PO VALLEY ENERGY LIMITED
A.B.N. 33 087 741 571
Annual Report 2005
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-owned
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. Po Valley has successfully drilled its fi rst three fi elds and
is moving towards commercial gas production.
“Po Valley has successfully drilled its
fi rst three fi elds and is moving towards
commercial gas production.”
Michael Masterman
Managing Director
Index
Index
Corporate Directory
Chairman’s Letter to Shareholders
Highlights
Managing Director’s Report
Corporate Governance Statement
Directors’ Report
Auditor’s Independence Declaration
Income Statements
Statements of Recognised Income and Expense
Balance Sheets
Statements of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
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4
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13
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25
50
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1
Corporate
Directory
Directors
Graham Bradley, Chairman
Michael Masterman, Managing Director
David McEvoy, Non-Executive Director
Byron Pirola, Non-Executive Director
Dietmar Greil, Executive Director - Technical
Company Secretary
Dom Del Borrello
Registered Office
Level 28, 140 St George’s Terrace
Perth WA 6000
Tel: (08) 9278 2533
Share Registry
Link Market Services Limited
Level 12, 680 George’s Street
Sydney NSW 2000
Tel: (02) 8280 7424
Solicitor
Steinepreis Paganin
Level 4, Next Building, 16 Milligan Street
Perth WA 6000
Auditor
KPMG
Central Park, 152-158 St George’s Terrace
Perth WA 6000
Bank
ANZ Banking Corporation
Level 7, 77 St George’s Terrace
Perth WA 6000
Stock Exchange Listing
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.
2
2
Chairman’s
Letter to Shareholders
Dear Shareholders
On behalf of the Board of Directors of Po Valley Energy I am please to present the Annual report of the company for
the fi rst full year since listing on the Australian Stock Exchange in December 2004.
The company has had an intensely active 2005, delivering positive drilling and testing results from its fi rst three fi elds.
Sillaro, the company’s largest fi eld, delivered an exceptional fl ow test result on Christmas Eve and in the week
leading up to the new year. Two additional gas bearing intersections have been discovered in the target Pliocene
level, with very strong results tested on these levels.
Vitalba has also come in strongly in the new year following the drilling of Vitalba 1 and Vitalba 1 dir.
Test results exceeded expectations and Vitabla promises to be an important contributor along with Santa Maddalena
to the group’s future production.
2006 should see the company make signifi cant progress towards commercial gas production and cashfl ow. We
will focus on Sillaro as it is our largest and potentially highest return fi eld, and will follow with Vitalba and Santa
Maddlena. We will also initiate new projects including drilling the highly attractive Bezzecca fi eld. During the year
ahead we also plan to drill Sillaro 2 which we expect to expand the company’s production capacity and potentially
further increase our reserves.
In 2005 we have demonstrated our operational credentials and delivered a solid platform from which to grow the
company in 2006. We could not have achieved this without the commitment and hard work of our small and highly
professional team in Italy. On behalf of the board, I thank them for their efforts in 2005. My fellow directors also rolled up
their sleeves during the year beyond the call of duty and I thank them for their contribution to the company’s achievements.
Graham Bradley
Graham Bradley
Chairman
Highlights
• 3 out of 3 gasfi elds successfully drilled and tested - Santa Maddalena, Sillaro, Vitalba
• Successfully drilled Sillaro Gasfi eld
- Discovered two new gas bearing levels
- Flow rates 10 times expected levels - total of 12.9 million cubic feet per day
- Pliocene reserves increase 26% to 15.8 bcf
- Deeper Miocene fi eld 40 bcf - to be drilled in 2006
• Successfully drilled Vitalba Gasfi eld
- Confi rmed proven reserves in two gas bearing levels – San 1 + San 2
- Flow rates twice expectations – 2.8 million cubic feet per day
• Upgraded Bezzecca/Pandino to development status
• 70% increase in 2P reserves
• Italian Gas prices increase 55% since IPO
Managing
Director’s Report
Italian Gas Market
The Po Valley region in Northern Italy has historically
been a prolifi c 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 450bcf 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
during 2005 was four times the size of
Australia and has been growing at a
rapid rate of 5% per annum. Imports
account for over 80% of supply and
Italy has recently been severely affected
by disruptions to the supply of natural
gas from Russia following the Ukraine
dispute in later 2005.
Gas prices have risen over 54%
since the IPO of the company in
December 2004. Continued rapid gas
consumption demand combined with
import capacity constraints and Russian
gas supply disruptions have signifi cantly
tightened market conditions. Europe is
becoming a more integrated market and the declining
North Sea gas production and rising UK imports and UK
gas prices is having a strong ripple effect on the Italian
and European Markets.
Energy security and a new found concern regarding
the dependence on and reliability of Russian imports is
putting a premium on commercial gas reserves within
the walls of Europe. Po Valley is perfectly positioned to
capitalise on these market conditions.
Overview
In the 15 months since the Initial Public Opening (IPO)
of Po Valley Energy in December 2004, the company
has created signifi cant value for its shareholders and
through its successful drilling activities substantially
reduced the company’s risk profi le.
The highlight of the year was the exceptional fl ow test
results from Sillaro in late December 2005. Vitalba
also came through strongly with good test results in
January 2006.
Italian to English translation
LA REPUBBLICA 15/2/2006
GAS, CUTBACK FROM MOSCOW AND
CONSUMPTION RECORDS
Italy’s need for gas forced it to use the precious
strategic resources (2 million cubic metres). This was
a necessary measure to confront the cut in the Russian
supply (-12.2% consisting of 2.4% of the total) and the
dramatic increase in consumption, up to 22%, and the
intervention of the Energy Authority who states the need
for a reduction of Eni’s power on the internal market
and on the distribution net....
4
Po Valley Development
Projects and Licences
Po Valley has been very active on the
gasfi eld development front and in
expanding the potential for future projects
through new licence applications.
The company started the year with
3 core projects - Sillaro, Vitalba
and Santa Maddalena - and quickly
added a fourth large development
project Bezzecca (formerly known as
Pandino). Sillaro, Vitalba and Santa
Maddalena have all been successfully
drilled and tested and have been fully
completed with downhole equipment
ready for production. One of the key
challenges through 2006 will be to
convert these gasfi eld licence areas from exploration
licences to production concessions and complete the
Licence Locations
surface plant engineering work, grid connections and
associated environmental approvals to put these fi elds
into production.
Po Valley Gas Province in Perspective
Cumulative Production (Billions of cubic feet)
Po Valley 22,809 Bcf
North West Shelf 7,386 Bcf
Annual Production (Billions of cubic feet)
Po Valley 476 Bcf
North West Shelf 635 Bcf
5
Managing Director’s Report continued
Sillaro -Crocetta Licence (100% PVE)
Sillaro in the Crocetta licence area is the company’s
largest natural gasfield. The field was explored under
the former ownership of ENI between 1955 and 1982
with seven wells drilled. The field contains gas bearing
zones in the Pliocene at around 2,100 m and the
Miocene around 2,500 m. Po Valley Energy commenced
appraisal and development drilling at Sillaro in July 2005
with the drilling of a vertical well – Sillaro 1. The well
intersected gas bearing zones and had gas shows, but on
closer evaluation of the data and testing, it became clear
that at the Sillaro 1 location, the structure was deeper
than the previously identified target levels.
Sillaro rig-up, June 2005
The key priorities through 2006 for Sillaro will be to
drive the project towards production in early 2007
and to undertake the necessary preparatory work to be
positioned to drill a second Sillaro 2 well in the Pliocene
and a Sillaro 3 well in the Miocene and Pliocene. The
A deviation well – Sillaro 1dir – was drilled 300 m to
Miocene level at 2,500 m remains a large target and
provides the potential for further increases in proven
reserves and production capacity.
the south towards the Budrio 2 well during November
and December 2005. Sillaro 1dir, targeted at only
the Pliocene level, was a highly successful well. The
logs identified three gas bearing levels over a 100m
gross interval – compared with the target of one gas
bearing zone over 15m. Flow testing was conducted
in late December 2005 and produced flow rates over
10 times higher than expectations. The target PL2 B
zone produced 3.5 million cubic feet per day on a
5/16” choke and the new discovery zones PL2 C and
PL2 A produced 5.4 and 4.0 million cubic feet per day
respectively. Subsequent testing of the wells showed
very good pressure recovery.
In early 2006 the company completed a full revision of its
geological model to take into account the new structure
and new gas bearing zones and to plan optimal reservoir
development. Based on the revised reserve estimates
of the Pliocene level there was a good conversion of
probable to proven reserves.
Sillaro production test December 2005
6
Managing Director’s Report continued
In addition to gas production, Vitalba is also ideally
suited for use as a gas storage field, storing gas in
summer for use in winter. Storage capacity in Italy has
become tightly constrained and reservoir simulation of
the previous ENI well in the Vitalba field suggested the
field has very good reservoir dynamics.
Work on converting the Vitalba exploration licence into
a production licence is underway and it is planned that
Vitalba will follow Sillaro into commercial gas production.
Vitalba
- Cascina San Pietro Licence (100% PVE)
Vitalba had a challenging year coming through strongly
with good flow test results in early 2006.
A vertical well – Vitalba 1 - was drilled during May
and June 2005 in a target zone identified by seismic
analysis. Logs indicated that the vertical well touched
the tip of the pinch out structure but that there were
insufficient pays zones for production.
A decision was taken immediately to drill a deviation
well - Vitalba 1dir – 400m south towards the original
ENI well Agnadello 1. The deviation well was successful
with logs identifying three gas bearing zones. Initial
testing of the lowest zone San A3 was inconclusive due
to technical problems during the test.
Management then focused on testing the San A1
and San A2 levels that had been the source of strong
production rates during operation by ENI of Agnadello
1. Flow rate testing of San A1 and San A2 produced
higher than expected flows of 2.8 million cubic feet per
day on a ¼” choke. The test evaluations showed good
pressure recovery and a clear basis to proceed forward
toward production.
Vitalba flare
Santa Maddalena
-San Vincenzo Licence (50% PVE)
Santa Maddalena moved forward toward production,
albeit more slowly than management expected.
Confirmatory flow tests were successfully completed
in November 2005 and Edison Gas, our joint
venture partner and operator, has now completed all
application, engineering and environmental approval
documentation required to submit the production
concession application. The company will seek to
accelerate production of the field during 2006.
Depth Structure Map - Santa Maddalena Field
7
Managing Director’s Report continued
Bezzecca
- Cascina San Pietro Licence (100% PVE)
Bezzecca (formerly called Pandino) was upgraded to
development status in April 2005 following extensive
evaluation of the data on the former ENI production
field that operated during the 1950s. Bezzecca has
estimated reserves of 45 bcf and work is advanced to
drill Bezzecca 1.
Drill site environmental approval documentation has
been completed and is ready for submission, with drilling
program design underway.
Procurement is underway for long lead items of tubing and
casing materials for delivery prior to the commencement of
drilling currently planned for early 2007.
Top M13 Depth Structure Map - Bezzecca Field
Other Licences
The company has been actively evaluating opportunities
In existing licences more detailed work has been
for new licence applications in Northern Italy. A
extensive program of scanning for opportunities,
including the collection of historical data and
conducted on the Terra del Sol licence application and
the Casone della Sacca licence. Each of these licence
areas has some attractive, but smaller targets, which
evaluation, has been completed during the year and
management are actively investigating the best way to
Po Valley Energy is moving forward with eight new
drill and realise value.
applications. The company expects significant progress
on this through 2006.
8
Managing Director’s Report continued
Gas Reserves
The company’s reserves increased in both size and quality
reserves rising to 36.6 bcf. The reserves on a PVE
during 2005. Proven and Probable (2P) reserves are up
equity basis are set out below:
70% to 105bcf since December 2004, with Proven
Field Names
Exploration Permit
1. Santa Maddalena
San Vincenzo
2. Sillaro
3. Vitalba
4. Bezzecca
Total Development
Crocetta
Cascino san Pietro
Cascino san Pietro
PVE
Interest
50%
100%
100%
100%
Remaining Recoverable Reserves (bcf)
Proven
Probable
Possible
6.4
10.4
4.6
15.2
36.6
7.1
30.0
1.7
29.2
68.0
8.6
16.3
0.0
0.9
25.8
130.4
PVE
Total
22.1
56.7
6.3
45.3
Development Field Reserves (as estimated by consulting geologists, Ecopetrol)
Finance
Following the $20 million IPO in December 2004, Po
Valley Energy raised another $8.4 million through a
private placement to Harbert, a large US Hedge Fund.
The total funds have been principally used to drill the
vertical and deviation wells in both Sillaro and Vitalba and
to complete the testing, development and environmental
works at Sillaro, Vitalba, and Santa Maddalena.
Additional funds have been used to drive the new project
acquisition program and to progress Bezzecca.
During the year management took the opportunity to
write off $745,403 of pre-IPO resource property costs
that did not relate to any specific areas of interest.
With a solid cash at bank position and successfully
completed and tested production wells at Sillaro,
Vitalba and Santa Maddalena, the company starts
2006 in a strong financial position. The intention of
the company is to fund the key work to put the three
fields into production through bank funding lines
backed by these fields proven reserves. Discussions
are underway with a number of leading banks with
expertise in Oil and Gas projects.
Management
2005 was a very intensive year for management with the
first year of full scale drilling operations. The company
was one of the most active exploration company’s
in Italy during the period and demonstrated strong
operating and managerial capacity during the initial
disappointments of the vertical wells and the subsequent
successes with the Sillaro and Vitalba deviation wells.
This has fully tested and established the credentials of
the team going forward into 2006 and 2007.
We will continue to run a lean core team with a low
cash burn rate when not drilling. Steps will be taken
through 2006 to build the team on both the geological
and operational fronts in gearing up to operate and
market gas in 2007.
Conclusion
In 2005 and early 2006 we delivered the drilling
successes and production test results to underpin
the company’s future growth and earnings potential.
The principal focus in 2006 will be to convert the
successes with the drilling program into strong Italian
gas sales and earnings. Extensive work is required
on the engineering and approval fronts to achieve this
objective and much of this is underway. Patience will
be required in this process as significant work is required
with the Italian Ministry and associated environmental
authorities and it is very important that this work is
done correctly to the highest safety and environmental
standards. We look forward to the support of the Italian
Government in these endeavours.
Finally I would like to thank the core team of employees,
consultants and contractors who have made our first
year as a public listed company successful.
Michael Masterman
Managing Director and
Chief Executive Officer
9
Corporate
Governance Statement
The Directors are committed to the principles
regularly monitored. A number of areas are to be subject
underpinning the best practice in corporate governance.
to regular reporting to the board such as finance, trade
The Directors have noted carefully the recent guidance
practices, industrial relations, environmental compliance,
on the principles of corporate governance issued by the
workplace health and safety and insurance matters.
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.
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.
The Directors’ overriding objective is to increase
shareholder value within an appropriate framework
Audit and Risk Committee
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. One-third of the board
is subject to re-election at each subsequent annual
general meeting.
The board comprises five directors; three non-executive
directors and two executive directors. 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
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
• 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.
• 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.
10
• External Audit:
• Reporting:
The Committee discusses with the external auditors
The issues discussed at each Committee meeting
the overall scope and plans for their audit activities,
are reported at the next board meeting.
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.
• 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.
• Internal Control:
The Committee examines the adequacy of the
nature, extent and effectiveness of the internal
control processes of the Company.
• Risk Management:
The Committee oversees the risk management
framework of the Company, and reviews risk
management reports.
Processes
• Communications:
The Committee maintains free and open
communications with the external auditors and
management.
• 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.
• 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.
Remuneration Committee
The Remuneration Committee must have a majority
of non-executive directors. The main role of the
Remuneration Committee is to:
• 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
• recommend to the board appropriate terms and
conditions of engagement and remuneration of
Directors within the aggregate limits approved by
Shareholders.
11
Corporate Governance Statement continued
In assessing the performance of the Chief Executive
Share Trading
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.
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
The current members of the committee are Graham
that the person is not in possession of price sensitive
Bradley (Chairman) and Byron Pirola.
Nominations Committee
The role of the Nominations Committee is to provide
recommendations to the board on matters including:
• composition of the board and competencies of
board members;
• appointment and evaluation of the Chief
Executive Officer;
• succession planning for board members and senior
management; and
• processes for the evaluation of the performance of
the Chief Executive Officers and Directors.
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.
The current members of the committee are Graham
Shareholder relations
Bradley (Chairman) and Byron Pirola.
Standards and Codes of Conduct
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
All executives and employees are required to abide by
the Company. Information on all major developments
laws and regulations, to respect confidentiality and the
affecting the company is to be communicated to the
proper handling of information and act with the highest
shareholders through:
• the Annual Report;
• half yearly reports;
• the Annual General Meeting and other meetings
called to obtain approval for board action as
appropriate; and
• the Company’s web site.
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.
12
Directors’ Report
The directors present their report together with the
financial report of Po Valley Energy Limited (‘the
Michael Masterman
Managing Director and CEO, BEcHons, Age 43
Company” or “PVE”) and of the consolidated entity,
Michael is a co-founder of PVE and is based in Europe.
being the Company and its controlled entities, for the
Michael took up the position of Executive Chairman
year ended 31 December 2005.
1. Directors
The directors of the Company at any time during or
since the end of the financial year are:
Date of Appointment
22 June 1999
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
10 May 2002
markets issues – the first of its kind for a green fields
30 September 2004
30 September 2004
mining project. Prior to joining Anaconda Nickel, he
spent 8 years at McKinsey & Company serving major
international resources company’s principally in the
5 August 2005
area of strategy and development. He is also Executive
Chairman of Caspian Holdings Plc, an AIM listed
company with oil interests in Kazakhstan.
Directors
M Masterman
B Pirola
G Bradley
D McEvoy
D Greil
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
David McEvoy
Non Executive Director, BSc, Grad Diploma
(Appl. Geophysics), Age 59
independent director.
Graham Bradley
Chairman BA, LLB (Hons), LLM, FAICD, Age 57
Graham joined PVE as a director and Chairman in
September 2004 and is based in Sydney. He is an
experienced Chief Executive Officer and listed public
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 Managing Partner and
Chief Executive Officer of a national law firm, Blake
Dawson Waldron and was a senior Partner of McKinsey
& Company. Mr Bradley is currently a director of MBF
Australia and Singapore Telecommunications. He is
Chairman of HSBC Bank Australia Limited, Stockland
Corporation, Film Finance Corporation Australia Limited
and Proteome Systems Limited.
David joined PVE as a Director in September 2004 and
is based in Sydney. He has over 36 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 Woodside
Petroleum Limited and Innamincka Petroleum Limited.
13
Directors’ Report continued
Byron Pirola
Non Executive Director, BSc, PhD, Age 45
2. Company Secretary
Byron is a co-founder of PVE and is based in Sydney. He
Dom Del Borrello, BCom, Age 39
is currently a Director of Port Jackson Partners Limited,
Dom was appointed to the position of Company
a Sydney based strategy management consulting firm.
Secretary in September 2004. He has significant
Prior to joining Port Jackson Partners in 1992, Byron
corporate finance and capital markets experience with
spent six years with McKinsey & Company working
a focus on resources company’s. He is currently the
out of the Sydney, New York and London Offices and
Group Manager, Treasury and Risk of Iluka Resources
across the Asian Region. He has extensive experience
Limited a leading global producer of mineral sands.
in advising CEOs and boards of both large public and
small developing company’s across a wide range of
industries and geographies.
Dietmar Greil
Executive Director Technical, MEng Age 52
Dietmar is a highly experienced reservoir engineer
with over 30 years experience in exploration and
development in the oil and gas industry. He has
extensive oil and gas experience having worked for
Statoil, Chevron and Pruesagg. Dietmar has been a
member of the management team since the Company’s
listing in late 2004.
3. Directors Meetings
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.
The Company also has a Remuneration Committee
which did not meet during the year.
4. Principal Activities
The principal continuing activities of the group in the
course of the year were;
• the exploration for gas in the Po Valley region in Italy
• appraisal and development of gas properties
No. of board
meetings held
No. of board
No. of board
No. of Audit
meetings eligible
meetings
to attend
attended
Committee
meetings held
G Bradley
M Masterman
D McEvoy
B Pirola
D Greil
12
12
12
12
12
12
12
12
12
8
12
12
12
11
4
2
2
2
2
2
No. of Audit
Committee
meetings
attended
2
-
2
2
-
14
5. Earnings per share
The basic loss per share for the Company
was 3.19 cents.
Confirmatory tests were completed at Santa Maddalena
during the year and discussions are underway with
the Ministry of Productive Activities on a production
concession.
6. Operating and financial review
The consolidated loss of the consolidated entity
The Company completed a private placement late in
the year issuing 12,500,000 shares to Harbert Asset
after income tax amounted to $ 2,267,469
Management, a leading US hedge fund at AUD0.70
(2004: $1,613,460).
cents a share, raising $8,750,000.
During 2005, the Company successfully drilled and
Cash at bank at the end of the year was $10,437,245
tested the Vitalba and Sillaro gas fields, tested the Santa
leaving the Company well positioned to pursue it’s
Maddalena gasfield, and upgraded the Pandino/Bezzecca
development and exploration activities for 2006.
field to development status following an extensive
geological review.
Sillaro 1d deviation well confirmed three gas bearing levels
– PL2A, PL2B, PL2C. This well indicated positive flow
tests at aggregate rate of 12.9m cubic feet per day and it
expected that a reserve upgrade will be made for this field.
The Vitalba well was successfully drilled with a
production test completed indicating positive flow test
7. Dividends
No dividends have been paid or declared by the
Company during the year ended 31 December 2005.
8. Events subsequent to reporting date
Since 31 December 2005, the consolidated entity has
undertaken the following significant events:
on levels San 1 and San 2 of 2.8m cubic feet per day.
• Successfully tested gas flows at the Vitalba
The Pandino field was upgraded to development
#1 deviation well
status and environmental approval documentation
• Upgraded proven reserves (1P) by 45 % to 36.6 bcf
has been submitted.
Other than as set out above, there were no events
between the end of the financial year and the date of
this report that, in the opinion of the directors, affect
significantly the operations of the consolidated entity, the
results of those operations, or the state of affairs of the
Directors and management inspecting the Bezzecca site.
consolidated entity.
9. Likely Developments
During 2006 the Company intends to drill a second
well in the Sillaro gas field and push forward with
the successfully drilled Sillaro, Vitalba and Santa
Maddalena gas fields towards production in early 2007.
Preparation will also commence to drill Bezzacca 1 in
the company’s Cascina san Pietro licence.
The Company now has a portfolio of 11 exploration and
development licences and licence applications and will focus
on detailed geological evaluation of these projects and
preparation of drilling programs.
15
Directors’ Report continued
10. Environmental Regulation
The Company’s operations are subject to environmental
Non-Executive Directors
The remuneration of PVE Non-Executive Directors
regulations under both Federal and local municipality
comprises cash fees and superannuation contributions.
legislation in relation to its mining exploration and
There is no current scheme to provide performance
development activities in Italy. Company management
based bonuses or retirement benefits to Non-Executive
monitor compliance with the relevant environmental
Directors other than superannuation contributions.
legislation. The Directors are not aware of any breaches
Non-Executive Directors typically do not participate in
of legislation during the period covered by this report.
equity or options schemes of the Company, but given
the size of PVE, and its focussed nature of the business
and shareholdings structure, issues of share options to
Non-Executive Directors have previously been made,
and may in the future be, approved by shareholders
to enhance overall shareholder wealth creation. The
board of directors and shareholders last approved
the maximum agreed remuneration for Non-Executive
Directors at a meeting of the Company in late 2004
at $200,000 per annum.
The total amount paid in 2005 to non-executive
directors was $135,549.
The major provisions of the service contracts held
with the specified directors and executives, in addition
to any performance related bonuses and/or options
are as follows:
11. Remuneration Report
The Remuneration Report outlines the remuneration
arrangements which were in place during the year, and
remain in place as at the date of this report, for the
Directors and executives of the Company.
Remuneration Policy
The Company aims to ensure that the level and
composition of remuneration of its directors and
executives is sufficient and reasonable for the
competitive industry in which the Company operates.
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.
Executive Directors
The remuneration of PVE executive directors and
senior executives comprises some or all of the
following elements: fixed salary; short term incentive
bonus based on performance; long term incentive
shares and/or option scheme; and other benefits
including employment insurances and superannuation
contributions. In relation to the payment of bonuses,
share option and other incentive amounts, discretion
is exercised by the Remuneration Committee having
regard to the overall performance of the Company and
of the relevant individual during the period.
16
Specifi ed Directors
Graham Bradley, Chairman
• Commencement Date:19 May 2005
• Term of Appointment: 3 years
• Fixed remuneration for the year ended
31 December, 2005: $60,000
• No termination benefi ts
David McEvoy, Non-executive director
• Commencement Date:19 May 2005
• Term of Appointment: 3 years
• Fixed remuneration for the year ended
31 December, 2005: $40,000
• No termination benefi ts
Byron Pirola, Non-executive director
• Commencement Date:19 May 2005
• Term of Appointment: 3 years
• Fixed remuneration for the year ended
31 December, 2005: $40,000
• No termination benefi ts
Michael Masterman, Chief Executive Offi cer
and Managing Director
• Commencement Date:14 December 2004
• Term of Agreement:
2 years with a further
1 year extension at the option of the executive
• Fixed remuneration inclusive of superannuation
for the year ended 31 December,
2005: $240,000
• Payment of termination benefi t on termination by
the employer (other than for gross misconduct)
equal to one years total fi xed remuneration
Dietmar Greil, Executive Director - Technical
• Commencement Date: 1 January 2005
• Term of Agreement: 2 years with a further
1 year extension at the option of the executive
• Fixed remuneration for the year ended
31 December, 2005: EUR100,000
• Payment of termination benefi t on termination
by the employer (other than for gross misconduct)
equal to one years total fi xed remuneration
Specifi ed Executive
Dom Del Borrello, Company Secretary
• Commencement Date: 6 September 2004
• Term of Agreement: No fi xed term
• Contracted on a fi xed hourly rate to
provide company secretarial services.
• No termination benefi ts
17
The remuneration details of each director and specified executives during the year is presented in the table below.
There are no executive officers of the consolidated entity other than those listed.
Specified executives
G Bradley (Chairman)
D McEvoy
B Pirola
M Masterman (CEO)
D Greil
(appointed 5 August 2005)
Specified executives
D Del Borrello
Salary &
Fees
$
Bonus
$
Super-annuation
benefits
$
Value of
options (i)
$
2005
2004
2005
2004
2005
2004
2005
2004
2005
2004
2005
2004
57,163
15,000
39,198
10,000
39,198
10,000
255,877
152,000
149,714
57,804
33,058
5,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,350
292,500
-
900
-
900
-
-
-
-
-
-
-
146,250
-
58,500
280,986
61,128
168,592
36,677
28,099
6,113
Total
$
57,163
308,850
39,198
157,150
39,198
69,400
536,863
213,128
318,306
94,481
61,157
11,113
Non-Audited
S300A(1)(e)(vi)
Value of options
as proportion
of remuneration
%
-
95%
-
93%
-
84%
52%
29%
53%
39%
46%
55%
(i) These options were granted in 2004 as follows:
Further details of Director and Executive
Non-executive directors
G Bradley
D McEvoy
B Pirola
1,000,000
500,000
200,000
Executive directors
M Masterman
1,500,000
D Greil
900,000
Specified Executives
D Del Borrello
150,000
Options granted to executive directors and
executives vest 50% after 12 months from date
of ASX listing and 50% 24 months from date
of ASX listing.
Remuneration are set out in Note 24 to the
Financial Statements and form part of this report.
12. 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
$1.00
expiring
31 Oct 08
G Bradley
323,981
1,000,000
$1.25
expiring
31 Oct 08
-
M Masterman
21,339,242
-
1,500,000
D McEvoy
D Pirola
D Greil
J Masterman 1
I Masterman 1
G Masterman 1
129,593
500,000
12,010,821
200,000
695,989
4,788,444
500,000
388,778
-
-
-
-
1. Related parties to M Masterman
-
-
900,000
-
-
-
18
13. Share Options
Details of share options over ordinary shares issued
during the year and on issue at 31 December 2005 are
15. Indemnification and insurance
of officers and auditors
The Company has agreed to indemnify current Directors
set out in Note 16 to the Financial Statements and form
against any liability or legal costs incurred by a Director
part of this report. No options have been exercised
as an officer of the Company or entities within the
between the end of the financial year and the date
consolidated entity or in connection with any legal
of this report.
14. Corporate Governance
In recognising the need for the highest standards of
corporate behaviour and accountability, the Directors
of PVE support and have adhered to the principles of
sound corporate governance. The Board recognises the
recommendations of the ASX Corporate Governance
Council, and considers that PVE is in compliance
with those guidelines which are of importance to the
commercial operation of a junior listed gas exploration
company.
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 has paid
premiums to insure the Directors against certain
liabilities arising out of the conduct while acting on
behalf of the Company. Under the terms and conditions
of the insurance contract, the nature of liabilities insured
against and the premium paid cannot be disclosed.
16. Non audit services
During the year KPMG has not performed any other
The Company’s Corporate Governance Statement
and disclosures are contained elsewhere in the
services in addition to their statutory duties as auditors
to the Company.
annual report.
17. Proceedings on behalf of the
Company
No person has applied for leave of Court, pursuant
to section 237 of the Corporations Act 2001, to bring
proceedings on behalf of the Company or intervene in
any proceedings to which the Company is a party for
the purpose of taking responsibility on behalf of the
Company for all or any part of those proceedings.
18. Lead Auditor’s independence
declaration
The lead auditor’s independence declaration is set out
on page 18 and forms part of the Directors’ report for
the financial year ended 31 December 2005.
This report has been made in accordance with a
resolution of Directors.
Graham Bradley
Chairman
Sydney, NSW Australia
20 March 2006
19
Auditor’s
Independence
Declaration
To: the directors of Po Valley Energy Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the fi nancial
year ended 31 December 2005 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
BC Fullarton
Partner
Perth
20 March 2006
20
PO VALLEY ENERGY LIMITED
Income Statements
FOR THE YEAR ENDED 31 DECEMBER 2005
CONSOLIDATED
COMPANY
Revenue
Employee benefit
expense
Depreciation and
amortisation expense
Corporate overheads
Finance costs
Resource property costs
written off
Other expenses
Loss before income
tax expense
Income Tax Expense
Loss of the period
Basic/Diluted loss per
share
2
4
3
6
7
Notes
2005
2004
2005
591,064
195,057
471,436
2004
18,970
(1,176,455)
(854,177)
(561,972)
(619,506)
(12,095)
(18,672)
- .
- .
(804,474)
(821,074)
(412,864)
(633,383)
(29,700)
(40,042)
(27,825)
(38,687)
(745,403)
(30,451)
- .
- .
(90,406)
(44,101)
(331,366)
(93,624)
(2,267,469)
(1,613,460)
(862,591)
(1,366,230)
- .
- .
- .
- .
(2,267,469)
(1,613,460)
(862,591)
(1,366,230)
(3.19)
(11.73)
The income statements are to be read in conjunction with the accompanying notes to the financial statements.
21
PO VALLEY ENERGY LIMITED
Statements of Recognised
Income and Expense
FOR THE YEAR ENDED 31 DECEMBER 2005
CONSOLIDATED
COMPANY
Notes
2005
2004
2005
2004
Foreign exchange
translation differences
Shared based payment
transactions
Net income and
expense recognised
directly in equity
18
18
(787,954)
242,245
- .
- .
561,972
619,506
561,972
619,506
(225,982)
861,751
561,972
619,506
Loss for the year
(2,267,469)
(1,613,460)
(862,591)
(1,366,230)
Total recognised
income and expense
for the year
(2,493,451)
(751,709)
(300,619)
(746,724)
22
PO VALLEY ENERGY LIMITED
Balance Sheets
AS AT 31 DECEMBER 2005
Current Assets
Cash
Receivables
Total Current Assets
Non-Current Assets
Investments
Receivables
Plant & Equipment
Resource Property Costs
Total Non-Current Assets
Total Assets
Current Liabilities
Payables
Interest Bearing Liabilities
Provisions
Total Current Liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Reserves
Accumulated Losses
Total Equity
CONSOLIDATED
COMPANY
Notes
2005
2004
2005
2004
8
9
10
11
12
13
14
15
17
10,437,245
18,030,792
8,667,320
17,821,432
1,035,392
539,989
27,109
46,726
11,472,637
18,570,781
8,694,429
17,868,158
-
1,939,540
-
-
10,749,314
10,749,314
18,580,545
1,740,215
494,542
849,867
27,032,818
12,157,809
-
-
-
-
29,466,900
13,007,676
29,329,859
12,489,529
40,939,537
31,578,457
38,024,288
30,357,687
5,980,010
1,939,581
561,324
-
36,454
513,160
21,692
-
-
6,016,464
2,474,433
6,016,464
2,474,433
561,324
561,324
393,444
513,160
-
906,604
906,604
34,923,073
29,104,024
37,462,964
29,451,083
38,589,171
30,276,671
38,589,171
30,276,671
(526,686)
261,268
-
-
(3,139,412)
(1,433,915)
(1,126,207)
(825,588)
18
34,923,073
29,104,024
37,462,964
29,451,083
The balance sheets are to be read in conjunction with the accompanying notes to the financial statements.
23
PO VALLEY ENERGY LIMITED
Statements of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2005
CONSOLIDATED
COMPANY
NOTES
2005
2004
2005
2004
Cash flows from operating activities
Payments to suppliers and employees
(1,331,529)
(529,387)
(484,170)
(419,936)
Interest received
Interest paid
512,952
18,991
471,435
18,970
(38,763)
(3,142)
(36,887)
- .
Net cash outflow from operating activities
23
(857,340)
(513,538)
(49,622)
(400,966)
Cash flows from investing activities
Payments for non-current assets
(487,628)
(809,692)
Payments for exploration expenditure
(14,252,182)
(2,088,805)
- .
- .
- .
- .
Payments for investments
Amounts advanced to related parties
- .
- .
- .
- .
(1,531,571)
(3,376)
(17,120,613)
(1,754,821)
Net cash outflow from investing activities
(14,739,810) (2,901,873)
(17,120,613)
(3,286,392)
Cash flows from financing activities
Proceeds from the issues of shares
8,750,000 22,678,500
8,750,000 22,678,500
Payments for share issue costs
(161,195)
(1,120,918)
(161,195)
(1,120,918)
Repayment of borrowings
(504,098)
(66,411)
(504,098)
(66,411)
Net cash inflow from financing activities
8,084,707 21,491,171
8,084,707 21,491,171
Net (decrease)/increase in cash held
(7,512,443) 18,075,760
(9,085,528) 17,803,813
Cash and cash equivalents at 1 January
18,030,792
69,589
17,821,432
42,518
Effects of exchange rate fluctuations on cash held
(81,104)
(114,557)
(68,584)
(24,899)
Cash and cash equivalents at 31 December 8 10,437,245 18,030,792
8,667,320 17,821,432
The statements of cash flows are to be read in conjunction with the accompanying notes to the financial statements.
24
PO VALLEY ENERGY LIMITED
Notes to the Consolidated
Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2005
NOTE 1: Summary of Significant
Accounting Policies
Po Valley Energy Limited (“the Company” or “PVE”) is
a company domiciled in Australia. The consolidated
financial report of the Company for the year ended
31 December 2005 comprised the Company and its
subsidiaries (together referred to as the
“Consolidated Entity”).
The financial report was authorised for issuance on 17
March 2006.
(a) STATEMENT OF COMPLIANCE
The financial report is a general purpose financial
report which has been prepared in accordance with
Australian Accounting Standards (“AASB’s”), Urgent
Issues Group Interpretations (“UIG’s’) adopted by
the Australian Accounting Standards Board (“AASB”)
and the Corporations Act 2001.
International Financial Reporting Standards (“IFRS”)
form the basis of Australian Accounting Standards
adopted by the AASB, and for the purpose of this
report are called Australian equivalents to IFRS
(“AIFRS”) to distinguish from the previous Australian
GAAP. The financial report of the consolidated
entity and the Company also complies with IFRS
and interpretations adopted by the International
Accounting Standards Board.
This is the consolidated entity’s first financial report
prepared in accordance with AIFRS and AASB 1
First time Adoption of Australian Equivalents to
International Reporting Standards has been applied.
An explanation of how the transition to AIFRS has
affected the reported financial position, financial
performance and cash flows of the consolidated
entity and the Company is provided in note 25.
This financial report has been prepared on the
basis of AIFRS on issue that are effective at the
consolidated entity’s first AIFRS annual reporting
date 31 December 2005. Based on these AIFRS,
the Board of Directors have made assumptions
about the accounting policies expected to be
adopted when the first AIFRS annual financial report
is prepared for the year ended 31 December 2005.
(b) BASIS OF PREPARATION
The financial report is presented in Australian dollars.
This financial report has been prepared on the basis
of historical cost, except for financial assets and
liabilities recognised at fair value.
The accounting policies set out below have been
applied consistently to all periods presented in the
consolidated financial report and in preparing an
opening AIFRS balance sheet at 1 January 2004
for the purposes of the transition to Australian
Accounting Standards - AIFRS.
The accounting policies have been applied
consistently by consolidated entities.
(c) PRINCIPLES OF CONSOLIDATION
Subsidiaries
The consolidated financial statements incorporate
the assets and liabilities of all entities controlled by
Po Valley Energy Limited (“parent entity”) as at 31
December 2005 and the results of all controlled
entities for the half-year then ended. Po Valley Energy
Limited and its controlled entities together are referred
to in this financial report as the consolidated entity.
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
income statement and balance sheet respectively.
When control of an entity is obtained during
the financial year, its results are included in the
consolidated income statement from the date on
which control commences.
Investments in subsidiaries are carried at their cost of
acquisition in the Company’s financial statement less
impairment losses.
25
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 1: Summary of Significant
Accounting Policies (continued)
Deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit will
be realised.
Joint Ventures
Joint ventures are those entities over whose
activities are jointly controlled by the consolidated
entity, established by contractual agreement. 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.
(d) TAXATION
Income tax on the profit or loss for the year
comprises current and deferred tax. Income tax is
recognised in the income statement except to the
extent that it relates to items recognised directly in
equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted
or substantially enacted at the balance sheet date,
and any adjustment to tax payable in respect of
previous years. Deferred tax is provided using
the balance sheet liability method, providing for
temporary differences between the carrying amounts
of assets and liabilities for financial reporting
purposes and the amounts used for taxation
purposes. The following temporary differences are
not provided for: goodwill not deductible for tax
purposes; the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit; and
differences relating to investments in subsidiaries
to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred
tax provided is based on the expected manner of
realisation or settlement of the carrying amount of
assets and liabilities using tax rates enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent
that it is probable that future taxable profits will be
available against which the asset can be utilised.
(e) IMPAIRMENT OF ASSETS
The carrying amounts of the consolidated entity’s
assets are reviewed for impairment whenever
events or changes in circumstances indicate that
the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its
recoverable amount. The 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
(cash generating units).
(f) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statement, 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.
(g) 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 fall within the following
ranges:
Office furniture
& equipment
2005
2004
3 - 5 years
3 - 5 years
(h) Trade and Other Payables
Trade payables and other payables are recognised
when the consolidated entity becomes obliged to
make future payments resulting from the purchase of
goods and services. These amounts are stated at cost.
26
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 1: Summary of Significant
Accounting Policies (continued)
(i) Resource Properties
Resource property costs are intangible assets and
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 exploration areas.
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.
(j) Revenue Recognition
Interest Revenue
Interest revenue is recognised as it accrues, taking
into account the effective yield on the financial asset.
(k) Trade and Other Receivables
Trade receivables and other receivables are
recorded stated at their cost less impairment losses.
(l) 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 undiscounted amounts using the
remuneration rate expected to apply at the time of
settlement including related on-costs.
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.
Share-based payments
The executive and employee share option plan grants
options to employees as part of their remuneration.
The fair value of options granted is recognised as
an employee expense with a corresponding increase
in retained earnings. The fair value is measured at
grant date and spread over the period during which
the employees become unconditionally entitled to
the options. The fair value of the options granted
is measured, using a binomial model; taking into
account the market related vesting conditions upon
which the options were granted. The amount
recognised as an expense is adjusted to reflect the
actual number of share options that vest except where
forfeiture is only due to share prices not achieving the
threshold for vesting.
27
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 1: Summary of Significant
Accounting Policies (continued)
(m) Foreign Currency
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.
Functional and presentation currency
(p) Earnings Per Share
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 Po Valley Energy
Limited’s functional and presentation currency.
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
the income statement, except when deferred in equity
as qualifying cash flow hedges.
Group Company’s
The assets and liabilities of foreign operations,
including goodwill and fair value adjustments arising
on consolidation are translated to Australian dollars
at foreign exchange rates ruling at the balance
sheet date. The revenues and expenses of foreign
operations are translated to Australian dollars at
rates approximating the foreign exchange rates ruling
at the dates of the transactions. Foreign exchange
differences arising on retranslation are recognised
directly in a separate component of equity.
(n) Interest-bearing Liabilities
Bank loans and other loans are recognised initially
at fair value less attributable transaction costs.
Subsequent to initial recognition, interest bearing
liabilities are stated at amortised cost.
(o) Acquisition of Assets
Assets acquired are recorded at the cost of
acquisition, being the purchase consideration
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.
(q) 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
reviewed 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.
28
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 2: Revenue
CONSOLIDATED
COMPANY
Interest received - non related corporations
512,952
18,991
471,436
2005
2004
2005
Provisions written back
Other
Total Revenue
NOTE 3: Other Expenses
Foreign exchange losses
Realised
Unrealised
2004
18,970
-
-
72,052
135,704
6,060
40,362
-
-
591,064
195,057
471,436
18,970
81,104
44,101
68,584
68,728
9,302
-
262,782
24,896
90,406
44,101
331,366
93,624
NOTE 4: Employee Benefit Expenses
Wages and salaries
614,483
234,671
-
-
Equity based compensation
561,972
619,506
561,972
619,506
1,176,455
854,177
561,972
619,506
NOTE 5: Auditors’ Remuneration
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
46,566
32,000
26,704
32,000
29
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 6: Income Tax Expense
The income tax expense on pre tax accounting reconciles to
the income tax expense in the financial statements as follows:
CONSOLIDATED
COMPANY
2005
2004
2005
2004
Loss from ordinary activities before income tax expense
(2,267,469)
(1,613,460)
(862,591)
(1,366,230)
Income tax calculated at 30%
(680,240)
(484,038)
(258,777)
(409,869)
Tax effect of permanent differences
Tax effect of timing differences
Tax losses not brought to account as future
income tax benefit
634,226
(6,878)
- .
- .
52,892
409,869
168,592
(6,878)
97,063
- .
- .
- .
Income tax attributable to loss
- .
- .
- .
- .
The directors estimate that the potential future income
tax benefit at 31 December 2005 in respect of tax losses
not brought to account is
This benefit for tax losses will only be obtained if:
411,776
358,884
408,467
311,404
(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 7: Earnings Per Share
Basic loss per share (cents)
(3.19)
(11.73)
The calculation of basic loss per share was based on the loss attributable to shareholders of $2,267,469
(2004: Loss $1,613,460) and a weighted average number of ordinary shares outstanding during the year of
71,165,753 (2004: $13,759,050).
Diluted loss per share is the same as basic loss per share.
NOTE 8: Cash and Cash Equivalents
Cash at bank and on hand
10,437,245 18,030,792
8,667,320 17,821,432
30
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 9: Trade and Other Receivables
Sundry debtors
CONSOLIDATED
COMPANY
2005
2004
132,712
89,805
2005
17,500
2004
- .
Indirect taxes receivable
902,680
450,184
9,609
46,726
1,036,392
539,989
27,109
46,726
NOTE 10: Investments
Shares in controlled entities, at cost
- .
- .
10,749,314 10,749,314
The investments held in controlled entities are included in the
financial statements at cost at 31 December 2005 are as follows:
Name:
Country of
Incorporation
Class of
Shares
2005
Investment
$
2004
Investment
$
Northsun Italia S.p.A
Italy
Ordinary
10,033,424
10,033,424
Po Valley Operations Pty Limited
Australia
Ordinary
715,890
715,890
Holding
%
100
100
10,749,314 10,749,314
NOTE 11: Non- Current Assets - Receivables
Indirect taxes receivable
Loans - Controlled Entities
CONSOLIDATED
COMPANY
2005
2004
1,939,540
- .
- .
- .
2005
- .
2004
- .
18,580,545
1,740,215
1,939,540
- ..
18,580,545
1,740,215
These loans are unsecured, interest free and repayable on demand in Euro.
31
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 12: Property Plant and Equipment
CONSOLIDATED
COMPANY
2005
2004
2005
2004
Office Furniture & Equipment:
At cost
Accumulated depreciation
Well Equipment:
At cost
Reconciliations:
109,571
88,935
(80,810)
(68,715)
28,761
20,220
465,781
829,647
494,542
849,867
Reconciliation of the carrying amounts for each class of plant & equipment are set out below:
Office Furniture & Equipment:
Carrying amount at beginning of year
20,220
21,191
Additions
Depreciation expense
20,636
11,226
(12,095)
(12,197)
Carrying amount at end of year
28,761
20,220
Well Equipment:
Carrying amount at beginning of year
829,647
- .
Additions
465,781
829,647
Transfer to resource property costs
(829,647)
- .
Carrying amount at end of year
465,781
829,647
494,542
849,867
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
- .
32
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 13: Resource Property Costs
CONSOLIDATED
COMPANY
2005
2004
2005
2004
Resource Property costs
Exploration Phase
27,032,818 12,157,809
Reconciliation of carrying amount of resource properties
Exploration Phase
Carrying amount at beginning of year
12,157,809
7,936,133
Transfer from property plant & equipment
829,647
-
Exploration expenditure
14,790,765
4,252,127
Exploration expenditure written off
(745,403)
(30,451)
Carrying amount at end of year
27,032,818 12,157,809
-
-
-
-
-
-
-
-
-
-
-
-
NOTE 14: Trade and Other Payables
Trade payables
Taxes payable
Sundry payables and accruals
5,277,777
1,939,581
15,824
393,444
28,995
673,238
-
-
-
545,500
-
-
5,980,010 1,939,581
561,324
393,444
NOTE 15: Interest-bearing Loans and Borrowings
Current Liabilities
Unsecured loans from:
Other parties
Directors and director-related entities
These loans were repaid during the year.
-
-
-
4,098
509,062
513,160
-
-
-
4,098
509,062
513,160
33
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 16: 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 24.
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.
2005
2004
Number of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Balance at beginning of year
3,000,000
$1.25
-
-
Granted
Exercised
(a)
-
-
-
-
3,000,000
$1.25
-
-
Balance at end of year
(b)
3,000,000
$1.25
3,000,000
$1.25
Exercisable at end of year
3,000,000
3,000,000
(a) Options granted during the reporting period
2005
2004
Number granted
Grant date
Vesting date
Expiry date
Exercise price
-
-
-
-
-
3,000,000
15 Oct 2004
14 Dec 20051
14 Dec 20061
31 Oct 2008
$1.25
(1) 50% vest 12 months after listing and 50% vest 24 months after listing date.
Of the options granted, the total number granted to directors and executives including M Masterman, D Greil and
D Del Borrello has also been disclosed at Note 24.
Fair value of shares 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. At 31 December 2005 the closing share price was $1.00
34
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 16: Employee Benefits continued
(b) Options held at the end of the reporting period
Number of
Options
1,500,000
1,500,000
Grant date
Vesting date
Expiry date
Exercise price ($)
15 Oct 2004
15 Dec 2005
31 Oct 2008
15 Oct 2004
15 Dec 2006
31 Oct 2008
$1.25
$1.25
NOTE 17: Provisions
The aggregate employee benefit liability recognised
and included in the financial statement is as follows:
Provision for employee benefits:
CONSOLIDATED
COMPANY
2005
2004
2005
2004
Current
36,454
21,692
-
-
35
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 18: Capital and Reserves
Reconciliation of movement in capital and reserves attributable to equity holders of the parent
Consolidated
Issued Translation
Reserve
Capital
Accumulated
losses
2005
Total
Balance at 1 January 2005
30,276,671
261,268
(1,433,915) 29,104,024
Total recognised income and expense
Equity-settled transactions
Shares issued
Share issue costs
-
-
8,750,000
(437,500)
(787,954)
(2,267,469)
(3,055,423)
-
-
-
561,972
561,972
-
-
8,750,000
(437,500)
Balance at 31 December 2005
38,589,171
(526,686)
(3,139,412) 34,923,073
Consolidated
Issued
Capital
Translation Accumulated
losses
Reserve
Outside
Shareholder
Interest
2004
Total
Balance at 1 January 2004
6,409,352
19,023
(439,961)
53,561
6,041,975
Total recognised income and expense
Equity-settled transactions
-
-
Shares issued
Share issue costs
25,104,437
(1,237,118)
Outside shareholder interest acquired
-
242,245
(1,613,460)
-
-
-
-
619,506
-
-
-
-
-
(1,371,215)
619,506
- 25,104,437
-
(1,237,118)
(53,561)
(53,561)
Balance at 31 December 2004
30,276,671
261,268 (1,433,915)
- 29,104,024
Reconciliation of movement in capital and reserves
Company
Issued Accumulated
losses
Capital
2005
Total
Issued
Capital
Accumulated
losses
2004
Total
Balance at 1 January 30,276,671
(825,588) 29,451,083 6,409,352
(78,864)
6,330,488
Total recognised
income and expense
Equity-settled
transactions
-
-
(862,591)
(862,591)
561,972
561,972
-
-
(1,366,230)
(1,366,230)
619,506
619,506
Shares issued
8,750,000
Share issue costs
(437,500)
-
-
8,750,000 25,104,437
- 25,104,437
(437,500)
(1,237,118)
-
(1,237,118)
Balance at 31
December
38,589,171
(1,126,207) 37,462,964 30,276,671
(825,588) 29,451,083
36
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 18: Capital and Reserves continued
2005
70,000,000
Share Capital
Opening balance - 1 January
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
Initial public offer at $1.00 each on 14.12.2004
2004
2,564,254
10,000
200,000
525,000
195,000
100,000
30,500
233,493
50,000,000
20,000,000
Share issue at 70c each on 22.11.2005
Share issue at 70c each on 23.12.2005
10,500,000
2,000,000
Closing balance - 31 December
82,500,000
70,000,000
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.
NOTE 19: Financial Reporting by Segments
The Company operates primarily as a gas explorer and in one geographical location, being Italy.
37
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 20: 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:
2005
Weighted
Average
Interest Rate
Floating
Interest Rate
Fixed interest
Maturing in
1 year or <
1 -5 years
Financial Assets
$
$
$
Non-
Interest
bearing
$
Total
$
Cash assets
3.61%
8,853,410
1,583,835
- .
- . 10,437,245
Receivables
Current
Non current
Financial Liabilities
Payables
Provisions
.
.
1,035,392
1,939,540
1,267,572
1,707,360
.
.
(5,980,010)
(5,980,010)
(36,454)
(36,454)
Net financial assets/(liabilities)
8,853,410
1,583,835
- .
(3,041,532)
(7,395,713)
2004
Weighted
Average
Interest Rate
Floating
Interest Rate
Fixed interest
Maturing in
1 year or <
1 -5 years
Financial Assets
$
$
$
Non-
Interest
bearing
$
Total
$
Cash assets
Receivables
Financial Liabilities
Payables
Interest bearing
liabilities - current
Provisions
0.21%
18,030,792
- .
- .
- . 18,030,792
.
539,989
539,989
5.48%
- .
(513,160)
- .
- .
(513,160)
(1,939,581)
(1,939,581)
(21,692)
(21,692)
Net financial assets/(liabilities)
18,030,792
(513,160)
- .
(1,421,284) 16,096,348
38
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 20: Financial Instruments continued
(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.
(d) Foreign Currency Risk
The consolidated entity is exposed to foreign currency risk on sales, purchases and borrowings that are
denominated in a currency other than Australian Dollars. The currency giving rise to this risk is primarily Euro.
Amounts receivable/(payable) in foreign currency which are not effectively hedged:
Cash
Current - Receivables
Non-current - Receivables
Current - Payables
CONSOLIDATED
COMPANY
2005
2004
2005
2004
1,747,322
1,344,651
745
1,146,056
1,025,783
493,263
1,939,540
-
5,418,686
1,672,658
-
-
-
-
-
-
NOTE 21: Commitments and Contingencies
(i) Exploration Commitments
Under its exploration licence for Crocetta and for Cascina San Pietro, PVE is required to drill one well in 2005.
This was satisfied by the drilling of the Sillaro #1 (Crocetta) and Vitalba #1 (Cascina San Pietro) during 2005.
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.
(ii) Contingencies
The consolidated entity provided a financial guarantee to secure payment obligation for drilling of wells .
At 31 December 2005, a credit line of $2,672,414 was available at the consolidated entity’s bank and was
undrawn. The consolidated entity has provided for $1,217,400 in current liabilities.
39
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 22: Joint Ventures
As at the 31 December, 2005 the consolidated entity held interests in the following Joint Ventures and permits in Italy:
Titles of Permits granted
San Vincenzo
Participation percentages
Other registered holders and
relevant percentages
NSI 32.5%
PVO 17.5%
Edison 50%
Assets and liabilities of the Joint Venture at 31.12.2005 were as follows:
Resource Property Costs
Receivables
Payables
Net Assets
1,560,176
75,537
(26,491)
1,609,222
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
Casone della Sacca
Participation percentages
Other registered holders and
relevant percentages
NSI 32.5%
PVO 17.5%
NSI 36.1%
PVO 19.45%
Edison 50%
ENI 44.45%
Assets and liabilities of the Joint Ventures at 31.12.2004 were as follows:
Resource Property Costs
Payables
Net Assets
1,597,940
(773,039)
824,901
40
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 23: Reconciliation of Cash Flows from Operating Activities
Loss for the period
Foreign exchange loss
Adjustment for non-cash items:
Share-based payments
Provision written back
CONSOLIDATED
COMPANY
2005
2004
2005
2004
(2,267,469)
(1,613,460)
(862,591)
(1,366,230)
90,406
(3,544)
331,366
93,624
561,972
619,506
561,972
619,506
-
(135,704)
-
-
-
-
-
-
-
-
-
-
Depreciation - office furniture & equipment
12,095
12,197
Exploration expenditure written off
745,403
30,451
Other - provisions
Creditors written back
14,762
10,665
-
(8,365)
Change in operating assets and liabilities:
(Increase) decrease in other receivable
(166,592)
(4,920)
37,118
(43,425)
(Increase) decrease in sundry debtors
44,504
(157)
-
-
Increase in shareholder loans for interest
(9,062)
40,760
(9,062)
38,687
Increase (decrease) in trade and other creditors
116,641
539,033
(108,425)
256,872
Net cash outflow from operating activities
(857,340)
(513,538)
(49,622)
(400,966)
41
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 24: Key Management Personnel Disclosure
The following were key management personnel of the consolidated entity at any time during the reporting period and
unless otherwise indicated were key management personnel for the entire period.
(a) Remuneration
The major provisions of the service contracts held with the specified directors and executives, in addition to any
performance related bonuses and/or options are as follows:
Specified directors
Graham Bradley, Chairman
• Commencement Date:
• Term of Appointment: 3 years
• Fixed remuneration for the year ended 31 December, 2005: $60,000
• No termination benefits
19 May 2005
David McEvoy, Non-executive director
• Commencement Date:
• Term of Appointment:
• Fixed remuneration for the year ended 31 December, 2005: $40,000
• No termination benefits
19 May 2005
3 years
Byron Pirola, Non-executive director
• Commencement Date:
• Term of Appointment:
• Fixed remuneration for the year ended 31 December, 2005: $40,000
• No termination benefits
19 May 2005
3 years
Michael Masterman, Chief Executive Officer and Executive director
• Commencement Date:
• Term of Agreement:
• Fixed remuneration inclusive of superannuation for the year ended 31 December, 2005: $240,000
• Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one
14 December 2004
2 years with a further 1 year extension at the option of the executive
years total fixed remuneration
Dietmar Greil, Technical director
• Commencement Date:
• Term of Agreement:
• Fixed remuneration for the year ended 31 December, 2005: EUR100,000
• Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one
1 January 2005
2 years with a further 1 year extension at the option of the executive
years total fixed remuneration
Specified Executive
Dom Del Borrello, Company Secretary
6 September 2004
• Commencement Date:
No fixed term
• Term of Agreement:
• Contracted on a fixed hourly rate to provide company secretarial services.
• No termination benefits
42
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 24: Key Management Personnel Disclosure continued
Salary
& fees
Bonus
Super-
annuation
benefits
Value of
options (1)
Total
Specified directors
G Bradley (Chairman) 2005
2004
D McEvoy
B Pirola
M Masterman (CEO)
2005
2004
2005
2004
2005
2004
D Greil
2005
(appointed 5 August 2005) 2004
Specified executives
D Del Borrello
2005
2004
2005
2004
57,163
15,000
39,198
10,000
39,198
10,000
255,877
152,000
149,714
57,804
33,058
5,000
574,208
249,804
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,350
-
900
-
900
-
-
-
-
-
-
-
-
292,500
-
146,250
-
58,500
280,986
61,128
168,592
36,677
57,163
308,850
39,198
157,150
39,198
69,400
536,863
213,128
318,306
94,481
28,099
6,113
61,157
11,113
477,677
1,051,885
3,150
601,168
854,122
The directors and executives were appointed on the following dates
M Masterman
B Pirola
G Bradley
D McEvoy
D Greil
22 June 1999
10 May 2002
30 September 2004
30 September 2004
5 August 2005 (as director, previously as specified executive)
D Del Borrello
6 September 2004
(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.
All options expire 31 October 2008 and each option entitles the holder to purchase one share.
43
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 24: Key Management Personnel Disclosure continued
(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 issued or 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:
Held at
31 Dec 2004
Issued
Held at
31 Dec 2005
Specified directors
G Bradley
M Masterman
D McEvoy
B Pirola
D Greil
Specified executives
D Del Borrello
1,000,000
1,500,000
500,000
200,000
900,000
150,000
-
-
-
-
-
-
1,000,000
1,500,000
500,000
200,000
900,000
150,000
The details of the options held at 31 December 2005 are as follows:
$1.00
exercise price,
expiring
31Oct 08
$1.25
exercise price,
expiring
31Oct 08
Total
1,000,000
-
1,000,000
-
1,500,000
1,500,000
500,000
200,000
-
-
-
-
900,000
500,000
200,000
900,000
150,000
150,000
1,700,000
2,550,000
4,250,000
Specified directors
G Bradley
M Masterman
D McEvoy
B Pirola
D Greil
Specified executives
D Del Borrello
44
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 24: Key Management Personnel Disclosure continued
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 2004
Purchased
Held at
31 Dec 2005
Specified directors
G Bradley
M Masterman
D McEvoy
B Pirola
D Greil
Specified executives
D Del Borrello
Related Entities
J Masterman1
I Masterman1
G Masterman1
323,981
21,339,242
129,593
12,010,821
695,989
90,715
4,788,444
500,000
388,778
-
-
-
-
-
-
-
-
-
323,981
21,339,242
129,593
12,010,821
695,989
90,715
4,788,444
500,000
388,778
1 Related parties to M Masterman
(e) Other transactions with the Company
A total amount of $35,858 (2004: $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 loan from Masterman Investments Pty Limited, a company controlled by Michael Masterman was repaid
during the year (2004: $509,062). During the year interest of $27,824 (2004: $27,812) was accrued and paid
to Masterman Investments Pty Limited.
NOTE 25: Explanation Of Transition To Australian Equivalents To AIFRS
As stated in significant accounting policies note (a) these are the consolidated entity’s first consolidated financial
statements prepared in accordance with AIFRSs.
The policies set out in the significant accounting policies section of this report have been applied in preparing the
financial statements for the year ended 31 December 2005, the comparative information presented in these financial
statements for the year ended 31 December 2004 and in the preparation of an opening AIFRS balance sheet at 1
January 2004 (the consolidated entity’s date of transition).
45
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 25 : Explanation Of Transition To Australian Equivalents To AIFRS continued
(i) Reconciliation of equity reported under previous Australian Generally Accepted Accounting
Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS)
CONSOLIDATED
1 Jan 2004
AGAAP Effect of transition AIFRS
to AIFRS
31 Dec 2004
AGAAP Effect of transition AIFRS
to AIFRS
Current Assets
Cash
Receivables
Other Assets
69,897
76,601
- .
69,897
18,030,792
- . 18,030,792
- .
76,601
539,989
- .
539,989
51,755
- .
51,755
- .
- .
- .
Total Current Assets
198,253
- . 198,253
18,570,781
- . 18,570,781
Non-Current Assets
Plant & Equipment
b
21,191
- .
21,191
826,213
23,654
849,867
Resource Property Costs b 7,936,133
- . 7,936,133
11,869,449
288,360 12,157,809
Total Non-Current Assets 7,957,324
- . 7,957,324
12,695,662
312,014 13,007,676
Total Assets
8,155,577
- . 8,155,577
31,266,443
312,014 31,578,457
Current Liabilities
Provisions
Payables
11,028
- .
11,028
21,692
- .
21,692
1,237,190
- . 1,237,190
1,939,581
- . 1,939,581
Interest Bearing Liabilities
- .
- .
- .
513,160
- .
513,160
Total Current Liabilities
1,248,218
- . 1,248,218
2,474,433
- . 2,474,433
Non- Current Liabilities
Interest Bearing Liabilities
865,384
- . 865,384
- .
- .
- .
Total Liabilities
2,113,602
- . 2,113,602
2,474,433
- . 2,474,433
Net Assets
6,041,975
- . 6,041,975
28,792,010
312,014 29,104,024
Equity
Contributed Equity
6,409,352
- . 6,409,352
30,276,671
- . 30,276,671
Reserves
b
19,023
- .
19,023
- .
261,268
261,268
Accumulated losses
a,b (439,961)
- .
(439,961)
(1,484,661)
50,746
(1,433,915)
Outside shareholders interest
53,561
- .
53,561
- .
- .
- .
Total Equity
6,041,975
- . 6,041,975
28,792,010
312,014 29,104,024
46
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 25 : Explanation Of Transition To Australian Equivalents To AIFRS continued
(i) Reconciliation of equity reported under previous Australian Generally Accepted Accounting
Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS)
COMPANY
1 Jan 2004
31 Dec 2004
Previous Effect of transition AIFRS
Previous Effect of transition AIFRS
GAAP
to AIFRS
GAAP
to AIFRS
Current Assets
Cash
Receivables
42,518
- .
- .
- .
42,518
17,821,432
- . 17,821,432
- .
46,726
- .
46,726
Total Current Assets
42,518
- .
42,518
17,868,158
- . 17,868,158
Non-Current Assets
Investments
Receivables
7,156,353
- . 7,156,353
10,749,314
- . 10,749,314
- .
- .
- .
1,740,215
- . 1,740,215
Total Non-Current Assets 7,156,353
- . 7,156,353
12,489,529
- . 12,489,529
Total Assets
7,198,871
- . 7,198,871
30,357,687
- . 30,357,687
Current Liabilities
Payables
2,999
- .
2,999
393,444
- . 393,444
Interest Bearing Liabilities
- .
- .
- .
513,160
- . 513,160
Total Current Liabilities
2,999
- .
2,999
906,604
- . 906,604
Non- Current Liabilities
Interest Bearing Liabilities
865,384
- . 865,384
- .
- .
- .
Total Liabilities
868,383
- . 868,383
906,604
- . 906,604
Net Assets
6,330,488
- . 6,330,488
29,451,083
- . 29,451,083
Equity
Contributed Equity
6,409,352
- . 6,409,352
30,276,671
- . 30,276,671
Accumulated losses
a
( 78,864)
- .
( 78,864)
(825,588)
- .
(825,588)
Total Equity
6,330,488
- . 6,330,488
29,451,083
- . 29,451,083
47
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 25 : Explanation Of Transition To Australian Equivalents To AIFRS continued
(ii) Reconciliation of loss for 2004 reported under previous Australian Generally Accepted
Accounting Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS)
CONSOLIDATED
Previous Effect of transition AIFRS
GAAP
to AIFRS
COMPANY
Previous Effect of transition AIFRS
GAAP
to AIFRS
Revenue
195,057
- . 195,057
18,970
- .
18,970
Employee benefit expense a
(234,671)
(619,506)
(854,177)
- .
(619,506)
(619,506)
Depreciation and
amortisation expense
(18,672)
- .
(18,672)
- .
- .
- .
General & administration
(821,074)
- .
(821,074)
(633,383)
- .
(633,383)
Finance costs
Exploration written off
(40,042)
(30,451)
- .
- .
(40,042)
(30,451)
(38,687)
- .
Other expenses
b
(94,847)
50,746
(44,101)
(93,624)
- .
- .
- .
(38,687)
- .
(93,624)
Loss before income
tax expense
(1,044,700)
(568,760) (1,613,460)
(746,724)
(619,506) (1,366,230)
Income tax expense
- .
- .
- .
- .
- .
- .
Loss from ordinary
activities after income
tax expense
(1,044,700)
(568,760) (1,613,460)
(746,724)
(619,506) (1,366,230)
Net loss attributable to (1,044,700)
members of Po Valley
Energy Limited
(568,760) (1,613,460)
(746,724)
(619,506) (1,366,230)
48
PO VALLEY ENERGY LIMITED
Notes to the Consolidated Financial Statements
NOTE 25 : Explanation Of Transition To Australian Equivalents To AIFRS continued
(iii) Notes to the reconciliations
a) AASB 2 THE EFFECT OF SHARE-BASED PAYMENTS
The consolidated entity has granted share-based payments in 2004 and 2005. The consolidated entity
applied AASB 2 to its share-based payment arrangements that had not yet vested before 1 January 2005.
Under previous GAAP, the consolidated entity did not account for equity settled share based payments; such
payments are now recognised at fair value in accordance with AASB 2.
The effect of accounting for equity-settled share-based payment transactions is to increase employee benefit
expense by $619,506 for the year ended 31 December 2004 in the consolidated entity and the Company
with a corresponding increase in retained earnings.
At 1 January 2004, there was no impact in relation to AASB 2.
b) AASB 121 THE EFFECT OF FOREIGN EXCHANGE RATES
Under previous GAAP foreign operations were translated using the temporal method. Monetary assets and
liabilities were translated at current rate at reporting date; non-monetary assets, liabilities, equity and revenue
and expense items were translated at rates relevant at the transactions dates. Differences were taken to profit
and loss. Under AIFRS, specifically AASB121, the consolidated entity has determined the functional currency
of its foreign operations to be Euro. The assets and liabilities of the foreign operations are translated to
the presentation currency being Australian dollars. This has resulted in an increase in Plant & Equipment
of $23,654 and Resource Property costs $288,360 recognised directly in the foreign currency translation
reserve. Translation differences for the year ended 31 December 2004 previously recognised in profit and
loss under AGAAP have now been taken to the foreign currency translation reserve; this has resulted in a
decrease in the accumulated loss of $50,746.
At 1 January 2004, there was no impact in relation to AASB 121.
There was no impact on the equity of the Company in relation to AIFRS.
49
PO VALLEY ENERGY LIMITED
Directors’ Declaration
1. In the opinion of the directors of Po Valley Energy Ltd (“the Company”):
i) the fi nancial statements and notes, as set out on pages 21 to 49, are in accordance with the
Corporations Act 2001, including:
a. giving a true and fair view of the fi nancial position of the Company and the consolidated entity as at 31
December 2005 and of their performance, as represented by the results of their operations and their cash
fl ows, for the fi nancial year ended on that date.
b. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
ii) 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.
2. The directors have been given the declarations by the chief executive offi cer and company secretary for the
fi nancial year ended 31 December 2005 pursuant to Section 295A if the Corporations Act 2001.
Dated at Sydney this twentieth day of March 2006.
Signed in accordance with a resolution of the directors:
Graham Bradley
Chairman
Byron Pirola
Non-Executive Director
50
PO VALLEY ENERGY LIMITED
Independent Audit Report
51
PO VALLEY ENERGY LIMITED
52
PO VALLEY ENERGY LIMITED AND ITS CONTROLLED ENTITIES
Shareholder Information
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 28
February, 2006.
Shareholdings
Substantial Shareholders
Name
Michael Masterman
Number of
ordinary
shares held
21,339,242
Harbert Distressed Investment Fund
12,500,000
Beronia Investments Pty Ltd1
12,010,821
Hunter Hall Investment Management Pty Ltd 9,856,981
Joan Masterman
4,788,444
1) Interests associated with Non-Executive Director, Byron Pirola
Distribution of Share and Option Holdings
Percentage
of capital held
%
25.87%
15.16%
14.55%
11.95%
5.80%
Size of Holdings
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - over
Ordinary Shares
Options
Number of Number of
shares
holders
Number of
holders
Number of
options
22
127
79
14,627
444,250
691,915
143
4,621,062
41
76,728,146
0
0
0
4
7
0
0
0
150,000
4,550,000
412
82,500,000
11
4,700,000
Number of ordinary shareholders with
less than a marketable parcel
Nil
Voting Rights of Shares and Options
Refer to Note 16 and Note 18.
On-Market Buy-Back
There is no current on-market buy-back.
53
PO VALLEY ENERGY LIMITED AND ITS CONTROLLED ENTITIES
Shareholder Information continued
Twenty Largest Shareholders
Number of ordinary
shares held
Percentage of
capital held (%)
1 Michael Masterman
21,339,242
2 Harbert Distressed Investment Master Fund Ltd
12,050,000
3 Citicorp Nominees Pty Limited
10,701,507
4 Beronia Investments Pty Ltd 10,389,821
5
Joan Masterman
6 Equity Trustees Limited
7 Beronia Investments Pty Ltd
8 Ken Ambrecht
9 Equitas Nominees Pty Limited
10 Holly Gibson
10 Lauri Macri
11 Dietmar Greil
12 Christie (Qld) Pty Ltd
13 Arton No 001 Pty Limited
13 Nicola Forrest
14 Alpha US Sub Fund VI LLC
15 McDonald Petroleum Pty Ltd
16 Mellior Pty Ltd
17 George Gurney Masterman
18 Chris & Betsy Carr
4,788,444
2,862,385
1,621,000
1,224,649
1,177,405
1,000,000
1,000,000
695,989
575,000
500,000
500,000
450,000
422,000
400,142
388,778
370,000
19 ANZ Nominees Limited
327,000
20 Graham Bradley
20 NorthSun Energy Limited
323,981
323,981
25.87%
14.61%
12.97%
12.59%
5.80%
3.47%
1.96%
1.48%
1.43%
1.21%
1.21%
0.84%
0.70%
0.61%
0.61%
0.55%
0.51%
0.49%
0.47%
0.45%
0.40%
0.39%
0.39%
73,431,926
89.01%
54
PO VALLEY ENERGY LIMITED AND ITS CONTROLLED ENTITIES
Shareholder Information continued
Option holders - Unquoted
Number of ordinary
options held
Percentage of
Options held (%)
1 Michael Masterman
2 Options issued under the PVE Employee
Incentive Option Scheme1
3 Graham Bradley
4
5
David McEvoy
Byron Pirola
Restricted Securities
Class
1,500,000
1,500,000
1,000,000
500,000
200,000
4,700,000
Number of
ordinary
restricted
Securities
31.91%
31.91%
21.28%
10.64%
4.26%
100%
Date of
Release
Director & Executives - fully paid ordinary shares
3,323,171
16 September 20051
Director & Executives - fully paid ordinary shares
31,259,252
16 December 2006
Other - Fully paid ordinary shares
795,925
15 March 2005
Other - Fully paid ordinary shares
8,929,172
16 September 20051
Other - Fully paid ordinary shares
Other - Fully paid ordinary shares
Director & Executives - unlisted Options
Other - unlisted
167,258
4,970,223
3,200,000
1,500,000
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).
55
Notes
56
57
PO VALLEY ENERGY LIMITED
PO VALLEY ENERGY LIMITED
A.B.N. 33 087 741 571
A.B.N. 33 087 741 571
Registered Offi ce
Registered Offi ce
Level 28, 140 St. Georges Terrace
Level 28, 140 St. Georges Terrace
Perth WA 6000
Perth WA 6000
Tel: (08) 9278 2533
Tel: (08) 9278 2533