cover e indice Po Valley_copertina +dorso 5mm 15/04/14 18.01 Pagina 1
Po Valley energy limited
aBn 33 087 741 571
registered office
level 28, 140 St. georges terrace
Perth Wa 6000
tel: (08) 9278 2533
3
1
0
2
t
r
o
P
e
r
l
a
u
n
n
a
-
d
e
t
i
m
i
l
y
g
r
e
n
e
y
e
l
l
a
V
o
P
2013 ANNUAL REPORT
1
2
4
6
Highlights
Chairman’s Letter to Shareholders
Acting Chief Executive Officer’s Report
Corporate Governance Statement
12
Directors’ Report
29
Lead Auditor’s Independence Declaration
30
Statement of Financial Position
31
Statement of Comprehensive Income
32
Statement of Changes in Equity
33
Statements of Cash Flow
34
Notes to the Financial Statements
67
Directors’ Declaration
68
Independent Auditor’s Report
70
Shareholder Information 2013-2014
72
Technical Summary
Corporate Directory
Directors
Graham Bradley, Chairman
Michael Masterman, Non Executive Director
Byron Pirola, Non Executive Director
Gregory Short, Non Executive Director
Kevin Eley, Non Executive Director
Acting Chief Executive Officer
Sara Edmonson
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
Share Registry
Link Market Services Limited
178 St George’s Tce
Perth, WA Australia 6000
Tel: +61 8 92116679
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
Nedbank Limited
Old Mutual Place
2 Lambeth Hill
London, Uk, EC4V 4GG
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 bcf (23.98 million standard cubic metres)
€6.7 million (AUD 9.2 million) revenue
€3.3 million (AUD 4.5 million) net cash flow from operating activities of which
€2.2 million (AUD 3 million) invested in exploration activities and geoscience
studies
€2.2 million (AUD 3 million) EBITDA
€5.8 million (AUD 7.9 million) loss for the period, including a non-cash write
down of €5 million relating to the Company's Vitalba (Castello) well and related
production assets
Gradizza-1 well successfully drilled and tested: production concession
application lodged with the Italian Ministry of Economic Development
First offshore exploration permit AR94PY advanced toward development
One new high-potential gas exploration licence, Tozzona, fully awarded
€20 million Reserve Based Lending (RBL) facility finalised with Nedbank
Indirect tax (VAT) refund of €1.3 million received from the Italian Tax
Authorities
New off-take gas sale agreement executed with Shell Italia Spa
A n n u a l R e p o r t 2 0 1 3 | 1
Chairman’s letter to Shareholders
Dear Shareholder,
The past year has been a challenging one for the Company but substantial progress was
made on a number of fronts.
Total gas production in 2013 was 24 million standard cubic metres, slightly below production
in 2012 (24.7 Mscm). Our 2013 revenues were €6.7 million (AUD 9.2 million) being €1.5
million (AUD 1 million) lower than 2012 due principally to lower gas prices which averaged
€0.28 cents per cubic metre compared to €0.33 cents achieved in 2012. As a result, our
2013 EBITDA was €2.2 million (AUD 3 million) compared to €4.5 million (AUD 5.6 million) in
2012.
The Company recorded a statutory loss of €5.8 million (AUD 7.9 million) in 2013 largely due
to the decision to significantly reduce production at our Vitalba well due to water
encroachment. The Board subsequently decided to write down the value of this asset by
€5.0 million. The Company declared no dividend in 2013.
As approved by the EGM in February 2013, the Company issued 3,850,000 new ordinary
shares to raise AUD 1.35 million in order to fund an upgrade to the Sillaro gas plant and for
general working capital purposes. Further funds were received in December 2013 from a tax
refund of VAT of €1.28 million.
In a challenging European banking market, in mid-2013 we were pleased to secure a new
€20 million Reserve Based Lending (RBL) facility with the Nedbank Group. The new 5-year
facility will allow us to fund the Company’s growth opportunities over coming years, including
two planned new production wells, Bezzecca and Sant’ Alberto. Our initial drawing under the
RBL facility was €5.0 million. By year-end, however, the Company had reduced the amount
borrowed to €3.5 million after two repayments totalling €1.5 million.
Another highlight of the year was securing a new gas off-take agreement with Shell Italia
Spa, a part of the Royal Dutch Shell Group. The contract is benchmarked to gas prices in
Italy and commenced on 1 July 2013.
During the second half of the year, the Company initiated an internal restructure to reduce
costs and reorganise the leadership team. Giovanni Catalano stepped down as CEO in
August and our CFO, Sara Edmonson, was appointed as Acting CEO. I would like to thank
Giovanni for his efforts during his three years with the Company. With the restructure now
largely in place, the Company has reset its priorities and put in place cost saving initiatives.
The Board believes we can move our key operations forward with a lower cost base.
2 | A n n u a l R e p o r t 2 0 1 3
Chairman’s letter to Shareholders
Looking ahead,
in addition
to bringing our
fields Bezzecca and Sant’Alberto
into
production, the Company’s priorities are to move several high potential new projects
closer
to development,
including our highly prospective Teodorico offshore
field
(2C Contingent Resources 47.3 bcf) and our onshore Selva Stratigraphic
field
(2C Contingent Resources 17 bcf).
In all, the Company invested €2.2 million (AUD 3 million) in exploration and development in
2013, including funds invested to drill the Gradizza-1 well with our farm-in partners.
In conclusion, I would like to thank our shareholders for their ongoing support, my board
colleagues for their commitment and our hardworking team in Rome, ably led by our Acting
CEO, Sara Edmonson, for their dedication during the past year.
Graham Bradley
Chairman
A n n u a l R e p o r t 2 0 1 3 | 3
Acting Chief Executive Officer’s Report
Dear Shareholder,
I am pleased to report that during 2013 the Company strengthened its exploration asset
portfolio and refocused its resources on the development of select Company assets,
namely Bezzecca, Teodorico, Gradizza and Selva.
During the first half of the year, the Company successfully completed installation of the three-
phase separator at the Sillaro gas field. In July, the Company made the decision to reduce
the production rate at Vitalba where water encroachment had started to increase. The Vitalba
plant will be used to treat gas fed from the nearby Bezzecca field, which received the
Environmental Impact Assessment (EIA) approval in early 2014.
The Bezzecca EIA award is a considerable milestone for the Company as it is often the
most time consuming and complex phase of the Italian regulatory process as it involves
numerous stakeholders including municipalities, local environmental entities and regional
authorities. Closure of this critical step for Bezzecca paves the way to receive the full award
needed to start pipeline construction. In early 2014, the Company finalised the engineering
and design of the pipeline and related surface facilities.
The bid process for the construction and installation has commenced, and the proposals are
due at end of May 2014. The pipeline to connect the Bezzecca gas field to the Vitalba plant
will be funded through a combination of operating cash flow and our RBL facility with
Nedbank.
The high potential development project AR94PY (including Teodorico located offshore in the
Adriatic Sea) significantly increased its certified Contingent Resources (1C:34.6 bcf, 2C:47.3
bcf, 3C:62.2 bcf) following a Competent Persons Report produced by Robertson CGG.
Preparatory work was carried out in the second half of 2013 including a preliminary front end
engineering and design study and reprocessing of an enlarged seismic dataset by TEEC
Geophysics. This progress has put the Company in a position to accelerate development by
applying directly for a production concession without the need to first apply for exploration
approval.
4 | A n n u a l R e p o r t 2 0 1 3
Acting Chief Executive Officer’s Report
The Company successfully drilled the exploration well Gradizza-1 in August 2013 with its
joint venture partners AleAnna Resources LLC and Petrorep Italiana Spa. Subsequent to
testing in September and further rig-less testing in December, the gas flow from the well was
judged to be commercially viable and in February 2014 the Company applied for a
production concession.1
Notable progress was made in 2013 on several exploration assets, namely the identification
of the prospect Selva Stratigraphic within the Podere Gallina licence. A drilling application for
one well on this prospect was filed with the Ministry in summer 2013. Approximately 55km of
2D seismic was also purchased from Eni to evaluate further exploration potential.
The Company’s exploration portfolio was further strengthened by the addition of a new
licence, Tozzona, which was awarded to the Company in June.
The Company’s commitment to pursue the highest health, safety and environmental
standards in all facets of operations continued in 2013. This approach has resulted in all of
our 2013 activities, including the drilling of the exploration well Gradizza-1, having been
executed without any lost time incident.
In closing, I would like to thank the Management team, the Board and all the Company’s staff
for their hard work, commitment and enthusiasm throughout 2013.
Sara Edmonson
Acting CEO and CFO
1 On 3 February 2014, the Company released a technical announcement regarding Gradizza-1 and its related
development on the ASX and on the Company’s website (as per listing rule 5.30). For further information on
Gradizza please refer to this release.
A n n u a l R e p o r t 2 0 1 3 | 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 Chief
Executive Officer 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 3
Corporate Governance Statement (Continued)
ASX Principle 2 – Structure the Board to Add Value
Composition of the Board
There are currently five Non-Executive Directors on the Board (Mr Catalano, CEO and Managing
Director resigned in August 2013). 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 is currently composed of Non-Executive Directors, 3 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. 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 3 | 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 2013 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 April
2014. 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. In August 2013 the
Chief Executive Officer and Managing Director, Mr Giovanni Catalano, resigned as an executive and
director of the Company. Since that time the CFO, Ms Sara Edmonson, has filled the role of Acting
CEO. In September 2013 the Remuneration & Nominations Committee conducted a performance
evaluation of the senior executives (other than the exiting CEO) against their performance objectives.
The committee made recommendations to the Board regarding performance based remuneration for
those executives and also recommended an interim adjusted salary package for the Acting CEO.
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 2013 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 3
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 16 full time employees, of whom, 7 are men and 9 are women. The
Company’s senior executives include women in the roles of Acting CEO, 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 2013.
A n n u a l R e p o r t 2 0 1 3 | 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 3
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 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 3 | 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 2013.
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/Resignation
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
Resigned 12 August 2013
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 65
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. Graham is currently Chairman of
Stockland Corporation Limited, HSBC Bank Australia Limited, Energy Australia Holdings Limited and
Infrastructure NSW 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 60
Resigned 12 August 2013
Giovanni joined PVE in October 2010 as Chief Executive Officer and was appointed Managing
Director in June 2012. Giovanni 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 North Africa. Prior to Woodside, Giovanni 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. Giovanni resigned as
Managing Director and Chief Executive Officer of PVE on 12 August 2013.
Michael Masterman — Non-Executive Director, BEcHons, Age 51
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 up an executive position at
Fortescue Metal Group where he is currently CEO of FMG Iron Bridge iron ore company and recently
completed the US$1.15bn sale of a 31% interest in the project to Formosa Plastics Group. Prior to
joining PVE, Michael was CFO and Executive Director of Anaconda Nickel (now Minara Resources),
12 | A n n u a l R e p o r t 2 0 1 3
Directors’ Report (Continued)
and he spent 8 years at McKinsey & Company serving major international resource 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. Michael became a member of
the Remuneration & Nomination Committee from 1 January 2011.
Byron Pirola — Non-Executive Director, BSc, PhD, Age 53
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 strategic 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 Nomination Committee.
Gregory Short — Non-Executive Director, BSc, Age 63
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, Metgasco Limited 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 64
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 currently a Non-
Executive director of HGL Ltd, Milton Corporation Limited and Equity Trustees Limited.
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.
A n n u a l R e p o r t 2 0 1 3 | 13
Directors’ Report (Continued)
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
B Pirola
G Short
K Eley
G
Catalano1
No. of board meetings
held
No. of board meetings
attended
10
10
10
10
No. of Audit & Risk
Committee meetings
held
No. of Audit & Risk
Committee meetings
attended
-
-
2*
2*
No. of Remuneration &
Nomination Committee
meetings held
No. of Remuneration &
Nomination Committee
meetings attended
1
1
1
1
10
9
2
2
1
1
10
10
2
2
-
-
10
10
2
2
-
-
6
6
-
2*
-
-
* attended meeting as an observer
Notes: 1. Mr Catalano resigned as a Director on 12 August 2013.
14 | A n n u a l R e p o r t 2 0 1 3
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 loss per share for the Company was 4.76 € cents (2012: earnings 2.12 € cents).
6. Operating and financial review
Italian gas market is dominated by gas imports. According to the 2012 Annual Report prepared by the
Italian Ministry of Economic Development, the domestic exploration and production industry
represents approximately 7% of total gas consumption in Italy the majority of which is produced by
industry majors including Eni Spa and Edison Spa. Consequently, the Company has few comparable
peers to contrast its operations.
Strategy
Po Valley’s strategy is to create value for shareholders and stakeholders using our existing and
growing Italian oil and gas resource base. Po Valley’s strategy focuses on optimising our near term
production to maximise profitability and expanding the Company’s resources through exploration and
development activities.
The Company’s core portfolio includes 11 onshore assets and more recently acquired its first offshore
asset – a game changer in the Company’s resource potential. The Company’s operations are located
in Italy and are run by a local management team which we believe represents a significant competitive
advantage not enjoyed by newer entrants seeking to find success in the Italian market. Italy remains
an attractive market with gas and oil being of high quality, an accessible and low cost transportation
network and a pricing environment that has been stable and higher than other comparable European
countries.
This year has been a period of organizational change as we have sought to refocus our leadership
team and strengthen our strategic position, and we have made substantial progress on multiple fronts.
Operations
During the year, the Company produced from both its Castello and Sillaro fields with a total combined
production of 23.9 million cubic metres of gas (0.85 billion cubic feet).
In July, the installation at Sillaro of the 3 phase separator was completed and subsequently the main
producing levels PL2 C1+C2 were re-opened allowing a significant increase in daily production rates.
Total production for the period from the Sillaro field amounted to 20.9 million cubic metres of gas (0.73
billion cubic feet).
The Castello gas field produced steadily at approximately 17,000 Scm/day until late May.
Subsequently, the field experienced increased water production and gas production was reduced to
around 5,000 cubic metres per day in June and subsequently to 2,600 cubic metres per day in late
November. Total production for the period from the Castello field amounted to 3.1 million cubic metres
of gas (0.01 billion cubic feet). Due to the uncertainty of the prospective future returns from the well,
the Board wrote down the value of the well and associated production plant substantially at 30 June
2013, reducing its value to a nominal amount.
A n n u a l R e p o r t 2 0 1 3 | 15
Directors’ Report (Continued)
Exploration
We continue to make significant investments in exploration projects which we believe are the most
material value drivers. Of the €3.3 million in cash flow generated from operating activities, the
Company invested €2.2 million in exploration activities and geoscience studies.
In April, the Company commissioned a Competent Persons Report on its core asset portfolio from
Robertson CGG (formerly Fugro Robertson), a leading geological and petroleum reservoir company
based in the United Kingdom. The Robertson CGG report confirmed the high potential of AR94PY, the
Company’s first offshore exploration permit awarded in 2012. Specifically, the certified 2C Contingent
Resources doubled from 24.8 billion cubic feet to 47.3 billion cubic feet (“bcf”) as was reported in the
Company’s Quarterly Activities Report lodged with ASX on 30 April 2013. The notable increase was
supported by the purchase and analysis of 78 sq. km of existing 3D seismic data in January 2013. The
PVE technical team commenced work on a preliminary front-end engineering and design (FEED)
study and related development plan, aimed to fast track the development of the offshore gas project
named Teodorico (formerly Carola-Irma).
On the exploration front, the Company drilled the Gradizza-1 exploration well (La Prospera licence) in
August with Joint Venture (“JV”) partners AleAnna Resources LLC (10% equity) and Petrorep Italiana
S.p.a. (15% equity). After analysis of the initial test data from the well, the Company completed
additional rig-less testing in December in order to complete the well cleanup and perform further
production tests. Based on the results the Company applied for a Production Concession in February
2014. Please refer to the ASX announcement “Gradizza-1 Contingent Resource Assessment”
released on 3 February 2014 which contains further details including information required by Chapter
5 of the ASX Listing Rules in relation to the reporting of Oil & Gas activities and contingent resources.
In addition to Gradizza, geological, exploration and appraisal work advanced on a number of the
Company’s prospects. A new low risk prospect named Selva Stratigraphic was identified within the
Podere Gallina licence and the associated drilling program of Podere Maiar-1d has been lodged with
the Ministry. As was reported in the Company’s Quarterly Activities Report lodged with ASX on
30 April 2013, Robertson CGG has certified 2C Contingent Resources of 17 bcf to the Selva prospect
and a structure identical in concept - East Selva - has been identified nearby within the same license.
Based on geological, exploration and appraisal work our forward drilling program for the next 12
months is expected to cover the appraisal gas prospect Selva located in the Podere Gallina License
subject to ongoing regulatory approvals and available finances.
In June 2013, the Company received the full award of a new exploration licence Tozzona. The area
lies along the eastern border of the existing ENI gas production licence containing the Santerno gas
field (circa 35 bcf of gas produced to date). The Company will purchase a semi-regional grid of 2D
seismic lines in order to complete the geological and geophysical studies aimed at evaluating several
identified opportunities.
Development
In reference to forthcoming development, the gas field Sant’ Alberto was discussed at the
Hydrocarbon Commission meeting held in December 2013 at the Ministry of Economic Development.
No issues or areas of concern were raised therefore the Company expects to receive the preliminary
production concession in the near future. Immediately following the preliminary concession award, the
Company will submit the Environmental Impact Study to the Emilia Romagna Region. The final
production concession will be subject to Environmental Impact Assessment (EIA) clearance.
As regards to Bezzecca, the EIA Decree was awarded by the Lombardy Region in early 2014.The
Region / Ministry approval process continues with two formal signoffs remaining. Upon formal granting
of the Production Concessions by the Italian Ministry of Economic Development, subsequent approval
by the Ministry office in Bologna of the formal Development Plan is required. It is expected that the
16 | A n n u a l R e p o r t 2 0 1 3
Directors’ Report (Continued)
award of the concession will follow in the third quarter of 2014 with pipeline installation commencing
shortly thereafter.
Financial performance
Total revenue from the full year of gas production was €6,662,777, a year on year decline of
€1,545,691 or 19%. This decrease in revenue is attributable to a re-stabilisation of lower gas prices
compared to the previous year. The decrease in revenue had a direct impact on earnings before
interest, tax, impairment, depreciation and amortisation (EBITDA) as operating expenses and
corporate overheads remained relatively in line with the previous year. In August 2013 the Company
committed to undertaking a review of its cost and organisational structure with the aim to reduce fixed
and other overhead costs. In addition, the Company executed an off-take agreement with a global oil
and gas major which secures the gas price until September 2014 with the option to extend to
September 2015.
Net profit before impairment expense is reconciled to comprehensive profit / (loss) for the period as
follows:
Comprehensive profit reconciliation table ( in Euro )
2013
2012
Net profit / (loss) before impairment expense (unaudited)
(700,259) 2,418,792
Impairment on resource property costs for the Castello field
(5,021,112)
-
Impairment on exploration assets
(74,895)
(45,951)
Comprehensive profit / (loss) for the year
(5,796,266)
2,372,841
Earnings before interest, tax, impairment, depreciation and amortisation (EBITDA) amounted to
€2,192,192 for the year.
EBITDA (unaudited) is reconciled to statutory results from operating activities as follows:
EBITDA reconciliation table ( in Euro )
2013
2012
EBITDA
2,192,192
4,473,015
Depreciation and amortisation expense
(2,325,656)
(3,455,620)
Depreciation expense
Impairment losses
Results from operating activities
Financial position
(18,406)
(5,096,007)
(5,247,877)
(16,425)
(45,951)
955,019
In May 2013, Po Valley Energy announced the completion of a €20 million Reserve Based Lending
(RBL) facility with the London branch of Nedbank Group Limited, one of the four largest banking
groups in South Africa. The new five year term RBL facility replaced the Company's former loan with
Lloyds TSB Bank which was to expire in November 2013. The Company’s drawings on the Nedbank
facility amounted to €3.5 million at 31 December 2013. Two repayments totalling €1.5 million were
made during the year. The borrowing base ceiling review in December resulted in a borrowing limit of
€5.4 million for the first half of 2014.
A n n u a l R e p o r t 2 0 1 3 | 17
Directors’ Report (Continued)
The Company issued 3,850,000 ordinary shares as approved by an EGM on 15 February 2013. No
other share issues were made during the year. During the year, the Company received an indirect tax
(VAT) refund of €1,285,372 from the Italian Tax Authorities. Cash and cash equivalents at year end
2013 amounted to €1,528,633.
Health and safety
Paramount to PVE’s ability to pursue its strategic priorities is a safe workplace and a culture of safety
first. 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. Whilst growing from our exploration
roots, the Company has strived to continually improve our underlying safety performance. The
Company has adopted an HSE Management System which provides for a series of procedures and
routine checks (including periodical audits) to ensure the Company’s compliance with all legal and
regulatory requirements and best practices in this area. In 2013, PVE maintained its outstanding
occupational health safety and environmental track record with no incidents or near misses to report
during the 62,841 man-hours worked at the well sites and in the administrative offices. Approximately
one fifth of total hours are associated with the drilling of the Gradizza-1 well which was successfully
completed with no lost-time injuries.
In addition to health and safety, Management and the Board use a number of operating and financial
indicators to measure performance overtime against our overall strategy. Refer to note 11 of the
Directors report for details of selected performance indicators.
Information required by ASX Listing Rule 5.43
The Company confirms that it is not aware of any new information or data that materially affects the
information included in the two market announcements referred to above (Quarterly Activities Report
lodged with ASX on 30 April 2013 and ASX announcement “Gradizza-1 Contingent Resource
Assessment” lodged with ASX on 3 February 2014) and that all material assumptions and technical
parameters underpinning the estimates in those announcements continue to apply and have not
materially changed.
Principle risks and uncertainties
Oil and gas exploration and appraisal involves significant risk. The future profitability of the Company
and the value of its shares are directly related to the results of exploration and appraisal activities.
There are inherent risks in these activities. No assurances can be given that funds spent on
exploration and appraisal will result in discoveries that will be commercially viable. Future exploration
and appraisal activities, including drilling and seismic acquisition may result in changes to current
perceptions of individual prospects, leads and permits.
The Company identifies and assesses the potential consequences of strategic, safety, environmental,
operational, legal, reputational and financial risks in accordance with the Company’s risk management
policy. PVE management continually monitors the effectiveness of the Company’s risk management,
internal compliance and control systems which includes insurance coverage over major operational
activities, and reports to the Audit and Risk Committee on areas where there is scope for
improvement. The Charter for the Audit and Risk Committee is available on the Company’s website.
The principal risks and uncertainties that could materially affect Po Valley Energy’s future performance
are described on the following page.
18 | A n n u a l R e p o r t 2 0 1 3
Directors’ Report (Continued)
External risks
Exposure to gas
pricing
Volatile oil and gas prices make it difficult to predict future price movements with
any certainty. Decline in oil or gas prices could have an adverse effect on Po Valley
Energy. The Company does not currently hedge its exposures to gas price
movements. The profitability of the Company’s prospective gas assets will be
determined by the future market for domestic gas. Gas prices can vary significantly
depending on other European gas markets, oil and refined oil product prices,
worldwide supply and the terms under which long term take or pay arrangements
are agreed.
Changes to law,
regulations or
Government
policy
Changes in law and regulations or government policy may adversely affect PVE’s
business. Examples include changes to land access or the introduction of legislation
that restricts or inhibits exploration and production.
Similarly changes to direct or indirect tax legislation may have an adverse impact on
the Company’s profitability, net assets and cash flow.
Uncertainty of
timing of
regulatory
approvals
Delays in the regulatory process could hinder the Company’s ability to pursue
operational activities in a timely manner including drilling exploration and
development wells, to install infrastructure, and to produce oil or gas. In particular,
oil and gas operations in Italy are subject to both Regional and Federal approvals.
Operating risks
Exploration and
development
successful exploration, establishment of
The future value of PVE will depend on its ability to find and develop oil and gas that
are economically recoverable. The ultimate success or otherwise of such ventures
requires
reserves,
establishment of effective production and processing facilities, transport and
marketing of the end product. Through this process, the business is exposed to a
wide variety of risks, including failure to locate hydrocarbons, changes to reserve
estimates, variable quality of hydrocarbons, weather impacts, facility malfunctions,
lack of access to appropriate skills or equipment and cost overruns.
commercial
Estimation of
reserves
The estimation of oil and natural gas reserves involves subjective judgments and
determinations based on geological,
technical, contractual and economic
information. It is not an exact calculation. The estimate may change because of new
information from production or drilling activities.
Tenure security
Health, safety and
environmental
matters
Exploration licences held by PVE are subject to the granting and approval by
relevant government bodies. Government regulatory authorities generally require the
holder of the licences to undertake certain proposed exploration commitments and
failure to meet these obligations could result in forfeiture. Exploration licences are
also subject to partial or full relinquishments after the stipulated period of tenure if no
alternative licence application (e.g. production concession application) is made,
resulting in a potential reduction in the Company’s overall tenure position. In order
for production to commence in relation to any successful oil or gas well, it is
necessary for a production concession to be granted.
Exploration, development and production of oil and gas involves risks which may
impact the health and safety of personnel, the community and the environment.
Industry operating risks include fire, explosions, blow outs, pipe failures, abnormally
pressured formations and environmental hazards such as accidental spills or
leakage of petroleum liquids, gas leaks, ruptures, or discharge of toxic gases.
Failure to manage these risks could result in injury or loss of life, damage or
destruction of property and damage to the environment. Losses or liabilities arising
from such incidents could significantly impact the Company’s financial results.
A n n u a l R e p o r t 2 0 1 3 | 19
Directors’ Report (Continued)
In addition to the external and operating risks described above, the Company’s ability to successfully
develop future projects including their infrastructure is contingent on the Company’s ability to fund
those projects through operating cash flows and affordable debt and equity raisings.
7. Dividends
No dividends have been paid or declared by the Company during the year ended 31 December 2013.
8. Events subsequent to reporting date
There were no events between the end of the financial year and the date of this report that, in the
opinion of the Directors, affect significantly the operations of the 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, in its planned drilling program for high potential gas prospects.
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 & Nomination Committee (Committee)
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.
is responsible
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.
20 | A n n u a l R e p o r t 2 0 1 3
Directors’ Report (Continued)
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
2013 2012 2011 2010 2009 2008*
Production (scm’000)
23,983 24,673 28,995 26,793 638
-
Average realised gas price (€ cents per cubic metre)
28
33
31
27
n/a
-n/a
EBITDA (€'000s)
2,192 4,473 4,411 2,219 (6,935) (4,097)
Profit / (loss) attributable to owners of the Company (€'000s) *
(5,538) 2,373 (5,071) (2,324) (7,203) (4,172)
Earnings / (loss) per share (€ cents per share) *
(4.55)
2.12
(4.57)
(2.11)
(6.99)
(4.54)
Share Price at year end - AU$
0.12
0.12
0.16
0.21
1.68
1.10
* 2008 restated to Euro
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 gives 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 and Executive Directors
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. No
remuneration consultants were used during the current or previous 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 2013 and has no plans to issue options in the immediate future.
The table below represents the target remuneration mix for group executives in the current year. The
short-term incentive is provided at target levels, and the long-term incentive amount is provided based
on the value granted in the current year.
A n n u a l R e p o r t 2 0 1 3 | 21
Directors’ Report (Continued)
Fixed remuneration
Short-term incentive
Long-term incentive
At risk
Acting Chief
Executive Officer and
Chief Financial Officer
Previous Chief
Executive Officer
Non-Executive Directors
73%
59%
27%
41%
-
-
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.
The total fees paid in 2013 to Non-Executive Directors was €220,000 (2012: €210,500). No increase
in board fees was made in 2013 and none are proposed in 2014.
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: 5 July 2010 (re-elected 24 May 2013)
Fixed remuneration for the year ended 31 December 2013: €40,000
No termination benefits
Michael Masterman, Non-Executive Director
Commencement Date: 22 June 1999 (elected 13 May 2011)
Fixed remuneration for the year ended 31 December 2013: €40,000
No termination benefits
Kevin Eley, Non-Executive Director
Commencement Date: 19 June 2012 (re-elected 24 May 2013)
Fixed remuneration for the year ended 31 December 2013: €40,000
No termination benefits
22 | A n n u a l R e p o r t 2 0 1 3
Directors’ Report (Continued)
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 (resigned 12 August 2013)
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
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$2,800 to the end of 31 December 2013) 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 (as of 10 August 2013 Acting Chief Executive 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 salary 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 and other key management personnel (KMP) during the
year is presented in the table next page.
A n n u a l R e p o r t 2 0 1 3 | 23
Directors’ Report (Continued)
Short-term
Post-
Employment
Share-based
payments
Salary &
fees
Accommo-
dation
Car
Other
Termin-
ation
payments
Total Base
STI
Cash
Defined
contribution
plan
Short term
incentive
bonus
Shares
Options
€
€
€
€
€
€
€
€
€
Directors
G Bradley
Chairman
Non-Executive
B Pirola
Non-Executive
G Short,
Non-Executive
2013
60,000
2012
57,500
2013
40,000
2012
38,250
2013
40,000
2012
38,250
M Masterman
Non-Executive
2013
40,000
2012
38,250
K Eley
Non-Executive
App. 19/6/12*
2013
2012
40,000
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,000
57,500
40,000
38,250
40,000
38,250
40,000
38,250
40,000
30, 000
G Catalano
M D/ CEO
Res. 12/8/13
D McEvoy,
Non-Executive
Ret. 28/5/012
Total for
Directors
2013
124,344
21,832
4,600
2,533
51,552
204,861
2012
198,249
29,338
6,280
4,850
2013
-
2012
8,250
-
-
-
-
-
-
-
-
-
238,717
-
8,250
2013
344,344
21,832
4,600
2,533
51,552
424,861
2012
408,749
29,338
6,280
4,850
-
449,217
* Mr Eley attended prior meetings as an observer and was compensated during that period
24 | A n n u a l R e p o r t 2 0 1 3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Proportion of
remuneration
performance
related
Value of options
as proportion of
remuneration
%
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
€
60,000
57,500
40,000
38,250
40,000
38,250
40,000
38,250
40,000
30,000
204,861
238,717
-
8,250
424,861
449,217
Directors’ Report (Continued)
Directors and executive officers’ remuneration - Consolidated (Continued)
Short-term
Post-
Employment
Share-based
payments
Salary &
fees
Accommo-
dation
Car
Other
Termin-
ation
payments
Total
Base
STI
Cash
Defined
contribution
plan
Short term
incentive
bonus
Shares
Options
€
€
€
€
€
€
€
€
€
Proportion of
remuneration
performance
related
Value of options
as proportion of
remuneration
%
%
Total
€
2013
37,834
2012
25,151
2013
120,000
2012
36,923
2013
157,834
2012
62,074
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,834
-
25,151
-
-
-
-
- 120,000
33,260
8,106
-
36,923
-
2,513
- 157,834
33,260
8,106
-
62,074
-
2,513
2013
502,178
21,832
4,600
2,533
51,552 582,695
33,260
8,106
2012
470,823
29,338
6,280
4,850
- 511,291
-
2,513
-
-
-
-
-
-
-
-
-
37,834
-
-
-
-
-
-
-
25,151
161,366
39,436
199,200
64,587
624,061
513,804
-
-
21%
-
-
-
-
-
Specified
Executive
Lisa Jones
Company
Secretary
Sara
Edmonson
Acting CEO
Chief Financial
Officer**
Total for
Executive
Total Directors
and Executives
** Remuneration included from date of becoming a KMP
A n n u a l R e p o r t 2 0 1 3 | 25
Directors’ Report (Continued)
Notes in relation to the table of Directors’ and executive officers’ remuneration
A.
Short term incentive bonuses as remuneration to key management personnel are related to
performance hurdles established by the Remuneration & Nomination 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 are included in share based payments to each Director and
Executive.
2013
2012
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
€
S Edmonson
33,260
€
Nil
€
100%
€
Nil
€
Nil
€
Nil
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. More specifically, the cash bonus awarded to S. Edmonson in 2013 is based on the
individual’s contribution to securing and executing the new RBL Facility with Nedbank Capital in May
2013 and the additional effort put forth while carrying out duplicate roles. No amounts vest in future
financial years in respect of the bonus. 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 (2012: Nil). No options vested during 2013. (2012: 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 2013.
There were no options outstanding during 2013.
26 | A n n u a l R e p o r t 2 0 1 3
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 personnel during
2013.
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
K Eley
Ordinary Shares
1,373,880
33,177,327
7,112,782
200,000
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 3 | 27
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 29 and forms part of the Directors’
report for the financial year ended 31 December 2013.
This report has been made in accordance with a resolution of Directors.
.
Graham Bradley
Chairman
Sydney, NSW Australia
18 March 2014
28 | A n n u a l R e p o r t 2 0 1 3
A n n u a l R e p o r t 2 0 1 3 | 29
Statement of Financial Position
As at 31 December 2013
Current Assets
Cash and cash equivalents
Trade and other receivables
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
Reserve
Accumulated losses
Total Equity
NOTES
10 (a)
12
12
11
15
13
14
16
18
17
17
18
19
19
CONSOLIDATED
2013
€
2012
€
1,528,633
2,675,764
4,204,397
1,226,348
2,581,026
3,807,374
-
634,694
27,716
2,370,139
3,572,165
19,872,250
26,476,964
1,285,372
701,187
43,657
2,228,095
5,636,768
22,017,610
31,912,689
30,681,361
35,720,063
2,762,654
-
138,392
2,901,046
3,988,825
2,933,176
6,922,001
1,718,168
3,984,896
113,825
5,816,889
3,608,421
-
3,608,421
9,823,047
9,425,310
20,858,314
26,294,753
45,819,924
1,192,269
(26,153,879)
45,460,097
1,192,269
(20,357,613)
20,858,314
26,294,753
The above consolidated statement of financial position 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 3
Statement of Comprehensive Income / (Loss)
For the year ended 31 December 2013
Revenue
Operating costs
Depreciation and amortisation expense
Gross Profit
Other income
Employee benefit expenses
Depreciation expense
Corporate overheads
Impairment losses
Results from operating activities
Finance income
Finance expenses
Net finance expenses
Profit / (loss) before tax
Income tax benefit
Profit / (loss)
Other comprehensive income
Total comprehensive income / (loss)
Profit / (loss) attributable to:
Owners of the company
Profit / (loss)
Total comprehensive income / (loss)
attributable to:
Owners of the Company
Total comprehensive profit / (loss) for the
period
CONSOLIDATED
NOTES
2013
€
2012
€
3
6,662,777
8,208,468
4
5
14
7
8
(1,285,575)
(2,325,656)
3,051,546
437,056
(2,031,184)
(18,406)
(1,590,882)
(5,096,007)
(1,225,124)
(3,455,620)
3,527,724
700,226
(1,856,627)
(16,425)
(1,353,928)
(45,951)
(5,247,877)
22,333
(638,206)
955,019
38,071
(791,520)
(615,873)
(753,449)
(5,863,750)
67,484
(5,796,266)
201,570
(2,171,271)
2,372,841
-
-
(5,796,266)
2,372,841
(5,796,266)
(5,796,266)
2,372,841
2,372,841
(5,796,266)
2,372,841
(5,796,266)
2,372,841
Basic and diluted earnings / (loss) per share
9
(4.76) cents
2.12 cents
The above consolidated statement of comprehensive income / loss 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 3 | 31
Statement of Changes in Equity
For the year ended 31 December 2013
Consolidated
Attributable to equity holders of the Company
Issued
Capital
Translation
Reserve
Accumulated
Losses
€
€
€
Total
€
Balance at 1 January 2012
44,753,650
1,192,269
(22,730,454)
23,215,465
Total comprehensive
income:
Profit
Other comprehensive
income
Total comprehensive
income
Transactions with owners
recorded directly in equity:
Contributions by and
distributions to owners –
Issue of shares
Balance at 31 December
2012
Balance at 1 January
2013
Total comprehensive
income:
Loss
Other comprehensive
income
Total comprehensive
income
Transactions with owners
recorded directly in equity:
Contributions by and
distributions to owners –
Issue of shares
Balance at 31 December
2013
-
-
-
706,447
-
-
-
-
2,372,841
2,372,841
-
-
2,372,841
2,372,841
-
706,447
45,460,097
1,192,269
(20,357,613)
26,294,753
45,460,097
1,192,269
(20,357,613)
26,294,753
-
-
-
-
-
-
(5,796,266)
(5,796,266)
-
-
5,796,266
5,796,266
359,827
-
-
359,827
45,819,924
1,192,269
(26,153,879)
20,858,314
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes to the financial statements
32 | A n n u a l R e p o r t 2 0 1 3
Statement of Cash Flow
For the year ended 31 December 2013
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
NOTES
CONSOLIDATED
2013
€
2012
€
7,192,510
10,007,832
(3,460,747)
(5,372,274)
22,333
(364,353)
(107,810)
38,071
(336,893)
-
Net cash inflow from operating activities
10 (b)
3,281,933
4,336,736
Cash flows from investing activities
Payments for non-current assets
Payments on security deposits
Receipts for resource property costs from joint
operations partners
Payments for resource property costs
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issues of shares
Proceeds from borrowings
Repayments of borrowings
Payment of borrowing costs
Net cash outflow from financing activities
Net increase / (decrease) in cash and cash
equivalents
18
18
(2,920)
-
671,959
(30,218)
(4,375)
-
(2,863,055)
(3,672,121)
(2,194,016)
(3,706,714)
359,827
706,447
5,000,000
-
(5,500,000)
(2,000,000)
(645,459)
-
(785,632)
(1,293,553)
302,285
(663,531)
Cash and cash equivalents at 1 January
1,226,348
1,889,879
Cash and cash equivalents at 31 December
10 (a)
1,528,633
1,226,348
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 3 | 33
Notes to the Financial Statements
For the year ended 31 December 2013
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 2013 comprises
the Company and its subsidiaries (together referred to as the “Group” and individually as “Group
entities”) and the Group’s interest in associates and jointly controlled entities and operations.
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 complies 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 18 March 2014.
(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.
(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.
Whilst the Group made a loss of €5,796,266 (2012: Profit €2,372,841) in the current year, the loss
arose mainly on account of an impairment on Castello of €5,021,112. The Group has a cash balance
of €1,528,633, working capital of €1,303,351, net cash inflows from operating activities of €3,281,933
and an unutilised loan facility available of €1,934,000. Accordingly the Directors believe that the use
of the going concern assumption is appropriate in the preparation of these financial statements.
34 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.2
(d)
BASIS OF PREPARATION (continued)
FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in Euro, which is the Company’s and each of the
Group entity’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 are 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 involved in determining the inputs and
assumptions used in determining the recoverability amounts.
The key areas of estimation involved 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 estimation 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 3 | 35
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.2
BASIS OF PREPARATION (continued)
Reserve estimates
Estimation of reported recoverable quantities of Proven and Probable Reserves include estimates
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. A change in any, or a combination of, the key assumptions used to determine
the reserve estimates could have a material impact on the carrying value of the project via
depreciation rates or impairment assessments. The reserve estimates are reviewed at each reporting
date and any changes to the estimated reserves are recognized prospectively to depreciation and
amortisation. Any impact of the change in the reserves is considered on asset carrying values and
impairment losses, if any, are immediately recognized in the profit or loss
Recognition of deferred tax assets
The recoupment of deferred tax assets is dependent on the availability of profits in future years. The
Group undertakes a forecasting exercise at each reporting date to assess its expected utilisation of
these losses.
The key areas of estimation involved in determining the forecasts include:
Future production rates
Economic factors such as the gas price and current and anticipated operating costs in the
industry
Capital expenditure expected to be incurred in the future
A change in any, or a combination of, the key assumptions used to determine the estimates could
have a material impact on the carrying value of the deferred tax asset. Changes to estimates are
recognised in the period in which they arise.
1.3
SIGNIFICANT ACCOUNTING POLICIES
Except for the changes noted below, the Group has consistently applied the accounting policies set
out in notes 1.3 (a) to 1.3 (q) to all periods presented in the consolidated financial statements.
CHANGES IN ACCOUNTING POLICIES
The Group has adopted the following new standards and amendments to standards, including any
consequential amendments to other standards, with a date of initial application of 1 January 2013.
AASB 10 Consolidated Financial Statements (2011)
As a result of AASB 10 (2011), the Group has changed its accounting policy for
determining whether it has control over and consequently whether it consolidates its
investees. AASB 10 (2011) introduces a new control model that is applicable to all
investees, by focusing on whether the Group has power over an investee, exposure or
rights to variable returns from its involvement with the investee and ability to use its
power to affect those returns. In particular, AASB 10 (2011) requires the Group
consolidate investees that it controls on the basis of de facto circumstances. The
Group has reassessed the control conclusion for its investees at 1 January 2013 and
there have been no changes in the control determination of subsidiaries, joint
arrangements and/or associates. Consequently there has been no impact on the
financial statements for the change in this policy.
36 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
AASB 11 Joint Arrangements
As a result of AASB 11, the Group has changed its accounting policy for its interests
in joint arrangements. Under AASB 11, the Group has classified its interests in joint
arrangements as either joint operations or joint ventures depending on the Group’s
rights to the assets and obligations for the liabilities of the arrangements. When
making this assessment, the Group considers the structure of the arrangements, the
legal form of any separate vehicles, the contractual terms of the arrangements and
other facts and circumstances. Previously, the structure of the arrangement was the
sole focus of classification. The Group has evaluated its involvement in its joint
arrangements and there has been no material impact to the financial statements as
result of this change in accounting policy.
AASB 12 Disclosure of Interests in other entities
There are no additional disclosure impacts on adoption of AASB 12.
AASB 13 Fair Value Measurement
AASB 13 establishes a single framework for measuring fair value and making
disclosures about fair value measurements, when such measurements are required or
permitted by other AASBs. In particular, it unifies the definition of fair value as the
price at which an orderly transaction to sell an asset or to transfer a liability would take
place between market participants at the measurement date. It also replaces and
expands the disclosure requirements about fair value measurements in other AASBs,
including AASB 7 Financial Instruments: Disclosures. In accordance with the
transitional provisions of AASB 13, the Group has applied the new fair value
measurement guidance prospectively, and has not provided any comparative
information for new disclosures. Notwithstanding the above, the change had no
significant impact on the measurements of the Group’s assets and liabilities.
AASB 119 Employee Benefits
In the current year, the Group adopted AASB 119 Employee Benefits (2011), which
revised the definition of short-term employee benefits to benefits that are expected to
be settled wholly within 12 months after the end of the annual reporting period in
which the employees render the related service. The change requires a measurement
of annual leave liability of the Group’s employees as a long term benefit, where the
benefits are expected to be settled after 12 months after the end of the reporting
period. There has been no material impact on the financial statements for the change
in this policy.
(a)
PRINCIPLES OF CONSOLIDATION
(i)
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. 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.
A n n u a l R e p o r t 2 0 1 3 | 37
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
(ii)
Investments in associates
Associates are those entities in which the Group has significant influence, but not control or joint
control, over the financial and operating policies. Significant influence is presumed to exist when the
Group holds between 20 percent and 50 percent of the voting power of another entity.
Investments in associates are accounted for using the equity method and are recognised initially at
cost. The cost of the investments includes transaction costs.
The consolidated financial statements include the Group’s share of the profit or loss and other
comprehensive income of equity accounted investees, after adjustments to align the accounting
policies with those of the Group, from the date that significant influence commences until the date that
significant influence ceases.
When the Group’s share of losses exceed its interest in an equity accounted investee, the carrying
amount of the investment, including any long-term interest that form part thereof, is reduced to zero,
and the recognition of further losses is discontinued except to the extent that the Group has an
obligation or has made payments on behalf of the investee.
(iii)
Joint arrangements
The Group classifies its interests in joint arrangements as either joint operations or joint ventures (see
below) depending on the Group’s rights to the assets and obligation for the liabilities of the
arrangements. When making this assessment, the Group considers the structure of the
arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and
other facts and circumstances.
Joint operation - when the Group has rights to the assets, and obligations for the liabilities, relating to
an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of
those held or incurred jointly, in relation to the joint operation.
Joint venture – when the Group has rights only to the net assets of the arrangement, it accounts for its
interest using the equity method adopted for associates as noted in (a) (ii) above
(iv)
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.
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.
38 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 the Group is able to control the timing of the reversal of the temporary difference and
it is probable that they will 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 asset 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.
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.
A n n u a l R e p o r t 2 0 1 3 | 39
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
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)
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits
associated with expenditure will flow to the Group.
(iii)
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
2012
16.77%
10.51%
2013
12.70%
12.10%
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.
40 | A n n u a l R e p o r t 2 0 1 3
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
2012
2013
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 3 | 41
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 incurred subsequent to acquisition of 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 and
active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine
technically feasibility and commercial viability or facts and circumstances suggest that the carrying
value amount exceeds the recoverable amount.
Exploration and evaluation assets are tested for impairment when any of the following facts and
circumstances exist:
The term of the exploration license in the specific area of interest has expired during the
reporting period or will expire in the near future, and is not expected to be renewed;
Substantive expenditure on further exploration for an evaluation of mineral resources in the
specific area are not budgeted nor planned;
42 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
Exploration for and evaluation of mineral resources in the specific area have not led to the
discovery of commercially viable quantities of mineral resources and the decision was made
to discontinue such activities in the specific area; or
Sufficient data exists to indicate that, although a development in the specific area is likely to
proceed, the carrying amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.
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.
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:
2012
Castello
16.77%
Sillaro
10.51%
2013
12.70%
12.10%
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)).
A n n u a l R e p o r t 2 0 1 3 | 43
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
(h)
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 have occurred up to the balance sheet date and abandonment of well
sites and production fields. Increases due to additional environmental disturbances, relating to the
development of an asset, are capitalised and recorded in resource property costs, and amortised over
the remaining useful lives of the areas of interest. The net present value is determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and risks specific to the liability.
Annual increases in the provision relating to the unwind of the discount rate 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.
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.
44 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
(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 (d)).
(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
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.
A n n u a l R e p o r t 2 0 1 3 | 45
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
(l)
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 net profit attributable to members of the parent entity,
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.
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.
46 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1.3
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 property, plant and equipment
accounting policy.
Other leases are operating leases and the leased assets are not recognised on the Group’s balance
sheet. Payments made under operating leases are recognized in profit or loss on a straight line basis
over the term of the lease.
(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 2013, 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); introduces new requirements for the
classification and measurement of financial assets. Under AASB 9, financial assets are
classified and measured based on the business model in which they are held and the
characteristics of their contractual cash flows. AASB 9 introduces additional changes relating
to financial liabilities. The IASB currently has an active project to make limited amendments to
the classification and measurement requirements of AASB 9 and add new requirements to
address the impairment of financial assets and hedge accounting.
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.
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 Group's objectives of creating and
maintaining shareholder value, and the successful execution of the Group'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.
A n n u a l R e p o r t 2 0 1 3 | 47
Notes to the Financial Statements (Continued)
NOTE 2:
FINANCIAL RISK MANAGEMENT (continued)
(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. The Group does not hedge its exposure to movements in market interest rates. The
Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash
equivalents in bank accounts earning interest.
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.
(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. Capital consists of issued share capital
plus accumulated losses/earnings. The Board monitors accumulated losses/earnings.
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 from shareholders.
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.
48 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 3:
REVENUE
Gas sales
NOTE 4:
EMPLOYEE BENEFIT EXPENSES
Wages and salaries
Contributions to defined contribution plans
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 financial statements
Audit of subsidiary financial statements
NOTE 7:
FINANCE INCOME AND EXPENSE
Recognised in profit and loss:
Interest income
Finance income
Interest expense
Amortisation of borrowing costs
Unwind of discount on site restoration provision
Foreign exchange losses (net)
Finance expense
Net finance expense
CONSOLIDATED
2013
€
2012
€
6,662,777
8,208,468
1,978,148
1,809,539
53,036
47,088
2,031,184
1,856,627
263,215
678,247
288,695
137,730
222,995
329,713
458,906
336,009
150,146
79,154
1,590,882
1,353,928
57,180
6,157
63,337
71,959
23,867
95,826
22,333
22,333
38,071
38,071
314,955
325,794
93,739
163,287
66,225
213,066
184,111
68,549
638,206
791,520
(615,873)
(753,449)
A n n u a l R e p o r t 2 0 1 3 | 49
Notes to the Financial Statements (Continued)
NOTE 8:
INCOME TAX EXPENSE
Current tax
Current year
Deferred tax
CONSOLIDATED
2013
€
2012
€
74,560
56,824
Origination and reversal of temporary differences
(142,044)
(124,427)
Changes in previously unrecognised deductible temporary differences
Recognition of previously unrecognised tax losses
Deferred tax benefit
Total income tax benefit
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 (2012: 30%)
Non-deductible expenses:
Borrowing costs
Depreciation
Other
Effect of tax rates in foreign jurisdictions
-
-
(141,133)
(1,962,535)
(142,044)
(2,228,095)
(67,484)
(2,171,271)
(5,863,750)
201,570
(1,759,126)
60,471
72,533
865
132,265
4,718
17,740
-
9,796
(23,958)
Current year losses and temporary differences for which no deferred
tax asset was recognised
1,384,748
(42,096)
Changes in previously unrecognised temporary differences
Recognition of previously unrecognised tax losses
Tax effect of regional taxes in Italy – current
Income tax (benefit) / expense
-
-
(265,560)
(1,962,535)
74,560
56,824
(67,484)
(2,171,271)
50 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 9:
EARNINGS PER SHARE
Basic earnings / (loss) per share (€ cents)
CONSOLIDATED
2013
€
(4.76)
2012
€
2. 12
The calculation of earnings per share was based on the loss attributable to shareholders of
€5,796,266 (2012: profit €2,372,841) and a weighted average number of ordinary shares outstanding
during the year of 121,728,447 (2012: 111,675,707).
Diluted earnings / (loss) per share is the same as basic earnings / (loss) per share.
2013
Weighted
average no.
The number of weighted average shares is calculated as
follows:
No. of
days
2012
Weighted
average no.
Number of shares on issue at beginning of the year
3,850,000 issued on 7 March 2013
7,416,667 issued on 6 December 2012
365
118,564,063 111,147,396
300
26
3,164,384
-
-
528,311
121,728,447 111,675,707
NOTE 10:
(a)
CASH AND CASH EQUIVALENTS
(a) Cash and cash equivalents
1,528,633
1,226,348
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities
are disclosed in note 22.
b) Reconciliation of cash flows from operating activities
Profit / (loss)
Adjustment for non-cash items:
Unrealised net foreign exchange loss
Depreciation and amortisation
Resource property costs impairments
Unwind of discount on site restoration provision
Amortisation of borrowing costs
Change in operating assets and liabilities:
Increase in receivables
Increase / (decrease) in trade and other payables
Increase in provisions
Increase in deferred tax assets
Net cash inflow from operating activities
(5,796,266)
2,372,841
66,225
2,344,062
5,096,007
163,287
93,739
1,206,575
225,781
24,567
(142,044)
3,281,933
68,549
3,472,045
45,951
184,111
213,067
1,089,078
(903,331)
22,520
(2,228,095)
4,336,736
A n n u a l R e p o r t 2 0 1 3 | 51
Notes to the Financial Statements (Continued)
NOTE 11:
INVENTORY
Non - Current
Well equipment – at cost
CONSOLIDATED
2013
€
2012
€
634,694
701,187
Well equipment represents inventory expected to be utilised in future development of known
wells with specific characteristics.
NOTE 12:
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Accrued gas sales revenue
Sundry debtors
Accrued gas sales revenue from related party (note 24(c))
Deposit (b)
Indirect taxes receivable (note 12(a))
587,255
648,695
298,645
-
202,238
938,931
33,484
-
182,284
1,140,968
-
1,224,326
2,675,764
2,581,026
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
799,650
1,093,577
-
1,285,372
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. VAT remitted on oil and gas sales in Italy is 10%. A significant
VAT refund was received during the year.
(b) The deposit with Nedbank Group Ltd earned interest at 0.15% during the period.
52 | A n n u a l R e p o r t 2 0 1 3
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/Reclassification
Disposals
Depreciation expense
Carrying amount at end of year
Gas Producing plant and equipment:
Carrying amount at beginning of period
Additions / Reclassification
Depreciation expense
Impairment (refer note 14)
Carrying amount at end of period
CONSOLIDATED
2013
€
2012
€
200,132
(157,034)
194,212
(138,628)
43,098
55,584
8,402,751
(4,873,684)
3,529,067
3,572,165
7,668,967
(2,087,783)
5,581,184
5,636,768
55,584
5,920
-
(18,406)
41,791
30,218
-
(16,425)
43,098
55,584
5,581,184
733,784
(621,688)
(2,164,213)
6,506,310
-
(925,126)
-
3,529,067
5,581,184
3,572,165
5,636,768
A n n u a l R e p o r t 2 0 1 3 | 53
Notes to the Financial Statements (Continued)
NOTE 14:
RESOURCE PROPERTY COSTS
Resource Property costs
Exploration Phase
Development Phase
Production Phase
Reconciliation of carrying amount of resource properties
Exploration Phase
Carrying amount at beginning of period
Exploration expenditure
Change in estimate of rehabilitation assets
Impairment losses
Carrying amount at end of period
CONSOLIDATED
2013
€
2012
€
10,060,661
7,272,641
-
-
9,811,589
14,744,969
19,872,250
22,017,610
7,272,641
6,814,557
2,518,277
243,886
344,638
260,149
(74,895)
(45,951)
10,060,661
7,272,641
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.
Production Phase
Carrying amount at beginning of period
14,744,969
16,491,557
Additions / Reclass to property plant & equipment
(244,992)
367,668
Change in estimate of rehabilitation assets
(127,521)
416,238
Amortisation of producing assets
Impairment loss
Carrying amount at end of period
(1,703,968)
(2,530,494)
(2,856,899)
-
9,811,589
14,744,969
During the year, an impairment trigger was identified with regard to Castello as a result of a decrease
in the expected daily production rate. Accordingly, the associated resource property cost and related
plant and equipment (as a cash generating unit) were tested for impairment. The recoverable amount
is determined by reference to a discounted cashflow forecast model (value in use).
54 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 14:
RESOURCE PROPERTY COSTS (continued)
The key assumptions adopted in that model include gas pricing, remaining reserves, expected daily
gas production, operating expenditure and discount rate of 10%. The recoverable amount is most
sensitive to the remaining reserves and daily gas production.
As a result of this assessment, an impairment of €2,856,899 (2012: €Nil) on resource property costs
and €2,164,213 (2012: €Nil) on the related plant and equipment has been recognised. The residual
carrying value for the Castello field at 31 December 2013 is €128,809 and relates to plant and
equipment.
Increases in the discount rates or changes in other key assumptions, such as gas pricing, operating
costs or production rates, may cause the values of cash generating units to exceed their recoverable
amounts. The directors believe that no reasonably possible change in any of the above key
assumptions would cause the carrying value of the cash generating unit to materially exceed its
recoverable amount due to the low carrying value.
Impairment losses are reconciled as follows:
Impairment expense
Castello gas field
Exploration costs
Total impairment loss
CONSOLIDATED
2013
€
2012
€
(5,021,112)
(74,895)
-
(45,951)
(5,096,007)
(45,951)
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
2,030,650
1,962,535
339,489
265,560
2,370,139
2,228,095
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 there from.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
Deductible temporary differences
Unrecognised deferred tax assets
2,042,760
2,051,128
2,069,569
766,440
4,112,329
2,817,568
A n n u a l R e p o r t 2 0 1 3 | 55
Notes to the Financial Statements (Continued)
NOTE 15:
DEFERRED TAX ASSETS AND LIABILITIES (continued)
Deferred tax benefit will only be obtained if:
(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.
Movement in recognised temporary differences during the year
Balance 1
Jan 2012
Profit and
loss
Equity
Balance 31
December
2012
Profit and
loss
Equity
Consolidated
Tax losses
Accrued
expenses and
liabilities
Total
recognised
deferred tax
asset
-
-
-
1,962,535
265,560
2,228,095
-
-
-
1,962,535
68,115
265,560
73,929
2,228,095
142,044
-
-
-
Balance
31 Dec
2013
2,030,650
339,489
2,370,139
NOTE 16:
TRADE AND OTHER PAYABLES
Trade payables and accruals
Other payables
CONSOLIDATED
2013
€
2012
€
2,473,179
1,566,376
289,475
151,792
2,762,654
1,718,168
The Group’s exposure to currency and liquidity risks related to trade and other payables are disclosed
in note 22.
NOTE 17:
PROVISIONS
Current:
Employee leave entitlements
Non Current:
Restoration provision
Reconciliation of restoration provision:
Opening balance
Increase in provision due to revised estimates
Increase in provision from unwind of discount rate
Closing balance
56 | A n n u a l R e p o r t 2 0 1 3
138,392
113,825
3,988,825
3,608,421
3,608,421
217,117
163,287
2,747,922
676,388
184,111
3,988,825
3,608,421
Notes to the Financial Statements (Continued)
NOTE 17:
PROVISIONS (continued)
Provision has been made based on the net present value of the estimated cost of restoring the
environmental disturbances that have 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 Group’s interest-bearing loans and
borrowings, which are measured at amortised cost. For more information about the Group’s exposure
to interest rate, foreign currency and liquidity risk, see note 22.
Current liabilities
Finance facility
Non-current liabilities
Finance facility
CONSOLIDATED
2013
€
2012
€
-
3,984,896
2,933,176
-
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency Nominal
Interest
rate
Year of
Maturity
31 December 2013
Carrying
Face
Amount
Value
$
$
31 December 2012
Carrying
Face
Amount
Value
$
$
Euro
Euro
Euribor +
3.75%
Euribor +
1.80%%
2018
3,500,000 2,933,176
-
-
2013
-
- 4,000,000 3,984,896
Current
liabilities
Secured bank
loan
Secured bank
loan
The amount presented is disclosed net of borrowing costs of €566,824 (2012: €15,104).
The company has secured a new finance facility with Nedbank Group Ltd during the period.
The facility is a Senior Secured Revolving Reducing Borrowing Base Facility of €20 million and
matures on 3 May 2018; and is secured over the assets of Northsun Italia SpA and Po Valley
Operations Pty Ltd.
The facility became available on 16 May 2013 and the Company drew €5,000,000 of the facility in
order primarily to settle the facility previously held with Lloyds and pay transaction costs. The current
borrowing limit for the six months to 30 June 2014 is set to €5,434,000 as of 31 December 2013.
Interest is currently payable at Euribor plus 375 basis points. Principal repayments of €1,500,000
have been made during the year to December 2013 in regards to the Nedbank facility. €4,000,000
was repaid on the Lloyds facility. As at 31 December 2013, there is no contractual requirement to
make any principal repayment prior to maturity.
A n n u a l R e p o r t 2 0 1 3 | 57
Notes to the Financial Statements (Continued)
NOTE 19:
CAPITAL AND RESERVES
Share Capital
Opening balance - 1 January
Shares issued during the year:
Shares issued at €0.093 ($0.12) each on 7 March 2013
Shares issued at €0.095 ($0.12) each on 6 December 2012
Closing balance – 31 December
Ordinary Shares
2013
Number
2012
Number
118,564,063
111,147,396
3,850,000
-
-
7,416,667
122,414,063
118,564,063
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 (2012: Nil)
Translation Reserve
The translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations. The historical balance comprises of translation differences
prior to change in functional currency of a foreign operation.
Dividends
No dividends were paid or declared during the current year (2012: 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.
58 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 20:
SHARE BASED PAYMENTS (continued)
There are no voting or dividend rights attached to the options. Voting and dividend rights will only be
attached once an option is exercised into ordinary shares. The total number of shares which are the
subject of options issued under the EIOS immediately following an issue of options under the EIOS
must not exceed 5% of the then issued share capital of the Company on a diluted basis.
There are no options outstanding or exercisable at the end of the current or previous year.
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
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 operation sites have been aggregated.
In euro
Exploration
2013
€
2012
€
Development and
Production
2013
€
2012
€
Total
2013
€
2012
€
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
-
-
6,662,777
8,208,468
6,662,777
8,208,468
(74,895)
(45,951)
(1,969,566)
3,527,724
(2,044,461)
3,481,773
-
-
(2,325,656)
(3,455,620)
(2,325, 656)
(3,455,620)
(74,895)
(45,951)
(5,021,112)
-
(5,096,007)
(45,951)
10,060,661
7,272,641
9,811,589
14,744,969
19,872,250
22,017,610
-
-
-
-
-
-
3,529,067
5,581,184
3,529,067
5,581,184
1,356,160
1,170,575
1,356,160
1,170,575
634,694
701,187
634,694
701,187
2,518,277
299,433
488,792
367,668
3,007,069
667,101
344,638
260,149
(127,521)
416,238
217,117
676,387
(3,123,266)
(1,314,262)
(2,986,395)
(2,788,064)
(6,109,661)
(4,102,326)
A n n u a l R e p o r t 2 0 1 3 | 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:
2013
€
2012
€
Total profit / (loss) for reportable segments
(2,044,461)
3,481,773
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
(615,873)
(753,449)
(3,203,416)
(2,526,754)
(5,863,750)
201,570
25,392,171
29,470,556
5,289,190
6,249,507
30,681,361
35,720,063
(6,109,661)
(4,102,326)
(3,713,386)
(5,322,984)
(9,823,047)
(9,425,310)
All of the Group’s revenue is currently attributed to gas sales in Italy through an off-take agreement
with Shell Italia. For the current year, the Group’s two major customers contributed the entire revenue.
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
2013
€
2012
€
1,528,633
(2,933,176)
(1,404,543)
1,226,348
(3,984,896)
(2,758,548)
Variable rate instruments
Financial assets
Financial liabilities
60 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 22:
FINANCIAL INSTRUMENTS (continued)
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 2012.
Effect in €’s
31 December
Profit or loss
Equity
2013
2012
2013
2012
Variable rate instruments
(19,714)
(27,737)
-
-
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 Group has limited its credit risk in relation to its gas sales in that all sales transactions fall
under an off-take agreement with Shell Italia which expires in October 2014. Shell currently has
an option to extend the contract a second Gas Year from October 2014 to September 2015.
The Group has a concentration of credit risk exposure to its one customer (Shell Italia). Payment
terms are 35 days and the customer has an investment grade credit rating.
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.
Cash and cash equivalents
Receivables – Current
Receivables – Non-current
Other assets
Note
10
12
12
CONSOLIDATED
Carrying Amount
2013
€
1,528,633
2,675,764
-
27,716
2012
€
1,226,348
2,581,026
1,285,372
43,657
4,232,113
5,136,403
A n n u a l R e p o r t 2 0 1 3 | 61
Notes to the Financial Statements (Continued)
NOTE 22:
FINANCIAL INSTRUMENTS (continued)
(c)
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest
payments:
Consolidated
31 December 2013
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
(2,762,654)
(2,762,654)
(2,762,654)
-
-
-
(2,933,176)
(5,695,830)
(4,088,316)
(6,850,970)
(67,883)
(2,830,537)
(67,883)
(67,883)
(135,766)
(135,766)
(3,816,784)
(3,816,784)
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)
-
-
-
-
-
-
(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.
Amounts receivable/(payable) in foreign currency other than
functional currency:
Cash
Current – Payables
Net Exposure
CONSOLIDATED
2013
€
10,549
(19,341)
(8,792)
2012
€
352,903
(5,509)
347,394
62 | A n n u a l R e p o r t 2 0 1 3
Notes to the Financial Statements (Continued)
NOTE 22: FINANCIAL INSTRUMENTS (continued)
The following significant exchange rates applied during the year:
Australian Dollar ($)
Sensitivity Analysis
Average rate
2013
0.7293
2012
0.8055
Reporting date spot
rate
2013
0.6445
2012
0.7846
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 2012.
31 December 2013
Australian Dollar to Euro (€)
31 December 2012
Australian Dollar to Euro (€)
CONSOLIDATED
Profit or loss
€
375
Equity
€
-
33,927
-
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 2013.
NOTE 24:
RELATED PARTIES
KEY MANAGEMENT PERSONNEL COMPENSATION
The key management personnel compensation included in employee benefit expenses (see note 4) is
as follows:
Short-term employee benefits
Termination benefits
Other long term benefits
Post-employment benefits
Share-based payments
Consolidated
2013
€
526,569
51,552
-
8,106
-
586,227
2012
€
486,140
-
-
2,513
-
488,653
A n n u a l R e p o r t 2 0 1 3 | 63
Notes to the Financial Statements (Continued)
NOTE 24:
RELATED PARTIES (continued)
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. 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.
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
2012
Purchased
Share
based
payments
Options
Exercited
Sold /
Other (iii)
Held at
31 Dec
2013
Directors
G Bradley
M Masterman(i)
B Pirola (ii)
G Short
K Eley
G Catalano
Executives
S Edmonson
1,123,880
29,845,302
7,112,782
-
400,000
528,141
39,010,105
250,000
3,332,025
-
200,000
400,000
-
4,182,025
28,064
28,064
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,373,880
-
- 33,177,327
7,112,782
-
200,000
-
-
800,000
-
(528,141)
(528,141) 42,663,989
-
-
28,064
28,064
(i)
(ii)
(iii) At the date ceasing to be a KMP
Does not include shares held by related parties which amount to 1,040,000 shares
Included above are shares held by related parties
Equity holdings and transactions (continued)
Held at
31 Dec 2011
Purchased
Share
based
payments
Options
Exercised
Sold/Other
(iii)
Held at
31 Dec 2012
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)
-
-
-
-
(314,270)
(614,270)
1,123,880
29,845,302
7,112,782
-
400,000
528,141
-
39,010,105
-
-
28,064
28,064
(i)
(ii)
(iii)
(iv)
(v)
Does not include shares held by related parties which amount to 1,040,000 shares
Included above are shares held by related parties
At the date ceasing to be a KMP
Appointed as Managing Director on 19 June 2012
Appointed as Non-executive Director on 19 June 2012
64 | A n n u a l R e p o r t 2 0 1 3
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)
Beginning 1 October 2012 and ending in June 2013, the Company sold 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 sold 100% of its gas on the spot market via this entity until 30 June 2013 while
Italtrading executed a service agreement with the entity and provides logistics and
administrative support for the gas sales. As of 1 July 2013, Intrading is dormant.
The following transactions occurred with Intrading during the first 6 months of the year.
2013
2012
Gas Sales (€)
(excluding VAT)
Amount receivable at 31
December (€)
3,012,072
1,674,950
27,988
1,140,968
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
Other comprehensive loss
Total Comprehensive loss
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.
2013
€
2012
€
1,494,044
32,375,760
33,869,804
1,110,293
39,998,138
41,108,431
170,050
2,933,176
3,103,226
4,178,438
-
4,178,438
30,766,578
36,929,993
45,819,924
(15,053,346)
30,766,578
45,460,097
(8,530,104)
36,929,993
(6,523,242)
-
(6,523,242)
(6,063,313)
-
(6,063,313)
A n n u a l R e p o r t 2 0 1 3 | 65
Notes to the Financial Statements (Continued)
NOTE 26:
INTERESTS IN OTHER ENTITIES
Subsidiaries
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. Set out below is
a list of the significant subsidiaries of the Group:
Name:
Country of
Incorporation
Class of
Shares
2013
Investment
€
2012
Investment
€
Holding
%
Northsun Italia S.p.A (“NSI”)
Po Valley Operations Pty
Limited (“PVO”)
Italy
Ordinary
21,083,268
21,083,268
100
Australia
Ordinary
631,056
21,714,324
631,056
21,714,324
100
NOTE 27:
INTEREST IN JOINT ARRANGEMENTS
The Group’s interests in joint arrangements at 31 December 2013 is as follows
Joint Operation
Manager
Group’s Interest
Principal Activity
(Exploration)
La Prospera
Northsun Italian S.p.A
75% (2012: - )
Gas
The Group’s interest in assets employed in the above joint venture includes capitalised exploration phase
expenditure totalling €2,773,303 (2012: nil). These amounts are included under resource property costs (note
14).
NOTE 28:
SUBSEQUENT EVENT
There were no events between the end of the financial year and the date of this report that, in the
opinion of the Directors, affect significantly the operations of the Group, the results of those
operations, or the state of affairs of the Group.
66 | A n n u a l R e p o r t 2 0 1 3
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 30 to 66, 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 2013
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
2013.
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 18th day of March 2014.
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 3 | 67
68 | A n n u a l R e p o r t 2 0 1 3
A n n u a l R e p o r t 2 0 1 3 | 69
Shareholders Information 2013-2014
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 2014.
SHAREHOLDING
SUBSTANTIAL SHAREHOLDERS
Name
Michael Masterman
Hunter Hall Investment Management Pty Ltd
Beronia Investments Pty Ltd*
* Interestes associated with Non Executive Director Byron Pirola
DISTRIBUTION OF SHARES
Number of
Percentage of
Ordinary Shares Held
Capital Held %
33,177,327
21,365,804
7,112,782
27.10
17.45
5.81
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
181
198
116
318
95
908
347
51,118
590,674
936,838
10,870,574
109,964,859
122,414,063
481,792
0.04
0.48
0.77
8.88
89.83
100
0.39
VOTING RIGHTS OF SHARES AND OPTION
Refer to Note 19 and Note 20
ON-MARKET BUY-BACK
There is no current market buy-back
70 | A n n u a l R e p o r t 2 0 1 3
Shareholders Information 2013-2014
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
23,801,195
19.44
3 Mr Michael George Masterman
4
Joan Masterman
5 Mr Laurie Mark Macri
6 Greenvale Asia Limited
7 Kevin Bailey Corporation Pty Ltd
6,654,758
4,788,444
5.44
3.91
4,000,000
3.27
2,938,977
2,890,000
2.40
2.36
8 Beronia Investments Pty Ltd
2,776,202
2.27
9 Symmall Pty Ltd
10 Beronia FS Pty Ltd
2,358,937
1,680,000
1.93
1.37
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
1,400,000
1.14
14 Tucabia Investments Pty Ltd
15 Tangar Boring & Excavations Pty Ltd
19 Equitas Nominee Pty Ltd
873,880
0.71
20 Mr Stephen Lloyd Jones
850,000
0.69
89,065,124
72.76%
A n n u a l R e p o r t 2 0 1 3 | 71
Technical Summary
In December 2013 the ASX introduced new reporting requirements for oil and gas activities through
amendments to Chapter 5 of the Listing Rules. The new reporting requirements include general
requirements applicable to the public reporting of petroleum resources and also require specific
information to be included in the oil and gas exploration entity’s Annual Report. The following
information is provided in order to comply with Chapter 5 of the Listing Rules:
1) TENEMENTS
The Company’s operations are located entirely in the north of Italy, in the Lombardy and Emilia
Romagna regions. The Company’s core portfolio includes a total of 15 onshore assets and 1 offshore
license. Total acreage position of the Company is circa 2,000 km2. For an illustration of each asset’s
location please refer to the map and table below. As at 31 December 2013 all tenements are 100%
owned with exception of Cadelbosco (85%), La Prospera (75%) and Zanza (75%).
Zanza can be considered the possible extension towards the south of the same play discovered in
Gradizza. For this reason the Company and its joint ventures partners Petrorep Italiana Spa and
AleAnna Resources LLC have submitted a new exploration licence application in the same equity
percentages as La Prospera. (Po Valley holding 75%, Petrorep Italiana Spa 15% and AleAnna
Resources LLC 10%). Po Valley and its partners are waiting for notification from the Ministry as to
whether any topfile was submitted during the competition period, which expired at the end of March
2014. The Farmin agreement for La Prospera was completed in May 2013 with AleAnna Resources
LLC and Petrorep Italiana Spa for disproportionate funding by the new partners for the drilling cost of
the Gradizza-1 well, leaving the Company with 75% equity in La Prospera licence post promote;
Petrorep at 15% and AleAnna at 10%. Additionally in 1Q 2014 the Company submitted the application
for the Gradizza production concession (Po Valley holding 75%, Petrorep Italiana Spa 15% and
AleAnna Resources LLC 10%). The Farmin Agreement for Cadelbosco was completed in June 2012
with Petrorep Italiana Spa for its 15% interest; Petrorep committed to a promoted share of future
drilling expenditures and reimbursement on past costs.
72 | A n n u a l R e p o r t 2 0 1 3
Technical Summary
TENEMENT
LOCATION
INTEREST HELD
FOR 2013*
I
S
N
O
S
S
E
C
N
O
C
.
D
O
R
P
GRANTED
Sillaro
(derived from Crocetta Expl. Licence)
Italy, Emilia Romagna,
Bologna
Cascina Castello
(derived from C.S. Pietro Expl. Licence)
Italy, Lombardia
Cremona
PREL.
AWARDED
Cascina Castello extension
(derived from C.S. Pietro Expl. Licence)
Italy, Lombardia
Lodi
IN
APPLICATION
Sant'Alberto
(derived from San Vincenzo Expl. Licence)
Italy, Emilia Romagna,
Bologna
Gradizza**
(derived from La Prospera Expl. Licence)
Italy, Emilia Romagna,
Ferrara
AR94PY
Cadelbosco di Sopra
Grattasasso
Podere Gallina
La Prospera
Opera
Crocetta
Cascina San Pietro
Tozzona
Italy, Adriatic Offshore
Italy, Emilia Romagna
Italy, Emilia Romagna
Italy, Emilia Romagna
Italy, Emilia Romagna
Italy, Lombardia
Italy, Emilia Romagna
Italy, Lombardia
Italy, Emilia Romagna
La Risorta
Torre del Moro
Italy, Emilia Romagna &
Veneto
Italy, Emilia Romagna.
I
S
T
M
R
E
P
N
O
T
A
R
O
L
P
X
E
I
GRANTED
PREL.
AWARDED
IN
APPLICATION
100%
100%
100%
100%
75%
100%
85%
100%
100%
75%
100%
100%
100%
100%
100%
100%
Zanza
Italy, Emilia Romagna
75%
*And up to the date of this report
**Applied for Production Concession in February 2014
2) RESERVES & RESOURCES
The following table summarises the status of the Company’s Reserves & Resources as at
31 December 2013. The Contingent Resource assessment, prepared internally, following the drilling of
Gradizza-1 was finalised and released to the market in February 2014.
With the exception of Gradizza and Vitalba, these figures were independently evaluated by the
geological and petroleum reservoir consultancy UK firm Robertson CGG during 2013 and are based
upon independent evaluations in accordance with SPE/WPC/AAPG/SPEE Petroleum Resource
Management System. The Contingent Resource assessment for the Gradizza-1 well (drilled in August
2013) reported in the Annual Report was internally evaluated under the supervision of the qualified
petroleum reserves and resources evaluator, Mr. Greg Short.
A n n u a l R e p o r t 2 0 1 3 | 73
Technical Summary
Licence
Project
Reserves
1P
4.7
0.7
2P
5.4
1.5
Sillaro
Cascina
Castello
Cascina
Sillaro
Vitalba
West Vitalba
Quaternary
West Vitalba
Pliocene
Contingent Resources
Gas, BCF
3P
1C
2C
3C
1.7
Castello ext
Bezzecca
3.0
4.2
5.8
Sant’Alberto
Santa Maddalena
Gradizza
Gradizza [Net]
AR94PY
Teodorico
PL3-C
Crocetta
Fantuzza
Zini (Qu-B) [Net]
Cadelbosco
Canolo (Qu-A) [Net]
di Sopra
Canolo (Plioc) [Net]
Zini(Qu-A) [Net]
1.8
1.2
2.1
2.7
2.8
6.6
34.6
47.3
62.2
1.8
0.9
0.6
0.3
5.7
2.3
0.9
3.1
8.3
3.9
1.4
8.9
Selva Strat. (Podere Maiar-1)
11.4
17.0
23.0
Podere
Gallina
La Prospera
Cembalina
Fondo Perino
East Selva
Pioppette [Net]
Capitello [Net]
Ariano
La Risorta
Corcrevà
D. delle Anime
Barona Lead
Opera Lead
Opera
T. del Moro
Tozzona
Licence
Project
Cadelbosco
Bagnolo in Piano
Grattasasso Ravizza
Contingent Resources
Oil, MMbbls
1C
3.7
2.2
2C
4.3
5.7
3C
5.1
10.7
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
1.2
3.3
14.6
34.8
9.5
7.0
16.6
8.8
18.3
4.7
20.5
40.6
15.6
10.8
24.7
11.3
24.4
5.0
7.3
47.0
73.0
2.1
10.2
29.1
5.3
4.1
10.6
7.0
13.8
3.3
29.0
UNDER REVIEW
UNDER REVIEW
Qualified Petroleum Reserves and Resources Evaluator:
Statements in this Annual Report regarding estimates of petroleum Reserves and Contingent and Prospective
Resources and the Reserves statement are based on and fairly represent information and supporting
documentation prepared under the supervision of Mr Gregory Short, a non-executive director of Po Valley Energy
Limited. Mr Short is a geologist with over 40 years of oil and gas industry experience and a member of AAPG.
Mr Short has approved the Reserves statement as a whole and has consented to: (a) the inclusion of the
estimated petroleum Reserves and Contingent and Prospective Resources and supporting information in this
Annual Report in the form and context in which they are presented; and (b) the inclusion of the Reserves
statement in this Annual Report in the form and context in which it appears.
74 | A n n u a l R e p o r t 2 0 1 3
Technical Summary
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 that may potentially be recovered
by the application of a future development project(s) relate to undiscovered accumulations. These
estimates have both an associated risk of discovery and a risk of development. Further exploration
appraisal and evaluation is required to determine the existence of a significant quantity of potentially
moveable hydrocarbons.
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.
Company Reserves
Gas, Italy (bcf)
Developed
(Sillaro+Vitalba)
Undeveloped
(Bezzecca)
Total Reserves
Reserves as at
31 December 2013
2P
1P
Reserves as at
31 December 2012
2P
1P
5.4
3.0
8.4
6.9
4.2
11.1
6.6
0.7
7.3
8.1
4.2
12.3
The variation in developed Reserves (1P and 2P) and total Reserves (2P) reflects production from the
fields (Sillaro 0.74 bcf and Vitalba 0.11 bcf) achieved during 2013. The increase in the Company’s 1P
total Reserves is due to the increase in 1P undeveloped Reserves related to Bezzecca resulting from
a revised view on the 1P/2P split documented in the latest Robertson CGG Competent Persons
Report (updated 31 December 2013).
The reference point for gas flow from Vitalba & Sillaro is measured through a turbine, located on the
wells site, using non standard cubic metres. The figure is standardised using a Fiorentini Fiomec
A n n u a l R e p o r t 2 0 1 3 | 75
Technical Summary
Calculator (FFC) which is a conversion consisting of gas temperature and pressure with gas quality
parameters. The outcome of this conversion is the actual gas volume in standard cubic meters
injected in the SNAM gridline. (SNAM is an Italian natural gas infrastructure company and manages
the national gas transportation network). The SNAM entry points for Sillaro & Vitalba are located 200
metres and 50 metres respectively from site perimeters. The FFC prints a production report which is
authenticated by the Ministry of Economic Development and this official data is then accepted by
SNAM, our customers and the Taxation Authority.
The Company does not have unconventional petroleum Resources in its portfolio.
The Company does not have any material concentration of undeveloped Reserves in Oil&Gas projects
that remained undeveloped for more than 5 years from the date they were initially reported.
In regards to the future development of the undeveloped Reserves the Company states that Bezzecca
Reserves have been classified undeveloped under the SPE-PRMS definition as they are expected to
be recovered through future investments. Immediately upon the award of the production concession,
the Company will commence the installation of the infrastructure to bring the Bezzecca gas field into
production, including a 7km pipeline.
As regards the Reserves & Resources estimation process, the Company commits to a regular
independent audit in order to obtain a certified update of its Reserves & Resources portfolio. The
latest review took place in December 2013 for Sillaro, Bezzecca and Sant’Alberto. For the remaining
projects, with the exception of Gradizza, the last review was carried out in April 2013, the results of
which were already included in the 2012 Annual Report released at the end of the same month.
Company Contingent Resources
Contingent Resources as at 31
December 2013*
Contingent Resources as at
31 December 2012
1C
52.7
5.9
2C
81.1
10.0
1C
51.8
5.9
2C
79.5
10.0
Gas (bcf)
Oil (MMbbls)
*The Contingent Resources calculated above include the new Contingent Resource estimation for Gradizza,
which was assessed internally and released to the market in February 2014.
The slight increase in Contingent Resources, both 1C and 2C, resulted from the drilling of the
exploration well Gradizza-1 in August 2013 in the La Prospera Licence.
Contingent Resources related to Gradizza disclosed in the Company’s Annual Report 2012 were
classified as Prospective as the undiscovered accumulation of moveable hydrocarbons had not yet
been penetrated by a well. The fact that the discovered reservoir has been penetrated by a well
(drilled in August 2013), which clearly demonstrated the existence of moveable hydrocarbons in that
reservoir by flow to surface, constitutes a reclassification of estimated recoverable quantities as
Contingent Resources.
Subsequent to drilling Gradizza-1 and the related log and production test results, Prospective
Resources can now be reclassified as Contingent Resources.
All figures have been determined using a probabilistic method except Sillaro, Vitalba, Bezzecca, Santa
Maddalena and Fantuzza, which were determined using a deterministic method.
76 | A n n u a l R e p o r t 2 0 1 3
cover e indice Po Valley_copertina +dorso 5mm 15/04/14 18.02 Pagina 2
1
2
4
6
Highlights
Chairman’s Letter to Shareholders
Acting Chief Executive Officer’s Report
Corporate Governance Statement
12
Directors’ Report
29
Lead Auditor’s Independence Declaration
30
Statement of Financial Position
31
Statement of Comprehensive Income
32
Statement of Changes in Equity
33
Statements of Cash Flow
34
Notes to the Financial Statements
67
Directors’ Declaration
68
Independent Auditor’s Report
70
Shareholder Information 2013-2014
72
Technical Summary
Corporate Directory
Directors
Graham Bradley, Chairman
Michael Masterman, Non Executive Director
Byron Pirola, Non Executive Director
Gregory Short, Non Executive Director
Kevin Eley, Non Executive Director
Acting Chief Executive Officer
Sara Edmonson
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
Share Registry
Link Market Services Limited
178 St George’s Tce
Perth, WA Australia 6000
Tel: +61 8 92116679
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
Nedbank Limited
Old Mutual Place
2 Lambeth Hill
London, Uk, EC4V 4GG
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.
cover e indice Po Valley_copertina +dorso 5mm 15/04/14 16.14 Pagina 1
Po Valley energy limited
aBn 33 087 741 571
registered office
level 28, 140 St. georges terrace
Perth Wa 6000
tel: (08) 9278 2533
3
1
0
2
t
r
o
P
e
r
l
a
u
n
n
a
-
d
e
t
i
m
i
l
y
g
r
e
n
e
y
e
l
l
a
V
o
P
2013 ANNUAL REPORT