance hurdles, the non-tradeable and non-transferable nature of the options, and the vesting and escrow periods before the options are able to be exercised. The options expire 31 October 2008 and each option entitles the holder to purchase one share. 32 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 (b) Options and rights over equity instruments granted as remuneration or exercised All options refer to options over ordinary shares of Po Valley Energy Limited, which are exercisable on a one-for-one basis. During the reporting period, no options over ordinary shares were exercised. (c) Option holdings The movement during the reporting period in the number of options over ordinary shares in the Company held directly or indirectly by each specified director and specified executive, including their personally related entities, is as follows: Specified directors G Bradley M Masterman D McEvoy B Pirola Specified executives D Greil D Del Borrello Held at 31 Dec 2003 - 525,000 - 75,000 - - Issued 1,000,000 1,500,000 500,000 200,000 900,000 150,000 (1) All options are yet to vest and expire on 31 October, 2008. The terms of the options held at 31 December 2004 are as follows: $1.00 exercise price, expiring 31 Oct 08 $1.25 exercise price, expiring 31 Oct 08 Specified directors G Bradley M Masterman D McEvoy B Pirola Specified executives D Greil D Del Borrello 1,000,000 – 500,000 200,000 – – – 1,500,000 – – 900,000 150,000 Held at 31 Dec 2004(1) 1,000,000 1,500,000 500,000 200,000 900,000 150,000 Total 1,000,000 1,500,000 500,000 200,000 900,000 150,000 1,700,000 2,550,000 4,250,000 P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 33 33 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 d) Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of the Company, held directly indirectly by each specified director and specified executive, including their personally-related entities is as follows: Held at 31 Dec 2003 Purchased Held at 31 Dec 20031 Specified directors G Bradley M Masterman D McEvoy B Pirola Specified executives D Greil D Del Borrello – 14,031,683 – 8,169,371 695,989 64,796 323,981 7,307,559 129,593 3,841,450 – 25,919 (1) The equity holdings and transactions shown in the above table are on a post reconstruction basis. Related Entities J Masterman1 I Masterman1 G Masterman1 Held at 31 Dec 2003 3,142,619 – 259,185 Purchased 1,645,825 500,000 129,593 323,981 21,339,242 129,593 12,010,821 695,989 90,715 Held at 31 Dec 20031 4,788,444 500,000 388,778 (1) The related parties to M. Masterman (e) Other transactions with the Company A total amount of $18,531 was received or receivable from Caspian Holdings Plc , a company which is related to Michael Masterman and Dietmar Greil, for recharge of the use of courier and telephone services. Recharges were based on the cost from third party service invoice. The Company purchased the 11 shares and 5 options in NSI held by Michael Masterman, representing 6.1% of the issued capital in NSI, for the issue of 233,493 ordinary shares in the Company at $9.00 each. Masterman Investments Pty Limited, a company controlled by Michael Masterman has a loan to the Company totalling $509,062 as at 31 December, 2004. During the year interest of $27,812 was accrued on the loan and the amount of $35,611 was repaid to Masterman Investments Pty Limited. The loan is repayable before 30 December 2005, attracts interest at the Bank Bill Rate and is unsecured. Beronia Investments Pty Ltd, a company which is controlled by Byron Pirola, converted a loan to ordinary shares for $25,000 (5,000 shares at $5.00 each) on 1 January 2004 and for $126,000 (14,000 shares at $9.00 each) on 8 October 2004. The loan accrued interest of $4,598 during 2004. Joan Masterman, a related party of Michael Masterman, converted a loan into ordinary shares for $25,000 (5,000 shares at $5.00 each) on 1 January 2004 and for $108,000 (12,000 shares at $9.00 each) on 8 October 2004. The loan accrued interest of $3,838 during 2004. 34 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 18: RESERVES Foreign Currency Translation Reserve Balance at beginning of financial year Translation of foreign operations Balance at end of financial year CONSOLIDATED 2004 $ COMPANY 2004 $ 19,023 – 19,023 – – – The foreign currency translation reserve is a reserve and records the foreign currency differences arising from the translation of self-sustaining foreign operations. Refer Note 1(m). NOTE 19: EMPLOYEE BENEFITS The Company has issued options to Directors, Executives and nominated employees. Details of Employee Options are summarised below. Details of the options issued to Directors and Executives are in Note 17. Employee Incentive Option Scheme The issue of Employee Incentive Option Scheme (“EIOS”) was approved by the Board of the Company on 15 October 2004. The opportunity for a number of employees to acquire options over ordinary shares in the Company was offered to employees and consultants who were instrumental to the initial public offering of the Company. Each option is convertible to one ordinary share. The exercise price of the options, determined in accordance with the rules of the plan, must not be less than the market price on the date the options are granted. The terms and conditions with respect to expiry, exercise and vesting provisions are at the discretion of the Board of the Company. There are no voting or dividend rights attached to the options. Voting and dividend rights will only be attached once an option is exercised into ordinary shares. The total number of shares which are the subject of options issued under the EIOS immediately following an issue of options under the EIOS must not exceed 5% of the then issued share capital of the Company on a diluted basis. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 35 35 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 Number of options Weighted average 2004 exercise price $ $1.25 – $1.25 Balance at beginning of year Granted Exercised (a) – 3,000,000 – Balance at end of year (b) 3,000,000 Exercisable at end of year 3,000,000 (a) Options granted during the reporting period Number granted Grant date Vesting date Expiry date Exercise price 2004 3,000,000 15 Oct 2004 14 Dec 20051 14 Dec 20061 31 Oct 2008 $1.25 Of the options granted, the total number granted to M Masterman, D Greil and D Del Borrello has also been disclosed at Note 17(c) . There were no options exercised by employees during the year ended 31 December 2004. Fair value of shares issued during the reporting period is estimated to be the market price of shares of the Company on the Australian Stock Exchange as at close of trading on their respective issue dates. (1) 50% vest 12 months after listing and 50% vest 24 months after listing date. (b) Options held at the end of the reporting period Number of Options Grant date Vesting date Expiry date Exercise price 1,500,000 1,500,000 15 Oct 2004 15 Oct 2004 15 Dec 2005 15 Dec 2006 31 Oct 2008 31 Oct 2008 $1.25 $1.25 NOTE 20: SUBSEQUENT EVENTS Since 31 December 2004, the consolidated entity has undertaken the following significant events: (cid:127) Commencement of civil works and acquisition of key well equipment for the Sillaro and Vitalba gas fields. 36 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 21: NON-DIRECTOR RELATED PARTY DISCLOSURES (a) Loans to Controlled Entities Loans to controlled entities comprise Northsun Italia S.p.A. Po Valley Operations Pty Limited CONSOLIDATED 2004 $ – – – COMPANY 2004 $ 1,381,215 359,000 1,740,215 The loans are denominated in EUR and are non-interest bearing as at 31 December 2004. (b) Remuneration Information on remuneration of directors is provided in Note 17. The Company, in an intercompany transaction purchased 100% of Po Valley Operations Pty Ltd (“PVO”) from a subsidiary Northsun Italia S.p.A. (“NSI”) in May 2004. Consideration for the acquisition was $715,760 and resulted in no profit or loss to the consolidated entity. NOTE 22: FINANCIAL REPORTING BY SEGMENTS The Company operates primarily as a gas explorer and in one geographical location, being Italy. NOTE 23: RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Operating loss after income tax Foreign exchange loss Adjustment for non-cash items: Provision written back Depreciation – office furniture & equipment Exploration expenditure written off Other – provisions Creditors written back Change in operating assets and liabilities: (Increase) decrease in other receivable (Increase) decrease in sundry debtors Increase in shareholder loans for interest Increase (decrease) in trade and other creditors (1,044,700) 47,202 (746,724) 93,624 (135,704) 12,197 30,451 10,665 (8,365) (4,920) (157) 40,760 539,033 – – – – – (43,425) – 38,687 256,872 Net cash outflow from operating activities (513,538) (400,966) P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 37 37 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 24: EARNINGS PER SHARE CONSOLIDATED 2004 $ (7.59) 13,759,050 Basic earnings per share (cents) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share Diluted earnings per share is the same as basic earnings per share. NOTE 25: COMMITMENTS FOR EXPENDITURE (i) Exploration Commitments Under its exploration licence for Crocetta and for Cascina San Pietro, PVE is required to drill one well in 2005. This will be satisfied by the drilling of Sillaro #1 (Crocetta) and Vitalba #1 (Cascina San Pietro) expected to cost $ 8,200,000. Under it’s exploration licence for Casone della Sacca, PVE is required to drill one well by March 2006 expected to cost $ 2,034,000. NOTE 26: JOINT VENTURES As at the 31 December, 2004 the consolidated entity held interests in the following Joint Ventures and permits in Italy: Titles of Permits granted San Vincenzo Crocetta Cascina San Pietro Casone della Sacca Participation percentages NSI 32.5% PVO 17.5% NSI 65% PVO 35% NSI 100% NSI 36.1% PVO 19.45% Other registered holders and relevant percentages Edison 50% – – ENI 44.45% All assets relating to the above joint ventures are capitalised resources property costs. NOTE 27: CONTINGENT LIABILITIES As at the 31 December 2004, the consolidated entity had no contingent liabilities. (b) Credit Risk Exposures The consolidated entity is not exposed to significant credit risk. Credit risk with respect to cash is held with recognised financial intermediaries with acceptable credit ratings. (c) Net Fair Values of Financial Assets and Liabilities The carrying amounts of financial assets and liabilities as disclosed in the statement of financial position equate to their estimated net fair value. 38 P O V A L L E Y E N E R G Y A N N U A L R E P O R T N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 4 NOTE 28: FINANCIAL INSTRUMENTS (a) Interest Rate Risk Exposures The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and financial liabilities is set out below: 2004 Note Weighted Average Interest Rate Floating Fixed interest Maturing in 1 year or < 1 to 5 years Non-Interest bearing % $ 2.10 18,030,792 Financial Assets Cash assets Receivables $ 5 6 Financial Liabilities Payables 12 – – Interest bearing liabilities – current 13 5.48 Interest bearing liabilities – non-current 13 – – – – – Total $ 18,030,792 $ – 523,428 523,428 $ – – – (1,939,581) (1,939,581) $ – – – (513,160) – – – – – (513,160) – Net financial assets 18,030,792 (513,160) – (1,416,153) 16,101,479 (b) Credit Risk Exposures The consolidated entity is not exposed to significant credit risk. Credit risk with respect to cash is held with recognised financial intermediaries with acceptable credit ratings. (c) Net Fair Values of Financial Assets and Liabilities The carrying amounts of financial assets and liabilities as disclosed in the statement of financial position equate to their estimated net fair value. NOTE 29: AMOUNTS RECEIVABLE/PAYABLE IN FOREIGN CURRENCIES Amounts receivable/(payable) in foreign currency which are not effectively hedged: Cash Current – Receivables Current – Payables CONSOLIDATED 2004 $ COMPANY 2004 $ 1,344,651 493,263 1,672,658 1,146,056 - - P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 39 39 D I R E C T O R S ' D E C L A R A T I O N In the opinion of the directors of the Company : 1. the financial statements and notes, as set out on pages 10 to 32, are in accordance with the Corporations Act 2001 and: (a) comply with the Accounting Standards and the corporations Regulations 2001; and (b) give a true and fair view of the Company’s and the consolidated entity’s financial position as at 31 December 2004 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date. 2. There are reasonable grounds to believe that the Company will be able to pay it’s debts as and when they become due and payable. This declaration is made in accordance with a resolution of the directors. Graham Bradley Chairman Byron Pirola Non-Executive Director Sydney, NSW Australia 21 March, 2005 40 P O V A L L E Y E N E R G Y A N N U A L R E P O R T I N D E P E N D E N T A U D I T R E P O R T T O M E M B E R S O F P O V A L L E Y E N E R G Y L I M I T E D Scope The financial report and directors’ responsibility The financial report comprises the statements of financial position, statements of financial performance, statements of cash flows, accompanying notes to the financial statements, and the directors’ declaration for both Po Valley Energy Limited (the “Company”) and the “Consolidated Entity, for the year ended 31 December 2004. The Consolidated Entity comprises both the Company and the entities it controlled during that year. The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the Company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, Australian Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Company’s and the Consolidated Entity’s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: (cid:127) (cid:127) examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. Audit opinion In our opinion, the financial report of Po Valley Energy Limited is in accordance with: a) the Corporations Act 2001, including: i. giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 31 December 2004 and of their performance for the financial year ended on that date; and; ii. complying with Accounting Standards in Australia and the Corporations Regulations 2001; and b) other mandatory financial reporting requirements in Australia. KPMG Perth, Australia 21 March 2005 B C FULLARTON Partner P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 41 41 S H A R E H O L D E R I N F O R M A T I O N Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below. The information was prepared based on share registry information processed up to 28th February, 2005. SHAREHOLDINGS Substantial Shareholders Name Michael Masterman Beronia Investments Pty Ltd1 Joan Masterman Hunter Hall Investment Management Pty Ltd (1) Interests associated with Non-Executive Director, Byron Pirola Distribution of Share and Option Holdings Number of ordinary shares held Percentage of capital held % 21,339,242 12,010,821 4,788,444 3,602,000 30.48% 17.16% 6.84% 5.15% Ordinary Shares Options Number of shares 9,575 379,363 1,118,981 8,168,743 60,323,338 Number of holders Number of options 0 0 0 4 7 0 0 0 150,000 4,550,000 70,000,000 11 4,700,000 Size of Holdings Number of holders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – over 16 90 119 235 46 506 Number of ordinary shareholders with less than a marketable parcel Nil Voting Rights of Shares and Options Refer to Note 14. On-Market Buy-Back There is no current on-market buy-back. 42 P O V A L L E Y E N E R G Y A N N U A L R E P O R T S H A R E H O L D E R I N F O R M A T I O N Twenty Largest Shareholders Beronia Investments Pty Ltd Joan Masterman 1 Michael Masterman 2 3 4 Citicorp Nominees Pty Ltd 5 Equity Trustees Limited 6 Westpac Custodian Nominees 7 Ken Ambrecht 8 Claire Energy Pty Ltd 9 James Zadko 10 Holly Gibson 11 12 Dietmar Greil 13 Arton No 001 Pty Limited 14 Christie (Qld) Pty Ltd 15 Equitas Nominees Pty Limited 16 Nicola Forrest 17 McDonald Petroleum Pty Ltd 18 Mellior Pty Ltd 19 National Australia Trustees Ltd 20 George Masterman John Kahlbetzer Number of ordinary shares held 21,339,242 12,010,821 4,788,444 4,123,398 2,200,000 1,443,600 1,224,649 1,150,510 1,049,375 1,000,000 795,925 695,989 575,000 575,000 500,000 500,000 468,723 455,142 448,000 388,778 55,732,596 Percentage of capital held % 30.48% 17.16% 6.84% 5.89% 3.14% 2.06% 1.75% 1.64% 1.45% 1.43% 1.14% 0.99% 0.82% 0.82% 0.71% 0.71% 0.67% 0.65% 0.64% 0.56% 79.62% Option holders – Unquoted 1 Michael Masterman 2 Options issued under the PVE Employee Incentive Option Scheme1 3 Graham Bradley 4 David McEvoy 5 Byron Pirola Number of ordinary options held Percentage of Options held % 1,500,000 1,500,000 1,000,000 500,000 200,000 4,700,000 31.91% 31.91% 21.28% 10.64% 4.26% 100% (1) No person holds 20% or more of these securities, other than as disclosed above. The total number of option holders is 11. P O V A L L E Y E N E R G Y A N N U A L R E P O R T P O V A L L E Y E N E R G Y A N N U A L R E P O R T 43 43 S H A R E H O L D E R I N F O R M A T I O N Restricted Securities Class Director & Executives – fully paid ordinary shares Director & Executives – fully paid ordinary shares Other – Fully paid ordinary shares Other – Fully paid ordinary shares Other – Fully paid ordinary shares Other – Fully paid ordinary shares Director & Executives – unlisted Options Other – unlisted Number of restricted Securities Date of Release 3,323,171 31,259,252 795,925 8,929,172 167,258 4,970,223 3,200,000 1,500,000 16 September 20051 16 December 2006 15 March 2005 16 September 20051 15 October 2005 16 December 2006 16 December 2006 15 October 2005 (1) Release date is the earlier of the 16th September, 2005 or 10 days after the release of the ASX announcements regarding the complete results of the proposed 2 well Sillaro gas field drilling and testing program (or as that program is otherwise modified by the board). 44 P O V A L L E Y E N E R G Y A N N U A L R E P O R T Po Valley Energy is listed on the Australian Stock Exchange under the symbol PVE. The Company focuses on developing existing but undeveloped shallow, onshore gas fi elds in the Po Valley area in Northern Italy; a prolifi c hydrocarbon province which has produced over 25 tcf of gas since discovery in the late 1940s. For 50 years the Po Valley hydrocarbon province was a monopoly of the then State Oil Company ENI, now one of the 10 largest global oil and gas producers. Following the break-up of ENI’s monopoly and the liberalisation of the Italian gas market, Po Valley Energy entered the province in 1998 through its 100% owned subsidiary, North Sun Italia. Produced by: 0410 435 659 P O V A L L E Y E N E R G Y L I M I T E D ABN 33 087 741 571 A N N U A L R E P O R T 2 0 0 4 P O V A L L E Y E N E R G Y L I M I T E D A N N U A L R E P O R T 2 0 0 4 

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