Po Valley energy limited
aBn 33 087 741 571
registered office
level 28, 140 St. georges terrace
Perth Wa 6000
tel: (08) 9278 2533
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2012 Annual Report
1
2
4
6
Highlights
30
Statement of Changes in equity
Chairman’s letter to Shareholders
31
Statements of Cash Flow
Chief executive officer’s report
32
notes to the Financial Statements
Corporate governance Statement
69
directors’ declaration
12
directors’ report
70
independent auditor’s report
27
lead auditor’s independence declaration
72
Shareholder information 2011/2012
28
Statement of Financial Position
74
reserves & resources Statement
29
Statement of Comprehensive income
Corporate Directory
Directors
Graham Bradley, Chairman
Giovanni Catalano, Managing Director & CEO
Michael Masterman, Non Executive Director
Byron Pirola, Non Executive Director
Gregory Short, Non Executive Director
Kevin Eley, Non Executive Director
Company Secretary Lisa Jones
Registered Office
Level 28, 140 St George’s Tce
Perth, WA Australia 6000
Tel: +61 8 92782533
Rome Office
Via Ludovisi, 16
00187 Rome, Italy
Tel: +39 06 42014968
Po Valley Energy Limited
Share Registry
Link Market Services Limited
178 St George’s Tce
Perth, WA Australia 6000
Tel: +61 2 82807111
Solicitors
Steinepreis Paganin
Level 4, 16 Milligan St
Perth, WA Australia 6000
Ughi e Nunziante
Studio Legale
Via Venti Settembre, 1
00187 Roma, Italy
Auditor
KPMG
235 St George’s Tce
Perth, WA Australia 6000
Banks
Bankwest
108 St George’s Tce
Perth, WA Australia 6000
Lloyds TSB Bank
25 Gresham Street
London, UK, EC2V 7HN
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.
Highlights
Gas production 0.85 billion cubic feet
€8.2 million (AUD 10.2 million) revenue
€4.3 million (AUD 5.4 million) net cash flow from operating activities
€4.5 million (AUD 5.6 million) EBITDA
Annual average gas price €cent/Scm 33.46 (11.76 AUD/million standard cubic
feet)
Independently assessed portfolio:
Proven plus Probable Reserves 2P of 12.3 bcf;
Contingent Resources best estimate 2C of 79.5 bcf of gas and
10 MMbbls of oil;
Prospective Resources best case of 201.2 bcf.
First offshore exploration permit awarded
Two new farmout agreements negotiated and under finalisation
€1.1 million (AUD 1.3 million) from private share placement
2 million Euro repaid to Lloyds and work well advanced for a new RBL
A n n u a l R e p o r t 2 0 1 2 | 1
Chairman’s letter to Shareholders
Dear Shareholder,
On behalf of the Board of Directors, I am pleased to present the Company’s 2012 Annual Report.
The past year has been one of steady progress which has laid a solid foundation for accelerated
development in the period ahead. We maintained our positive net cashflows from operations, despite
operational challenges at our major producing field Sillaro, reduced our debt and produced a maiden
net profit after tax. We also secured our first offshore licence and successfully established InTrading,
our direct gas sale operation, in association with Italtrading.
Operating Results
In 2012, our third year of gas production, we produced 0.85 bcf of gas. This brings total gas production
from our Sillaro and Castello fields over the past three years to 2.8 bcf which generated cumulative
revenue of over €24.0 million (AUD 30 million).
Following successful drilling of the Vitabla-1dirA well in late 2012, our Castello field has produced
steadily at a moderate but prudent level throughout the year. Production at Sillaro was, however,
reduced in order to avoid the risk of condensate production pending installation of condensate
separation equipment which was installed in April 2013. We expect Sillaro to now return to its previous
production levels of around 75,000 scm per day for the balance of 2013.
I am also pleased to report that we continue to operate safely throughout the year, with no reportable
injuries or environmental incidents during the period.
Financial Results
Total revenues in 2012 were €8.2 million (AUD 10.2 million), down approximately 10 percent on the
prior year, due mainly to reduced production rates. Gas prices were reasonably steady over the
period. During 2012, however, operating efficiencies were achieved and this enabled the Company to
achieve a slight increase in earnings before interest, tax, depreciation and amortisation to €4.5 million
(AUD 5.6 million).
The Company’s net profit after tax in 2012 was €2.37 million (AUD 2.9 million), compared to a loss in
2012 of €5.07 (AUD 7.2 million) in 2011. The Company recognised a deferred tax asset of €2.2 million
(AUD 2.7 million) for the first time at a consolidated level in 2012. Excluding this tax benefit, the
Company generated a net profit after tax for the period of €0.14 million. The Company declared no
dividends for 2012.
Future Developments
One of our priorities for 2012 was to secure farm-in partners for certain of our future exploration wells,
and I am pleased to report that we are close to reach an agreement with Petrorep Italiana S.p.a. and a
second partner to farm into three of the wells that we hope to drill in the 2013/2014 period. We
continue to seek additional farm-in partners to help us accelerate future developments.
Solid progress was made in 2012 on our exploration and development projects. Following grant of our
first offshore exploration permit (AR94PY) in the Adriatic Sea, we have progressed our geoscience
work and will also be seeking farm-in partners for this project in the period ahead.
Finally, in September we were awarded a preliminary production concession for our Bezzecca gas
field which, following final and environmental approval, we hope will become our third producing gas
field in 2014.
2 | A n n u a l R e p o r t 2 0 1 2
Chairman’s letter to Shareholders
Funding
In December 2012 the Company raised A$1.35 million (€1.1 million) through a private placement with
the proceeds used to fund the condensate separation equipment at Sillaro and for general working
capital purposes.
The Company is well advanced in negotiating to secure a new reserves loan facility to replace the
existing facility with Lloyds Bank which will expire in November 2013.
Board Changes
In May 2012, David McEvoy retired as a Non-Executive Director after serving the Company since
listing in 2004. I again express the Board’s appreciation to David for his outstanding commitment to
the Company during his nine years as a Director. I was also pleased to announce in June 2012 the
appointment of Kevin Eley as a Non-Executive Director and CEO, Giovanni Catalano, as our
Managing Director.
Outlook
We start 2013 with a solid cashflow which we expect will increase with increased production at Sillaro
as the year progresses. We have our sights on bringing on stream our third producing asset early in
2014 and, subject to final approvals and financing, we expect to drill a further two or more exploration
wells during the next 18 months as well as progressing a number of our highly prospective assets
towards farm-out and development. I look forward to reporting further developments as the year
progresses.
In closing, I would like to thank our shareholders for their ongoing support, my board colleagues and
our dedicated team in Rome for their commitment and hard work during the past year.
Graham Bradley
Chairman
A n n u a l R e p o r t 2 0 1 2 | 3
Chief Executive Officer’s Report
Dear Shareholder,
This past year has been a year of progress, challenge and achievements.
Our principal operational priority was maintaining steady production from the Vitalba gas field and
working to re-open the main producing levels at Sillaro, closed in February 2012 to avoid the risk of
condensate production.
Despite Sillaro producing at a reduced rate the Company achieved a combined total production of
24.7 million cubic metres of gas (0.85 billion cubic feet). Production from Sillaro during 2012 was 19.3
million standard cubic meters, while production from Castello amounted to 5.3 million standard cubic
metres of gas. Condensate extraction equipment was installed at the Sillaro plant in April 2013 and is
now awaiting final authorisation to re-open the main levels with the aim of increasing production to
about 75,000 scm/day.
I am pleased to report that despite the reduced production, the Company’s consolidated balance sheet
was strengthened by an improvement in net cash flow from operating activities €4.3 million showing
an improvement of 33% compared to the previous year, and by a reduction in debt by €2.0 million.
From a development perspective, significant progress was made during 2012 to secure and advance
projects that will provide a foundation for future growth. One key milestone achieved was the award of
our first offshore exploration permit AR94PY (previously AR168PY), located in the Adriatic Sea in 35
meters of water and containing two connected gas discoveries, Carola and Irma, formerly drilled and
tested by ENI. Subsequent to the licence grant we purchased existing 3D seismic data covering the
two structures and our technical team has started development planning and economic analysis to
support an application for a production concession. Evaluations of this field indicate a low estimate
Contingent Resources (1C) of 34.6 bcf and a best estimate Contingent Resources (2C) of 47.3 bcf.
These resource estimates were independently audited by Robertson CGG Limited (formerly Fugro
Robertson) in March 2013. The field’s development is now one of our highest priorities.
In December 2012 we appointed Robertson CGC, a leading geological and petroleum reservoir
consultancy firm, to prepare a Competent Persons Report (CPR) on the Company’s core asset
portfolio. The CPR provides an estimate of the resources for certain development assets and
exploration prospects and a related economic evaluation. The CPR was finalised in mid-April and the
results, summarised in the table below, reaffirm the Company’s Contingent and Prospective
Resources and confirmed additional contingent & prospective resources in the Selva and Vitalba West
prospects.*
Reserves (Bcf)
Contingent Resources (Bcf)
Prospective Resources (Bcf)
1P
2P
3P
1C
2C
3C
Low
Best
High
Proven
Proven
+Probable
7.3
12.3
Proven
+ Probable
+ Possible
7.6
Low
Estimate
Best
Estimate
High
Estimate
51.8
79.5
113.1
133.1
201.2
289.0
Contingent Resources (MMbbls)
1C
5.9
2C
10.0
3C
15.8
* For a detailed table of all the PVE Reserves & Resources assets please refer to page 74 of this Annual Report
In July 2012 we received the preliminary production concession for our Bezzecca gas field. The last
step toward the final concession is the Environmental Impact Assessment which has been lodged with
the Lombardy Region. Commencement of development at Bezzecca is another key priority for 2013.
4 | A n n u a l R e p o r t 2 0 1 2
Chief Executive Officer’s Report
New drilling opportunities are in the pipeline. In early 2013 the Company was awarded the final
approval to drill the Gradizza-1 exploration well. A farmout of 25% of this project for a promoted carry
will allow us to limit our investment risk while maintaining operatorship. The drilling programs for the
wells Zini-1, Canolo-1d and Canolo-2d, located in the Cadelbosco di Sopra permit, are under review
by the Ministry and the Region. Subject to the necessary authorisations, we plan to drill the first of
these wells in 4Q 2013. I am pleased to note that in the summer of 2012, the Company farmed out a
15% working interest in these wells with a promoted carry.
During the year we expanded and consolidated our exploration portfolio. We were awarded a new
exploration licence Torre Del Moro (55km south east of Bologna, an area of 111 square kilometres)
and received a positive Environmental Impact Assessment from the Emilia Romagna Region for our
Tozzona application. Once these licences are fully awarded, the technical team will conduct geological
and geophysical studies on the new permit areas to evaluate a number of already identified leads.
The importance of increasing the Italian hydrocarbon production was recognised and corroborated in
the Italian National Energy Strategy (SEN) prepared by the Ministry of Economic Development. One of
the main objectives is to double the country’s domestic oil and gas production by 2020. This objective
is part of a package of measures which the Minister maintains will help reduce imports to 67% of the
country's energy needs (from 84% in 2012), while also slashing €14 billion ($18.23 billion) per year
from its €62 billion energy import bill. The SEN has now been established as a Ministerial Decree and
will be used as a proposed strategic framework for the future government.
In conclusion, 2013 will be another challenging but exciting year with key operational priorities
including a continued effort to secure farm out partners, progress our drilling plans and bring new
production on-line.
We will continue to strive to deliver future value to shareholders and to this end I would like to thank
our staff, Senior Management and our Board for all their hard work and loyalty shown throughout this
pivotal year and last but not least our shareholders for their continued support.
Giovanni Catalano
Chief Executive Officer
& Managing Director
A n n u a l R e p o r t 2 0 1 2 | 5
Corporate Governance Statement
The Board is committed to implementing the standards of best corporate governance for listed
companies as set out in the Corporate Governance Principles and Recommendations of the ASX
Corporate Governance Council (ASX Corporate Governance Recommendations) as appropriate for a
company of PVE’s nature and size. This corporate governance statement summarises the corporate
governance practices that have been adopted by the Company and, as required by the ASX Listing
Rules, provides details of the extent to which the Company has followed the ASX Corporate
Governance Recommendations during the reporting period.
ASX Principle 1 – Lay solid foundations for management and oversight
Role of the Board
The primary responsibility of the Board and management is to preserve and increase the value of the
Company for its shareholders, while respecting the legitimate interests and expectations of
employees, customers, creditors, the communities in which PVE operates and other stakeholders. The
Board is responsible for establishing a company culture of high ethical, environmental, health and
safety standards.
The Board has general responsibility for the oversight, management and performance of the
Company. Its specific responsibilities include the following:
Set the strategic direction for the Company and monitor implementation of those strategies;
Monitor performance of the Company, the Board and management;
Appoint and manage performance of the CEO, approve the Company’s overall remuneration
policy and oversee the senior management team in terms of performance evaluation,
succession planning and remuneration;
Approve and monitor the business plan, annual exploration and development work programs
and budgets in accordance with the approved strategy and monitor the Company’s overall
financial position and capital requirements;
Authorise and monitor significant investment and strategic commitments;
Approve and monitor financial and other reporting to shareholders;
Review and ratify the Company’s policies and systems for health, safety and environmental
management, risk management and internal control; codes of conduct and regulatory
compliance;
Appoint and remove the external auditors;
Evaluate the performance of the Board and identify and appoint new directors to the Board;
Take responsibility for corporate governance.
Delegation to Senior Management
Other than the matters specifically reserved for the Board, responsibility for the operation and
administration of the Company has been delegated to the Chief Executive Officer. Internal control
processes are in place to allow management to operate within board approved limits and the
Managing Director cannot commit the Company to additional obligations or expenditure outside of
those delegated authorities without Board approval.
6 | A n n u a l R e p o r t 2 0 1 2
Corporate Governance Statement (Continued)
ASX Principle 2 – Structure the Board to Add Value
Composition of the Board
There are currently five Non-Executive Directors and one Executive Director on the Board. The Board
has been structured to include directors with a versatile set of skills, expertise and experience to
enable the Board to execute its duties and responsibilities for the proper and effective management of
the Company. The Board seeks to ensure that its members together have the following combination of
skills and experience:
Technical expertise and experience in oil and gas exploration, development and production;
Finance and accounting;
Company strategy and business planning and business and corporate development;
Local and international experience; and
Public company affairs and corporate governance.
The Directors Report contains further details of the experience of each Director and their term of
office.
Retirement and Rotation
Retirement and rotation of the directors is governed by the Corporations Act 2001 and the Company’s
Constitution. In accordance with the Constitution, one-third of the Board is required to retire at each
annual general meeting with retiring directors being eligible for re-election.
Independence
The Board currently has a majority of Non-Executive Directors, 50% of whom are independent
including the Chairman. The independence of Directors is regularly assessed by the Board and in
doing so it has careful regard to the guidelines set out in the ASX Corporate Governance
Recommendations for the evaluation of director independence. Based on the application of those
guidelines, the Board currently considers that it has three independent Directors being Graham
Bradley (the Chairman), Kevin Eley and Gregory Short. Giovanni Catalano is the Managing Director
and hence not considered independent. Byron Pirola and Michael Masterman are not considered to be
independent as they each have substantial shareholdings of more than 5% of the Company’s shares.
Independent Advice
In connection with their duties and responsibilities, Directors have the right, to seek independent
professional advice at the Company’s reasonable expense. Prior approval of the Chairman is required
which will not be unreasonably withheld.
Board Committees
Remuneration & Nominations Committee
The Company has a Remuneration & Nominations Committee which provides recommendations to the
Board on matters including:
The appointment and evaluation of the CEO and the process for evaluation of senior
executives;
The Company’s remuneration policies and practices and the remuneration of the CEO, senior
executives and Non-Executive Directors;
The composition of the Board and competencies of Board members;
Succession planning for Directors and senior management;
A n n u a l R e p o r t 2 0 1 2 | 7
Corporate Governance Statement (Continued)
Processes for the evaluation of the performance of the Directors.
Graham Bradley (Chairman), Byron Pirola and Michael Masterman are the current members of the
committee.
Attendance details of the committee meetings held during 2012 can be found in the Directors Report.
The committee is structured in accordance with the ASX Corporate Governance Recommendations in
so far as it is chaired by an independent chair and has three members, however, it does not consist of
a majority of independent Directors given that two of its members, Mr Masterman and Dr Pirola are not
considered independent due to their substantial shareholdings.
Board performance is reviewed annually by the committee. The last review was conducted in February
2013. The Board has not formalised the procedures for selection and appointment of new Directors or
re-election of incumbent Directors, however, the Board regularly reviews its composition to determine
whether it has the right mix of skills and experience.
The Remuneration & Nominations Committee is also responsible for ensuring an appropriate process
is followed for the review of the performance of the CEO and senior executives.
At the beginning of each year, the committee approves company and individual performance
objectives for the CEO and senior executives. Performance is evaluated and any performance based
remuneration for the CEO, senior executives and management is approved at the end of each year.
Performance objectives are a combination of company and individual objectives. The committee
evaluated the performance of the CEO and senior executives in accordance with this process in
December 2012.
Audit & Risk Committee
The Company has established an Audit & Risk Committee which provides advice and assistance to
the Board in fulfilling its corporate governance and oversight responsibilities in relation to internal and
external audit, risk management systems, financial and market reporting, internal accounting, financial
control systems and other items as requested by the Board.
The committee has adopted a formal charter. In fulfilling its obligations, the committee has direct
access to employees, the auditors or any other independent experts and advisers it considers
appropriate to carry out its duties. Kevin Eley (who chairs the committee), Byron Pirola and Gregory
Short are the current members of the committee. The committee has been structured to comply with
the ASX Corporate Governance Recommendations so that it:
Has three members;
Consists only of Non-Executive Directors;
Has a majority of independent Directors;
Is chaired by an independent chair, who is not the chair of the Board; and
Comprises members with the appropriate financial and business expertise to act effectively as
a member of the committee.
The number of Audit & Risk Committee meetings held in 2012 and director attendance is set out in the
Directors Report on page 14. Committee member qualifications are set out on page 12 and 13.
8 | A n n u a l R e p o r t 2 0 1 2
Corporate Governance Statement (Continued)
ASX Principle 3 – Promote Ethical and Responsible Decision-Making
Code of Conduct
All executives and employees are required to abide by laws and regulations, to respect confidentiality
and the proper handling of information and act with the highest standards of honesty, integrity,
objectivity and ethics in all dealings with each other, the Company, customers, suppliers and the
community. The Company has adopted a code of conduct.
Diversity
The Company's policy is to ensure that hiring, employment and board selection policies avoid gender
bias and encourage diversity to the extent possible for a small organisation.
Po Valley currently employs 20 full time employees, of whom, 10 are men and 10 are women. The
Company’s senior executives include women in the roles of Chief Financial Officer and Company
Secretary. Women also hold key roles in the areas of accounting, corporate and public relations. The
Company's employees are drawn from a variety of nationalities, age, ethnic and cultural backgrounds.
The Company currently has no female directors.
The Board believes that, given the highly specialised nature of the Company’s most senior positions
which are of a technical nature, it is unrealistic to set gender diversity targets at this time in the
Company's evolution.
The Board is committed to maintaining a corporate culture which supports workplace diversity.
Securities Trading Policy
The Company has adopted a Securities Trading Policy which complies with ASX Listing Rule 12.2.
This policy provides guidance to directors and employees on the laws relating to insider trading and
provides them with practical guidance to avoid unlawful transactions in Company securities. Directors
and employees are prohibited from trading the Company’s securities at any time while in possession
of price sensitive information and are also prohibited from trading securities during “blackout” periods
around the announcement of the Company’s half yearly and yearly results. Directors and employees
must not engage in short term trading of the Company’s securities and are also prohibited from
dealing in any derivative products issued in respect of the Company’s shares. In any event, any
trading in securities by Directors or employees is subject to the prior approval of the Chairman (in the
case of Directors), the Chairman of the Audit & Risk Committee (in the case of the Chairman) or the
CEO or Company Secretary (in the case of other employees).
ASX Principle 4 – Safeguard Integrity in Financial Reporting
The Board is committed to ensuring that the Company’s financial reports present a true and fair view
of the Company’s financial position and comply with relevant accounting standards. The Audit & Risk
Committee assists the Board in discharging its responsibilities for financial reporting and to ensure that
appropriate internal controls are in place.
Please refer to the commentary on ASX Principle 2 above for further details in relation to the Audit &
Risk Committee and to the Directors’ Report for details of the names and qualifications of the
members of the committee and attendance at meetings in 2012.
A n n u a l R e p o r t 2 0 1 2 | 9
Corporate Governance Statement (Continued)
ASX Principle 5 – Make Timely and Balanced Disclosure
The Board is committed to ensuring that investors can readily access sufficient information to ascribe
a fair value to the Company’s securities, understand the Company’s objectives and strategies and
evaluate the Company’s financial position and growth prospects. The Company has adopted policies
and procedures, including a Continuous Disclosure Policy, designed to ensure compliance with ASX
Listing Rules disclosure requirements and to ensure accountability at a senior executive level for that
compliance.
ASX Principle 6 – Respect the Rights of Shareholders
Shareholder Communications
The Company has implemented a Shareholder Communications Policy to ensure that shareholders,
on behalf of whom they act, and the financial market have timely access to material information
concerning the Company.
The Company website is used to complement the official ASX release of material information and
periodic reports to the market. The website ensures that all press releases, ASX announcements,
notices and presentations from the past three years are easily accessible to the public.
The Company is committed to ensuring that all shareholders have the opportunity to participate in the
Company’s annual general meetings. In order to facilitate this, from 2010 the Company has provided
shareholders the opportunity to submit written questions for consideration by the Board at the annual
general meeting.
ASX Principle 7 – Recognise and Manage Risk
Risk Management
Risk recognition and management are considered critical in creating and maintaining shareholder
value and the successful execution of the Company’s strategies in gas exploration and development.
The Board has oversight of the processes by which risk is considered for both ongoing operations and
prospective actions. In specific areas, it is assisted by the Audit & Risk Committee.
The Board requires management to design and implement a risk management and internal control
system for the management of material business risk and, during the year, management reported to
the Board on the on the effectiveness of this system.
The CEO and CFO have confirmed in writing to the Board for each reporting period confirming that the
declaration provided in accordance with section 295A of the Corporations Act is founded on a sound
system of risk management and internal control and that the system is operating effectively in all
material respects in relation to financial reporting risks.
Reserves Reporting
The progression of the Company’s discovered hydrocarbon reserves from appraisal studies through to
development and production is core to the Company’s purpose and market value. The Company has
adopted a Hydrocarbon Reserves Policy in order to assist in the implementation of processes,
standard and controls to ensure reliable hydrocarbon reserves estimates, consistent with industry best
practice to facilitate effective business management decision-making and accurate reporting of the
Company’s reserves. The CEO is responsible for the implementation of the policy while the Board
oversees and approves the policy and monitors its implementation.
10 | A n n u a l R e p o r t 2 0 1 2
Corporate Governance Statement (Continued)
Health, Safety and Environment
Po Valley Energy is dedicated to pursuing the highest Health and Safety standards in the workplace.
We regard Environmental awareness and Sustainability as key strengths in planning and carrying out
our business activities. PVE’s daily operations are conducted in a way that adheres to these principles
and we are committed to their continuous improvement.
Environmental sustainability and Health and Safety in the workplace are recognised as an integral part
of our business strategy and corporate citizenship.
In every instance, we aim to employ the most advanced technology and know-how and to apply the
most suitable precautionary measures to each situation while adhering to the highest safety.
Appropriate protection policies are an important selection criteria for contractors, whose activities are
monitored for compliance.
The Company has adopted an HSE Management System which provides for a series of procedures
and routine checks (including periodical audits) to ensure compliance the Company’s compliance with
all legal and regulatory requirements and best practices in this area.
ASX Principle 8 – Remuneration Fairly and Responsibly
The Board seeks to ensure that the Company adopts remuneration practices which will enable it to
attract and retain high calibre and qualified employees, executives and directors whose interests are
aligned with those of shareholders.
The Remuneration & Nominations Committee is responsible for reviewing and recommending
compensation arrangements for the Directors, the CEO and senior management. For full details
regarding the Company’s remuneration practices and the composition and responsibilities of the
Remuneration & Nominations Committee please refer to the commentary in relation to ASX Principle 2
above and to the Remuneration Report.
Corporate Governance Policies and Charters
Further information regarding PVE’s corporate governance practices and policies is available on the
Company’s web site, www.povalley.com. In particular, copies of the following documents are available
under the ‘About Us’ / ‘Corporate Governance’ link.
• Constitution;
• Corporate Governance Statement;
• Code of Conduct;
• Hydrocarbons Reserve Policy;
• Continuous Disclosure Policy;
• Securities Trading Policy;
• Shareholder Communications Policy;
• Audit & Risk Committee Charter;
• Remuneration & Nominations Committee Charter;
• Risk Management Policy.
A n n u a l R e p o r t 2 0 1 2 | 11
Directors’ Report
The Directors present their report together with the financial report of Po Valley Energy Limited (‘the
Company” or “PVE”) and of the Group, being the Company and its controlled entities, for the year
ended 31 December 2012.
1. Directors
The Directors of the Company at any time during or since the end of the financial year are:
Directors
M Masterman
B Pirola
G Bradley
D McEvoy
G Short
K Eley
G Catalano
Date of Appointment
22 June 1999 (Managing Director)
11 October 2010 (Non-Executive Director)
10 May 2002
30 September 2004
Retired 28 May 2012
5 July 2010
19 June 2012
19 June 2012
Information on Directors
The Board is composed of a majority of Non-Executive Directors, including the Chairman. The
Chairman of the Board is elected by the Board and is an independent director.
Graham Bradley — Chairman BA, LLB (Hons), LLM, FAICD, Age 64
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 Limited. He was formerly Managing Partner of a national law firm, Blake Dawson
Waldron and was a senior Partner of McKinsey & Company. Mr Bradley is currently Chairman of
Stockland Corporation Limited, HSBC Bank Australia Limited and Anglo American Australia Limited
and a director of GI Dynamics Inc. Graham is Chairman of the Remuneration and Nomination
Committee and was a member of the Audit and Risk Committee until December 2010.
Giovanni Catalano — Managing Director and Chief Executive Officer MGeol, Age 59
Giovanni joined PVE in October 2010 as Chief Executive Officer and was appointed Managing
Director in June 2012. Mr. Catalano holds a masters degree in Geology and has had almost thirty
years in the upstream oil and gas industry. His last position held was as CEO with Mediterranean Oil &
Gas plc in UK and Italy. Prior to that, Giovanni was with Woodside Energy Pty Ltd, Perth, Western
Australia as Business Development Manager Far East and lately North Africa. Prior to Woodside,
Mr Catalano was posted worldwide with AGIP and LASMO International. He is a former Director of
Mediterranean Oil & Gas Plc, Director of Woodside Energy UK and AGIP Mauritania BV companies
and former Chairman of Woodside Energias SA in Spain. He is member of SEAPEX and AAPG.
Michael Masterman — Non-Executive Director, BEcHons, Age 50
Michael is a co-founder of PVE. Michael took up the position of Executive Chairman and CEO of PVE
and Northsun Italia S.p.A. in 2002 and resigned in October 2010 to take on an executive role with
Fortescue Metals Group Limited. 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
12 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
US capital markets issue. Prior to joining Anaconda Nickel, he spent 8 years at McKinsey & Company
serving major international resources companies principally in the area of strategy and development.
He is also Chairman of W Resources Plc, an AIM listed company with tungsten and gold assets in
Spain and Portugal. Mr. Masterman became a member of the Remuneration & Nomination Committee
from 1 January 2011.
Byron Pirola — Non-Executive Director, BSc, PhD, Age 52
Byron is a co-founder of PVE and is based in Sydney. He is currently a Director of Port Jackson
Partners Limited, a Sydney based strategy management consulting firm. Prior to joining Port Jackson
Partners in 1992, Byron spent six years with McKinsey & Company working out of the Sydney, New
York and London Offices and across the Asian Region. He has extensive experience in advising
CEOs and boards of both large public and small developing companies across a wide range of
industries and geographies. Byron is a member of the Audit and Risk Committee and member of the
Remuneration and Nominations Committee.
Gregory Short — Non-Executive Director, BSc, Age 62
Greg Short was appointed Non-Executive Director in July 2010. Greg is a geologist who worked with
Exxon in exploration, development and production geosciences and management for 33 years in
Australia, Malaysia, USA, Europe and Angola. During his time in Europe, Greg was actively involved
in Exxon's activities in the Netherlands and Germany. Greg was Geoscience Director of Exxon's
successful development of its Angola offshore operations. Greg retired from Exxon in 2006 and is a
Non-Executive director of ASX listed MEO Australia and Pryme Oil and Gas Limited. Greg became a
member of the Audit and Risk Committee from 1 January 2011.
Kevin Eley — Non-Executive Director, CA, F FIN, Age 63
Kevin Eley was appointed Non-Executive Director in June 2012. Kevin is based in Sydney and was
the Chief Executive of HGL Limited for 25 years until his retirement in 2011. He has management and
investment experience in a broad range of industries including, manufacturing, mining, retail and
financial services with experience in the direction of early stage companies and public company
governance. Kevin joined the PVE Audit & Risk Committee as Chairman and is a Chartered
Accountant and a Fellow of the Financial Services Institute of Australasia. Kevin is currently a Non-
Executive director of HGL Ltd, Kresta Holdings Limited, Milton Corporation Limited and Equity
Trustees Limited.
David McEvoy — Non-Executive Director, BSc, Grad Diploma (Appl. Geophysics), Age 66
Retired 28 May 2012
David joined PVE as a Director in September 2004 and is based in Sydney. He has over 37 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, AWE Limited and Innamincka Petroleum Limited. David resigned in May
2012 after 8 years of valuable service for PVE.
A n n u a l R e p o r t 2 0 1 2 | 13
Directors’ Report (Continued)
2. Company Secretary
Lisa Jones – Company Secretary, LLB
Lisa was appointed to the position of Company Secretary in October 2009. She is a corporate lawyer
with over 16 years experience in commercial law and corporate affairs, working with large public
companies and emerging companies in Australia and in Europe. She was a senior associate in the
corporate & commercial practice of Allen Allen & Hemsley and spent several years working in Italy,
including as international legal counsel at Pirelli Cavi and as an associate in the Rome office of a
national Italian firm.
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:
G
Bradley
M
Masterman
D
McEvoy1
B
Pirola
G
Short
K
Eley2
G
Catalano3
9
9
-
2*
2
2
No. of board meetings held
No. of board meetings
attended
No. of Audit Committee
meetings held
No. of Audit Committee
meetings attended
No. of Remuneration
Committee meetings held
No. of Remuneration
Committee meetings
attended
*attended meeting as an observer
Notes:
9
8
-
-
2
2
4
3
2
-
-
1*
9
9
2
2
2
2
9
9
2
2
-
2*
4
5
1
1
-
-
4
9
-
2*
-
2*
1. Mr McEvoy resigned as a director with effect from 28 May 2012.
2. Mr Eley was appointed as a director with effect from 19 June 2012 and attended one prior
meeting as an observer.
3. Mr Catalano was appointed as a director with effect from 19 June 2012 and prior to that
attended all board and committee meetings at the invitation of the Board in his role as CEO.
14 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
4. Principal Activities
The principal continuing activities of the Group in the course of the year were:
The exploration for gas and oil in the Po Valley region in Italy;
Appraisal and development of gas and oil fields;
Production and sale of gas from the Group’s production wells.
5. Earnings per share
The basic and diluted earnings per share for the Company was 2.12 € cents (2011: loss 4.57 € cents).
6. Operating and financial review
During the year, the Company produced from both its Castello and Sillaro fields with a total combined
production of 24.7 million cubic metres of gas (0.85 billion cubic feet).
In February 2012, the sidetracked Vitalba1dirA well at the Cascina Castello concession, north of Milan
commenced production. Production from the Pliocene SAN A2 sand level started at a rate of about 14
thousand standard cubic meters per day and was gradually increased to reach the target rate of 17
thousand standard cubic meters per day. The field continued to produce at the target rate throughout
the rest of the year without incident. Production from the Castello field during the year amounted to 5.3
million standard cubic metres of gas. In December 2012 Robertson CGG certified SAN A2 gas
remaining reserves as at 1 January 2013 at Proved (1P) Reserves of 23.0 MScm (0.8 bcf), Proved +
Probable (2P) Reserves of 45.7 MScm (1.6 bcf) and Proved + Probable + Possible Reserves (3P) of
52.3 MScm (1.8 bcf). These estimates are in line with the Reserve Audit carried out by Robertson
CGG in April of the same year.
The impact of colder weather conditions in January 2012 resulted in an increase in condensate
production at the Sillaro gas site and production was halted for four days while excess condensate
was removed from the processing facility. The situation was thoroughly evaluated by the Company
and it was confirmed that condensate production was originating from the PL2 C1+C2 producing level.
While the condensate produced is negligible, the Company decided to install condensate extraction
equipment in the Sillaro production facility before reopening level PL2 C1+C2. The installation of the
condensate extraction equipment is underway and daily production from Sillaro is planned to return to
previous rates in April 2013. As a result of the reduced daily production rate, cumulative production
from Sillaro during 2012 was 19.3 million standard cubic meters at a rate of circa 54,000 standard
cubic meters per day (1.9 million cubic feet per day).
The Company submitted an application to the Ministry to enlarge the size of the existing Cascina
Castello production licence to include the nearby Bezzecca area in January 2011. A technical and
economic evaluation of the development project was carried out by the Ministry of Economic
Development in July 2012 resulting in a Preliminary Production Concession. The final award of the
production licence is subject to the results of the related Environmental Impact Assessment (EIA),
which has already been completed and lodged with the Lombardy Region. The first hearing was held
in November 2012 and the local authorities visited the site at the beginning of December. Once the
production licence has been granted, the Company will initiate activity on the field development plan,
which primarily includes the construction of a 2 inch pipeline 7 km in length needed to connect the two
producing sites.
The updated plan for Sant’Alberto was submitted during the year and the final concession award is
subject to the EIA clearance from the Emilia Romagna Region. The field was previously drilled by
Edison in 2004 and the Competent Persons Report from Robertson CGG in December 2012 certified
low estimate Contingent Resources (1C) 1.8 Bcf (51 MSm) and best estimate Contingent Resources
(2C) of 2.1 Bcf (59.5 MSm).
A n n u a l R e p o r t 2 0 1 2 | 15
Directors’ Report (Continued)
The Company executed a farm-in agreement with Petrorep Italiana S.p.a. in June 2012 for the
Cadelbosco di Sopra exploration licence while in February 2013 two farm-in agreements with Petrorep
Italiana S.p.a. and Aleanna Resources Ltd respectively were finalised and executed in respect of the
La Prospera exploration licence.
The Company was awarded its first offshore exploration permit named AR94PY (previously
denominated AR168PY). The permit is located in the shallow waters of the Adriatic Sea and contains
two connected gas discoveries, Carola and Irma, both drilled and tested by the former operator, ENI.
Resource evaluations of the combined two gas fields have a low estimate Contingent Resources (1C)
of 22 bcf and best estimate Contingent Resources (2C) of 24.8 bcf. These resource estimates have
been independently audited by Robertson CGG in April 2012. Final recovery estimates will be
formalised on conclusion of the development plan which is underway.
Geological, exploration and appraisal work advanced on a number of other company prospects.
Based on this work our forward drilling program for the next 24 months is expected to cover the
exploration gas prospect Gradizza located in the La Prospera License, the appraisal of three
Quaternary/Pliocene gas prospects in Cadelbosco di Sopra subject to ongoing regulatory approvals
and available finances.
During the reporting period, the Company expanded its portfolio with the grant of preliminary
exploration licences Torre del Moro and Tozzona in the Po Valley basin. The Company intends to
conduct geological and geophysical studies on the new permit area, once awarded, to fully evaluate a
number of leads already identified and, assuming positive results, will then prepare plans for an
exploration well.
The year ahead will bring new challenges and opportunities as we manage the increased acreage
under tenure including the drilling of exploration wells, together with the potential of a new production
concession award.
Total revenue from the full year of gas production was €8,208,468 showing a year on year decline of
€906,578 or 10%. Gas prices have remained steady over the last 12 months. Operating efficiencies
were achieved and evidenced by the continuous improvement in operating margins. The Company
made a net profit before tax for the 2012 year of €201,570.
The Company recognised a deferred tax asset for the first time at consolidated level in 2012. First time
recognition generates a tax benefit as shown in the income statement. We refer to Note 15 to the
Financial Statements for additional details concerning the nature of the deferred tax asset and the
recognition criteria. Excluding the tax benefit arising from the recognition of the deferred tax asset, the
Company would have generated a comprehensive profit for the period of €144,746.
Net profit before impairment expense is reconciled to comprehensive profit / (loss) for the period as
follows:
Comprehensive profit reconciliation table ( in Euro )
2012
2011
Net profit / (loss) before impairment expense (unaudited)
2,418,792
860,797
Impairment on resource property costs for the Castello field
-
(5,829,915)
Impairment on exploration assets and inventory
(45,951)
(101,646)
Comprehensive profit / (loss) for the period
2,372,841
(5,070,764)
Earnings before interest, tax, impairment, depreciations and amortisation amounted to €4,511,086 for
the year.
16 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
EBITDA (unaudited) is reconciled to statutory results from operating activities as follows:
EBITDA reconciliation table ( in Euro )
2012
2011
EBITDA
4,511,086
4,411,011
Depreciation and amortisation expense
(3,455,620)
(2,534,799)
Depreciation expense
Impairment losses
Interest income on current accounts
Results from operating activities
(16,425)
(25,709)
(45,951)
(5,931,561)
(38,071)
(5,504)
955,019
(4,086,563)
Company’s drawings on the Lloyds (formerly Bank of Scotland) facility amounted to €4 million at 31
December 2012. One repayment equal to €2 million was made during the year. The borrowing base
ceiling review in December resulted in a borrowing limit of €4.0 million for the first half of 2013. Work to
refinance the facility, which expires in November 2013, is underway. The amount drawn is classified
as current as at 31 December 2012.
In December the Company raised A$ 1.35 million through a private placement under which a total of
11,266,667 shares were issued at an issue price of $0.12c. The first tranche of 7,416,667 shares was
issued on 6 December 2012 to several Australian institutional and sophisticated investors. The
Company was pleased to receive the support of several of its Non-Executive Directors in the
placement and a second tranche of 3,850,000 shares was issued to participating directors on 7 March
2013 following shareholder approval obtained at an EGM on 15 February 2013. The proceeds will be
used to upgrade the gas plant at Sillaro in order to enable higher production rates and for general
working capital.
No other share issues were made during the period.
7. Dividends
No dividends have been paid or declared by the Company during the year ended 31 December 2012.
8. Events subsequent to reporting date
The Company completed a capital raising of A$ 1.35 million through a private placement in December
2012. The participation of the company's Non-Executive Directors in the placement was subject to
shareholder approval and as a result the Company held an extraordinary general meeting (EGM) of
shareholders on 15 February 2013. Shareholder approval was obtained and subsequently the second
tranche of 3,850,000 shares was issued.
There were no other 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 Group, the results of those
operations, or the state of affairs of the Group.
9. Likely Developments
The Company plans to seek a suitable farm-out partner for selected assets. The Company also plans
to continue to invest in its current exploration portfolio through geological and geophysical studies and,
subject to available finances, a drilling program.
A n n u a l R e p o r t 2 0 1 2 | 17
Directors’ Report (Continued)
10. Environmental Regulation
The Company’s operations are subject to environmental regulations under both national and local
municipality legislation in relation to its mining exploration and development activities in Italy.
Company management monitor compliance with the relevant environmental legislation. The Directors
are not aware of any breaches of legislation during the period covered by this report.
11. Remuneration Report - audited
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 Remuneration & Nominations Committee (Committee) is responsible for reviewing and
recommending compensation arrangements for the Directors, the Chief Executive Officer and the
senior executive team. The Committee assesses the appropriateness of the size and structure of
remuneration of those officers on a periodic basis, with 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.
The Company aims to ensure that the level and composition of remuneration of its Directors and
executives is sufficient and reasonable in the context of the internationally competitive industry in
which the Company operates.
All senior executives except the company secretary are based in Rome and when setting their
remuneration the Board must have regard to remuneration levels and benefit arrangements that
prevail in the European oil and gas industry which remains highly competitive.
Consequences of performance on shareholder wealth
In considering the Group’s performance and benefits for shareholders wealth the Board has regard to
the following indices in respect of the current financial year and the previous financial period.
Indices
Production (scm000)
EBITDA (€'000s)
2012
2011
2010
2009 2008*
24,673 28,995 26,793
638
-
4,511
4,411
2,219 (6,935) (4,097)
Profit / (loss) attributable to owners of the company (€'000s) *
2,373 (5,071)
(2,324) (7,203) (4,172)
Earnings / (loss) per share (€ cents per share) *
2.12
(4.57)
(2.11)
(6.99)
(4.54)
Share Price at year end - AU $
0.12
0.16
0.21
1.68
1.10
* 2008 restated to Euro
18 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
In establishing performance measures and benchmarks to ensure incentive plans are appropriately
structured to align corporate behaviour with the long term creation of shareholder wealth, the Board
has regard for the stage of development of the Company’s business and given consideration to each
of the indices outlined above and other operational and business development achievements of future
benefit to the Company which are not reflected in the aforementioned financial measures.
Senior Executives
The remuneration of PVE senior executives is based on a combination of fixed salary, a short term
incentive bonus which is based on performance and in some cases a long term incentive payable in
cash or shares. Other benefits include employment insurances, accommodation and other benefits,
and superannuation contributions. In relation to the payment of annual bonuses, the board assesses
the performance and contribution of executives against a series of objectives defined at the beginning
of the year. These objectives are a combination of strategic and operational company targets which
are considered critical to shareholder value creation and objectives which are specific to the individual
executive. More specifically, objectives mainly refer to operating performance from both a financial
and technical standpoint and growth and development of the Company’s asset base. The Board
exercises its discretion when determining awards and exercises discretion having regard to the overall
performance and achievements of the Company and of the relevant executive during the year.
In past years, long-term performance benefits were in the form of employee share options granted to
senior executives. Vesting of the options was subject to service vesting and price hurdles must be met
before the options can be exercised. The Company has not awarded any options in the financial year
to 31 December 2012 and has no plans to issue options in the immediate future.
Non-Executive Directors
The remuneration of PVE Non-Executive Directors comprises cash fees. There is no current scheme
to provide performance based bonuses or retirement benefits to Non-Executive Directors. The Board
of Directors and shareholders approved the maximum agreed remuneration pool for Non-Executive
Directors at the annual general meeting in May 2011 at €250,000 per annum.
Fees for Non-Executive Directors were reviewed by the Remuneration & Nominations Committee in
early 2012, the first such review since the Company's listing in 2004. The Board determined that, after
reviewing fees paid by comparably sized companies, and in recognition of the increased complexity of
the Company as the Company's asset portfolio has grown and the Company has moved from
exploration to production, an increase in directors fees was appropriate, and it was determined that
the board fees would now be denominated in Euros rather than Australian dollars. Accordingly, basic
fees for Non-Executive Directors were increased from A$40,000 to Euro 40,000 and the Chairman's
fees were increased from A$60,000 to Euro 60,000. No additional fees are paid by the Company in
respect of board committees.
The total fees paid in 2012 to Non-Executive Directors was €210,500 (2011 €182,000).
A n n u a l R e p o r t 2 0 1 2 | 19
Directors’ Report (Continued)
Service contracts
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:
Directors:
Graham Bradley, Chairman
Commencement Date: 30 September 2004 (re-elected 28 May 2012)
Fixed remuneration for the year ended 31 December 2012: €60,000
No termination benefits
Byron Pirola, Non-Executive Director
Commencement Date: 10 May 2002 (re-elected 13 May 2011)
Fixed remuneration for the year ended 31 December 2012: €40,000
No termination benefits
Gregory Short, Non-Executive Director
Commencement Date: 21 July 2010 (elected 13 May 2011)
Fixed remuneration for the year ended 31 December 2012: €40,000
No termination benefits
Michael Masterman, Non-Executive Director
Commencement Date: 22 June 1999 (elected 13 May 2011)
Fixed remuneration as a Non-Executive Director: €40,000
No termination benefits
Kevin Eley, Non-Executive Director
Commencement Date: 19 June 2012
Fixed remuneration as a Non-Executive Director: €40,000
No termination benefits
The Non-Executive Directors are not appointed for any fixed term but rather are required to retire and
stand for re-election in accordance with the Company’s constitution and the ASX Listing Rules.
Giovanni Catalano, Managing Director and Chief Executive Officer
Commencement Date: 11 October 2010 as Chief Executive Officer (CEO) and 19 June 2012
as Managing Director
Term of Agreement: Indefinite but terminable by either party on three month’s notice
Fixed service contract fee of €200,000 per annum plus accommodation costs and other non-
monetary benefits
Annual performance based fee of up to 70% of his contracted service fee subject to the
achievement of performance criteria including operating performance of the producing fields,
operating profit, progress on asset development as agreed annually with the Board.
Payment of termination benefit on termination by the Company (other than for gross
misconduct) equal to three months’ service fee
20 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
Executives:
Lisa Jones, Company Secretary
Commencement Date: 21 October 2009
Term of Agreement: Indefinite but terminable by either party on one month’s notice
Paid a minimum monthly retainer (A$2,500 to the end of 31 December 2012) to provide
company secretarial and corporate governance services plus an agreed hourly rate in respect
of additional services
No termination benefit
Sara Edmonson, Chief Financial Officer
Commencement Date: 26 July 2010 as Finance Manager and 1 September 2012 as Chief
Financial Officer
Term of Agreement: Indefinite but terminable by either party on three month’s notice
Fixed salary of €120,000 per annum
Annual performance based fee of up to 40% of her contracted service fee subject to the
achievement of performance criteria agreed with the Board
Payment of termination benefit on termination by the Company (other than for gross
misconduct) equal to one year salary in accordance with the Italian National Collective Labour
Agreement for executives
Directors and executive officers’ remuneration – Consolidated
The remuneration details of each Director and specified executives during the year is presented in the
next page. There are no executive officers of the Group other than those listed.
A n n u a l R e p o r t 2 0 1 2 | 21
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Directors’ Report (Continued)
Notes in relation to the table of Directors’ and executive officers’ remuneration
A. Short term incentive bonuses awarded as remuneration to specified executives is related to
performance hurdles established by the Remuneration & Nominations Committee. The
performance hurdles are a combination of company targets and objectives specific to the
executive.
Analysis of bonuses included in remuneration
Details of the vesting profile of the short-term incentive bonus awarded as remuneration are detailed
below. Bonuses paid by issue of shares and included in share based payments to each Director and
specified executive.
2012
2011
Directors and
specified
executives
Cash Bonus Bonus paid
by issue of
shares
% vested in
year
Cash Bonus
Bonus paid
by issue of
shares
% vested in
year
G Catalano
S Edmonson
€
Nil
Nil
€
Nil
Nil
€
Nil
Nil
€
€
€
55,000
39,191
100%
-
-
-
Amounts included in remuneration for the financial year represent the amount that vested in the
financial year based on achievement of personal goals and satisfaction of specified performance
criteria. No amounts vest in future financial years in respect of the bonus schemes. No bonuses
vested during 2012.
Equity instruments
All options refer to options over ordinary shares of Po Valley Energy Limited, which are exercisable on
a one-for-one basis.
Options over equity instruments granted as compensation
No options were granted as compensation to Directors or key management personnel during the
reporting period (2011: Nil). No options vested during 2012. (2011: Nil)
Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including options and rights granted as
compensation to a key management person) have been altered or modified by the issuing entity
during the reporting period or the prior period.
Exercise and lapse of options granted as compensation
No options granted as compensation were exercised during 2012.
There were no options outstanding during 2012.
24 | A n n u a l R e p o r t 2 0 1 2
Directors’ Report (Continued)
Analysis of options over equity instruments granted as compensation
No options were exercised by directors or key management personnel.
Analysis of movements in options
No options over ordinary shares in the Company were held by any key management person or the
specified executives during 2012.
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, as notified by the Directors to the ASX in accordance with S205G (1) of the
Corporations Act 2001, at the date of this report is as follows:
G Bradley
M Masterman
B Pirola
G Short
G Catalano
K Eley
Ordinary Shares
1,373,880
32,845,302
7,112,782
200,000
528,141
800,000
13. Share Options
Options granted to directors and executives of the Company
The Company has not granted any options over unissued ordinary shares in the Company to any
directors or specified executive during or since the end of the financial year.
Unissued shares under option
At the date of this report there are no unissued ordinary shares of the Company under option.
Shares issued on exercise of options
The Company has not issued any shares as a result of the exercise of options during or since the end
of the financial year end.
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 and production company. The Company’s Corporate Governance
Statement and disclosures are contained elsewhere in the annual report and are also available on the
Company’s website at www.povalley.com
A n n u a l R e p o r t 2 0 1 2 | 25
Directors’ Report (Continued)
15. Indemnification and insurance of officers
The Company has agreed to indemnify current Directors against any liability or legal costs incurred by
a Director as an officer of the Company or entities within the Group or in connection with any legal
proceeding involving the Company or entities within the Group which is brought against the director as
a result of his capacity as an officer.
During the financial year the Company 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, the Group’s auditor, did not perform other services in addition to their statutory
duties. Refer to note 6 of the financial report for details of auditor’s remuneration.
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 27 and forms part of the Directors’
report for the financial year ended 31 December 2012.
This report has been made in accordance with a resolution of Directors.
Graham Bradley
Chairman
Sydney, NSW Australia
15 March 2013
26 | A n n u a l R e p o r t 2 0 1 2
A n n u a l R e p o r t 2 0 1 2 | 27
Statement of Financial Position
As at 31 December 2012
NOTES
2012
€
2011
€
CONSOLIDATED
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventory
Total Current Assets
Non-Current Assets
Receivables
Inventory
Other assets
Deferred tax assets
Property, plant & equipment
Resource property costs
Total Non-Current Assets
Total Assets
Current Liabilities
Trade and other payables
Interest bearing loans
Provisions
Total Current Liabilities
Non-Current Liabilities
Provisions
Interest bearing loans
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Reserves
Accumulated losses
Total Equity
10 (a)
12
11
12
11
15
13
14
16
18
17
17
18
19
19
1,226,348
2,581,026
-
3,807,374
1,285,372
701,187
43,657
2,228,095
5,636,768
22,017,610
31,912,689
1,889,879
3,332,495
701,187
5,923,561
1,622,980
-
39,282
-
6,548,101
23,306,114
31,516,477
35,720,063
37,440,038
1,718,168
3,984,896
113,825
5,816,889
3,608,421
-
3,608,421
5,613,516
-
91,305
5,704,821
2,747,922
5,771,830
8,519,752
9,425,310
14,224,573
26,294,753
23,215,465
45,460,097
1,192,269
(20,357,613)
44,753,650
1,192,269
(22,730,454)
26,294,753
23,215,465
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes to the financial statements.
28 | A n n u a l R e p o r t 2 0 1 2
Statement of Comprehensive Income
For the year ended 31 December 2012
NOTES
CONSOLIDATED
2012
€
2011
€
Revenue
3
8,208,468
9,115,046
4
4
5
7
8
Operating costs
Royalties
Depreciation and amortisation expense
Gross Profit
Other income
Employee benefit expenses
Share based payments
Depreciation expense
Corporate overheads
Impairment losses
Results from operating activities
Finance income
Finance expenses
Net finance expenses
Profit / (loss) before income tax expense
Income tax benefit / (expense)
Profit / (loss) for the period
Other comprehensive income
Other comprehensive loss for the period
Total comprehensive profit / (loss) for the
period
Profit / (loss) attributable to:
Owners of the company
Profit / (loss) for the period
Total comprehensive profit / (loss)
attributable to:
Owners of the Company
Total comprehensive profit / (loss) for the
period
(1,225,124)
-
(3,455,620)
3,527,724
700,226
(1,856,627)
-
(16,425)
(1,353,928)
(45,951)
955,019
38,071
(791,520)
(753,449)
201,570
2,171,271
2,372,841
-
-
(1,504,085)
(130,375)
(2,534,799)
4,945,787
54,727
(1,851,829)
(97,333)
(25,709)
(1,180,645)
(5,931,561)
(4,086,563)
5,504
(810,513)
(805,009)
(4,891,572)
(179,192)
(5,070,764)
-
-
2,372,841
(5,070,764)
2,372,841
2,372,841
(5,070,764)
(5,070,764)
2,372,841
(5,070,764)
2,372,841
(5,070,764)
Basic and diluted earnings / (loss) per share
9
2.12 cents
(4.57) cents
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes to the financial statements.
A n n u a l R e p o r t 2 0 1 2 | 29
Statement of Changes in Equity
As at 31 December 2012
Consolidated
Attributable to equity holders of the Company
Share
Capital
Translation
Reserve
Option
Reserve
Accumulated
Losses
€
€
€
€
Total
€
Balance at 1 January 2011
44,659,630
1,192,269
888,727
(18,548,417)
28,192,209
Total comprehensive
income for the period:
Loss for the period
Other comprehensive
income
Total comprehensive
income for the period
Transactions with owners
recorded directly in equity:
Contributions by and
distributions to owners
Options expired
Share issue costs
Share based payments
Balance at 31 December
2011
Balance at 1 January
2012
Total comprehensive
income for the period:
Profit for the period
Other comprehensive
income
Total comprehensive
income for the period
Transactions with owners
recorded directly in equity:
Contributions by and
distributions to owners
Share issue costs
Share based payments
Balance at 31 December
2012
-
-
-
-
(3,313)
97,333
-
-
-
-
-
-
44,753,650
1,192,269
44,753,650
1,192,269
-
-
-
706,447
-
-
-
-
-
-
-
-
45,460,097
1,192,269
-
-
-
(5,070,764)
(5,070,764)
-
-
(5,070,764)
(5,070,764)
(888,727)
888,727
-
(3,313)
97,333
-
-
-
-
-
-
-
-
-
-
-
-
-
(22,730,454)
23,215,465
(22,730,454)
23,215,465
2,372,841
2,372,841
-
-
2,372,841
2,372,841
-
-
-
706,447
-
-
(20,357,613)
(26,294,753)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes to the financial statements
30 | A n n u a l R e p o r t 2 0 1 2
Statement of Cash Flow
For the year ended 31 December 2012
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
NOTES
CONSOLIDATED
2012
€
2011
€
10,007,832
8,742,349
(5,372,274)
(5,182,557)
38,071
5,504
(336,893)
(300,451)
Net cash inflow from operating activities
10 (b)
4,336,736
3,264,845
Cash flows from investing activities
Payments for non-current assets
Payments on security deposits
Payments for resource property costs
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issues of shares
Payments for share issue costs
Repayments of borrowings
Net cash inflow (outflow) from financing
activities
Net increase / (decrease) in cash held
Cash and cash equivalents at 1 January
Effects of exchange rate fluctuations on cash held
(30,218)
(4,375)
(12,888)
379
(3,672,121)
(2,328,496)
(3,706,714)
(2,341,005)
706,447
-
-
(3,313)
(2,000,000)
-
(1,293,553)
(663,531)
1,889,879
(3,313)
920,527
969,352
-
Cash and cash equivalents at 31 December
10 (a)
1,226,348
1,889,879
w
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to
the financial statements
A n n u a l R e p o r t 2 0 1 2 | 31
Notes to the Financial Statements
For the year ended 31 December 2012
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1
REPORTING ENTITY
Po Valley Energy Limited (“the Company” or “PVE”) is a company domiciled in Australia. The address
of the Company’s registered office is Level 28, 140 St Georges Terrace, Perth WA 6000. The
consolidated financial statements of the Company for the year ended 31 December 2012 comprises
the Company and its subsidiaries (together referred to as the “Group” and individually as “Group
entities”) and the Group’s interest in associated and jointly controlled entities.
The Group primarily is involved in the exploration, appraisal, development and production of gas
properties in the Po Valley region in Italy and is a for profit entity.
1.2
(a)
BASIS OF PREPARATION
STATEMENT OF COMPLIANCE
The financial report is a general purpose financial report which has been prepared in accordance with
Australian Accounting Standards (AASB’s) (including Australian Interpretations) adopted by the
Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated
financial report of the Group and the financial report of the Company comply with International
Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting
Standards Board (IASB).
The financial statements were approved by the Board of Directors on 15 March 2013.
(b)
BASIS OF MEASUREMENT
These consolidated financial statements have been prepared on the basis of historical cost, except for
financial assets, liabilities and share based payments recognised at fair value.
Where necessary, comparative information has been reclassified to achieve consistency in disclosure
with the current financial year amounts and other disclosures.
(c) GOING CONCERN
The Directors have prepared the financial report on a going concern basis, which contemplates the
continuity of normal business activities and the realisation of assets and the settlement of liabilities in
the normal course of business and at the amounts stated in the financial report.
As at 31 December 2012 the Group has a working capital deficit of €2,009,515 (2011: positive working
capital of €218,740), has generated a profit before tax of €201,570 (2011: loss of €4,891,572) and
generated net cash from operating activities of €4,336,736 (2011: €3,264,845). The working capital
deficit is largely affected by the reclassification of borrowings (€3,984,896) from non-current to current
due its repayment date of 15 November 2013.
In this regard a refinancing of the existing borrowings is well underway to restore a longer term
maturity date. The Directors believe this will occur, having regard to negotiations with a financier to
date, including credit committee approval, although finalisation is subject to final due diligence and
execution of final documentation.
32 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.2
BASIS OF PREPARATION (continued)
In the unlikely event that the refinancing does not eventuate, the Company has measures in place to
manage the financial position of the Group, including expected cashflow generation from existing
projects, curtailment of discretionary expenditure and alternative debt financing or equity raisings.
On this basis the Directors believe the financial report should be prepared on a going concern basis.
(d)
FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in Euro, which is the Company’s and each of the
entities in the Group’s functional currency.
(e)
USE OF ESTIMATES AND JUDGEMENTS
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and
underlying assumptions reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
The estimates and judgements that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment of non-current assets
The ultimate recoupment of the value of resource property costs and property plant and equipment is
dependent on successful development and commercial exploitation, or alternatively, sale, of the
underlying properties. The Group undertakes at least on an annual basis, a comprehensive review for
indicators of impairment of these assets. Should an impairment indicator exist, the area of interest is
tested for impairment. There is significant estimation and judgment in determining the inputs and
assumptions used in determining the recoverability amounts.
The key areas of estimation and judgement in determining recoverable amounts include:
Recent drilling results and reserves and resources estimates;
Environmental issues that may impact the underlying licences;
The estimated market value of assets at the review date;
Fundamental economic factors such as the gas price and current and anticipated operating
costs in the industry;
Future production rates.
Rehabilitation provisions
The value of these provisions represents the discounted value of the present obligations to restore,
dismantle and rehabilitate each well site. Significant judgment is required in determining the provisions
for rehabilitation and closure as there are many transactions and other factors that will affect ultimate
costs necessary to rehabilitate the sites. The discounted value reflects a combination of
management’s best estimate of the cost of performing the work required, the timing of the cash flows
and the discount rate.
A change in any, or a combination of, the key assumptions used to determine the provisions could
have a material impact on the carrying value of the provisions. The provision recognised for each site
is reviewed at each reporting date and updated based on the facts and circumstances available at that
time. Changes to the estimated future costs for operating sites are recognised in the balance sheet by
adjusting both the restoration and rehabilitation asset and provision.
A n n u a l R e p o r t 2 0 1 2 | 33
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.2
BASIS OF PREPARATION (contined)
Reserve estimates
Estimation of reported recoverable quantities of Proven and Probable reserves include judgemental
assumptions regarding commodity prices, exchange rates, discount rates, and production and
transportation costs for future cash flows. It also requires interpretation of complex geological and
geophysical models in order to make an assessment of the size, shape, depth and quality of
reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to
estimate reserves may change from period to period.
Recognition of deferred tax assets
Refer to note 15.
1.3
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in the
consolidated financial statements, and have been applied consistently by Group entities.
(a)
PRINCIPLES OF CONSOLIDATION
(i)
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. In assessing control, potential voting rights that presently are exercisable or
convertible are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control
ceases. The accounting policies of subsidiaries have been changed when necessary to align them
with the policies adopted by the Group.
In the Company’s financial statements, investments in subsidiaries are carried at cost.
(ii)
(Joint controlled operations and assets
The interest of the Group in unincorporated joint ventures and jointly controlled assets are brought to
account by recognising in its financial statements the assets it controls, the liabilities that it incurs, the
expenses it incurs and its share of income that it earns from the sale of goods or services by the joint
venture.
(iii)
Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements.
(b)
TAXATION
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit
or loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity or in comprehensive income.
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.
34 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
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: 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. Deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit will be realised.
(c)
IMPAIRMENT
(i)
Financial assets (including receivables)
A financial asset is assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial assets is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the estimated future cash flows of that
asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount, and the present value of the estimated future cash flows
discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale
financial asset is calculated by reference to its fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining
financial assets are assessed in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-
for-sale financial asset recognised previously in equity is transferred to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss was recognised. For financial assets measured at amortised cost and available-for-
sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-
for-sale financial assets that are equity securities, the reversal is recognised in equity.
(ii)
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets and
inventories, are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For the purpose of impairment testing, assets
are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or cash-generating units.
A n n u a l R e p o r t 2 0 1 2 | 35
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses
recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any
goodwill allocated to the units and them to reduce the carrying amount of the other assets in the unit
on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(d)
PROPERTY, PLANT AND EQUIPMENT
(i)
Recognition and measurement
Items of property, plant and equipment are recorded at cost less accumulated depreciation,
accumulated impairment losses and pre-commissioning revenue and expenses.
The cost of plant and equipment used in the process of gas extraction are accounted for separately
and are stated at cost less accumulated depreciation and impairment costs.
Cost includes expenditure that is directly attributable to acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment and
are recognised within “other income” in profit or loss.
(ii)
Depreciation
Gas producing assets
When the gas plant and equipment is installed ready for use, cost carried forward will be depreciated
on a unit-of -production basis over the life of the economically recoverable reserve.
The depreciation rate of gas plant and equipment incurred in the period for each project in production
phase is as follows:
Castello
Sillaro
2011
0.72%
12.34%
2012
16.77%
10.51%
Changes in factors such as estimates of economically recoverable reserves that affect the
depreciation do not give rise to prior period financial period adjustments and are dealt with on a
prospective basis.
Other property, plant and equipment
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property, plant and equipment. The depreciation will commence when the
asset is installed ready for use.
36 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
The estimated useful lives of each class of asset fall within the following ranges:
Office furniture & equipment
3 – 5 years
3 – 5 years
2011
2012
The residual value, the useful life and the depreciation method applied to an asset are reviewed at
each reporting date.
(e)
FINANCIAL INSTRUMENTS
(i)
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and
other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.
Non-derivative financial instruments are recognised initially as fair value plus, for instruments not at
fair value through profit and loss, any directly attributable transaction costs. Subsequent to initial
recognition non-derivative financial instruments are measured as described below.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from
the financial assets expire or if the Group transfers the financial asset to another party without
retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales
of financial assets are accounted for at trade date, i.e. the date the Group commits itself to purchase
or sell the asset. Financial liabilities are derecognised if the Group’s obligation specified in the contract
expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are
repayable on demand and form an integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in note (i).
Held-to-maturity investments
If the Group has the positive intent and ability to hold debt securities to maturity, then they are
classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the
effective interest method, less any impairment losses.
Available-for-sale financial assets
The Group’s investments in equity securities and certain debt securities are classified as available-for-
sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes
therein, other than impairment losses, and foreign exchange gains and losses on available-for-sale
monetary items, are recognised directly in a separate component of equity. When an investment is
derecognised, the cumulative gain or loss in equity is transferred to profit or loss as finance income or
expense.
Financial assets at fair value through profit and loss
An instrument is classified as at fair value through profit or loss if it is held for trading or is designated
as such upon initial recognition. Financial instruments are designated at fair value through profit or
loss if the Group manages such investments and makes purchase and sale decisions based on their
fair value in accordance with the Group’s documented risk management or investment strategy. Upon
initial recognition attributable transaction costs are recognised in profit or loss when incurred Financial
instruments at fair value through profit or loss are measured at fair value, and changes therein are
recognised in profit and loss as finance income or expense.
A n n u a l R e p o r t 2 0 1 2 | 37
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
Other
Other non-derivative financial instruments are measured at amortised costs using the effective interest
method, less any impairment losses.
(ii) Derivative financial instruments
Derivatives are initially recognised at fair value; attributable costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein
are accounted for in the profit and loss as finance income or expense.
(iii) Share capital
Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(f)
INVENTORIES
Inventories are measured at the lower of cost and net realisable value and includes expenditure
incurred in acquiring the inventories and other costs incurred in bringing them to their existing location
and condition.
Net realisable value is the estimated selling price less selling expenses.
(g)
RESOURCE PROPERTIES
Resource property costs are accumulated in respect of each separate area of interest.
Exploration properties
Exploration properties are carried at balance sheet date at cost less accumulated impairment losses.
Exploration properties include the cost of acquiring resource properties, mineral rights and exploration,
evaluation expenditure relating to an area of interest.
Exploration properties 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.
Areas of interest which no longer satisfy the above policy are considered to be impaired and are
measured at their recoverable amount, with any subsequent impairment loss recognised in the profit
and loss.
Development properties
Development properties are carried at balance sheet date at cost less accumulated impairment
losses. Development properties represent the accumulation of all exploration, evaluation and
acquisition costs in relation to areas where the technical feasibility and commercial viability of the
extraction of gas resources in the area of interest are demonstrable and all key project permits,
approvals and financing are in place. When there is low likelihood of the development property being
exploited, or the value of the exploitable development property has diminished below cost, the asset is
written down to its recoverable amount.
38 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
Production properties
Production properties are carried at balance sheet date at cost less accumulated amortisation and
accumulated impairment losses. Production properties represent the accumulation of all exploration,
evaluation and development and acquisition costs in relation to areas of interest in which production
licences have been granted and the related project has moved to the production phase.
Amortisation of costs is provided on the unit-of-production basis, separate calculations being
performed for each area of interest. The unit-of-production base results in an amortisation charge
proportional to the depletion of economically recoverable reserves. The amortisation rate incurred in
the period for each project in production phase is as follows:
2011
Castello
0.72%
Sillaro
12.34%
2012
16.77%
10.51%
Amortisation of resource properties commences from the date when commercial production
commences.
When the value of the exploitable production property has diminished below cost, the asset is written
down to its recoverable amount.
The Group reviews the recoverable amount of resource property costs at each reporting date to
determine whether there is any indication of impairment. If any such indication exists then the asset’s
recoverable amount is estimated (refer Note 1.3 (c) (ii)).
(h)
PROVISIONS
Rehabilitation costs
Long term environmental obligations are based on the Group’s environmental and rehabilitation plans,
in compliance with current environmental and regulatory requirements.
Full provision is made based on the net present value of the estimated cost of restoring the
environmental disturbances that has occurred up to the balance sheet date and abandonment of the
well site and production fields. Increases due to additional environmental disturbances, relating to the
development of an asset, are capitalised and amortised over the remaining useful lives of the areas of
interest.
Annual increases in the provision relating to the change in net present value of the provision are
accounted for in the income statement as finance expense.
The estimated costs of rehabilitation are reviewed annually and adjusted against the relevant
rehabilitation asset, as appropriate for changes in legislation, technology or other circumstances
including drilling activity and are accounted for on a prospective basis. Cost estimates are not reduced
by potential proceeds from the sale of assets.
(i)
FINANCE INCOME AND EXPENSES
Finance income comprises interest income on funds invested and foreign currency gains. Interest
income is recognised as it accrues in profit or loss, using the effective interest method.
Finance expenses comprise interest expense on borrowings or other payables and unwinding of the
discount of provisions and changes in the fair value of financial assets through profit and loss.
A n n u a l R e p o r t 2 0 1 2 | 39
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
Borrowing costs that are not directly attributable to the acquisition, construction or production of
qualifying assets are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported as net amounts.
(j)
EMPLOYEE BENEFITS
(i)
Long-term service benefits
The Group’s net obligation in respect of long-term service benefits is the amount of future benefit that
employees have earned in return for their service in the current and prior periods. The obligation is
calculated using expected future increases in wage and salary rates including on-costs and expected
settlement dates, and is discounted using the rates attached to the Government bonds at the balance
sheet date which have maturity dates approximating to the terms of the Group’s obligations.
(ii)
Wages, salaries, annual leave, sick leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries, annual leave and sick leave that are expected to
be settled within 12 months of the reporting date represent present obligations resulting from
employees services provided to reporting date, are calculated at undiscounted amounts based on
remuneration wage and salary rates that the Group expects to pay as at reporting date including
related on-costs, such as workers compensation insurance and payroll tax.
(iii)
Superannuation
The Group contributes to defined contribution superannuation plans. Contributions are recognised as
an expense as they are due.
(iv)
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 reserves. 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 an options pricing 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.
When a Company grants options over its shares to employees of subsidiaries, the fair value at the
grant date is recognised as an increase in investment in subsidiaries, with a corresponding increase in
equity over the vesting period of the grant.
(k)
FOREIGN CURRENCY
(i)
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (“the functional currency”).
The consolidated financial statements are presented in Euro, which is Po Valley Energy Limited’s
functional and presentation currency (refer note 1.2 (c) above).
(ii)
Foreign currency transactions
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
40 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
assets and liabilities denominated in foreign currencies are recognised in profit or loss as finance
income or expense.
Non-monetary assets and liabilities denominated in foreign currencies are translated at the date of
transaction or the date fair value was determined, if these assets and liabilities are measured at fair
value. Foreign currency differences arising on retranslation are recognised in profit and loss, except
for differences arising on the retranslation of available-for-sale equity instruments, a financial liability
designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges,
which are recognised directly in equity.
(iii)
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation are translated to Euro at foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated to Euro 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.
Foreign exchange gains and losses arising from monetary items receivable from or payables to a
foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are
considered to form part of a net investment in a foreign operation and are recognised directly in equity
in the foreign currency translation reserve.
(l)
EARNINGS/LOSS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing the net profit attributable to members of the
parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary
shares and converting preference shares classified as ordinary shares for EPS calculation purposes),
by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue.
Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of
financing costs associated with dilutive potential ordinary shares and the effect on revenues and
expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the
weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any
bonus issue.
(m)
OTHER INDIRECT TAXES
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST)
and value added tax (VAT) except where the amount of GST or VAT incurred is not recoverable from
the taxation authority. In these circumstances, the GST or VAT is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST or VAT included. The net amount of
GST or VAT recoverable from, or payable to, the relevant taxation authority is included as a current
asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a net basis. The GST and VAT components
of cash flows arising from investing and financing activities which are recoverable from, or payable to,
the relevant taxation authority are classified as operating cash flows.
(n)
SEGMENT REPORTING
Determination and presentation of operating statements
The Group determines and presents operating segments based on the information that internally is
provided to the CEO, who is the Group’s chief operating decision maker.
A n n u a l R e p o r t 2 0 1 2 | 41
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Group’s other components. An operating segment’s operating results are reviewed
regularly by the CEO to make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available.
Segment results that are reported to the CEO include items directly attributable to a segment as well
as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate
assets and income tax assets and liabilities. Segment capital expenditure is the total cost incurred
during the period to acquire property, plant and equipment and resource property costs.
(o)
REVENUE
Revenues is measured at fair value of the consideration received or receivable, net of the amount of
value added tax (“VAT”) payable to the taxation authority. Revenue is recognised when the significant
risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is
probable, the associated costs can be estimated reliably, there is no continuing management involved
with the goods, and the amount of revenue can be measured reliably.
Sale of gas
Gas sales revenue is recognised when control of the gas passes at the delivery point.
Proceeds received in advance of control passing are recognised as unearned revenue.
(p)
LEASED ASSETS
Leases in terms of which the Group assumes substantially all the risks and rewards of
ownership are classified as finance leases. Upon initial recognition the leased asset is
measured at an amount equal to the lower of its fair value and the present value of the
minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting
policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised on the Group’s
balance sheet.
(q)
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The following standards, amendments to standards and interpretations have been identified as those
which may impact the entity in the period of initial application. They are available for early adoption at
31 December 2012, but have not been applied in preparing this financial report.
AASB 9 Financial Instruments (December 2010) & AASB2010-7 Amendments to Australian
Accounting Standards arising from AASB9 (2010; includes requirements for the classification
and measurement of financial assets that are generally consistent with the equivalent
requirements in AASB 139 Financial Instruments: Recognition and Measurement except in
respect of the fair value option and certain derivatives linked to unquoted equity instruments.
AASB 9 will become mandatory for the Group’s 31 December 2015 financial statements.
Retrospective application is generally required, although there are exceptions, particularly if
the entity adopts the standard for the year ended 31 December 2012 or earlier. The Group
has not yet determined the potential effect of the standard.
42 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
AASB10 Consolidated Financial Statements introduces a new approach to determining which
investees should be consolidated. An investor controls an investee when the investor is
exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
AASB 10 will become mandatory for the Group’s 31 December 2013 financial statements.
Retrospective application is required where there is a change in the control conclusion
between AASB127/Interpretation 112 and AASB10. There are specific requirements when
retrospective application is impracticable. The Group has not yet determined the potential
effect of the standard.
AASB11 Joint Arrangements will apply if the parties have rights to and obligations for
underlying assets and liabilities, the joint arrangement is considered a joint operation and
partial consolidation is applied. Otherwise the joint arrangement is considered a joint venture
and the entity must use the equity method to account for their interest.
AASB11 will become mandatory for the Group’s 31 December 2013 financial statements.
Retrospective application with specific restatement requirements for certain transition.
The Group has not yet determined the potential effect of the standard.
AASB 12 Disclosure of Interests In Other Entities contains disclosure requirements for entities
that have subsidiaries, joint arrangements, associates and/or unconsolidated structured
entities.
AASB 12 will become mandatory for the Group’s 31 December 2013 financial statements;
early application is available for entities if AASB10 & AASB11 are applied at the same time.
The Group has not yet determined the potential effect of the standard.
AASB 13 Fair value Measurement explains how to measure fair value when required by other
AASBs. It does not introduce new fair value measurements, nor does it eliminate the
practicability exceptions to fair value that currently exist in certain standards.
AASB 13 will become mandatory for the Group’s 31 December 2013 financial statements.
A n n u a l R e p o r t 2 0 1 2 | 43
Notes to the Financial Statements (Continued)
NOTE 2:
FINANCIAL RISK MANAGEMENT
Exposure to credit, market and liquidity risks arise in the normal course of the Group’s business.
This note presents information about the Group’s exposure to each of the above risks, their objectives,
policies and processes for measuring and managing risk, and the management of capital. Further
quantitative disclosures are included throughout this financial report.
Risk recognition and management are viewed as integral to the Company's objectives of creating and
maintaining shareholder value, and the successful execution of the Company's strategies in gas
exploration and development. The Board as a whole is responsible for oversight of the processes by
which risk is considered for both ongoing operations and prospective actions. In specific areas, it is
assisted by the Audit and Risk Committee. Management is responsible for establishing procedures
which provide assurance that major business risks are identified, consistently assessed and
appropriately addressed.
(i)
Credit risk
The Group invests in short term deposits and trades with recognised, creditworthy third parties. There
is a concentration of credit risk in relation to receivables due to indirect tax from the Italian tax
authorities (see note 12).
Cash and short term deposits are made with institutions that have a credit rating of at least A1 from
Standard & Poors and A from Moody's.
Management has a credit policy in place whereby credit evaluations are performed on all customers
and parties the Company and its subsidiaries deal with. The exposure to credit risk is monitored on an
ongoing basis. Please refer to Note 22 (b) for further details on customer credit risk management.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset.
(ii)
Market Risk
Interest rate risk
The Group is primarily exposed to interest rate risk arising from its cash and cash equivalents and
borrowings.
Currency risk
The Group is exposed to foreign currency risk on purchases that are denominated in a currency other
than the respective functional currencies of consolidated entities. The currency giving rise to this risk is
primarily Australian dollars.
In respect to monetary assets held in currencies other than Euro, the Group ensures that the net
exposure is kept to an acceptable level by minimising their holdings in the foreign currency where
possible by buying or selling foreign currencies at spot rates where necessary to address short term
imbalances.
44 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
(iii)
Capital Management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business.
The Board seeks to encourage all employees of the Group to hold ordinary shares. Both management
and employees participate in the Group’s employee share scheme and to date the Company has
encouraged employees to opt for shares in lieu of cash for earned bonuses.
The Board seeks to maintain a balance between the higher returns that might be possible with higher
levels of borrowings and the advantages and security afforded by a sound capital position.
The Group does not have a defined share buy-back plan and there were no changes in the Group’s
approach to capital management during the year.
There are no externally imposed restrictions on capital management.
(iv)
Liquidity Risk
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due. Management prepares monthly cash flow forecasts
taking into consideration debt facility obligations. Capital expenditures are planned around cash flow
availability.
NOTE 3:
REVENUE
Gas sales
NOTE 4:
EMPLOYEE BENEFIT EXPENSES
Wages and salaries
Equity settled share-based payment transactions
Shares issued in lieu of salaries and
bonus
CONSOLIDATED
2012
€
2011
€
8,208,468
9,115,046
1,856,627
1,851,829
-
97,333
1,856,627
1,949,162
A n n u a l R e p o r t 2 0 1 2 | 45
Notes to the Financial Statements (Continued)
NOTE 5:
CORPORATE OVERHEADS
Corporate overheads comprises:
Company administration and compliance
Professional fees
Office costs
Travel and entertainment
Other expenses
NOTE 6:
AUDITORS’ REMUNERATION
Auditors of the Company – KPMG Australia
Audit and review of the Group
Audit of subsidiary financial statements
Tax services – KPMG Australia
NOTE 7:
FINANCE INCOME AND EXPENSE
Recognised in profit and loss:
Interest income
Foreign exchange gains
Finance income
Interest expense
Amortisation of borrowing costs
Unwind of discount on site restoration provision
Foreign exchange losses
Finance expense
Net finance income / (expense)
46 | A n n u a l R e p o r t 2 0 1 2
CONSOLIDATED
2012
€
2011
€
329,713
458,906
336,009
150,146
79,154
221,693
436,022
283,560
137,602
101,768
1,353,928
1,180,645
71,959
23,867
67,757
-
-
15,000
95,826
82,757
38,071
-
38,071
5,504
-
5,504
325,794
327,952
213,066
184,111
68,549
252,482
227,695
2,384
791,520
810,513
(753,449)
(805,009)
Notes to the Financial Statements (Continued)
NOTE 8:
INCOME TAX EXPENSE
Current tax
Current year
Deferred tax
CONSOLIDATED
2012
€
2011
€
56,824
179,192
Origination and reversal of temporary differences
(124,427)
(327,076)
Changes in previously unrecognised deductible temporary differences
(141,133)
327,076
Recognition of previously unrecognised tax losses
Deferred tax benefit
Total income tax (benefit) / expense
Numerical reconciliation between tax expense and pre-tax
accounting profit / (loss)
Profit / (loss) for the year before tax
Income tax (benefit) / expense using the Company’s domestic tax rate
of 30 per cent (2011: 30%)
Non-deductible expenses:
Share based payments
Impairment losses
Other
Effect of tax rates in foreign jurisdictions
Current year losses for which no deferred tax asset was recognised
Tax losses utilised in current year
Changes in temporary differences
Changes in previously unrecognised temporary differences
Recognition of previously unrecognised tax losses
Tax effect of regional taxes in Italy – current
Income tax (benefit) / expense
(1,962,535)
(2,228,095)
-
-
(2,171,271)
179,192
201,570
(4,891,572)
60,471
(1,467,472)
-
-
29,201
1,748,975
5,583
180,048
(23,958)
(41,074)
345,864
329,192
(263,533)
(451,794)
(124,427)
(327,076)
(265,560)
(1,962,535)
-
-
56,824
179,192
(2,171,271)
179,192
A n n u a l R e p o r t 2 0 1 2 | 47
Notes to the Financial Statements (Continued)
CONSOLIDATED
2012
€
2011
€
NOTE 9:
EARNINGS PER SHARE
Basic earnings / (loss) per share (€ cents)
2. 12
(4.57)
The calculation of earnings per share was based on the profit attributable to shareholders of
€2,372,841
(2011: loss €5,070,764) and a weighted average number of ordinary shares outstanding during the
year of 111,675,707 (2011: 110,953,152).
Diluted earnings per share is the same as basic earnings per share.
The number of weighted average shares is calculated as
follows:
Number of shares on issue at beginning of the year
7,416,667 issued on 6 December 2012
338,604 issued on 14 March 2011
259,886 issued on 29 June 2011
No. of
days
365
26
293
186
2011
2012
Weighted
Weighted
average no.
average no.
111,147,396 110,548,906
528,311
-
-
271,811
132,435
111,675,707 110,953,152
NOTE 10:
(a)
CASH AND CASH EQUIVALENTS
(a) Cash and cash equivalents
1,226,348
1,889,879
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities
are disclosed in note 22.
Reconciliation of cash flows from operating activities
Profit / loss for the period
Adjustment for non-cash items:
Unrealised net foreign exchange (gains) / loss
Share-based payments
Depreciation and amortisation
Resource property costs impairments
Inventory impairments
Loss on disposal of assets
Unwind of discount on site restoration provision
Amortisation of borrowing costs
Change in operating assets and liabilities:
Increase/ (decrease) in receivables
Increase (decrease) in trade and other payables
Increase in provisions
Increase in deferred tax assets
Net cash inflow from operating activities
48 | A n n u a l R e p o r t 2 0 1 2
2,372,841
(5,070,764)
68,549
-
3,472,045
45,951
-
-
184,111
213,067
2,384
97,333
2,560,508
5,863,464
68,097
9,678
227,695
252,482
1,089,078
(903,331)
22,520
(2,228,095)
4,336,736
(1,032,701)
271,358
15,311
-
3,264,845
Notes to the Financial Statements (Continued)
NOTE 11:
INVENTORY
Current
Well equipment – at cost
Non – Current
Well equipment – at cost
NOTE 12:
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Accrued gas sales revenue
Sundry debtors
Accrued gas sales revenue from related party (note 24)
Indirect taxes receivable (a)
CONSOLIDATED
2012
€
2011
€
-
701,187
701,187
-
33,484
-
182,248
1,140,968
1,224,326
1,474,397
535,170
50,409
-
1,272,519
2,581,026
3,332,495
The Group’s exposure to credit and currency risks and impairment losses related to trade and other
receivables are disclosed in Note 22.
(a) Included in receivables are Italian indirect taxes recoverable as
follows:
Current
Non-current
1,093,577
1,197,810
1,285,372
1,622,980
The indirect taxes relate to Italian Value Added Tax (“VAT”), which is typically 21% of invoiced
amounts (with certain exceptions). The extent of VAT that has not been recovered from the Italian
authorities is recognised on the balance sheet as a receivable. Po Valley expects to recover this
receivable through reducing VAT remitted on sales, reducing the Group’s obligation to pay employee
taxes to the authorities and/or applying for an annual refund (capped at the lowest amount of VAT
credits generated in any of the past 3 years). The current portion receivable is estimated to be
recoverable in the next twelve months. We note that VAT remitted on oil and gas sales in Italy is 10%.
A n n u a l R e p o r t 2 0 1 2 | 49
Notes to the Financial Statements (Continued)
NOTE 13:
PROPERTY PLANT & EQUIPMENT
Office Furniture & Equipment:
At cost
Accumulated depreciation
Gas producing plant and equipment
At cost
Accumulated depreciation
Reconciliations:
Reconciliation of the carrying amounts for each class of
Plant & equipment are set out below:
Office Furniture & Equipment:
Carrying amount at beginning of year
Additions
Disposals
Depreciation expense
Carrying amount at end of year
Gas Producing assets:
Carrying amount at beginning of period
Additions
Depreciation expense
Carrying amount at end of period
CONSOLIDATED
2012
€
2011
€
194,212
(138,628)
163,994
(122,203)
55,584
41,791
7,668,967
(2,087,783)
5,581,184
5,636,768
7,668,967
(1,162,657)
6,506,310
6,548,101
41,791
30,218
-
(16,425)
64,290
12,888
(9,678)
(25,709)
55,584
41,791
6,506,310
-
(925,126)
6,951,615
111,591
(556,896)
5,581,184
6,506,310
5,636,768
6,548,101
50 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 14:
RESOURCE PROPERTY COSTS
Resource Property costs
Exploration Phase
Development Phase
Production Phase
CONSOLIDATED
2012
€
2011
€
7,272,641
6,814,557
-
-
14,744,969
16,491,557
22,017,610
23,306,114
Reconciliation of carrying amount of resource properties
Exploration Phase
Carrying amount at beginning of period
6,814,557
5,923,127
Exploration expenditure
Change in estimate of rehabilitation assets
Impairment losses
Carrying amount at end of period
243,886
1,156,991
260,149
(232,013)
(45,951)
(33,548)
7,272,641
6,814,557
Resource property costs in the exploration and evaluation phase have not yet reached a stage which
permits a reasonable assessment of the existence of or otherwise of economically recoverable
reserves. The ultimate recoupment of resource property costs in the exploration phase is dependent
upon the successful development and exploitation, or alternatively sale, of the respective areas of
interest at an amount greater than or equal to the carrying value.
Development Phase
Carrying amount at beginning of period
Development expenditure
Reclassed as Plant & Equipment
Transfer to production assets
Carrying amount at end of period
-
-
-
-
-
-
-
-
-
-
A n n u a l R e p o r t 2 0 1 2 | 51
Notes to the Financial Statements (Continued)
NOTE 14:
RESOURCE PROPERTY COSTS (continued)
CONSOLIDATED
2012
€
2011
€
Production Phase
Carrying amount at beginning of period
16,491,557
20,071,921
Additions
367,668
4,321,399
Change in estimate of rehabilitation assets
416,238
(93,945)
Amortisation of producing assets
(2,530,494)
(1,977,903)
Impairment loss
-
(5,829,915)
Carrying amount at end of period
14,744,969
16,491,557
Subsequent to the drilling of the deviated well in December 2011, an impairment trigger was identified
with regard to Castello as a result of a change in the expected daily production rate. Accordingly, the
associated resource property costs and related plant and equipment (as a cash generating unit) were
tested again for impairment at year-end 2011. The recoverable amount was determined by reference
to a discounted cashflow forecast model. The key assumptions adopted in that model include gas
pricing, remaining reserves, expected daily gas production, operating expenditure and a discount rate.
The recoverable amount is most sensitive to the remaining reserves and daily gas production. No
impairment expense in relation to Castello was recorded in 2012 (2011: €5,829,915).
Impairment losses are reconciled as follows:
Impairment expense
Castello gas field
Exploration costs
Inventory
Total impairment loss
2012
€
2011
€
-
(45,951)
-
(5,829,915)
(33,549)
(68,097)
(45,951)
(5,931,561)
52 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 15:
DEFERRED TAX ASSETS AND LIABILITIES
Recognised deferred tax assets
Deferred tax assets have been recognised in respect of the following items:
Tax losses
Accrued expenses and liabilities
Recognised deferred tax assets
Unrecognised deferred tax assets
CONSOLIDATED
2012
€
2011
€
1,962,535
265,560
2,228,095
-
-
-
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
Share issue expenses
Capitalised borrowing costs
Accrued expenses and liabilities
Unrecognised deferred tax assets
Deferred tax benefit will only be obtained if:
2,051,128
3,897,320
31,034
80,895
62,379
93,427
654,511
665,206
2,817,568
4,718,332
(i)
(ii)
(iii)
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;
the relevant company continues to comply with the conditions for deductibility imposed by tax
legislation; and
No changes in tax legislation adversely affect the relevant company in realising the benefit
from the deductions for the losses.
The tax losses in both Italy and Australia do not expire. The deductible temporary differences do not
expire under current tax legislation. Deferred tax assets have been recognised in respect of these
items because it is probable that future taxable profit will be available against which the Group can
utilise the benefits therefrom. In 2012, €2,228,095 of previously unrecognised tax losses and
deductible temporary differences relating to the Italian subsidiaries were recognised as management
considered it probable that future taxable profits would be available against which they can be utilised.
Management revised its estimates following a further year of taxable profits being generated in Italy
and the stabilisation of income for both producing fields.
A n n u a l R e p o r t 2 0 1 2 | 53
Notes to the Financial Statements (Continued)
NOTE 15:
DEFERRED TAX ASSETS AND LIABILITIES (continued)
Movement in recognised temporary differences during the year
Balance 1
Jan 2011
Profit and
loss
Equity
Balance 31
December
2011
Profit and
loss
Equity
Consolidated
-
-
Tax losses
Accrued
expenses and
liabilities
Total
recognised
deferred tax
-
asset
*2011 movements were previously unrecognised
-
-
-
-
-
-
-
-
-
1,962,535
265,560
2,228,095
-
-
-
Balance
31 Dec
2012
1,962,535
265,560
2,228,095
Movement in unrecognised temporary differences during the year
Balance 1
Jan 2011
Profit
and loss
Equity
Balance 31
December
2011
Profit and
loss
Equity
Balance
31 Dec
2012
Consolidated
Tax losses
Share issue
expenses
Capitalised
borrowing costs
Accrued
expenses and
liabilities
Total
unrecognised
deferred tax
asset
3,795,145
62,070
40,105
3,897,320
(1,846,192)
-
2,051,128
101,821
-
(39,442)
62,379
-
(31,345)
31,034
117,389
(23,962)
22,230
642,976
-
-
93,427
(12,532)
80,895
665,206
(10,695)
654,511
4,036,585
681,084
663
4,718,332
(1,869,419)
(31,345)
2,817,568
NOTE 16:
TRADE AND OTHER PAYABLES
Trade payables and accruals
Other payables
CONSOLIDATED
2012
€
2011
€
1,566,376
5,292,381
151,792
321,135
1,718,168
5,613,516
The Group’s exposure to currency and liquidity risks related to trade and other payables are disclosed
in note 22.
54 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 17:
PROVISIONS
Current:
Employee leave entitlements
Non Current:
Restoration provision
Reconciliation of restoration provision:
Opening balance
(Decrease) / Increase in provision due to revised estimates
Increase in provision from unwind of discount rate
Closing balance
CONSOLIDATED
2012
€
2011
€
113,825
91,305
3,608,421
2,747,922
2,747,922
676,388
184,111
2,846,186
(325,958)
227,694
3,608,421
2,747,922
Provision has been made based on the net present value of the estimated cost of restoring the
environmental disturbances that has occurred up to the balance sheet date and abandonment of the
well site and production fields.
NOTE 18:
INTEREST BEARING LOANS
This note provides information about the contractual terms of the Company’s and Group’s interest-
bearing loans and borrowings, which are measured at amortised cost. For more information about the
Company’s and Group’s exposure to interest rate, foreign currency and liquidity risk, see note 22.
Current liabilities
Lloyds finance facility
Non-current liabilities
Lloyds finance facility
CONSOLIDATED
2012
€
2011
€
3,984,896
-
-
5,771,830
The Group’s exposure to currency, interest rate and liquidity risks related to loans are disclosed in
note 22.
A n n u a l R e p o r t 2 0 1 2 | 55
Notes to the Financial Statements (Continued)
NOTE 18:
INTEREST BEARING LOANS (continued)
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency Nominal
Interest
rate
Year of
Maturity
31 December 2012
Carrying
Face
Amount
Value
$
$
31 December 2011
Carrying
Face
Amount
Value
$
$
Euro
Euribor +
1.8%
2013
4,000,000 3,984,896 6,000,000 5,771,830
Current
liabilities
Secured bank
loan
The amount presented is disclosed net of borrowing costs of €15,104 (2011: €228,170).
Lloyds (formerly Bank of Scotland) have provided a €25,000,000 finance facility which provided an
initial borrowing base of €5,000,000 to the Group to finance the construction program of the Castello
and Sillaro fields and a senior facility of €20,000,000.
The senior facility became available on 19 June 2009 when the Company received its formal
production concessions and final development approval for the Castello and Sillaro fields. This senior
debt replaced the initial tranche of €5,000,000 and matures on 15 November 2013. The current
borrowing limit for the six months to 30 June 2013 is set to €4,000,000 (the amount currently drawn)
which is based on the semi annual borrowing base review performed during December 2012.
Interest is currently payable at Euribor plus 180 basis points. The Company repaid €2,000,000 of the
senior facility (2011: €Nil). The facility is secured over the assets of Northsun Italia SpA and Po
Valley Operations Pty Ltd.
NOTE 19:
CAPITAL AND RESERVES
Share Capital
Opening balance - 1 January
Shares issued during the year:
Shares issued at €0.095 ($0.12) each on 6 December 2012
Shares issued at €0.18 ($0.25) each on 14 March 2011
Shares issued at €0.14 ($0.19) each on 29 June 2011
Ordinary Shares
2012
Number
2011
Number
111,147,396
110,548,906
7,416,667
-
-
-
338,604
259,886
Closing balance – 31 December
118,564,063
111,147,396
56 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 19:
CAPITAL AND RESERVES (continued)
All ordinary shares are fully paid and carry one vote per share and the right to dividends. In the event
of winding up the Company, ordinary shareholders rank after creditors. Ordinary shares have no par
value.
No shares were issued to employees pursuant to the employees share purchase plan (2011: 598,490)
Translation Reserve
The translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations.
Options Reserve
The option reserve is used to record the value of equity benefits provided to employees and directors
as part of their remuneration. Refer to note 20 for further details of these plans.
Dividends
No dividends were paid or declared during the current year (2011: Nil).
NOTE 20:
SHARE BASED PAYMENTS
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.
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. The vesting provisions issued during
2009 and 2008 have included share price hurdles and continued employment with the Group.
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.
A n n u a l R e p o r t 2 0 1 2 | 57
Notes to the Financial Statements (Continued)
NOTE 20:
SHARE BASED PAYMENTS (continued)
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.
The number and weighted average exercise prices of share options is as follows:
2012
2011
Number of
options
Balance at beginning of year
Granted
Exercised
Lapsed
Balance at end of year
Exercisable at end of year
-
-
-
-
-
-
Weighted
average
exercise
price
$
-
-
-
-
-
Number of
options
3,100,000
-
-
(3,100,000)
-
-
Weighted
average
exercise
price
$
1.00
-
-
1.00
-
Options granted during the reporting period pursuant to EIOS:
No options were granted in the reporting period.
Options held at the end of the reporting period pursuant to EIOS.
No options were held at the end of the reporting period.
58 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 21:
FINANCIAL REPORTING BY SEGMENTS
The Group reportable segments as described below are the Group’s strategic business units. The
strategic business units are classified according to field licence areas which are managed separately.
All strategic business units are in Italy. For each strategic business unit, the CEO reviews internal
management reports on a monthly basis. Exploration, Development and Production gas and oil are
the operating segments identified for the Group. The individual exploration, development and
production operations have been aggregated.
In euro
Exploration
Development and
Production
Total
External revenues
Segment (loss) /
profit before tax
Depreciation and
amortisation
Impairment on
resource property
costs
Reportable
segment assets:
Resource
property costs
Plant &
Equipment
Receivables
Inventory
Capital
expenditure
Movement in
rehabilitation
assets
Reportable
segment liabilities
2012
€
2011
€
-
-
2012
€
8,208,468
2011
€
9,115,046
2012
€
8,208,468
2011
€
9,115,046
(45,951)
(33,548)
3,527,724
(952,225)
3,481,773
(985,773)
-
-
(3,455,620)
(2,534,799)
(3,455,620)
(2,534,799)
(45,951)
(33,548)
-
(5,829,915)
(45,951)
(5,863,463)
7,272,641
6,814,557
14,744,969
16,491,557
22,017,610 23,306,114
-
-
-
-
-
-
5,581,184
6,506,310
5,581,184
6,506,310
1,170,575
2,009,567
1,170,575
2,009,567
701,187
701,187
701,187
701,187
299,433
1,156,991
367,668
4,432,990
667,101
5,589,981
260,149
(232,013)
416,238
(93,945)
676,387
(325,958)
(1,314,262)
(1,093,441)
(2,788,064)
(6,250,267)
(4,102,326)
(7,343,708)
A n n u a l R e p o r t 2 0 1 2 | 59
Notes to the Financial Statements (Continued)
NOTE 21:
FINANCIAL REPORTING BY SEGMENTS (continued)
Reconciliation of reportable segment profit or loss, assets and
liabilities
Profit or loss:
2012
€
2011
€
Total profit / (loss) for reportable segments
3,481,773
(985,773)
Unallocated amounts:
Net finance expense
Other corporate expenses
Consolidated profit / (loss) before income tax
Assets:
Total assets for reportable segments
Other assets
Consolidated total assets
Liabilities:
Total liabilities for reportable segments
Other liabilities
Consolidated total liabilities
Other Segment Information
(753,449)
(805,009)
(2,526,754)
(3,100,790)
201,570
(4,891,572)
29,470,556
32,523,178
6,249,507
4,916,860
35,720,063
37,440,038
(4,102,326)
(7,343,708)
(5,322,984)
(6,880,865)
(9,425,310)
(14,224,573)
All of the Group’s revenue is currently attributed to gas sales in Italy on the spot market. Until 1
October 2012, the Group’s revenue was attributed to gas sales in Italy to one customer.
NOTE 22:
FINANCIAL INSTRUMENTS
(a)
Interest Rate Risk Exposures
Profile:
At the reporting date the interest rate profile of the Group’s interest-bearing financial
instruments was:
CONSOLIDATED
2012
€
2011
€
1,226,348
(3,984,896)
(2,758,548)
1,889,879
(5,771,830)
(3,881,951)
Variable rate instruments
Financial assets
Financial liabilities
60 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 22:
FINANCIAL INSTRUMENTS (continued)
Fair Value sensitivity analysis for fixed rate instruments:
The Group does not account for any fixed rate financial assets and liabilities at fair value
through profit and loss. Therefore a change in interest rates at the reporting date would not
affect the profit or loss or equity.
Cash flow sensitivity analysis for variable rate instruments:
A strengthening of 100 basis points in interest rates at the reporting date would have
increased / (decreased) equity and profit and loss by the amounts shown below. This analysis
assumes that all other variables, in particular foreign currency rates, remain constant. The
analysis is performed on the same basis for 2011.
Effect in €’s
31 December
Profit or loss
Equity
2012
2011
2012
2011
Variable rate instruments
(27,737)
(41,101)
(27,737)
(41,101)
A decrease of 100 basis points would have an equal and opposite effect on profit or loss.
(b) Credit Risk
Exposure to credit risk
The Group is not exposed to significant credit risk. Credit risk with respect to cash is held with
recognised financial intermediaries with acceptable credit ratings.
The Company has limited its credit risk in relation to its gas sales in that all sales transactions on
the spot market are managed by the national transmission system operator SNAM Rete Gas Spa,
a partially state owned Italian entity with an investment grade credit rating. Specifically, SNAM
Rete Gas Spa has been mandated by the Italian Energy Trading Authorities to perform the role of
financial and physical clearing house for all spot market transactions. Consequently, the Group
invoices SNAM for all gas sales through a related party Intrading.
The Group has a concentration of credit risk exposure to the Italian Government for VAT
receivable (see note 12).
The carrying amount of the Group’s financial assets represents the maximum credit exposure and
is shown in the table below. No receivables are considered past due nor were any impairment
losses recognised during the period.
A n n u a l R e p o r t 2 0 1 2 | 61
Notes to the Financial Statements (Continued)
NOTE 22: FINANCIAL INSTRUMENTS (continued)
Cash and cash equivalents
Receivables – Current
Receivables – Non-current
Other assets
Note
10
12
12
CONSOLIDATED
Carrying Amount
2012
€
1,226,348
2,581,026
1,285,372
43,657
2011
€
1,889,879
3,332,495
1,622,980
39,282
5,136,403
6,884,636
(c)
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest
payments:
Consolidated
31 December 2012
In €
Carrying
amount
Contractual
cash flows
6 months
or less
6 to 12
months
1 – 2
Years
2 – 5
Years
Trade and other
payables
Secured bank
loan
(1,718,168)
(1,718,168)
(1,718,168)
-
(3,984,896)
(5,703,064)
(4,076,626)
(5,794,794)
(43,786)
(1,761,954)
(4,032,840)
(4,032,840)
-
-
-
-
-
-
Consolidated
31 December 2011
In €
Carrying
amount
Contractual
cash flows
6 months
or less
6 to 12
months
1 – 2
Years
2 – 5
Years
Trade and other
payables
Secured bank
loan
(5,613,516)
(5,613,516)
(5,613,516)
-
-
(5,771,830)
(11,385,346)
(6,389,965)
(12,003,481)
(101,730)
(5,715,246)
(101,730)
(101,730)
(6,186,505)
(6,186,505)
-
-
-
(d)
Net Fair Values of financial assets and liabilities
The carrying amounts of financial assets and liabilities (excluding borrowing costs) as
disclosed in the balance sheet equate to their estimated net fair value.
(e)
Foreign Currency Risk
The Group is exposed to foreign currency risk on purchases and borrowings that are
denominated in a currency other than Euro. The currency giving rise to this risk is primarily
Australian Dollars.
62 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 22:
FINANCIAL INSTRUMENTS (continued)
Amounts receivable/(payable) in foreign currency other than
functional currency:
Cash
Current – Payables
Net Exposure
The following significant exchange rates applied during the year:
CONSOLIDATED
2012
€
352,903
(5,509)
347,394
2011
€
49,508
(8,654)
40,854
Australian Dollar ($)
Sensitivity Analysis
Average rate
2012
0.8055
2011
0.7414
Reporting date spot
rate
2012
0.7846
2011
0.7856
A 10 percent strengthening of the Australian dollar against the Euro (€) at 31 December would have
increased (decreased) equity and profit and loss by the amounts shown below. This analysis assumes
that all other variables, in particular interest rates, remain constant. The analysis is performed on the
same basis for 2011.
31 December 2012
Australian Dollar to Euro (€)
31 December 2011
Australian Dollar to Euro (€)
CONSOLIDATED
Profit or loss
€
33,927
Equity
€
33,927
4,388
4,388
A 10 percent weakening of the Australian dollar against the Euro (€) at 31 December would have the
equal but opposite effect on the above currencies to the amounts shown above, on the basis that all
other variables remain constant.
NOTE 23:
COMMITMENTS AND CONTINGENCIES
Contractual Commitments
There are no material commitments or contingent liabilities not provided for in the financial statements
of the Company or the Group as at 31 December 2012.
A n n u a l R e p o r t 2 0 1 2 | 63
Notes to the Financial Statements (Continued)
NOTE 24:
RELATED PARTIES
KEY MANAGEMENT PERSONNEL COMPENSATION
The key management personnel compensation included in employee benefit expense (see note 4) is
as follows:
Short-term employee benefits
Other long term benefits
Post-employment benefits
Share-based payments
Consolidated
2012
€
511,291
-
-
-
511,291
2011
€
485,848
-
-
39,191
525,039
Individual Directors and executives compensation disclosures
Information regarding individual Directors and executives’ compensation and some equity instruments
disclosures as permitted by Corporations Regulation 2M.3.03 is provided in the remuneration report
section of the directors’ report. Lisa Jones, Company Secretary, is not a key management personnel
(“KMP”) but is a specified executive, and her remuneration is included in the tables in the
remuneration report.
Apart from details disclosed in this note, no director has entered into a material contract with the
Group or the Company since the year end of the previous financial year end and there were no
material contracts involving directors’ interests existing at year-end
Options over equity instruments
There were no options held or granted during the year by any key management person.
The movement during 2011 in the number of options over ordinary shares in the Company held
directly or indirectly by each key management person, including their personally-related parties, is as
follows:
Directors
G Bradley
M Masterman
D McEvoy
B Pirola
Executives
G Catalano
Held at
31 Dec
2010
600,000
1,000,000
600,000
600,000
2,800,000
-
-
Granted
Exercised
Expired
Held at
31 Dec 2011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(600,000)
(1,000,000)
(600,000)
(600,000)
(2,800,000)
-
-
-
-
-
-
-
-
-
64 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 24:
RELATED PARTIES (continued)
Equity holdings and transactions
The movement during the reporting period in the number of ordinary shares of the Company, held
directly and indirectly by each specified director and specified executive, including their personally-
related entities is as follows:
Held at
31 Dec 2011
Purchased
Share
based
payments
Options
Exercised
Sold
Directors
G Bradley
M Masterman (i)
B Pirola (ii)
G Short
K Eley(v)
G Catalano (iv)
D McEvoy (iii)
Executives
S. Edmonson
1,123,880
26,722,569
7,112,782
-
-
528,141
314,270
35,801,642
28,064
28,064
-
3,422,733
-
-
400,000
-
-
3,822,733
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(300,000)
-
-
-
-
-
(300,000)
Held at
31 Dec 2012
(iii)
1,123,880
29,845,302
7,112,782
-
400,000
528,141
314,270
39,324,375
-
-
28,064
28,064
Directors
G Bradley
M Masterman (i)
D McEvoy
B Pirola (ii)
G Short
Executives
G. Catalano
Held at
31 Dec 2010
Purchased
Share
based
payments
Options
Exercised
Sold
Held at
31 Dec 2011
(iii)
1,123,880
26,222,569
314,270
7,112,782
-
34,773,501
-
1,000,000
-
-
-
1,000,000
-
-
-
-
-
-
268,255
268,255
-
-
259,886
259,886
-
-
-
-
-
-
-
-
-
(500,000)
-
-
-
(500,000)
1,123,880
26,722,569
314,270
7,112,782
-
35,273,501
-
-
528,141
528,141
(i)
(ii)
Does not include shares held by related parties which amount to 1,040,000 shares
Included above are shares held by related parties
(iii)
Or the date ceasing to be a KMP
(iv)
(v)
Appointed as Managing Director on 19 June 2012
Appointed as Non Executive Director on 19 June 2012
A n n u a l R e p o r t 2 0 1 2 | 65
Notes to the Financial Statements (Continued)
NOTE 24:
RELATED PARTIES (continued)
OTHER RELATED PARTY DISCLOSURES
The Company has a related party relationship with its controlled entities. Transactions between the
Company and its controlled entities consisted of:
a) Loans advanced by the Company to its controlled entities. In prior years, these loans have
historically been interest free, unsecured and repayable at call. In 2012, interest of €287,092
(2011: €296,553) was charged to Northsun Italia. As at 31 December 2012, loans to
controlled entities amounted to €22,356,111 (2011: €36,639,908)
b) Expenses incurred by the Company are on-charged to controlled entities at cost.
c) Beginning 1 October 2012, the Company started to sell its gas via its related party Intrading
Srl. Intrading Srl (“Intrading”) was incorporated in August 2012. Northsun Italia SpA retains
50% of the shareholding of Intrading while the remaining 50% is owned by Italtrading SpA a
former customer. Northsun Italia stipulated a gas sales contract with Intrading and currently
sells 100% of its gas on the spot market via this entity while Italtrading executed a service
agreement with the entity and provides logistics and administrative support for the gas sales.
The following transactions occurred with Intrading:
Gas Sales (€)
(excluding VAT)
Amount receivable at 31
December (€)
2012
1,674,950
1,140,968
d) Northsun Italia SpA (‘NSI’) is a fully owned subsidiary of Po Valley Energy. A director of NSI,
Roberto Fazioli, also served on the board as Chairman of a customer, Elettrogas SpA. NSI
entered into the following transactions, in the ordinary course of business, with this related
party.
2012
2011
Gas Sales (€)
(excluding VAT)
336,320
4,475,406
Other income (€)
Amount receivable at
31 December (€)
315,000
-
-
952,405
66 | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial Statements (Continued)
NOTE 25:
PARENT ENTITY DISCLOSURES
Financial Position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Equity
Issued capital
Accumulated losses
Total equity
Financial Performance
Loss for the year
Other comprehensive income
Total Comprehensive income
Contingent liabilities of the parent entity
For details on contingent liabilities, refer note 23.
Commitments of the parent entity
For details on commitments, see note 23.
2012
€
2011
€
1,110,293
39,998,138
41,108,431
386,301
47,897,861
48,284,162
4,178,438
-
4,178,438
225,473
5,771,830
5,997,303
36,929,993
42,286,859
45,460,097
(8,530,104)
36,929,993
44,753,650
(2,466,791)
42,286,859
(6,063,313)
-
(6,063,313)
(988,808)
-
(988,808)
NOTE 26:
GROUP ENTITIES
The parent and ultimate controlling party of the Group is Po Valley Energy Limited. The investments
held in controlled entities are included in the financial statements of the parent at cost at 31 December
2012 and 2011 and are as follows:
Name:
Country of
Incorporation
Class of
Shares
2012
Investment
€
2011
Investment
€
Holding
%
Northsun Italia S.p.A (“NSI”)
Po Valley Operations Pty
Limited (“PVO”)
PVE USA Inc.
Italy
Ordinary
21,083,268
9,603,268
100
Australia
United States
of America
Ordinary
631,056
631,056
100
Ordinary
806
21,715,130
806
10,235,130
100
A n n u a l R e p o r t 2 0 1 2 | 67
Notes to the Financial Statements (Continued)
NOTE 27:
SUBSEQUENT EVENT
The Company completed a capital raising of A$ 1.35 million through a private placement in
December 2012. The participation of the company's Non Executive Directors in the
placement was subject to shareholder approval and as a result the Company held an
extraordinary general meeting (EGM) of shareholders on 15 February 2013. Shareholder
approval was obtained and subsequently the second tranche of 3,850,000 shares was
issued.
There were no other 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 Group, the
results of those operations, or the state of affairs of the Group.
68 | A n n u a l R e p o r t 2 0 1 2
Directors’ Declaration
1. In the opinion of the Directors of Po Valley Energy Ltd (“the Company”):
i)
the financial statements and notes, as set out on pages 28 to 68, and the remuneration
disclosures that are contained in the Remuneration report in the Directors’ report, are in
accordance with the Corporations Act 2001, including:
a.
b.
giving a true and fair view of the Group’s financial position as at 31 December 2012
and of its performance, for the financial year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001;
ii)
there are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable.
2. The Directors have been given the declarations required by 295A of the Corporations Act 2001 by
the chief executive officer and chief financial officer for the financial year ended 31 December
2012.
3. The Directors draw attention to Note 1.2 to the Financial Statements which include a statement of
compliance with International Financial Reporting Standards.
Dated at Sydney this 15th day of March 2013.
Signed in accordance with a resolution of the Directors:
Graham Bradley
Chairman
Byron Pirola
Non-Executive Director
A n n u a l R e p o r t 2 0 1 2 | 69
70 | A n n u a l R e p o r t 2 0 1 2
A n n u a l R e p o r t 2 0 1 2 | 71
Shareholders Information 2012-2013
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 the share
registry information processed up to 31 March 2013.
SHAREHOLDING
SUBSTANTIAL SHAREHOLDERS
Name
Number of
Percentage of
Ordinary Shares Held
Capital Held %
Michael Masterman
32,845,302
Hunter Hall Investment Management Pty Ltd
21,365,804
Beronia Investments Pty Ltd*
7,112,782
26.83
17.45
5.8
* Interestes associated with Non Executive Director Byron Pirola
DISTRIBUTION OF SHARES
Size of Holdings
Number of Holders
Number of Shares Percentage of Capital Held %
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - over
Unmarketable Parcels
183
225
127
343
105
983
366
52,875
682,436
1,019,148
11,496,812
109,162,792
122,414,063
525,561
0.04
0.56
0.83
9.39
89.18
100
0.43
VOTING RIGHTS OF SHARES AND OPTION
Refer to Note 19 and Note 20
ON-MARKET BUY-BACK
There is no current market buy-back
72 | A n n u a l R e p o r t 2 0 1 2
Shareholder Information 2012-2013
TWENTY LARGEST SHAREHOLDERS
Name
Number of Ordinary
Percentage of
Share Held
Capital Held %
1 Michael Masterman
24,163,632
19.74
2
J P Morgan Nominees Australia Limited
22,365,804
18.27
3 Mr Michael George Masterman
4
Joan Masterman
5 Mr Laurie Mark Macri
6,322,733
4,788,444
5.17
3.91
4,000,000
3.27
6 Beronia Investments Pty Ltd
2,776,202
2.27
7 Kevin Bailey Corporation Pty Ltd
2,690,000
2.20
8 Greenvale Asia Limited
9 Symmall Pty Ltd
10 Beronia FS Pty Ltd
11 Beronia FS Pty Ltd
1,600,240
1.31
12 Mr Ming Lov & Mrs Chiu Lov
1,550,000
1.27
13 Mr John Fyfe & Mrs Evelyn Fyfe
14 Tucabia Investments Pty Ltd
15 Tangar Boring & Excavations Pty
Ltd
1,299,893
1.06
1,288,653
1.05
1,171,721
0.96
1,000,000
0.82
978,592
0.80
19 Equitas Nominee Pty Ltd
873,880
0.71
20 Mr Stephen Lloyd Jones
850,000
0.69
85,572,708
69.90%
A n n u a l R e p o r t 2 0 1 2 | 73
Reserves & Resources Statement
The following table summarises the status of the Company’s Reserves & Resources, independently
evaluated by the geological and petroleum reservoir consultancy UK firm Robertson CGG during
2012-2013. These figures are based upon independent evaluations in accordance with 2007
SPE/WPC/AAPG/SPEE Petroleum Resource Management System.
Prospective
Resources
Gas, BCF
Best
Low
High
1.4
1.6
2.2
2.4
3.1
3.2
7.9
15.9
25.0
1.4
2.1
10.2
29.1
4.5
7.1
5.5
3.3
4.7
14.6
20.5
34.8
40.6
9.0
16.0
12.6
20.8
9.3
14.4
10.6
16.6
24.7
7.0
8.8
11.3
13.8
18.3
24.4
3.3
5.0
7.3
29.0
47.0
73.0
Licence
Project
Reserves
Contingent
Resources
Gas, BCF
1P
5.8
0.8
0.7
Sillaro
Sillaro
Cascina
Castello
Castello
Bezzecca
Up West
Vitalba
West Vitalba
2P
3P
1C
2C
3C
6.5
1.6
1.8
4.2
5.8
Crocetta
Fantuzza
1.8
5.7
8.3
San
Vincenzo
Sant’Alberto
AR94PY
Cadelbosco
Podere
Gallina
Carola/Irma
PL3-C
Zini (Qu-A)
Zini (Qu-B)
Canolo (Qu-A)
Canolo (Plioc)
Selva Stratigr
Cembalina
Fondo Perino
East Selva
Gradizza
La Prospera
Pioppette
Capitello
Ariano
La Risorta
Corcrevà
Opera
D delle Anime
Barona Lead
Opera Lead
Licence
Project
Cadelbosco
Bagnolo in Piano
Grattasasso Ravizza
74 | A n n u a l R e p o r t 2 0 1 2
1.8
2.1
2.8
34.6
47.3
62.2
1.1
0.7
0.4
2.7
1.1
3.6
4.6
1.7
10.5
11.4
17.0
23.0
Contingent Resources
Oil, MMbbls
1C
3.7
2.2
2C
4.3
5.7
3C
5.1
10.7
Reserves & Resources Statement
The total acreage position of the Company is circa 2,000 km2. For an illustration of each asset’s location please
refer to the map “Licences in Italy” which can be found on the inside cover of this Annual Report.
As at 15 April 2013 all PVE assets are 100% owned except for the shallow gas prospects in the exploration permit
Cadelbosco di Sopra which has been farmed out to Petrorep Italia Spa for a 15% working interest.
Information in this report that relates to Hydrocarbon Reserves and or Resources is based on information
compiled by Mr. Giovanni Catalano, CEO and MD of Po Valley Energy who have consented to the inclusion of
that information in the form and context in which it appears.
Mr Catalano has over 30 years experience in Exploration and Development in the Oil and Gas Industry. He is a
member of SEAPEX and AAPG and holds a masters degree in Geology from the University of Ferrara, Italy.
RESERVES are those quantities of hydrocarbon anticipated to be commercially recoverable by application of
development projects to known accumulations from a given date forward under defined conditions.
Proved Reserves are those quantities of hydrocarbon, which, by analysis of geoscience and engineering data,
can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from
known reservoirs and under defined economic conditions, operating methods, and government regulations (1P).
Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate
are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It
is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the
estimated Proved plus Probable Reserves (2P).
Possible Reserves are those additional reserves which analysis of geoscience and engineering data suggest are
less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project
have a low probability to exceed the sum of Proved plus Probable plus Possible (3P) Reserves, which is
equivalent to the high estimate scenario.
CONTINGENT RESOURCES are those quantities of hydrocarbon estimated, as of a given date, to be potentially
recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for
commercial development due to one or more contingencies.
PROSPECTIVE RESOURCES are those quantities of hydrocarbon estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations by application of future development projects.
For Contingent Resources, the general cumulative terms low/best/high estimates are denoted as 1C/2C/3C
respectively. For Prospective Resources, the general cumulative terms low/best/high estimates still apply. No
specific terms are defined for incremental quantities within Contingent and Prospective Resources.
A n n u a l R e p o r t 2 0 1 2 | 75
Notes:
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
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76 | A n n u a l R e p o r t 2 0 1 2
Po Valley energy limited
aBn 33 087 741 571
registered office
level 28, 140 St. georges terrace
Perth Wa 6000
tel: (08) 9278 2533
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2012 Annual Report